Venator Materials PLC (VNTR) Q1 2019 Earnings Call Transcript

Venator Materials PLC (VNTR -36.21%)
Q1 2019 Earnings Call
May. 09, 2019, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day. And welcome to the Venator first-quarter earnings conference call. [Operator instructions]. I would now like to turn the conference over to Jeffrey Schnell, director, investor relations.

Please, go ahead.

Jeffrey Schnell -- Director, Investor Relations

Thank you, Andrew. Good morning, everyone. I'm Jeffrey Schnell, director of investor relations for Venator Materials. Welcome to Venator's first-quarter 2019 earnings call.

Joining us on the call today are; Simon Turner, president and CEO; and Kurt Ogden, executive vice president and CFO. This morning, we released our earnings for the first-quarter 2019 via press release, and posted the release and accompanying slides to our website at venatorcorp.com.During this call, we may make statements about our projections or expectations for the future. All such statements are forward looking, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations.We do not plan on publicly updating or revising any forward-looking statements during the quarter.

We will also refer to non-GAAP measures such as EBITDA, adjusted EBITDA, adjusted net income, free cash flow, and net debt. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website.It's now my pleasure to turn the call over to Simon Turner, president and CEO of Venator.

Simon Turner -- President and Chief Executive Officer

Thanks, Jeff. And good morning, everyone. It's my pleasure to welcome you to our earnings call. Let's begin on Slide 3. The global economic and TiO2 industry environment in the first-quarter of 2019 was challenging, characterized by stable demand in North America, modest growth in Europe, and weakness in Asia, mostly due to weakness in China.

Notwithstanding these challenges, Venator delivered $60 million of adjusted EBITDA, a $15 million gain versus the prior quarter. As higher TiO2 volumes and improved operational performance, offset a convergence of average TiO2 selling prices, and tough year-over-year comparisons in our Performance Additive segment.Turning to Slide 4, and on Titanium Dioxide segment. In the first quarter, Titanium Dioxide segment generated $61 million of adjusted EBITDA, compared to $125 million in the first quarter of 2018, after excluding the loss EBITDA from Pori, Finland facility, which was reimbursed through insurance proceeds.Excluding foreign currency, average selling price declined 6%, compared to the prior year, and declined 3% compared to the fourth quarter of 201, in line with our expectations. Pricing for functional TiO2 products was most impacted in Europe, which was the highest price region in the prior-year period, as average selling prices converge the lower and more stable North American region.

Asia prices also moved lower, driven by lower demand in China. We continue to see a higher and more stable pricing dynamics for our specialty TiO2 products compared, to functional TiO2  products. Titanium Dioxide volumes increased 3%, compared to the prior-year period, in line with our expectations and driven primarily by advanced purchases of pigments ahead of a potential hard Brexit. Increased availability of high value specialty TiO2  products, and the introduction of new differentiated products.Specialty volumes grew 11% year over year, underscoring our commitment to transferring production from Pori to other sites.

And on network, strengthening our leadership position in these higher value applications. By region, we saw clear differences in demand. In Europe, which is our largest market, modest growth was augmented by the impact of Brexit and higher sales of specialty TiO2. In North America where we saw mainly smaller customers and into non-slurry applications.

Demand appears to be stable, and in the large but fragile fragmented Asian market. Demand remains sluggish mostly due to weakness in China. We are encouraged by our order book and conversations with customers supports our view that the impact of customer destocking which began in the third quarter of 2018 has largely run its course. As we look into the second half of 2019, we expect TiO2 volumes to better reflect historical seasonal patterns. In the first quarter, we incurred higher variable cost inflation, including raw material and energy costs which were partially offset by a $2 two million benefit from our Business Improvement Program.

We envisage these inflationary pressures will continue in 2019, particularly for high grade roots silence flags, and we are taking action to mitigate these costs.Turning to the TiO2 outlook. In the near term, performance will be influenced by regional dynamics, and be characterized by price and volume stability in North America, modest demand and largely stable pricing in Europe, and stable price and weak demand in Asia. We expect to benefit from higher production of our specialty TiO2 products and efficiency actions as part of our business improvement program, which partially offset raw material cost inflation; notwithstanding an apparent soft economic backdrop in 2019, longer-term TiO2 industry fundamentals remain favorable. We continue to implement measures with our customers to reduce our price and margin volatility, included tailored custom agreements, inventory controls, and production plans that align with our customer commitments.Turning to Slide 5, and performance additives.

Revenues declined 17%, compared to the prior-year period, driven primarily by 14% decline in volumes, a 2% decline in average selling prices, and a 2% headwind from foreign currency. Sales volumes decline broadly across all businesses compared to a strong prior-year quarter.Color pigments volumes were impacted by prior-plant closures as part of our 2017 Business Improvement Program, and softer demand in construction related applications due in part to adverse weather conditions in North America that have delayed the season. We expect to recover some, but not all this volume in the second and third quarters. Pricing was flat on a local currency basis after excluding the prior restructuring actions.

In timber treatment, volumes were down compared to the prior year due to lower sales to a large customer, as a result of a tender in the third quarter of 2018. Pricing in timber treatment was roughly flat, compared to the prior-year period. In functional additives, we saw a continuation of lower demand in auto and electronics related applications, which began in the fourth quarter of 2018. Pricing decline low single digits, due to adverse mix within the functional additives business. The performance additive segment generated $15 million of adjusted EBITDA in the quarter, down from $24 million in the prior-year quarter, but a sequential improvement of $2 million. A year-over-year decline in EBITDA is primarily attributable to low volumes in all businesses due to the aforementioned headwinds.

Lower direct and indirect costs due to our business improvement programs partially offset these items.We have taken significant steps to streamline our cost structure in the the performance additive segments, yet the transformation is still ongoing. Notwithstanding these challenges, we continue to expect performance additives EBITDA in 2019, will exceed that of 2018.Moving on to Slide 6 in our Business Improvement Programs. We are intensely focused on strengthening our business and improving our cash flow. We commenced our 2019 Business Improvement Program in the fourth quarter of 2018.

This program is designed to generate $40 million of EBITDA improvements, building on the $60 million, we delivered as part of the prior program. We intend to complete all the actions necessary to deliver our target by the end of 2020, ending in the year at the full run rate level. We captured an additional $3 million of EBITDA benefit from our 2019 Business Improvement Program in the first quarter. We expect to continue to build on and report the benefits from this program and the subsequent quarter's.

I will now pass the call over to Kurt, to discuss our financials.

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Thanks, Simon. Let's go ahead and turn to Slide No. 7. Total adjusted EBITDA declined $72 million, compared to the prior-year period after excluding the impact of Pori, and the carbon credits we sold in the first quarter of 2018.

The majority of the decline is attributable to lower selling prices in our titanium dioxide segment. Higher TiO2 volumes were more than offset by lower sales volumes in our performance additive segment. Additionally, our Business Improvement Program partially offset, expected raw material cost pressures, and foreign currency. Compared to the prior quarter, total adjusted EBITDA, increased $15 million, higher sales volumes in both titanium dioxide and performance additives, we're the largest contributor to the improvement. Average TiO2 selling prices were down approximately 3%, compared to the fourth quarter of 2018, and the aggregate average price in performance additives was flat.

Contribution from our Business Improvement Program partially offset raw material cost pressures, and foreign currency.Turning to Slide 8. Venator continues to have an attractive financial position. At the end of the first quarter, we had liquidity of $344 million. Our cash balance was $80 million, and the undrawn availability under our asset based revolving lending facility was $264 million.

Venator ended the quarter with net debt of $666 million, translating into an attractive net debt leverage of only two times our trailing 12 months EBITDA. Structurally, we continue to enjoy relatively low tax rates, this is primarily a function of the countries where income is generated. The $1.1 billion in net operating losses from which we benefit and tax valuation allowances. Our quarterly effective tax rate will be higher in the near term and vary from quarter to quarter, due to the mix of income earned in the valuation allowance countries.

However, we continue to forecast our long term adjusted effective tax rate will be between 15% to 20% with a near-term cash tax rate of 10% to 15%.Turning to Slide 9, and our cash bridge. Total free cash flow used in the first quarter was $82 million. This was significantly impacted by a typical seasonal working capital use, and the timing of quarry related expenses, both of which were in line with our expectations. Our outlook for 2019 uses of cash remains unchanged and is as follows: we expect total CapEx of $130 million, which includes capital expenditures related to the specialty technology transfer; cash interest is expected to be $40 million to $45 million; and cash taxes are expected to be within our long term range of 10% to 15%.

Restructuring expenses are expected to be approximately $30 million to $35 million, which includes approximately $15 million of cash restructuring for our 2019 Business Improvement Program.We expect cash pension and other expenses in 2019 to be $60 million to $70 million. Working capital was a use of approximately $48 million in the first quarter of 2019, this was expected due to normal seasonality in TiO2. Actions we are taking are designed to deliver a $60 million reduction in working capital compared to 2018, and will be weighted significantly to the second half of the year.That being said, the closing of the European Laminate business, which occurred on April 26 of this year will provide for an additional use of working capital, as we initially build inventories. We expect the impact to be $5 million to $10 million in 2019, which we will try to offset.

Finally, our Pori related expenses are expected to be a total of $65 million to $70 million, including approximately $45 million of project wind down and closure costs, as well as $20 million to$25 million of other operational costs. We are pursuing additional measures to further reduce these costs.With that, I'll turn it back over to Simon, for concluding remarks.

Simon Turner -- President and Chief Executive Officer

Before moving to the final slide, I'd like to provide an update on our acquisition of the European Paper Laminates business on the break fee resulting from our exclusivity agreement with Tronox regarding Ashtabula. On April 26, we completed the acquisition of the European Paper Laminates business from Tronox for total consideration of 8 million euros, 1 million euros paid up front, and the remaining split evenly on the first and second anniversary dates respectively. With the closing of the laminates transaction, a break fee of $75 million is now due and payable from Tronox in full under the exclusivity agreement, no late to the May 13, 2019. Venator at all times acted in good faith during his efforts to reach a definitive agreement to purchase the Ashtabula site, and will seek judicial relief to compel Tronox to comply with its obligations to pay the great fee if necessary.

We will not be commenting further at this time and appreciate your understanding in the matter. Moving to Slide 10. The first quarter of 2019 was challenging, characterized by stable demand in North America, modest growth in Europe, and weakness in Asia. We continue to implement tailored measures with our customers that limit our price and margin volatility, and to operate our assets a corresponding utilization rates that deliver those committed volumes, with the ability to increase our production when market conditions warrant. Customer destocking and TiO2 which significantly impacted the second half of 2018 is largely complete, and we expect to return to more normal seasonal patterns in the second half of 2018.Our Specialty TiO2 business is performing very well, with increased volumes and higher and more stable pricing dynamics and our functional TiO2 products.

The performance of our Specialty TiO2 in the first quarter and throughout the second half of 2018, underscores our strategic priority and commitment to this business, and we are advancing with the transfer of technology and the preparation for the intended closure of the Pori facility. These actions will strengthen Venator's leading position in high value Specialty TiO2 applications. We have made good progress in our Business Improvement Program designed to further strengthen our cost structure, reduce working capital, and pursue a range of measures that all improve our cash flow generation. We expect to continue to deliver on our targets in the coming quarters.We are encouraged by the medium and long-term industry fundamentals across our portfolio. The range of measures we are implementing now will better position Venator to execute on its targets, and deliver shareholder value. With that, we thank you for your continued interest in Venator.

We'd now like to open the call for questions.

Questions & Answers:

Operator

We will now begin the Q&A.[Operator instructions]. The first question comes from PJ Juvekar of Citi. Please go ahead.

PJ Juvekar -- Citi -- Analyst

Hi. Good morning. This is Eric Petrie for PJ. I wanted to ask, you said that you're taking actions to reduce inflationary costs of energy in raw materials.

Now could you remind us how much chloride or purchases you make following the Pori volume transition. And are you looking to do a J.V. in a mine, or are you extending your purchases of longer-term contracts. Or could you give us a sense of those actions.

Simon Turner -- President and Chief Executive Officer

I think we've run through a number of times before our mix of ores. Simon here. Clearly, we buy less high grade chloride feedstock, chloride slag, and routes out than our competitors. And the majority of the material out sulfide ilminite, and sulfate to slag.

As regards your questions around our plans, at this time we don't have any plans to currently integrate into the mining operation. We've said for sometime that we have a very wide and broad slate of feedstock types. We have a very broad range of suppliers and we have a lot of shorter-term contracts in the sulfate feedstock purchasing area. It's in our interest to continue to get the best possible pricing in those areas, which we think continues to show up on our results relative to some others.

As regarding change contracts, what I would say to is that, we've obviously very alert to dynamics in this market. Clearly there has been for a little while a situation where a high grade core event shows a little bit tighter than some of the sulfate materials. But at this time, we continue to see typical contract lengths and negotiations around price, around the six month level and that's that's been something that's been in the making for sometime.

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Eric, just to give you a little bit more detail for it for your modeling. As it relates to the tonnage that we purchase and consume, it's approximately 750 kilotons that 800 kilotons annually that we purchase and or consume. Now keep in mind that nearly half of that is ilminite, which has only about a 50% TiO2 content. And so the actual or consumption or purchase from a volumetric standpoint, looks like looks pretty high.

I would also add to that, as we have indicated in the past, we see a broadset of inflationary pressure on our feedstocks. We think that's in the range of 35 million to 40 million, 2019 over 2018.

PJ Juvekar -- Citi -- Analyst

And then it seems like your major-end markets for TiO2  are stabilizing or you're seeing modest improvement. So I wanted to ask first, are you expecting or restocking in the chain in the second half. And secondly, what are your thoughts on restoring Pori's functional TiO2 capacity.

Simon Turner -- President and Chief Executive Officer

Yes, I think in a nutshell we position ourselves as cautiously optimistic about the second half of the year. Clearly, we saw that large destock in the second half of 18. As it relates to Pori, at this time we've not altered our stance around focusing on the transfer of specialty products from Pori, and have no current plan to do anything different on our functional products.

Operator

The next question comes from David Begleiter of Deutsche Bank. Please go ahead.

David Begleiter -- Deutsche Bank -- Analyst

Good morning. Simon,you guys did have a price increase in North America with the implementation of May 1st. Is it fair to say that the increase was not successful. And that's my first question.

Simon Turner -- President and Chief Executive Officer

I think that in response you're quite correct. I'd remind you I guess, that we are one of the smaller producers in North America, the smallest since end of production facility. We had hoped with what we see as a pretty stable demand in North America, so to push for price. And we will only be have some partial success in that regard, and potentially later in the quarter.

I think it's the way I would respond to that.

David Begleiter -- Deutsche Bank -- Analyst

Very good. And just in Europe if you can share due to their lack of Chinese imports or some of your competitors perhaps, being a little more aggressive on their contract stance.

Simon Turner -- President and Chief Executive Officer

Sorry. Could you clarify the second part of the question. I'm not sure if I understand the first half but the second half...

David Begleiter -- Deutsche Bank -- Analyst

What are your competitors because of their contract stance they put in place here have given up some share in Europe perhaps, broadening thinking you've gained any share you did due to lack of Chinese imports or from more new competitors who've been a little more strict on their contract implementation.Yeah I mean look I think that is clearly there's some quite divergent and different data points out there among a range of produce.

Simon Turner -- President and Chief Executive Officer

I mean look I think that is clearly there's some quite divergent and different data points out there among a range of produce. I think, what we say about this situation is the following. We have a very different market position to the other large scale producers, and certainly the large scale chloride volumetric producers. And in many ways, we're the least like from the other producers.

For example, we're more specialized, we've got a broader application mix, we're much lower exposed to large decorative coatings. We have no exposure to automotive coatings where clearly there's been some real headwinds. And we have a very limited presence in China. So I think that if you look at Venator of its market position and its geographic footprint, a couple of comments I would call out, our specialty volumes are up by 11% year on year.

So clearly that is something we're pleased about. We continue to focus on a higher and more stable prices. If you think about our position in North America and Asia, we're generally pretty small in North America. We sell to small customers we're not in slurry, and we pretty much sold out.

So there's no question that we would not be able to even if we wanted to gain share in North America. You can take that comment in Asia as well of our T.K. plant in Malaysia supplemented by specialty volumes, it's a highly fragmented market. We've seen Chinese producers agitate for full price there despite the fairly weak situation.

So we just really leads Europe. And so if you look at the math around some of these share loss numbers that are out there with the various participants, it's true we saw a bit of pulled forward Brexit effect in Europe in the first quarter, which would pull forward demand probably from 2-Q into 1-Q. And we did have some new product introductions that have been very well-received the more Specialty sales. And the way we would see it is while it's pretty hard to disentangle quantifying each of these drivers, the feedback from customers is destocking is largely at an end.

Our sales were in line with expectation, pro forma for Brexit were pretty flat year on year. So if we gained any share in Europe, really we're talking about a couple of thousand tonnes. And those frankly is a very small number compared to the kind of numbers that you'd have to look at to account for some of these deltas of the other players. So, what I would further add to this is to shore up our position I've just articulated to you is that, we are running our assets of mid-to-high 80%.

We have not flattened our inventory. We've got normal slightly high probably inventory going into the second quarter, and we are focusing on matching our production to the commitments we've made to our customers in a focused and rational way.

David Begleiter -- Deutsche Bank -- Analyst

Very helpful. Thank you very much.

Operator

The next question comes from John McNulty of BMO Capital Markets. Please go ahead.

John McNulty -- BMO Capital Markets -- Analyst

Good morning. Thanks for taking my question. So with regard to the to the rising raw material costs and I guess the market being in better shape, do you do you see a need for increased pricing of looking to the back half of next year and to 2020.

Simon Turner -- President and Chief Executive Officer

You mean the back half of this year.

John McNulty -- BMO Capital Markets -- Analyst

Yes. Back half of this year and then looking to 2020 as well to basically to offset some of those raw material and energy cost escalations that you're highlighting.

Simon Turner -- President and Chief Executive Officer

Yes, certainly. I mean we would see that there is scope for us to improve margins in a focused and responsible way. We've got these headwinds we are partially offsetting some of these headwinds. But we have to get through this recovery period from the destock last year through the first half of this year.

And as I said, we believe mid-term that a fundamentals and that would involve higher price points.

John McNulty -- BMO Capital Markets -- Analyst

Got it. And then when you think about the the the deviation between your specialty pricing and the more generic pricing I guess, was specialty pricing up in the quarter, or was it flat or was it just off a couple percent. I guess how we should we think about that compared to the down 6% for the total business.

Simon Turner -- President and Chief Executive Officer

There was a slightly sequentially, but the way we think about, it is largely flat, because we set out for stability in those markets. Typically, those prices--because they're elevated against the functional peers. We have for sometime been--we have contracts in place that run longer, and there's less movement quarter on quarter, which is the situation we desire.

John McNulty -- BMO Capital Markets -- Analyst

And then just the last question, just regarding Asia. I think in your commentary, you would indicated, you expected price stability and weak volumes or weak demand. I guess how are you thinking about how that weak demand has an impact on the overall pricing. And I guess my concern would be, do we see any risk of some of those volumes making their way Europe the way they have in the past when there was a big disconnect between Asian pricing and in European pricing.

How should we be thinking about that.

Simon Turner -- President and Chief Executive Officer

Well the way obviously, to come tell you how I should think about having to color how we would see it. We saw this 25% destock in the second half of last year. And as would be typical way, we've got weak demand particularly in Europe and Asia, we see price convergence. And you'll recall a year ago, European dollar prices were significantly higher than U.S.

prices, and that accounts for most of the mix difference in our price down on a year-on-year basis, because you get that convergence. Now as we look into 2-Q, we are looking at a far more stable situation across the piece in terms of pricing. And the way we see this is that, we've been calling out for some time the rationality of Chinese producers even in a weak demand Asian environment have been pretty disciplined in putting in price increases, putting a floor under any market falls even in weak conditions, and being responsible about how much they're shipping out of China into Europe and North America. We see in the first quarter of 2019 meaningful declines in export out of China into both North America and into Europe.

And to us that is continued evidence of rational behavior by Chinese producers. So I'm not saying there's not a risk, but what I'm saying to you is that more and more evidence of rationality. And I believe that the pricing levels to where we are at in Venator in the second quarter are higher than we would have seen in previous cycles, due to rational actions that we take things. I guess the Chinese are as well.

John McNulty -- BMO Capital Markets -- Analyst

Great. Thanks very much for the color.

Operator

The next question comes from Alexei Yegorov of Nomura Instinet. Please go ahead.

Alexei Yegorov -- Nomura Instinet -- Analyst

Morning. This is Matt Korenoski for Alexei. You mentioned that customers were accelerating purchases ahead of Brexit in the first quarter. Do you expect this pull forward a demand to have a meaningful impact on their volumesin 2-Q.

Simon Turner -- President and Chief Executive Officer

I do think it will have some impact in 2-Q in Europe here. It has been a bit of a pull forward. The way to think about it is probably the dominant component of our volumetric year-on-year difference. It doesn't account for all.

it's relatively small. But it will be pulled forward out of 2-Q. And so while we would say to you that you could expect in Europe, a seasonal uplift in volumes over 1Q. It may not be quite to the level we'd historically seen or would wish.

That's the way I'd characterize.

Alexei Yegorov -- Nomura Instinet -- Analyst

thank you for that. And then, Kurt my follow up. Can you quantify the bridge between 1Q and 2Q with respect to price volume, raw materials and other.

Kurt Ogden -- Executive Vice President and Chief Financial Officer

If I did that, I'd be given pretty specific guidance on the second quarter. So I will tell you that--generally speaking as we think about the buckets into the second quarter, we expect some volume uplift on a sequential basis, that will lift our EBITDA. Price for the most part is going to be flattish for TiO2. And for performance, we may continue to see some pricing headwinds in the Additives business, corporate and other is going to be pretty flat.

And then on board, some inflationary pressure in cost of goods sold as we consume some of these higher priced raw materials and other feedstocks. So I don't know that that gives you a lot of clarity other than to at least give you just directional how those buckets are shaping up.

Alexei Yegorov -- Nomura Instinet -- Analyst

That's helpful. Thank you.

Operator

The next question comes from Duffy Fischer, Barclays. Please go ahead.

Duffy Fischer -- Barclays -- Analyst

Good morning, guys. I was wondering if you could just help me break out a little bit on TiO2 on the price with more specialty. The mix effect should have been I would think quite positive in that. So something in there was down quite a lot to get down 6% if you're up 11% volume on specialty.

You said price for specialty was flat, that looks like it means the functional pricing was down mid-teens or something along those lines. Could you break out how those numbers fit together.

Simon Turner -- President and Chief Executive Officer

We don't break down the difference in the volumes on the prices. Nothing of what I will say is that the types of numbers you quoted there is not of that scale because the specialty is relatively small. It depends what you include in your current weighted mix, but it's relatively small.

Duffy Fischer -- Barclays -- Analyst

OK. Because optically when you look at the numbers I mean what the numbers look like is you cut price to run for volume, and when you look what you're a big competitor did on volume what it looks like as you run the risk of maybe breaking their business model, which I would argue is good for the industry. Obviously, there's some put in taken here to address it a little bit. But do you think looking at these numbers you run the risk of provoking the bigger player in this space to maybe having to do the same thing to fight back and take some market share back.

Simon Turner -- President and Chief Executive Officer

Look, I think I tried earlier stuff and I hope I'll have another go at it to reiterate that we just don't see it like that, because we clearly have spoken for some time now about our own actions primarily, which is clearly we can't talk about details of others or speak on behalf of the industry, but we can't speak for ourselves. We've laid out for you the situation opposite of regional and manufacturing footprint. So we have not been running our plants flat out. If you do the math about one large competitor let's say, and look at the volumetric losses, we're talking about a number toward 100,000 tons.

I've set out for you a situation whereby we are constrained in Asia and North America, with smaller positions. We go to the market competing mainly in a broader range of applications. Broadly speaking, less exposed to coatings. We are not big in China.

I think, I hope you can see why it's less than likely that it is Venator that is jumping into high volume sales with the market and manufacturing footprint it has. Now, if we come into Europe, if there has been some pull forward effect of the Brexit. As I said earlier, we have been focusing on the way we manage our commitments to customers, and focusing on insisting that they're on their side of the bargain and ours and we on our side. We've been very disciplined with our manufacturing.

Our operating rates and on our inventories, and we have not been out there trying to gain and neither have we any anything like a kind of share that would account for these large scale numbers. Now I have seen some at least one other data point that would suggest that there could be others that are doing that. I want to be very careful here. I mean, we are not spokesmen for industries.

I don't want to get into a discussion about what's good for the industry and so forth. But what I can tell you is good for Venator is the way we prosecute in our business, makes sense for all manufacturing and market footprint. And we do not believe in to any degree of size that we have been the beneficiary in the first quarter of any check. I guess we need to see the full picture as it emerges and it will be for people like yourselves to decide on how that all fits together.

But that's where we sit. We are agitating to make sure there's less volatility in our business with our pricing and margin arrangements with our customers in a rational way that makes sense of Venator's. So I think that's probably done the best I can so I don't really feel comfortable getting into trying to represent what's good for the industry and so forth. But that's how it is for our business.

Just turning surprise what I would say to is why it may be tempting to jump to the conclusion that the price volume hangs together as an equation. What you've got to allow for is the significant exposure to Europe that we have, and the fact that the European selling price in dollars 12 months back was $100 higher than the U.S. market. So we have further to fall in a 25% destock environment in the second half.

I would argue that as we come into the second quarter, we've been successful through our actions in putting a stop under price falls. And in fact, we've been more successful than in previous cycles. So that would be how--I guess refute that position.

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Let me just add to that to underscore what Simon has already said , more than half of our functional sales volumes, in fact approximately 60% are in Europe. We exited the fourth quarter at 2018 where average selling prices in Europe were above North America. We have been talking about a price convergence for some time now as European prices have been coming down and converging toward North American prices. Even in the first quarter, now we're at a point where we have convergence of those respective regional prices.

But we saw that effect in our results here in the first quarter, and I believe that's what Simon has been stating to.

Duffy Fischer -- Barclays -- Analyst

Terrific. That's very helpful, I'm sure. Thank you, guys.

Operator

The next question comes from John Roberts of UBS. Please go ahead.

John Roberts -- UBS -- Analyst

Hey guys this is Josh Spector on for John. Good morning. So just a question a follow up on the mix side of things. So a specialty grows--I mean I understand the mix is still relatively small but if you were to look at last year as Pori versus your thoughts on this year, what is the mix look like between the two years.

Simon Turner -- President and Chief Executive Officer

There's clearly going to be an increase in overall sales volume in 2019 over 18 because of the second half factor. So that kind of distorts the picture somewhat because clearly you could expect a higher volume, and in all likelihood there'll be a pro rata larger jump in on functional sales. But nevertheless, if you peel back and look at our specialty sales of 18, our forecast especially sales of 90. We would see a pretty nice increase in 2019.

As we start the process and prepared to reenter and build up our position in those markets.

John Roberts -- UBS -- Analyst

I guess along the same lines with that as you start to rebuild your presence in those markets, I mean you've been pretty clear on the 15 million incremental for next year, does some of what you're getting this year bite into that. Are you thinking about those as totally separate programs.

Simon Turner -- President and Chief Executive Officer

Well, they're not separate programs, but I think if it's finding instantaneous small amounts. The other ways it's not a detour. It would be a slight build up.

Operator

The next question comes from Steven Haynes of Morgan Stanley. Please go ahead.

Steven Haynes -- Morgan Stanley -- Analyst

Thanks for taking my question. You guys talked a little bit about China being a bit more rational. I was just curious if this is also being driven by any environmental regulatory changes there following some recent plant explosions. Thanks.

Simon Turner -- President and Chief Executive Officer

I think the situation in China, we've taken great pains to explain that we believe that the playing field is leveling between the larger multinationals and many Chinese participants in the sense that the environmental and quality based issues lead to increased cost structures in China. And I think there's those increased cost structures which are driving you Chinese producers to push through price increases in Asia. And that's predominantly the dynamic that's in play here. We'll expect to see capacity grow in China at a lower rate of course, but it really we'd like to basically stress that Chinese cost structures are going up and they are managing that into their pricing accordingly.

Operator

The next question comes from James Sheehan of SunTrust. Please go ahead.

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

Good morning. Could you comment please on where you see TiO2 inventories currently in the industry versus normal.

Simon Turner -- President and Chief Executive Officer

I think it's pretty hard. As I said earlier I speak on behalf of the industry. It feels to us that as we've run our plants in the mid-to-high 80's in the first quarter, that certainly our inventories a little bit higher than we'd like going into the second quarter. And we think they're a little bit higher than industry level.

So if I had to take a view on that coming into the second quarter I'd say industry that was around the 55 time of.

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

And could you also talk about how you're thinking about your business portfolio in terms of strategic options.

Simon Turner -- President and Chief Executive Officer

Look, I think there there's no change from the last time out. We like the businesses we have. We see optionality to improve them, and that is our default plan as Constance said, let the now new Business Improvement Program, and there will be further opportunities out there. But of course, we will always be opportunistic and should situations arise that would deliver better value to shareholders and of course we would always look at those.

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

And in performance additives, what do you look at as a normalized EBITDA level for that business.

Simon Turner -- President and Chief Executive Officer

Look, I think it's fair to say for these past couple of years, our internal targets to get this business up to the triple digit in dollar mark. And we have not yet reached that goal. We had quite a setback in the fourth quarter of last year, we covered on a previous call. We did see a pretty healthy rebound in 1-Q this year, from 4-Q going from $3 million in 4-Q Into $15 million in 1-Q.

I think it's fair to say Jim, that some of the automotive, electronics destocking and weakness through and so our functional additives and a little bit of a delayed season would color pigments. So that $50 million is still a couple of million light we'd like to be. And certainly, we were not going to get to the $24 million of that of the prior. So look I think it's not $100 million.

There is some heavy seasonality in the business. I think you'd have to say that with our comment on where we were last year, we'd expect to get up above the $70 million amount which would represent an advance on last year.

Operator

The next question comes from Steve Byrne of Bank of America. Please go ahead.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Yes, thank you. On that 11% volume increases year-over-year in Specialty TiO2, what would you say was your organic volume growth as opposed to the inventory pull, where the product pull from Q2. And how would you characterize your volumes relative to that overall end market. Are you gaining share, and if so, what do you think is is driving that.

Simon Turner -- President and Chief Executive Officer

I'm just clarifying that those questions relate, not the first question relates especially does the second question relate to all sales.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

It was really in specialty, Simon.

Simon Turner -- President and Chief Executive Officer

So in specialty it's pretty straightforward that we had higher production in specialties. Strong demand for those products.We don't see a lot of that has pulled forward and we see that as underlying demand.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

And your gaining share from your competitors as you increase your production rates.

Simon Turner -- President and Chief Executive Officer

There could be some nominal share gains. But it's a fairly small part of our base. I would say it's more related to underlying demand than share.

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

And then just one last one on your corporate expense up year over year. Is there anything else going on in there other than currency effects.

Simon Turner -- President and Chief Executive Officer

No, Steve it's primarily FX, and the real key currency movements to keep track of are the U.S. dollar relative to the euro and the pound were long euro short pound. And so to the extent that we have less volatility in those FX rates moving forward, we wouldn't expect anything outside of the normal corporate expense through the remainder of the year. So we think about corporate on an annual basis as approximately $50 million to $55 million annually.

Operator

The next question comes from Laurence Alexander of Jefferies. Please go ahead.

Laurence Alexander -- Jefferies -- Analyst

Adam Groothius here on for Laurence Alexander. I just have one quick question today. You've talked about the unexpected end customer destocking in TiO2, but I was wondering when you think about overall order patterns. Does it support any potential green shoots in Europe or Asia.

Simon Turner -- President and Chief Executive Officer

Look I'm sorry, was the question finish.

Laurence Alexander -- Jefferies -- Analyst

No, that's it.

Simon Turner -- President and Chief Executive Officer

So the question is does it support a view of any green shoots in what Europe and Asia. I'm finding it hard with what we see in Europe. I talk about green shoots I think that there was some pull forward in a demand into the first quarter. I think we're going to see a bit more of a muted or subdued second quarter.

There is still growth, it's pretty it's pretty low, it's pretty modest. It's still there, but on the other side of the ledger, the macros in Europe still looked very challenging. I would say the same in Asia. I mean in Asia you, we had a pretty slow start to the year.

We've through Chinese New Year when things picked up and then things slowed down again. And just very recently, it's been a bit stopped start. And I would describe it as a similarly sluggish. So I think it's hard to characterize yet as green shoots.

Laurence Alexander -- Jefferies -- Analyst

Thank you.

Operator

The next question comes from [Inaudible]. Please go ahead.

Unknown Speaker

Morning, Simon. I know you guys have talked a fair there about the underlying demand trends and the like. But apologies if I'm repeating, but just truly trying to get a sense of what global underlying demand has looked like thus far in this year. I mean obviously, we've seen a bunch of moving parts you, some companies out there losing share, some gaining share.

You obviously rightly pointed out some of the not specific to you guys. But some issues with Brexit said some issues weird with the auto end market and the like. So the question is, globally what has demand growth look like underlying demand growth looked like this year. And what's your expectation for the remainder of the year in a trade war resolution environment, as well as this whole trade war thing lingers on as well.

Simon Turner -- President and Chief Executive Officer

There's a lot in a lot in that question that Hassan. So, I don't want to be speculative and I knew I'd rather rather confine my remarks to what we kind of see what we might see. I think we said in terms of what we might see was you know we would just broadly say that we're still cautiously optimistic about the second half. And certainly around the medium term particularly as we recover from from this destocking phase.

But it has come back to some of the areas around the world, we are going to sell more volume year on year than we did last year. It's not going to be massive increases, but we expect it to grow more. We would like to say that in Asia particularly, just hold in mind you hear a lot about China. We are only -we represent less than 10% of imports into China.

We don't have the largest direct exposure, and this is where we quite different from some of our peers. And neither do we participate in automotive, and so we are all window on the world. And that is a meaningful segment in TiO2. And so we can't tell what's going on other than what we hear and what's going on in that market.

So I think what we see in Asia is continued sluggishness seems to be driven by China. We are encouraged though by the Russian responses we're seeing in the market and generally in Asia. In North America, I think we covered. It's pretty solid, pretty stable, but we we tapped out.

Certainly of course in our Specialty business both in America Europe and Asia, we'd expect to do better and that's our strategic focus. I think we've covered enough on that call about why we're still enthused about that. So in Europe, the Brexit effect which we heard from customers directly in the UK is a significant market for many of our larger customers particularly not just in terms of sales but in terms of manufacturing footprint. So there was quite a lot of activity.

We suspect that unwinds in the second quarter. But while it is significant it's not a massive so big that would obscure of destocking. We truly believe in Europe that we've kind of like coming to the end of destocking. And what we're seeing now is real demand.

We continue to be consumed by things like, German exports, some of the macros coming up out of Italy etc. But there is still growth in Europe, and it might be nominal, but we still see that. And it's just not sufficiently strong to characterize it in our opinion as green shoots and. And we do have a pretty big position in Europe.

Unknown Speaker

Very helpful. As a follow up Simon, it was brought up earlier as well the explosion in Guangzhou, what are you guys seeing in terms of current operating rates in China, keeping the explosion in mind from a variety of other companies we've heard that. There is obviously, heightened checks from the government, from the authorities and the like. So what are you guys seeing in terms of operating rates at some of the smaller TiO2 facilities out in China, and what are you guys seeing in terms of the new builds that we all have been talking about for the last couple of quarters.

How has the pace slowed down.

Simon Turner -- President and Chief Executive Officer

I think if you mean the pace of bills. I think in the chloride area really there's one producer that's being quite [Inaudible] but what they're trying to do in the delays in that processes and we've got that they will have better information you probably got better information than than us in terms of the delays there in. In the sulfate area there are the downs and there ups. We've often said, we don't expect that to be more than a net 50,000 tonnes in that market over these coming years.

But what does run will be a higher cost. We believe that the top 10 producers are still running it pretty decent utilization rates in China, but they're probably offset somewhat at least by lower utilization rates at the smaller producers. And that's what we're seeing. And as I said earlier, quarterly trade starts suggests that while,--whether to continued exports going into broader Asia on a year to date basis, those numbers have dropped against last year in both Europe and North America, and quite significantly.

Operator

The next question comes from Roger Spitz of Bank of America. Please go ahead.

Roger Spitz -- Bank of America and Merrill Lynch -- Analyst

Thank you. Good morning. For performance products, could you review the drivers of why you expect the drivers of like 2019 EBITDA should be at year over year. You're starting down, of course by $9 million after Q1.

Maybe you can review those drivers. Thank you.

Simon Turner -- President and Chief Executive Officer

Yes, certainly. If you talk about $9 million against Q1, but that's against--obviously that the previous year's comp. And we think about it in terms of what we delivered for the full year last year against what we would deliver this year. Now that said, you're right.

And as I said on a previous question, the $50 million of 1-Q was still a couple million a lot of where we'd hoped to be in 1-Q. We are not changing our view at this time yet around the full year. And the reason for that predominantly is because we continue to find opportunities to help ourselves both with our 17 running restructuring program, which filters into this year by the way, benefits and a fresh few 19 program. So, that gives us the confidence obviously, within that, there's this assumption that the late destocking we saw in Functional Additives business 4-Q, and now 1-Q, similarly comes to an end like we're seeing in TiO2, and that is one where we do have some exposure to automotive some of the electronics.

So it's not which gives us the confidence I believe. And if you look at the color pigments of course, while there has been some impact some 1-Q, that's more of a delay issue rather than a demand destruction issue.

Roger Spitz -- Bank of America and Merrill Lynch -- Analyst

So naturally, I should be thinking that it's more cost savings, or is it and maybe a little bit of volume improvement, or is there a price or price be a headwind. I'm trying to think of buying in terms of volume price, costs, raw material cost, and cost savings. As the four key metrics is there a way to think of it along those lines as how you would make the movement.

Simon Turner -- President and Chief Executive Officer

I think that we would need to go into a bit more detail to the breakdown in an absolute. But why I can tell you is the majority of that coming out of cost savings improvement or direct improvement.

Roger Spitz -- Bank of America and Merrill Lynch -- Analyst

That's what I was looking for. Thank you very much. I appreciate the help.

Operator

This concludes our Q&A . I would like to turn the conference back over to Simon Turner, for any closing remarks.

Simon Turner -- President and Chief Executive Officer

OK. Thank you for joining the call today. I hope we were helpful in being able to provide some color to your questions. Just to mention Kurt, Jeff, and I are going to be on the road in these coming weeks and in the second quarter.

I look forward to meeting with you as many of you as possible as usual. At naturally in the interim, please feel free to reach out to Jeff with any additional questions you might have. Thank you very much for your attendance on the call this time.

Operator

[Operator sign off]

Duration: 63 minutes

Call participants:

Jeffrey Schnell -- Director, Investor Relations

Simon Turner -- President and Chief Executive Officer

Kurt Ogden -- Executive Vice President and Chief Financial Officer

PJ Juvekar -- Citi -- Analyst

David Begleiter -- Deutsche Bank -- Analyst

John McNulty -- BMO Capital Markets -- Analyst

Alexei Yegorov -- Nomura Instinet -- Analyst

Duffy Fischer -- Barclays -- Analyst

John Roberts -- UBS -- Analyst

Steven Haynes -- Morgan Stanley -- Analyst

James Sheehan -- SunTrust Robinson Humphrey -- Analyst

Steve Byrne -- Bank of America Merrill Lynch -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Unknown Speaker

Roger Spitz -- Bank of America and Merrill Lynch -- Analyst

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