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Venator Materials PLC (NYSE:VNTR)
Q1 2020 Earnings Call
May 06, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day and welcome to the Venator first-quarter 2020 earnings call. [Operator instructions] I would now like to turn the conference over to Jeffrey Schnell. Please go ahead.

Jeffrey Schnell -- Director of Investor Relations

Thank you Cathy and good morning everybody. I'm Jeffrey Schnell, director of investor relations for Venator Materials. Welcome to Venator's first-quarter 2020 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 2020 via press release and posted the release and accompanying slides to our website at venatorcorp.com. During the call, we may make statements about our projections or expectations for the future. All such elements and 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 call -- during the quarter. We will also refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, free cash flow and net debt. You can find the reconciliations to the most directly comparable GAAP financial measures in our earnings release which has been posted to our website. It is now my pleasure to turn the call over to Simon.

Simon Turner -- President and Chief Executive Officer

Thank you Jeff and good morning everyone. Before we get going on the call today, I'd like to, on behalf of Team Venator, send out our best wishes to all participants on the call and we hope you and your families remain safe. Tough times, so we send those wishes to you. I'd like to start by turning here to Slide 3.

Venator had a strong start to the year and in the first quarter, delivered $57 million of adjusted EBITDA and $0.11 of adjusted diluted earnings per share. We continue to make progress on our strategic priorities. We are executing on our business improvement programs, and we have responded promptly and decisively to the unprecedented challenges brought on by the COVID-19 pandemic. Turning to Slide 4.

While the COVID-19 pandemic had little effect on our Q1 results, the disruptive lockdown and economic impacts that continue to unfold are unprecedented. While this has no true parallel, it is important to note that Venator has navigated through a number of industry demand disruptive events, both in 2008 and '09 and more recently, the second half of 2018, along with several other challenges. We have an experienced team, and while the severity of economic impact remains largely unknown, I am confident we can deal with the impact on our business. In each of the prior challenges, it was crucial to be proactive, act decisively and at speed.

We have done just that, and I'm encouraged by our progress. In this regard, I want to outline key observations about our business and our plans. My leadership team and I quickly implemented a range of actions, prioritizing the safety of our employees and the integrity of our operations. Substantially all our office-based employees are working remotely, and we have put in place several safeguards to protect our manufacturing site.

We are currently operating all our manufacturing facilities in accordance of local guidelines. Additionally, we have enacted a wide range of other safety measures including social distancing and reducing the number of people present on our sites. Venator's portfolio provides some key structural buffers against the impact of COVID-19. We have greater sales into plastics applications, and some of these products are critical for downstream products used in the protection and treatment of disease including medical-grade plastics, PPE and food packaging.

Also, our Inks portfolio is largely used in food packaging applications which have shown greater resilience as the impacts of the pandemic have played out through economies. We already see the strength evident in our order pattern by application. COVID-19 had a limited impact on our operations in the first quarter of 2020. All our manufacturing sites are able to operate and production is aligned to our customer-tailored approach.

This approach enables us to meet our customer commitments while balancing our strategic priorities. We are working in close collaboration with our customers and suppliers to manage and mitigate potential risk to the supply chain. Our modular, multiline production network gives us the flexibility to respond. Our plan which we intend to build on, utilizes government furlough assistance programs and allows for production moderations to be cost-optimized with limited pressure on margins.

We expect TiO2 demand will decline by 15% to 20% sequentially in the second quarter due to coronavirus. This is based on April actuals, current order book and customer discussions and it will have regional differences. In response, we are implementing a range of actions to meaningfully reduce our costs and cash uses and improve our liquidity. These actions are incremental to our ongoing business improvement program.

We also reduced our 2020 planned capital expenditures to approximately $60 million, a reduction of approximately $25 million compared to our prior estimate. In addition, we expect our phased COVID-19 response plan will provide approximately $20 million of cost release in 2020 through a range of actions. We see many raw material prices and energy costs trending down, particularly those used in our sulfate process. And taken with our advantage on the lower-priced sulfate ores, we see it possible that an aggregate direct cost tailwind is achieved this year.

We are maintaining an aggressive stance toward managing our working capital with strict inventory control. At the end of the quarter, we had $216 million of liquidity, consisting of cash and availability under our ABL. We continue to assess the impact of COVID-19 on our business and have identified additional measures we could take should conditions warrant. Overall, I believe we have a strong plan in place and coupled with the experienced set of associates in our business, I am confident that Venator will emerge even stronger and that the steps we are taking in response to the pandemic will better position Venator for the long term.

Turning to Slide 5 and our cost programs, strengthening our business and improving our cash flow is our top financial priority at Venator. We delivered an additional $4 million of benefit from our 2019 business improvement program in the first quarter and expect to deliver $13 million for the full year. We plan to complete all actions necessary to deliver on our full $40 million target rate by the end of 2020, exiting the year at the full run rate level. However, the timing and substituent elements may be adjusted in response to the COVID-19 pandemic.

We continue to implement targeted actions to improve the profitability of our color pigments business. These efforts which consist of both cost and operational efficiencies, are incremental to our business improvement program and target $10 million of benefit which we expect to deliver subsequent to the completion of our 2019 BIP. As I briefly mentioned, we expect $20 million of savings in 2020 related to actions we are implementing in response to COVID-19. In addition to my own salary reduction, we have implemented a range of measures throughout the organization including furloughing employees, moving others to part-time, salary freezes and changes to bonus structures.

We have also broadly reduced all other discretionary spending. These measures are necessary to meet our objectives. While I am pleased with the execution of our cost initiatives, we continue to monitor the impact of COVID-19 on our business and are assessing the need for additional actions. I am confident in our ability to deliver the targeted benefits as promised.

Turning to Slide 6 in our titanium dioxide segment. In the first quarter, our titanium dioxide segment generated $46 million of adjusted EBITDA compared to $30 million in the fourth quarter of 2019 and $61 million in the first quarter of 2019. Our average TiO2 selling price declined 1% in local currency compared to the prior-year period but remained stable globally on a sequential basis for the fourth consecutive quarter. This reflects our ongoing approach of matching our supply network to customer commitments to reduce margin volatility.

Titanium dioxide volumes declined 1% compared to the prior-year period but improved sequentially in line with historical seasonal patterns. This was primarily a result of lower specialty TiO2 volumes and partially offset by higher function and differentiated TiO2 sets and continued strength in the sale of new products. Looking at our business regionally. In North America, demand improved on a year-over-year basis and was roughly flat compared to the fourth quarter.

Our pricing in the North American region remained relatively stable, both on a year over year and quarter-over-quarter basis reflecting our customer mix and our customer-tailored approach. Demand in Asia was flat compared to the prior year and down low single digits sequentially primarily reflecting our customer and product mix in the region and COVID-19 disruptions. Europe is our largest market for TiO2. Compared to the first quarter of 2019, volumes in Europe increased modestly, benefiting from higher sales of new differentiated products and improved demand, especially for plastic products in which we are overweight compared to the industry.

On a sequential basis, demand improved in line with historical seasonal patterns. In local currency, pricing was relatively stable on both the year over year and sequential basis. COVID-19 had a limited impact on our business in the first quarter. Our position in Asia is limited to our manufacturing facility in Malaysia and the export of specialty products.

For TiO2, China represents approximately 5% of total sales. We saw stronger demand for plastics applications relative to coatings, some of which are used in the healthcare and food packaging sectors for a variety of applications. And we also benefited from continued growth for new products. In the first quarter, raw material costs moved higher primarily high-grade ores.

These headwinds which were in line with our expectations, were partially offset by lower energy costs, lower SG&A costs and a $3 million benefit from our business improvement program. Turning to the outlook. As I mentioned earlier, COVID-19 has created unprecedented disruptions around the globe and the extent of the economic effect remains unknown. We expect demand for our TiO2 products to decline 15% to 20% in the second quarter with regional and application differences compared to the first quarter.

We expect pricing will remain stable. We remain vigilant on our self-health initiatives and expect to continue to benefit from our business improvement program. We expect that demand will recover following the COVID-19 pandemic. However, we are not going to try and predict the timing or trajectory.

It is worth noting that countries and regions are already beginning to emerge from lockdown, albeit at differing rates. In the interim, we are balancing our near-term actions with our longer-term strategic targets. We are aggressively addressing our costs, assessing further opportunities to enhance our competitiveness and remain committed to our customer-tailored approach. While we expect near-term disruptions, we continue to believe that longer-term TIO2 industry fundamentals remain favorable and that our strategy will better position Venator for the future.

Turning to Slide 7 and performance additives. Revenues declined 5% compared to the prior-year period primarily driven by a 4% decline in volumes due to soft conditions in certain coatings and construction applications. Our average selling price increased 1% compared to the first quarter of 2019. Color pigments volumes declined compared to the prior year due to lower demand for products sold into construction-related applications and portfolio optimization as we exited some low-margin business.

This was partially offset by improved demand for certain applications and an improved cost position resulting from our ongoing targeted cost and operational improvement initiatives. Timber treatment volumes declined compared to the prior-year period primarily due to lower construction activity in North America. Our average selling price improved due to favorable mix within the business. Functional additive volumes were flat compared to the prior-year period.

That said, we continue to be impacted by soft demand in especially in automotive coatings which are partially offset by stronger demand for plastics. We are taking meaningful steps as part of our business improvement programs to offset these market challenges and improve the profitability of this business. The performance additives segment generated $22 million of adjusted EBITDA in the quarter, up $7 million compared to the prior-year quarter. This is primarily as a result of our self-help initiatives, lower costs and our customer-tailored approach.

We expect COVID-19 will adversely impact demand for our performance additives segment in the second quarter. We believe the impact will be more severe in our functional additives business due to its exposure to auto and coatings. However, we will likely see a broad contraction. We continue to explore a potential sale of the color pigments business.

However, the process currently on pause due to the COVID-19 virus. We expect to resume the process as soon as practical. I will now pass the call over to Kurt to discuss our financials. I will then return to provide some additional comments.

Kurt?

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Thanks Simon. Let's turn to Slide 8. In the first quarter, total adjusted EBITDA declined $3 million compared to the prior year. The decline was primarily attributable to an adverse price/mix in our TiO2 business and was partially offset by lower costs including the benefits from our business improvement program.

Compared to the fourth quarter of 2019, total adjusted EBITDA increased by $34 million. The result was driven primarily by a seasonal improvement in sales volumes in both TiO2 and performance additives. Positive price mix and a meaningful improvement in costs including the benefits of our business improvement program also contributed to the improvement in EBITDA. Let's go ahead and turn to Slide 9 and our capital resources.

At the end of the first quarter, net debt totaled $781 million, and our net leverage ratio was approximately 4.1 times our trailing 12-month adjusted EBITDA. This is higher than we prefer, as our objective is to run the business with less than three times net leverage. Total liquidity was approximately $216 million at the end of the quarter, consisting of $25 million in cash and $191 million of undrawn availability under our asset-based revolving lending facility. As shown on the slide, we do not have any significant long-term maturities until 2024.

And we believe this gives us ample runway to navigate the COVID-19 pandemic and improve our credit metrics. As Simon mentioned, improving our cash flow is a top priority for Venator. Compared to 2019, we expect to reduce our cash uses by more than $100 million. Let me address the individual line items of our cash uses.

Our updated outlook for capital expenditures in 2020 is $60 million, half of which was spent in the first quarter. This is a reduction of approximately $25 million compared to our prior $80 million to $90 million range and nearly 50% below 2019. We expect a net change in working capital to be a modest source of cash in 2020. This is subject to market conditions and other factors including additional actions to manage our inventory levels.

Cash restructuring payments in 2020 are expected to total $15 million to $20 million. This primarily includes our ongoing business improvement program and the closure of our former Calais, France site. Our cash uses in 2020 are expected to be approximately -- excuse me, other cash uses in 2020 are expected to be approximately $75 million primarily consisting of pension obligations, joint venture capital expenditures and legal fees. We are exploring opportunities to reduce these items.

In 2020, we expect our adjusted effective tax rate to be approximately 35%, consistent with 2019 as we apply a normalized adjusted rate to better reflect the current weighted average tax rate applicable under the various jurisdictions in which we operate. We continue to expect our adjusted tax rate to be 15% to 20% in the long term. In 2020, we expect cash taxes to be less than $5 million. Finally, our Pori-related expenses are expected to total $15 million to $20 million in 2020, down from an outflow of $64 million in 2019.

We recognize the importance of returning to positive free cash flow and remain intensely focused on improving our costs and reducing our cash uses. We continue to assess the impact of COVID-19 on our business and liquidity and are prepared to take further action if market conditions warrant. We are currently exploring traditional financing and other alternatives to bolster our liquidity. With that, I'll turn it back to Simon.

Simon Turner -- President and Chief Executive Officer

Thank you Kurt. Turning to Slide 10. I'm pleased with our first-quarter results which demonstrate the value of our customer-tailored approach and execution on our self-help measures. In the near term, we expect to experience significant market challenges.

We will take all necessary precautions and steps to achieve our targets. These include closely managing our production network and working capital, executing on our cost initiatives and protecting the safety of our employees and the integrity of our assets. Notwithstanding COVID-19, our strategy remains as follows: We are committed to our customer-tailored approach by which we actively manage our production network and inventories, along with the implementation of a more diverse range of customer agreements. The net anticipated effect reduces margin volatility and improves visibility for us and our customers.

We are focused on strengthening our leadership position in specialty and differentiated TiO2 as well as improving the mix in our performance additives segment. These products offer margin and market robustness benefits. As a reminder, our new products contributed most of our volume growth in 2019, and we continue to build on that success in the first quarter of 2020. We are focused on enhancing our competitive position in all our businesses.

We have delivered $24 million of our $40 million business improvement program and expect to deliver the remaining cost and operational efficiencies. Additionally, I highlighted $20 million of indirect cost savings in 2020 from actions we are proactively taking in response to the pandemic. We are also aggressively negotiating for lower raw material costs including ores. We are prepared to take steps to improve our profitability and our liquidity as necessary.

We remain intensely focused on reducing our cash usage and improving our free cash flow. As Kurt mentioned, we expect our cash uses in 2020 will be more than $100 million lower than 2019, and we continue to target more cash savings. We are fully committed to maximizing shareholder value through active portfolio optimization. Although the color pigments sale process is temporarily on pause, it remains a strategic priority of Venator, and we expect it to resume as soon as feasible.

These are dynamic and exceedingly challenging times. We cannot predict the full impact of the situation will have on 2020. However, we have visibility into the near-term trends and are implementing procedures to help mitigate the impact. We remain confident in our strategy and the longer-term industry fundamentals.

The aggressive actions we are taking and are prepared to take will enable Venator to emerge from this stronger and better positioned to meet our customers' needs and create long-term value for shareholders. With that, we thank you for your continued interest in Venator. I would now like to open the call for questions.

Questions & Answers:


Operator

[Operator instructions] Our first question comes from David Begleiter of Deutsche Bank.

David Huang -- Deutsche Bank -- Analyst

Hi. This is David Huang here for Dave. I just heard some -- on your kind of guidance of 15% to 20% TiO2 volume decline in Q2. What type of percentage do that translate into a year-over-year basis?

Simon Turner -- President and Chief Executive Officer

Sorry. Could you repeat the question? The line was a bit indistinct.

David Huang -- Deutsche Bank -- Analyst

[Inaudible]

Operator

Mr. Begleiter. Your audio is going in and out. Can you repeat your question at this time, we are now able to hear you.

David Huang -- Deutsche Bank -- Analyst

Can you hear me? Yes. So on your guidance of 15% to 20% TiO2 volume decline, can you talk about what type of percentage does that translate into a year-over-year basis?

Simon Turner -- President and Chief Executive Officer

Yeah. I mean, we don't provide guidance on a year-on-year basis. But I think looking through our numbers, you can see there's been a strong element of stability in the business these past 12 to 15 months, whether that be in the volume or price sense.

David Huang -- Deutsche Bank -- Analyst

And then I guess, secondly, the industry has proposed 3Q $0.06 price increases in North America. How much of that increase do you think are driven by higher raw materials or how much of that do you intend to cover in raw materials?

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Well, just jumping in here. We're having a hard time hearing you, but I believe the question was as it relates to the announced price increases that we have put out, how much of that is attributable to higher ore costs versus market. And as you can imagine, we don't parse that out. We announced price increases based on what we think the market will bear.

It's generally a combination of those factors. And hence, that leads to the announcements that we generally have. But it's always market-based.

David Huang -- Deutsche Bank -- Analyst

OK. Thanks.

Operator

Next question comes from John McNulty of BMO Capital Markets.

Colton Bina -- BMO Capital Markets -- Analyst

Hi. Good morning guys. This is Colton Bina on for John. 

Simon Turner -- President and Chief Executive Officer

Hey. How you doing?

Colton Bina -- BMO Capital Markets -- Analyst

So question -- so my first question for you is if you see raw materials having the potential to become deflationary later in the year, are you at all concerned about your ability to hold price in a deflationary raw environment?

Simon Turner -- President and Chief Executive Officer

Well, I think it's an important point to note, as I said earlier, that we have been very successful in taking steps through our customer-tailored approach to manage our pricing. We saw further stability sequentially in 1Q and pretty stable year on year too. We -- in our prepared remarks, we said we expect prices to remain stable in the second quarter. So I think it's pretty clear near-term what we're saying about our pricing.

I think, as we said in the prepared remarks, we're not prepared to venture any speculation about the second half. All we would say to you is that clearly, we've put out there a very specific guidance about 2Q of the impact on our volumes and our demand. And it's very difficult to say beyond that, how that demand profile will play out. The only thing I would note is that in all -- well, no countries but all major regions of the world, we are starting to see processes take place with the emergence of lockdown.

That includes outlets that sell products that contain our products. So that is encouraging. But what shape a recovery could take, I'm afraid we're not prepared to venture a guess at that.

Colton Bina -- BMO Capital Markets -- Analyst

OK. OK. Thank you. And just as a follow-up then I think in your intro remarks, you mentioned a few of the end markets that are holding up a little better.

Could you maybe talk about some of the end markets where things are a little more challenging that are contributing to that 15% to 20% volume decline in the second quarter?

Simon Turner -- President and Chief Executive Officer

Yeah. I mean, I think that's just recap. What we said is, if you think about about our 15% to 20%, that view is assembled through our April actuals. Our order book which we have some visibility, probably a bit more limited than we would expect to have at this stage of proceeding and discussions with our customers and negotiations of our customers are very important, of course.

So that's what forms our view. We operate in all three major regions. We see both regional differences and we see application differences. From a regional perspective, clearly, the lockdown in Europe came later than Asia and was pretty comprehensive across the block.

In the U.S., that wasn't quite the case, so maybe not quite as big an impact in the United States from a regional perspective. But to your point about applications, we continue to see sulfate-containing specialties and inks hold up well, and we continue to see plastics again hold up well. Obviously, the areas which are held up less well than the aforementioned are would be decorative coatings and some parts of industrial coatings. So I think you can access fairly well-publicized public data about how some of the coatings companies see the world.

But that should give you a view about why we think our product portfolio looks more robust and I'd probably put paper in there with coatings as one area which has been more adversely impacted.

Colton Bina -- BMO Capital Markets -- Analyst

OK. Great. Thank you very much.

Operator

Our next question comes from Laurence Alexander of Jefferies.

Kevin Estok -- Jefferies -- Analyst

Hi. Good morning. This is Kevin Estok on for Laurence. I guess my first question is technical, has to do with -- basically, the cost savings that you guys mentioned, $20 million in 2020.

I'm just wondering if you guys could offer any cadence maybe over the three quarters of when we expect to see those savings?

Simon Turner -- President and Chief Executive Officer

Yeah. I mean, look, we haven't given the breakout of the cadence. But what we have said is that that program, we've been proactive. We've gotten onto that program.

We started that program. So we started that program already with two-thirds to three-quarters of the year left. And I think given the nature of those savings as they relate mainly to personnel costs, furloughs, part-time work and so forth, you could think about them as fairly evenly spread across the year.

Kevin Estok -- Jefferies -- Analyst

OK, great. Thanks. And then just back to the TiO2 volumes that I guess the visibility you have in April so far being down 15% to 20%. I'm just curious how you guys think about decremental margins in that segment.

Just sort of working through the model here.

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Yeah, Kevin. So as we think about margins, we think that we have the ability to fine-tune our asset base accordingly, such that any impact on margins would be pretty limited as we match our production to what we see in terms of market demand.

Simon Turner -- President and Chief Executive Officer

Maybe we can just add on to that. We have a sulfate and chloride network here in Europe and around the globe that lends itself with a number of lines and some modularity to be able to have flexibility along with our grade plate. So we have that flexibility. As we mentioned in our prepared remarks, we also have access to quite significant governmental employee assistance programs.

So clearly, we will hold that in mind with any production trimming that we undertake in the various jurisdictions. As you're probably aware, those sort of furlough schemes are available in places like the U.K., Italy, Germany, etc. So that's another tool we have in the COVID armory as it were to combat any reduction in the sales volumes.

Kevin Estok -- Jefferies -- Analyst

Great. Thank you.

Operator

Our next question comes from Duffy Fischer of Barclays.

Duffy Fischer -- Barclays -- Analyst

Yes. Good morning. Question just on -- can you hear me?

Simon Turner -- President and Chief Executive Officer

You did break up there. Try again, Duffy.

Duffy Fischer -- Barclays -- Analyst

OK. Sorry. So a question just on some of the upstream ore. South Africa is a pretty big supplier of ore for the industry.

They had two hiccups kind of in the quarter, one around some labor issues. And then mine shutdowns around COVID. So just what impact have you seen on the ore supply for the industry because of that? And then can you remind me where you sit as far as South Africa supplying you or vis-a-vis, are you bigger, smaller than the industry?

Simon Turner -- President and Chief Executive Officer

Yeah. So the second part of the question we've been very clear. We've heavily underweight in South Africa from an industry perspective. We take a very limited amount of product out of Richards Bay.

In answer to your first point of course you're right that there were some disruptions, but I think we had a plan even prior to the pandemic to cope with those reductions. With the pandemic now evolving the way it has, that's taken supply concern away. So I think the answer to your question there is, we don't foresee that hitting us.

Duffy Fischer -- Barclays -- Analyst

OK, great. And then just in general, how would you characterize the Chinese product flow into Europe so far this year?

Simon Turner -- President and Chief Executive Officer

Yeah. So look, I think an important point to note about the Chinese situation. If we go back and look at these last three or four years, the pattern that we've seen has continued on aggregate in those years, namely higher export fractions to Asia and other economies, smaller fractions into Europe and North America. With a trajectory that has gradually sort of topped out around 1 million tonnes.

So that's the kind of light around these last four to five years. We've gotten used to dealing with that. There's no question that China had been on a quite a long-range cooling dynamic these past couple years even before the pandemic. But as you can appreciate, back end of last year, front end of this year, the domestic operation in China, the domestic economy has been pretty bad.

We've seen there have been some conference state exports from China. We could see that could be a more transient effect. As the market recovers more in China, we could see that coming back down. But we still hold to our view that the overall yearly aggregate type of exports, not dissimilar to the pattern we've seen in both in the absolute amount and the weightings.

We'd accept that there has been a slight tick-up early part of this year into Europe and North America of Chinese product, but again, we don't see that as anything more fundamental. We see that part of a longer-range continuum and highly manageable.

Duffy Fischer -- Barclays -- Analyst

Terrific. Thanks guys.

Simon Turner -- President and Chief Executive Officer

Thanks Duffy.

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Thanks Duffy.

Operator

Our next question comes from Bob Koort of Goldman Sachs.

Dylan Campbell -- Goldman Sachs -- Analyst

Good morning. This is Dylan Campbell on for Bob. Can you guys talk a little bit about the competitive market dynamics you're seeing in TiO2? One of your competitors mentioned continued regain of share during the quarter. So I'd love to hear kind of what you saw in terms of that kind of market share dynamic in the first quarter and then also looking forward into the second quarter as well.

Simon Turner -- President and Chief Executive Officer

Yeah. Look, I mean it's important, Dylan, that we stay very fairly -- obviously, we're not here to talk on behalf of either our competitors or the industry at large. But we were more than happy of course to talk about Venator. And what we've seen in Venator, very clearly I think illustrated our 1Q statistics is we've seen very stable pricing and we've seen pretty stable volumes.

Now it's true on '19 over '18 basis, we had some pickup because of the acquisition of laminates and some new products. But my basic perspective remains unchanged is that we're really focusing on our own game. It's about target market, and it's not about market share gain or loss. And I think our numbers kind of bear that out.

Dylan Campbell -- Goldman Sachs -- Analyst

Got it. Helpful. And then in terms of industry volume trends, what is the typical industry volume increase for the first quarter to second quarter? And then on the back of that, how does that kind of shift in kind of from that typical seasonality impact of the working capital cadence for the year?

Simon Turner -- President and Chief Executive Officer

I'll talk in generalities here, Dylan. Of course, these are not exactly general times. But I can tell you is we saw a very typical seasonal pickup in volume 1Q and 4Q and herewith too of course we would have expected to see a jump from our -- a double-digit jump from -- in percentage terms from the first quarter into the second so here a bit too I think it would have been a pretty -- maybe toward double-digit kick up. So we're not going to see that sort of typical 5% to 7% we might see on this occasion.

And speaking in general terms, on the working capital draw, we've observed in our business over multiple years in the first half, we generally have a use of cash and then a release in the back half. Of course, that could well be moderated this year because of the measures we're taking because of the statistics we've thrown out for the pandemic in the second quarter. And I think reality is we spent pretty much half our capital in the first quarter as well. So there's some broader cash impact there.

Suffice to say however market conditions present, we will control our inventories. And we are focused on industries very, very clearly. And we won't hesitate to make sure they stay in alignment and position ourselves well for any shape of recovery.

Dylan Campbell -- Goldman Sachs -- Analyst

Thank you.

Operator

Our next question comes from Josh Spector of UBS.

Josh Spector -- UBS -- Analyst

Yeah. Hi. Good morning. Thanks for taking my question.

Just on free cash flow and the bridge that you guys provided for 2020, where do you see the most flexibility? And are you able to kind of quantify perhaps how much flex you could have if things get incrementally worse than your expectations right now?

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Sure, Josh, this is Kurt. Let me go ahead and take that. We feel like we've been pretty transparent here with our expected cash uses. As we look -- and Simon has just talked about working capital, we do think that there is upside to those numbers, particularly if we see a sustained contraction in demand, we would expect a healthier working capital release.

Capex, we could do a little bit more there. And then there's always this other bucket of roughly $75 million. We think that there are real opportunities there, included in that number, are our pension and as well as our joint venture capex. Thus far, we haven't touched that and we think that there could be opportunities within that bucket as well.

Josh Spector -- UBS -- Analyst

OK. Thanks. That's helpful. And just within performance additives, I mean, a pretty significant pickup year over year.

You talked about $1 million benefit from your cost-out program, and volumes were down 4% or so year over year. Can you just bridge what the rest of the improvement was? And if that is kind of sustainable when we get back to a normal period or was there anything kind of one-off or unique we should be considering?

Simon Turner -- President and Chief Executive Officer

Yeah. Look, I think a couple of comments around performance additives. It is very pleasing of course to see the quarter. It's important to note that our strength in the quarter is driven mainly by cost, as you say.

We have some raw material and energy cost benefits in our functional additives business, some lower SG&A and other personnel costs in the first quarter. And sequentially, we saw some seasonal increase in volumes and some price and a little bit of flow through on costs. So underlying it, we still see some concern around a softer environment for all those and coatings in our functional additives business. We think there's going to be some broad-based drop-off in the second quarter across our construction activity.

And our timber business thus far has been holding up pretty well. So look, it has been a return to a more traditional sort of level, powered by cost, but I think you should allow for a drop off which is quite broad-based in the second quarter.

Josh Spector -- UBS -- Analyst

OK. Thanks.

Operator

Our next question comes from Hassan Ahmed of Alembic Global.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Good morning Simon and Kurt.

Simon Turner -- President and Chief Executive Officer

Good morning Hassan.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

I hope you guys are well. Look, I obviously completely understand how unpredictable things are right now, particularly as one looks post Q2 demand-wise. But just -- I mean, I think we're all sort of sitting here trying to read the tea leaves and trying to see as sort of different markets start opening up, what sort of demand trends are evolving. And obviously, the first market we've seen beginning to open up is China.

So what are the early signs that you're seeing demand-wise from the Chinese market as that has opened up? Again, just trying to sort of think through how we could extrapolate that in terms of global demand as well beyond just Q2?

Simon Turner -- President and Chief Executive Officer

Yeah. It's an interesting question, Hassan, and thanks you wishes, very -- holding up well this side. What I would say to is we participate in a very niche way in China. Our window into China vis-a-vis the market at least is somewhat limited.

And please hold that in mind in answer to your comments. We're mainly taking specialty products into Asia, into China, and we take some other plastics products into China as well. I think what we said on previous calls and we'd reiterate is that it's no surprise to people that in the sort of apparel application, the textile application as it were for specialties, it's part of our specialty business. We continue to see some pretty heavy lifting and I'm not saying -- I'm not sure we're seeing any signs of recovery of any meaningful nature so far.

Our plastics business in China is holding up pretty well, and we feel pretty good about that. Now in terms of extrapolation, I have to say it's quite -- it would be quite a leap to extrapolate off what is very limited data. What I could say though is that it is encouraging that we note that outlet selling obviously  decorative coatings and paints are beginning to be considered some of the first in the release from lockdown. Generally speaking, big-ticket items like airplanes and automotive vehicles constitute a relatively small amount of the global market for titanium dioxide, I would estimate around 8%.

So I think those could be some of the later applications to recover. How the trajectory works, Hassan, is really up for grabs. We've tried to be as clear as we could be for the second quarter. We are encouraged to see of course in our largest market of Europe, that some of this opening up is being taken and contemplating in incremental steps.

And we're encouraged by what we hear out of North America all through COVID about the willingness to try and open up those past economy that were closed down. Bear in mind some were. So look, I'm sorry to say to you, it'd be tough to give you a full read across, but that's our data from China. And that's what we've observed.

But what I would say though in multiple types of volatility challenges we've seen in this business over the year, it can be the case that recovery profiles can surprise. I think that the bases have been set by us prior to COVID with our inventory management and nicely poised to work through all of the destocking in the past 12, 18 months. And I don't see any reason why that can't resume once we get through this next difficult phase.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Understood. Understood. And moving on to the supply side of things. Obviously, you guys have given your guidance in terms of sequential demand declines.

Just wanted to figure out globally on the supply side of things, are you seeing an equivalent amount of sort of utilization rate cuts, be it from curtailments, be it from maybe potentially some plants not coming online. Some plants continuing to shut down, some plants, maybe even some companies considering permanent shuttering of some facilities. So how are you thinking about the near-term sort of Q2 supply picture? Because obviously  beyond that, as you rightly said, is a bit difficult to forecast.

Simon Turner -- President and Chief Executive Officer

Yeah. I mean, we are contemplating a picture where all of our assets are running. We're not contemplating closures. Of course, there can be some trimming because we're always going to ultimately match our production to demand.

Of course, we have some flexibilities I've said. We have maintenance shutdowns to consider we can move around, and we have access to furlough schemes. So I think the way I'm thinking about production capacity and supply capacity for us a very near-term exercise, more of a tactical issue. And I think it would remain to be seen, certainly by us, I can't speak for others about what they might do strategically as it relates to capacity.

And -- but I think we're a little way from that because the pattern is so murky. It just totally depends on how the demand pattern plays out as to the answer to that question.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Very fair, very fair. Thanks so much Simon.

Simon Turner -- President and Chief Executive Officer

Thanks Hassan.

Operator

Our next question comes from Vincent Andrews of Morgan Stanley.

Steve Haynes -- Morgan Stanley -- Analyst

This is Steve Haynes on for Vincent. Thanks for the color on the 2Q volume declines. But just curious if you could put some context around what maybe customer inventory levels were exiting the first quarter, to put some context around the 25, the declines you're looking for sequentially?

Simon Turner -- President and Chief Executive Officer

Yeah. I mean, our judgment was from our own customers. Again, speaking only for Venator and our relationship with our customers, but inventories as we went through the first quarter, were pretty normalized both at our and on the customer's end and were not overly heavy. Customers will have wanted to see, as they crept into the pandemic dynamic, I'm sure they would have wanted to make sure they have enough of their own products.

And they would be similarly uncertain [Inaudible] stocking effects within the business. It's hard to say right now. All I can say is the comment we made earlier which was these past 18 months, we've had a sort of like a -- without sort of like wanting to either belittle any of the awful impacts of a medical disease. I mean this industry faced the 25% destock in 6 months in the back-end of 2018 which was pretty awful and not dissimilar to the type of picture we're painting for this next second quarter.

So I think that we had worked our way through that inventory, and that's probably all we could be prepared to say at this point.

Steve Haynes -- Morgan Stanley -- Analyst

OK. Thank you guys. Very helpful.

Operator

Our next question comes from Steve Byrne of Bank of America.

Unknown speaker

This is Matt on for Steve. Apologies because I'm kind of jumping around on different calls, but I wanted to ask, capex decline is pretty large. Just kind of wondering on what opportunities are being pushed out or where you're concentrating your spending cuts? I apologize I might have missed that earlier. I just wanted to clarify.

Simon Turner -- President and Chief Executive Officer

Yeah. I mean, I think it should come as no surprise that we've often said that our our kind of core maintenance and EHS spend is the heartland of our capex exposure. And I think the way to think about our current view we've laid out for 2020 is pretty much in line with a maintenance and EHS required capex spend view. We want to be very careful that we don't sort of cut into that.

Equally, the situation demands prudent and the prudent answer here is to cut all other capex until we see which way this pandemic evolves. So I think that's a pretty clear answer there.

Unknown speaker

OK. And as it relates to upstream ores, and I know the conversation was at around South Africa and cuts. But demand has pulled back pretty substantially in 2Q. What needs to happen from your view or what could happen theoretically to loosen that market up? Do you see that as possible at all from maybe a give-back on the inflationary pressure that you've seen pretty consistently over the past few years?

Simon Turner -- President and Chief Executive Officer

Well, look, I think that we have to be a bit careful here not to get too speculative. What we could say is in previous occasions I've seen over the many years I've been in this industry that demand destruction events create some sort of like lag, where ultimately, suppliers including ore suppliers, feel the impact somewhat later than we do. Quite often those suppliers are running very expensive footprint-type facilities and have potentially then have to face decisions about cutting production back dramatically rather than in a modular way. And there are -- quite often, it's been the case that deals are being done to be able to -- for them to move pounds and from us to receive a more competitive input price.

I'm not trying to predict that that is all going to play out this time around. It depends very much on ore class. But we certainly believe that we'll be negotiating hard for -- to receive some price advantages in as we go through this year on all categories of raw material including ores.

Unknown speaker

And does that -- just to sneak one more in. You commented about potentially seeing raw material tailwinds relief for the year. Is that primarily given sulfate give-back and doesn't really bake in any potential softening of chloride ores?

Simon Turner -- President and Chief Executive Officer

No. I mean, I think our comments related to the overall raw materials basket. I mean, we have observed energy coming down, sulfuric acid and other raws coming down. We've often mentioned the advancing of sulfate ores in the different feedstock groupings.

So if we put what we know of 1Q and 2Q-type pricing dynamics together with trends, I think we could see it is possible that this year, it's not a guarantee. It's speculative to some extent. That we could be seeing a tailwind in our ores in 2020 based on the trends we see.

Unknown speaker

Thanks Simon. Appreciate you sneaking one in there.

Operator

Our next question comes from Jim Sheehan of SunTrust Robinson Humphrey.

Peter Osterland -- SunTrust Robinson Humphrey -- Analyst

Good morning. This is Pete Osterland on for Jim. Could you size about how much of an EBITDA impact do you expect to see in TiO2 on a quarter-over-quarter basis, just kind of based on the 15% to 20% volume drop and all the other moving parts? You expect that margins would be stable with EBITDA down around that same 50% to 20% or is it a lot more volatile than that given potentially some fixed cost absorption?

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Yeah. Why don't I go ahead and take this. And as you know, we don't provide quantitative guidance. And in fact, I think we've given more guidance here related to second quarter than others here.

And so we think that ought to give you a picture as to what we're seeing as it relates to orders that we had in April as well as the order book looking into May. So no specific EBITDA guidance for you. But I will just remind you that we have indicated specifically on this call that we have a unique set of assets where as we moderate our facilities, we do have the ability to participate in furlough programs such that we reduce any effect that you would otherwise expect from carrying an under absorption of fixed costs. And so that is the unique nature that we believe we have, particularly as we participate in some of these countries in Europe, where we can access these government furlough programs and so such that we aren't overburdened with fixed costs as we do moderate facilities.

And so we think that gives us an advantage when we think about any potential margin impact here, particularly in the second quarter.

Peter Osterland -- SunTrust Robinson Humphrey -- Analyst

Thanks. That's helpful. And just as a follow-up, given the current focus on preserving cash flow, has there been any change to your long-term goals for expanding your production footprint to replace the capacity loss from Pori? It's either in the amount of capacity you could be looking at or the time frame?

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Well, we believe we have ample capacity right now within the network. Of course, we are transitioning the final phase of specialty product or finishing product that we have at Pori to the rest of the network. In light of the COVID situation, we're taking a pause on that. We want to make sure that we do so thoughtfully with that final transition.

And so as we develop and get a better picture as to what demand is going to look like beyond just the second quarter that I think we'll be able to calibrate around that.

Peter Osterland -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you. 

Simon Turner -- President and Chief Executive Officer

Thank you.

Operator

Our last question comes from Arun Viswanathan of RBC Capital Markets.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks. Good morning. I hope you are doing well.

I guess I just wanted to ask about the raw material environment. Again, we've seen some major shifts here or not major shifts, but at least some some differences in rutile and ilmenite and so on. Have you guys been able to I guess assess if there's any opportunities within your business to expand your sourcing of ores to different areas? I'm just curious what the long-term opportunity there is.

Simon Turner -- President and Chief Executive Officer

No. I think if we go back to 2011 and '12 when there was some, let's call them, rather intense discussions between ourselves and our particularly feedstock suppliers. It's very clear that by sitting and talking through opportunities, you can get a situation of win-win. Back at that time, we chose to invest significant capital resources in creating the flexibility to use different ore types in different locations.

That's something -- while we don't regret doing that. We prefer not to do that. We prefer to have a conversation with suppliers around that. But of course, ultimately, that's got to work for us too.

So I think that there are opportunities. There could be opportunities. I see most of them have probably been taken up by ourselves but there are still some. And the market has evolved over that time.

And it's very different by different feedstock group as well, probably quite different to what it was back eight, nine years ago. So I think there are some opportunities, maybe albeit limited and we would certainly not hesitate to jump into that should the situation warrant.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And then just from a customer standpoint I guess have you seen any willingness among your customer base to accept maybe some different types of TiO2, whether it be lower quality, lower opacity. I'm just curious just given the financial position maybe of some of the smaller customers.

Simon Turner -- President and Chief Executive Officer

Yeah. No, I mean, look, that's not something that we are hearing, and it's not something that we favor. We will focus on our strategy of specialization and differentiation. And it's those technical products and the value therein that we think brings most value to our customer set.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Thanks.

Operator

And at this time, we would like to turn the conference over to Simon Turner for closing remarks.

Simon Turner -- President and Chief Executive Officer

Thank you very much. I'd like to summarize and close, I should say, by thanking you all for your interest in Venator. We are missing the face-to-face engagement with you all which we enjoy very much. And we look forward to meeting again on that front.

Of course, that doesn't mean we're not available to speak to all of you throughout the quarter in the coming weeks and months. So please reach out to Jeff with any additional questions you might have. And we will do our best to give you a straight sort of down the middle view from Venator. Thank you very much for your interest in the company.

Kurt Ogden -- Executive Vice President and Chief Financial Officer

Thank you.

Operator

[Operator signoff]

Duration: 62 minutes

Call participants:

Jeffrey Schnell -- Director of Investor Relations

Simon Turner -- President and Chief Executive Officer

Kurt Ogden -- Executive Vice President and Chief Financial Officer

David Huang -- Deutsche Bank -- Analyst

Colton Bina -- BMO Capital Markets -- Analyst

Kevin Estok -- Jefferies -- Analyst

Duffy Fischer -- Barclays -- Analyst

Dylan Campbell -- Goldman Sachs -- Analyst

Josh Spector -- UBS -- Analyst

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Steve Haynes -- Morgan Stanley -- Analyst

Unknown speaker

Peter Osterland -- SunTrust Robinson Humphrey -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

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