cabot corporation (cbt) ceo sean keohane on q4 2018 results - earnings call transcript
Cabot Company (NYSE:CBT) 2: 00 P. M. on November 6, 2018, etexecuessteven Delahunt-2018 Earnings Call Vice President, IR and TreasurerSean Princeton ,- President, CEO and director Senior Vice President and cfoanalyst Mike Leithead -- McLaughlin behind BarclaysKevin Hoce, senior vice president and chief financial officer. Last night, we released the results for the fourth quarter and the full year of 2018, copies of which were posted in the Investor Relations section of our website. The slides that come with this phone can also be found in the Investor Relations section of our website and will be provided with a replay of the phone. In this conference call, we will move forward. Reports on our expected operational and financial performance in the future. Each forward- Forward-looking statements are affected by risks and uncertainties that may lead to significant differences in actual results from the results predicted in these statements. More information about these factors appears under the heading forward -- Our press release last night and our statement in the last annual report on Form 10 K for the fiscal year ended September 30, 2017, submitted to SEC and available on the company\'s website. In order to provide greater transparency in our operational performance, we are referring to certain non- Accounting and financial measures, including the adjustment of GAAP. Any non- The proposed GAAP financial measures should not be considered as an alternative to the financial measures required by GAAP. Any non- The GAAP financial metrics cited in this conference call are consistent with the most directly comparable GAAP financial metrics in the form at the end of the earnings release we released last night, available in the investor section of our website Again, as we usually do here, I would like to remind you that in the next few weeks it has to do with divestiture and restricted stock awards based on long term offerings Regularly motivate the equity program, and the company\'s office will sell the shares to pay taxes and other obligations related to its rewards. I now transfer the call to Sean Kiahan, who will discuss the main highlights of the company\'s performance. Erica McLaughlin will review the financial details of the business unit and the company. After that, Sean will provide closing remarks and be open to questions. Sean? Thank you, Steve. Good afternoon, ladies and gentlemen. We were very pleased with our performance for fiscal 2018 as our adjusted earnings per share hit a record $4. 03 compared with the 14% fiscal year, an increase of 2017. In terms of the highlights, our strong commercial and operational execution has driven the outstanding results of enhanced materials as the Department delivered a record $0. 279 billion, 45% more targeted mix improvements, higher prices and increased utilization than last year. We continue to create favorable growth investments in the 2018 fiscal year, and when we announce our factory expansion in Indonesia and the global bottleneck elimination plan, by 2021, this plan will add about 300,000 metric tons to our global carbon black Network. In addition, we completed the acquisition of China\'s NSCC carbon plant, which we plan to upgrade to produce specialty carbon. These advantageous investments will enable us to continue to meet the growing demand for rubber and specialty carbon products. Starting from 2021, Indonesia\'s expansion and new factories in China will contribute to the future growth of our carbon black business. In addition, our investment in two new gas phase silica factories in China and the United States is still on schedule, and our Chinese factory went online in the fourth quarter of fiscal 2019, the United StatesS. Plants are scheduled to go online in 2020. Our TechBlend specialty compound acquisition continues to perform well and we are successfully leveraging the synergies between our leading particle franchise and our unique downstream business. Finally, our investment in energy materials continues to make significant progress, which is evidence of a 70% increase in revenue in 2018 and a successful project qualification for major battery manufacturers around the world. These are examples of how Cabot can make advantageous investments in our core business to drive the company\'s future growth. Cash generation is still the core force of Cabot. In fiscal 2018, although there was a major headwind in working capital mainly due to rising oil prices, we generated $0. 299 billion in operating cash flow. We generate $0. 254 billion in discretionary cash flow and return $0. 222 billion to shareholders through dividends and repurchases. On a full- On this year\'s basis, through incremental stock buybacks, this exceeded our 100 million target of $ 50%. We are still confident in Cabot\'s cash power generation capability, so earlier this year we announced a 5% increase in dividends and an 10 million increase in our share repurchase authorization, we expect to buy back 0. 4 billion of our shares in three months. year period. In 2016, we launched a strategy to advance the core, setting a roadmap for expanding our leadership in performance materials. The results of our strategy will be measured in a continuous and interactive total shareholder return and based on clarity and commitment of capital allocation. Specifically, over time, our goal is to increase the adjusted EPS of top shareholder returns from 7% to 10%, as well as a capital allocation commitment to return 50% free cash flow to shareholders. As we continue to deliver on our commitments, our strategic results are clear. In 2018, we exceeded the market interest rate by 4% growth, achieved 14% adjusted EPS growth, generated strong cash flow and returned more than 50% free cash flow to shareholders These results come at the same time as significant investment is being made to support continued profitable growth in the future. The results of our implementation show that the total return of shareholders this year is 15%. Since announcing our strategy in 2016, we have successfully achieved each of our goals by strictly implementing and balancing growth investments with shareholder cash returns. Overall I am very pleased with our performance in 2018, both in the context of the unfavorable factors facing some challenges at the end of the year, and in the balance of our ongoing strategic investments, long driving Sustained performance. I still believe that we have the ability to provide attractive and sustained total shareholder returns based on a combination of earnings per share growth and cash returns. Let me talk about China now. With all the recent comments from the financial media on China, I think it is important to update you on what we have seen in terms of market dynamics and impact on Cabot. Let\'s talk about the overall situation of the market first. China, the world\'s second-largest economy, is expected to grow at a rate of 6%-7% in the future. China is also the largest market in the automotive, silicone and plastics sectors. The key value of Cabot is changed. China produces about 40% of the world\'s tires, so the global tire market is structurally dependent on China. Demand for light vehicles has slowed significantly over the past few months as strong production in the first half led to an increase in vehicle inventory. The slowdown in car demand means that OE Tire demand and demand for some industrial rubber products and specialty carbon and compounds are also slowing. On the other hand, replacement accounts for 75% of China\'s light vehicle tire production and 85% of China\'s heavy commercial vehicle tire production. In China\'s domestic market and the global export market, this high share of alternative tire products is the replacement market for China\'s tire supply. As a result, the demand trends for these tires are associated with the Global miles-driven trend, which is still strong. This is the overall view of the market. Now let\'s discuss the position of Cabot. We have a true market leadership position in China and have a triple position in our field of enhanced materials Carbon black plants. Key customer relationships with leading Chinese and multinational tire manufacturers, as well as state-of-the-art products on the market. Multinational tire companies produced in China have greater exposure to the OE market as they sell more than the index of new cars. Although Chinese tire manufacturers have a large exposure in China and the alternative market for exports. We are in a good position with our extensive market participation and we do not see an impact on our business. In fact, our sales in China grew by 6% in the fourth quarter. This power continues for us until October. As the industry\'s preferred supplier, tire continues to seek Cabot as a supplier partner as we are committed to sustainability, product performance, reliability, quality and service. In terms of the performance chemicals component, the slowdown in demand for light vehicles is a factor affecting demand for specialty carbon and specialty compounds. In September and October, sales of both products fell by single digits in China. We think this is temporary because of the solid foundation of further penetration of cars and the possibility of government -- An economic stimulus that has a positive impact on demand. As the silicone industry continues to expand in China, demand for our gas phase silicone business continues to grow strongly. After the factory turned around with our fence in the fourth quarter. In October, our gas-phase silica business in China resumed steady sales growth. Looking ahead to the winter season, we expect the emission restrictions to be strictly enforced again. We expect our production and prices to remain stable and our production environment restrictions will be limited due to our efforts-in- Environmental Control. We note that China is still committed to more stringent environmental law enforcement. Since last year, they have entered the winter cut period since October and have increased the number of cities under 26 2 emission limits. While these are strong signals from the government\'s commitment to environmental law enforcement, this is a balancing act for the Chinese government and we expect things to change as we progress in the winter. Finally, trade disputes between the United States. S. China must recognize that there is a relationship between the United States and China. S. Many years of tariffs on Chinese tires, in fact, there are brands -- The EU has imposed new tariffs on Chinese truck tires. Increases in tariff levels often lead to higher end consumer prices and changes in trade flows, meaning imports of tires to the United StatesS. Maybe from another lower one. Tires made in China will be sold in other countries. This is the first wave of China\'s tire tariff industry experience. Given that the tires produced in China account for about 40% of the world\'s tire production, there is a structural dependence on the tires produced in China, which may lead to the transfer of trade flows and the increase in prices, rather than a sharp reduction in tire production in China. In short, our position in China is very important. We have a factory in the world. Environmental Control, technology, installation. We have been operating in China for more than 30 years and have built deep relationships with our customers, these companies tend to do business with Cabot, which allows us to continue to drive sales growth, at the same time expanding our profit margin we help our customers migrate to higher value products produced by Cabot. We have seen this trend continue until October and we feel we are good -- Into fiscal 2019. Now, I will hand it over to Erica McLoughlin to discuss the financial results for the quarter in more detail. Erica? Thank you, Sean. Now, I will continue to discuss the results of the fourth quarter of fiscal 2018. In the fourth quarter, our adjusted earnings per share were $1 and EBIT totaled $0. 13 billion, up 5% year on year. over-year basis. Enhanced materials continues to deliver strong operating results, with EBIT up 33% year on yearover- Driven by the impact of our 2018 customer agreement, stronger spot prices and quantities in Asia, and better product portfolios, this year. The results of the performance chemicals segment decreased compared to the previous year, mainly due to the higher partner-driven planned turnaround costs in our gas phase silica network, as well as for favorable growth investments This quarter, we also completed the acquisition of a carbon black manufacturing plant in China from Japanese steel and carbon companies. This bolt- The acquisition will further support our growth targets and expand our capabilities as we transform a 50,000 MT plant into a dedicated carbon product line that supports us. Cash flow was very strong this quarter, operating cash flow was $0. 163 billion, and we returned $0. 103 billion to shareholders through dividends and stock buybacks. During the fourth quarter and the entire fiscal year of 2018, EBIT for reinforcement materials increased by $16 million [ph] Compared with the same period of the previous year, it was $86 million respectively. The main reason for the increase is that the unit profit margin is high and the number is large. The 2018 Tire Customer Agreement, rising spot prices in Asia and a better product mix have helped boost profit margins. Sales rose in the fourth quarter mainly due to strong yearsover- Annual Demand in Asia, while annual sales growth is due to growth in the Americas and EMEA. Now turn to performance chemicals. Compared with the fiscal year 15 million in the fourth quarter, EBIT decreased by $2017 in 2018. The decline in EBIT was mainly due to a 13% drop in sales of the metal oxide business this quarter and an increase in costs associated with maintenance turnaround. While these are all planned, due to the longer plant downtime than expected, production and costs are affected. While we estimate the impact on metal oxides in the fourth quarter to be $1 million, the total impact on metal oxides in the quarter was $9 million. We have also experienced tire costs related to the new capacity investment of gas phase method silica and the functional growth of energy source material product line. Partially offset by these effects, the production of specialty carbon and preparations increased by 6%, driven by the growth of specialty compounds, but the trend in September slightly weakened. The number of specialty carbon and preparations showed a growth trend as expected, with strong growth in July and August. Sales decreased in September. The decline in September was concentrated in China and Europe, driven by a combination of inventory destocking and software car demand. Throughout the fiscal year, the performance of the chemical EBIT was roughly flat, down $1 million from the 2017 fiscal year. This is due to the increase in fixed costs and the increase in expenditure on our growth investment, which offset the increase in professional carbon and formula, as well as the increase in profit margins across the market segment. With the cost of specialty carbon raw materials rising over the course of the year, the sector has shown strong commercial execution during the year, and we have successfully implemented price increases to offset raw material prices and expand profits Compared with the fourth quarter of last year, EBIT and purification solutions decreased by $3 million in 2018 and [$13 million]ph] Compared with fiscal 2017. The decline in these two periods was driven by the continued competitive intensity in mercury removal and other North American powdered activated carbon applications. This is partially offset by more quantities and lower fixed costs in professional applications. In the fourth quarter of 2018, due to large projects in Africa, EBIT for specialty fluids increased by $7 million over 2017, compared to the same period in the previous year, in the Middle East and Asia. Compared with 2017, the annual special fluid EBIT is roughly the same. I am now moving to the company project. As of this quarter, our cash balance was $0. 175 billion and liquidity remained at $0. 9 billion. In the fourth quarter of fiscal 2018, cash flows from operating activities amounted to $0. 163 billion, of which net capital decreased by $85 million. Capital expenditure in the fourth quarter of fiscal 2018 was $69 million, and the additional use of cash in the fourth quarter included a dividend of $20 million and a share repurchase of $83 million. Cash sources for the quarter included $26 million in proceeds from land sales in India, where one of our previous factories was located, which were used to fund part of our stock repurchase for this quarter. In fiscal 2018, we generated $0. 299 billion in cash flow from operations, including an increase in network capital of $0. 11 billion due to increased oil costs. Capital expenditure for the fiscal year 2018 was $0. 229 billion. Additional uses of cash for the current fiscal year include a dividend of $80 million and a share repurchase of $0. 142 billion. The share buyback is partly funded by the $50 million proceeds associated with Asian land and investment sales as we return that cash to shareholders. In the fourth quarter of fiscal 2018, the company received a $1 million tax discount for a valid GAAP tax rate of 2%. This includes getting tax benefits from some $19 million projects. The business tax rate for the fiscal year ended September 30, 2018 was 21% per cent. Looking ahead to 2019, we expect capital expenditures to be approximately $0. 25 billion to $0. 3 billion. We expect that the operating tax rate will continue to grow in the range of 22% and 24%, mainly due to the impact of the United States. S. Tax Reform Act. I\'m transferring the phone to Sean now. Thank you, Erica. Now, I would like to take some time to discuss our outlook for the 2019 segment. For enhanced materials, we continue to see a supportive environment with high industrial utilization rates throughout the world. So far, we are very pleased with the results of the 2019 tire agreement, where we have achieved price increases and sales growth in all regions. Despite some signs of weakness in the news about China, we are still full of confidence in our position in China and expect that given our investment in the world, we will continue to maintain strong quantitative growth and Environmental Control. In addition, our de-bottleneck program continues to increase capital efficiency capabilities for our carbon black network to achieve sales growth in 2019. During 2018, the department operated at an impressive quarterly EBIT speed between $65 million and $75 million. Based on the new calendar year 2019 customer agreement and expected volume growth, we expect the quarterly EBIT running speed to increase to $75 million to $85 million starting in the second quarter. In terms of performance chemicals, the basic elements of our professional business are still quite strong, however, we expect that due to the impact of the new European fuel economy and automotive emission regulations, the first fiscal quarter will face short-term uncertainty, the cost of raw materials for the entire segment is higher, and due to the slowing price of polyethylene, there is a possibility of inventory de-inventory in our plastic applications. We believe that these effects are temporary, and after the first fiscal quarter, with the growth of EBIT in the second and third quarters, these effects will lag behind us to a large extent. In addition, we will start to see the benefits of our new gas phase method silica plant in China in the fourth quarter. In addition, from the new customer qualifications and the next Power generation products in our energy materials product line are expected to continue construction throughout the year. In 2018, the department\'s quarterly EBIT was running roughly between $45 million and $55 million. Looking forward to 2019, we expect that, following short-term uncertainty, the quarterly operating speed of the sector will increase to $55 million to $60 million as we develop throughout the year. In terms of purification solutions, we expect the North American powder market to remain challenging. So we are taking steps to improve the performance of the department by transforming the plant. This adjustment to the business is to focus more aggressively on the portfolio, optimize our assets, and streamline our organizational structure to support the new focus. We expect that these measures will start to have a positive impact on the business in the second quarter and will lead to an improvement in operating speed of about $10 million this year. Therefore, we expect the business to provide EBIT between 0 and 10 million in the 2019 fiscal year. Finally, this particular fluid area continues to benefit from key projects in Asia, the Middle East and Africa, and achieved good results in the first half of this year. We expect an EBIT of £ 2019 to be between $10 million and $15 million. Looking ahead, I am very pleased with the opportunity before us. We are still in an environment where the utilization rate of carbon black and gas phase silica industry is high worldwide. The potential demand is strong and the industry\'s ability to increase new capacity remains challenging. The outlook for 2019 is still quite strong and the results will increase as we move over the course of the year. Therefore, based on our current views on the market and macroeconomic conditions we serve, we expect 2019 of adjusted earnings per share to be within the range of US $4. 35 to $4. 75. This will mark Cabot\'s fourth consecutive year of strong revenue growth as we continue to successfully implement our core strategy. Thank you very much for joining us today. Now, I will turn back the call from our Q & A session. Question-and- Thank you. [ Operation instructions]. Our first question came from Mike Leithead at Barclays. Please continue. Good afternoon, everyone. Good afternoon Sean Keane. Mike LeitheadI is guessing to start and enhance the strong momentum of materials, can you help us estimate the increase in price and quantity? As opposed to the work you completed in 2018, you expect this segment to grow by 2019. Sean kehanness Well, I think in terms of our overall outlook for demand, we continue to see that, globally, this market should grow at 3%. Very consistent with what we will convey during the investor day dive. So I think the underlying fundamentals of demand are pretty strong. Then, in terms of how we look at pricing developments over the next year, first of all, I would like to describe the supply/demand environment and say that given the limited capacity added and the fact that I think the global environmental standards are becoming more stringent, its benefits and expectations will remain unchanged. So this will definitely drive our compliance costs and new growth investments that our customers need. Therefore, in order to get the proper return on capital, we need to raise the price substantially. We are very happy to sit here today and discuss how our contract results have been resolved so far. We have achieved price increases in all regions and achieved balanced volume growth at market rates. We have provided you with the EBIT running speed progress for this business in 2019, so the price increase is included in these expectations. As a result, you can see that there has been considerable progress in this area, and our prospects in this area are still very optimistic. Mike retiya. That’s helpful. Then on the stock buyback plan, you were a little bit stronger here in the fourth quarter. Given today\'s stock situation relative to the previous quarter, is it fair to assume that interest rates should remain high? Or is there some other financial considerations that might slow it down? Sean kehanness Well, I think the first thing I want to say is that our corporate strategy and capital allocation framework includes a commitment to the continuous return of capital to shareholders through dividends and stock buybacks. So the commitment to the location of the capital remains. Now, in the last quarter, we did increase the stock repurchase efforts during that time, and given our views on the full value of the company, we are certainly very satisfied with this decision. I think that as we move forward, we will be guided by the continuous return of capital to shareholders, so the goal of returning our 50% discretionary cash flow remains the right goal for the company I think. Of course, at today\'s price level, we think the stock is seriously undervalued. Mike retiya. Thank you. Thank you. The next question is Jim Sheehan from SunTrust. Please continue. Unknown analyst I\'m Pete from Jim. Can you share any of your views on the future shift you are planning? What is the standardized rate of turnover compared to your experience in fiscal 2018? Sean KeohaneWell, I think this is a little different in business, but the chemical plant has the concept of regular turnover, the factory turns around once a year, sometimes every two years, this is a very common phenomenon in the chemical industry. Now, it\'s different depending on the business, so whether we\'re talking about carbon black or gas-phase silica. What I want to say is that when we get into 2019, our expectations for our carbon black business will be as we saw last year, there is no real change, but you can see the change of each quarter, the specific time of each quarter. But the full year turnaround I would say is basically in line with what we did in 2018. In the burned metal oxide, the turnover power is slightly different as we have a fence Build factories with our raw material partners. So these shifts are always in sync with our raw material partners, our fences -- The partners and schedules are mainly determined by them. So, when they do a major overhaul of their silicone factory, we do a sync revamp of our fence -- Silicone production line. So the dynamics there are slightly different from the partnership they have to manage. So, in the fourth quarter, we definitely improved our level of turnover activity in the quarter. We expected that, but in that quarter we had three factories that were in turn and I would say that the specific quarter was very unusual. But if you extract this from the quarterly dynamics and look at it on a year-round basis, I would say it behaves like carbon black, you have these in every major factory every year or two. Thank you, unknown analyst. Then in the purification solution performance improvement plant, does this mainly mean to walk away from the lower profit margin or is there any other factor? What is the proportion of business you are targeting? Sean cohannesaw, the plan is really three. The Point Transport plant, first of all, is the focus of it, so what we mean is a very clear picture of which applications we are involved in and make sure that they have the right profit for continuous engagement. The second part of it is about how our overall assets match those participating choices. Third, from a structural point of view, the organizational structure that serves this business, these three key points, of course, are interrelated. I think the first is to make real choices around areas that we think have long-term profit potential. Unidentified analysts. Thank you. Thank you. Our next question comes from Kevin hochwal of the North Coast research center. Please continue. Good afternoon, Kevin HocevarHey. Sean Keane, Kevin. Kevin HocevarI was wondering if you could comment on the 2019 contract price. I was wondering if you could give it-I know you might get too much in detail, but, if you think about the scale of the pricing achieved in 2018 versus the pricing achieved in 2019, can you compare it? Are they similar? Do you have more gains in 2019? If you only look at the contract, what do you see there, and what is the way it is? Sean kehanness Well, Kevin is probably the best start, and he will look at the dynamics of the whole industry. What we see here is- I think this is a plus, and I would say that the global supply and demand situation is gradually more balanced, and this year is more balanced than last year. Our vision for the next few years is that this will be the case because there is no increase in material capacity in major parts of the world. Of course, I think the overall trend towards strengthening environmental law enforcement is having an impact. So, I would say, this is the profile that we see. Therefore, we hope that in order to serve our customers, we must achieve a substantial price increase to cover the cost of these environmental investments and support them for a long time. They need long-term growth. This is the trajectory of the business, we saw the price increase last year, we are very satisfied with this year\'s performance, we have shared with you the expected scope for this quarter will be strengthened here, this is very important. So our expectation is embedded in this step. Kevin HocevarAnd then as far as Asia is concerned, it is also very helpful to hear your comments earlier in your speech on China. So I was wondering, what you expect there, sounds good, so I think, I just want to understand that what you expect here is to increase sales and revenue. Sounds like it might increase sales and keep margins this year? From a spending cut perspective, can you give us some ideas about what you see this winter? It seems more like a targeted cut on more criminals, and I know Cabot is in compliance with the regulations? Have you noticed that others have to see more cuts this year than you? Do you think you can beat the market in the next quarter or two? Sean kehanness So I think in terms of the environment, in China, we will definitely see the industry, and I think we have to deal with winter cuts. So I think that should still be the case here. Of course, if you look at-Kevin, if you take a little step back and look at China\'s commitment to environmental law enforcement, I think the signal is strengthening the outcome, but we see some changes in their implementation. It will be based more on emissions targets than on specific production cuts. So last year you might remember that there were some specific task of cutting production, and this year I think they\'re trying to focus on emissions targets, which means will, I think it\'s more focused on the non-target population. Compliance-non Compliant players But our view is certainly that this will continue. So now, we expect that our leadership here will continue to allow us to use-- Because we already have emissions controls and don\'t get any material or real impact from the cuts, it should make me think that the customer prioritizes the Cabot value proposition. We look at our pricing and profit margin levels in China today and they are very healthy. So this is the current prospect. But I think it is important to keep in mind that this is a balance for the Chinese government and that its concrete performance will be quite dynamic, but they extend the winter months. They have increased the number of cities subject to 26 plus 2 emissions restrictions. We see clear evidence that they are actually chasing people who are not obedient. So I don\'t think these trends will change. Kevin in, Mircea Geoana. LockeGreat. Thank you very much. Thank you. The next question comes from Jeffrey Zekauskas of JPMorgan Chase. Please continue. Thank you so much to Jeffrey ZekauskasThanks. Sean Keane, Jeff. Jeffrey ZekauskasHi, in your description of how much money you think you can make from reinforcement materials. You said, well, maybe we can make $75 million to $85 million a quarter. So if we take the midpoint, it\'s $80, so it\'s $320 this year. So if we are in the middle of the range, you will get about $40 million in reinforcement material. But in 2018, you were up $86 million. So why are you so pessimistic about the prospect of reinforcement materials, and now you seem to think you-- Even if you describe that the market is getting tighter, your sales are growing, and your growth rate will reach about half. Sean kehanness, Jeff. First of all, it is clear that our contract is executed on a calendar year basis. So -- The first quarter is the old contract, so the new running speed we share will have the benefit of three quarters. So I think the industry dynamics in general are very beneficial and we expect a good momentum in this business. I think the difference here. First of all, I would like to say that the growth of $80 million in 2018 is a very important growth. So I think, in the long run, it\'s not the right way to think about an enterprise like this that will have another growth of the same size. But the other thing I would say is that due to environmental enforcement here, an important part of this progress is our performance in China. So if we can continue to expand our numbers and maintain our-thanks to this leadership-- What I want to say is to reset the economy. That\'s a -- This is a very good result. So I think it\'s important to divide it into these buckets, and long term contracts are part of that. I think in China, we continue to maintain a good momentum, and then start again, how will we balance that momentum. I don\'t think you see a decent reset of a similar size in 2018. If I could try a cup for Erica, Jeffrey zeckas might. Your liquidity usage is $0. 11 billion this year, and accounts receivable and inventory have also increased significantly. Everything is equal if you have a working capital benefit next year or you think you will have [Indiscernible] Where are the raw materials? Ricky McLaughlinYes. The best case is Jeffrey zencaskas. The use of Erica mcllinso this fiscal year is largely driven by rising raw material costs, so when we pass higher costs to our customers and pricing. So if we go next year, if we have a flat oil environment, you won\'t see a similar increase we \'ve seen this year. If you see a drop in oil prices, then this will create a cash source for us. So it will depend on whether we see a steady rise or fall in oil prices to reach that level. But I don\'t think we want to see a repeat of the level we saw in 2018 in 2019. Jeffrey Zeka Suka Okai Maybe you already said that. But to comply with EPA regulations, how much is left on your domestic environmental spending? What is the remaining total expenditure? Total expenditure of Erica mcllinso, I think we expect total expenditure of about $0. 13 billion for all plants, one factory completed, the other basically completed, and we also have one factory. So I would like to say that for the final compliance of the plant, we may be reducing by about $50 million to $60 million. Jeffrey ZekauskasSo is your capital expenditure really due to resign from 2020? Erica McLaughlin, when the group, when the United StatesS. The investment will be basically completed, and the last thing is 2021 when it must go online. So after that, we will see less spending. Jeffrey ZekauskasAnd finally, it\'s hidden in performance chemicals in your professional black business. How is the business\'s profit margin this quarter? Have they gone up a lot? Similar to what happened in the rubber block? Are they flat? What happened there? Erica mcllinso I think in general, when you look at performance chemicals as you mentioned, you see mixed profits. So you define it to a large extent due to a small number of metal oxide businesses. So when we see a drop in the amount of increased spending and turnover, because that\'s the highest margin piece in that segment, you do see a drop in EBITDA margins. I think we expect these EBITDA margins to rise as we look to the future. I think that through your separation of special carbon, we have successfully passed the rising cost of raw materials over the past year. So when you look at it for a year, the profit margin in this industry actually improves. So I think we have confidence in next year and we will not see the impact of the fourth quarter because there is no metal oxide and then the carbon margin goes up, because we will spend a year when the cost of raw materials is offset. Jeffrey zekauskasas is a professional carbon profit margin for the quarter --over-year ? Erica McLaughlin, they were basically flat in the first quarter. over-year. Jeffrey zecasuka Okai, great. Thank you very much. Thank you. The next question comes from Chris Kapsch of the circular capital market. Please continue. Good afternoon Christopher KapschGood I followed up a few times, just on the contract, and it sounds like they are basically in place on calendar 2019. You mentioned the rise in prices and sales. The problem is that the number you see has increased. Are these in line with what your customers think about the development of the market, or are you really getting some volume share as these contracts are signed? I\'m Sean kehanecrith. How are you? So what I want to say here is that they are very much in line with the market, the growth rate of the market. Christopher kapschot got it. And then when you put your-- In terms of EPS, the outlook for fiscal 2019 may just be talking about something --- Some leverage that you think is more uncertain right now may sway the end result to the high end, or conversely to the low end of the range you offer. Sean kehannessSure. So I think there are a lot of factors here that can move things within the scope of what we\'re talking about. I think the first and most important thing is how we spend the winter in China, because China is an important part of the global carbon black market in the global tire market. I think it\'s a-- Is a very important factor that allows you to have different results in this range. Now, we have managed to do this successfully in 2018, so we are satisfied with our own management capabilities. However, how China solves this problem is a balance and a little dynamic for the Chinese government, so we can only wait and see. But I would say that this is a fairly important variable, they can, and it can swing here. I think there is one more part of our performance chemistry. We \'ve seen Erica\'s comments later on. - In the first quarter of September, some de-inventory and weak demand, many applications entered the plastic market when we looked at the applications here. When the price of the polymer is moderate or accelerated, pipe emptying or reconstruction is usually seen. So now as they ease down, we see some running out of pipes. If this continues, then if the situation is reversed, it may affect your negative impact, then you usually see people speeding up their purchases. The reason is very simple. The people downstream of us are all converters, injection molding products like this. They tend to be smaller businesses, and they are worried about being caught by high-priced polymers in the face of falling prices. On the other hand, when polymer prices begin to move in another way, they try to buy a bit and trade according to expectations of price increases. So this is another factor, a fairly important part of the performance chemicals in this broad plastic value chain. So this is going to be the second question I want to say, and what I want to say is that we have been watching and trying to manage it in a very dynamic way. The third question is, in particular, the overall level of raw materials for special carbon. As Erika said on a year-round basis, we are chasing this throughout the fiscal year of 2018. We have completely recovered. So that\'s good. But we are chasing it all year round, and if we find ourselves in this position again, it could be a challenge. If the price is a little bit mild then it could be a profit benefit as we can stick to pricing and it would be better to have a set of markets that are more value oriented. So, it will be a few Chris, and what I want to say is the most prominent, and what we have to think and think about when we are laying out the scope. Christopher KapschYes helped a lot. I appreciate it. Then, if I can quickly follow up on one in terms of a few metal oxide businesses and discontinued, I think it\'s a bigger, or more serious, impact than you expected. Are those effective? - It\'s your time partner, they shut down their silicone production, you just don\'t have the aura, or do they also reduce their last production because I know in production last summer, part of the relationship is to feed back the gas phase method silica as a filler, so, wondering if they have weaknesses in the business, or is this really just the function of having enough raw materials to serve a wider customer base? Thank you. Sean Keane\'s eyes, so I think there are two factors that affect it here. - Affected the results of the quarter. One is that the turnaround time is a little longer than expected, and whenever you have a set of synchronized activities, you will find that what needs to be handled on both sides of the fence is not uncommon. So the length is a little longer, which pushes up the cost. Then you will also have a volume effect because these customers will consume a certain amount of silica in their own rooms- Compound as you said. This is completely correct. There are quantitative and cost implications. While all these shifts are planned, the fact is that they are a little longer and the quantitative impact of re-launch is more obvious, which is a bit unexpected for us. Christopher KapschOkay Thank you for the color. Thank you. The next question comes from Loris Alexander of Jefferies. Please continue. Good afternoon. Can we go back to the discussion about downtime? I think you can describe it from two angles? One is to take into account the current utilization rate of the industry. Do you see any changes in the risk of major power outages that could change the balance of regional supply demand? Related to this, when you talk about-- When you discuss pricing with customers, they will see the same trajectory as you, will they adopt such an attitude? One thing that makes sense on the calendar is to raise pricing to a reasonable return on capital to motivate a new project, or, are they waiting for the industry to be tight enough, to create the kind of soaring we see in other, more commodity businesses, and to inspire new capacity-building. I mean, given the rising cost of building your plant, how do they consider the ever-changing tightness in the management industry? Sean keohanisso may be here, Loris, the first part of your question, and I\'ll try to fix it first before discussing the second part. Therefore, in terms of downtime, considering the overall high utilization rate, downtime will have a more obvious impact, whether it is planned or unplanned downtime, because the industry is only operating at a more stringent level. Therefore, it will definitely have an additional impact on the well-organized and good work Structured and disciplined around planned downtime as you don\'t have idle capacity elsewhere to meet customer needs. So it will definitely become more obvious. A few years ago, when the industry had more capacity, a player who could have an unexpected or unplanned outage could rebalance their supply chain and source from another factory, customers can also choose to do so. This dynamic has indeed narrowed down here. Now, I mean from the long term consideration of the client here, given their growth investment, I think it\'s clear that what I\'m talking about here is reinforcement material, each business is certainly a bit different, but what we see in enhanced materials is that customers care about the reliability of long-term supply and are concerned about the right sustainability for suppliers as these environmental pressures are becoming more and more obvious, each of our clients has their own commitment and expectations for sustainability. So who they align with is becoming more and more important to them and their value sets. So I think the result is that they are involved in the demand for price increases in different ways, and why they are necessary in order to support the investment level economy. I believe that only by achieving this in a sustainable way can the industry build the capacity to support its growth. So I think it\'s logical in the conversation. The first is to balance supply and demand. Second, I think the industry is on the track of long-term sustainable development. Third, they need to get a reinvestment level economy in a good and stable place in order to encourage suppliers to expand in a prudent way and help them. So I think our dialogue is quite reasonable at this stage. And then just to clarify or confirm your-- In your opinion, the current level is enough to decrease. - We can call it de- The economy, but not the reinvestment economy. Overall, Sean cohanne would say yes, but it depends on the area. Of course, de- Bottleneck economics is very capital efficient and takes into account the position of EBITDA margin in the business, relative to de- Bottleneck, absolutely no problem. These are very attractive projects. Then, depending on where you are in the world, your level of comfort with reinvestment changes. So, for example, our factory in Indonesia takes into account China\'s supply demand, environmental changes, and there are no emissions control requirements of the same level at this point, the return on capital of this project makes a lot of sense for us, so we did it. But if we solve the problem with a hypothetical statement or the North American economy, they can support the green space economy and emissions control, we will say no. So we need a higher price in order to reach this level. So it depends on where you are in the world. But for sure Bottlenecks are very attractive projects that cannot be achieved at the current level. Thank you. Thank you. The last question comes from David Begleiter of Deutsche Bank. Please continue. David begeliterthank you. Sean, considering that your stock price and leverage are not that high, would you consider early loading, stock buybacks and 19 points? Sean keenwell, we\'re sure David thinks the stock is seriously undervalued. Our commitment here is an unsustainable return on capital. So we want the share price to be related to the sum of the parts of our past year, and we really like it now. So I think we will certainly be working on the return of those capital this year and looking again at the current situation. It is very attractive relative to the sum of our parts. David begeliterand did a quick job in performance chemicals in the first quarter, if the business grew on a revenue-based basis --over-year? David Sean keohanesari say it again. Revenue from David begeliterperformance Chemicals should grow year by yearover-year in Q1? Sean keenupover- Year or in order? David bigelittle. over- So Q1 is a seasonally weak quarter of traditional seasonality, so it\'s true, but it doesn\'t affect your year --over-Year comparison. This is more about the progress of the year. On a year-over- It actually depends on how growth develops. As we sit here today and look at the first quarter, we see that at the end of the fourth quarter, there will certainly be some impact on going to inventory, and we won\'t be surprised if those effects continue until the first quarter. So our point at this point is that if they persist in Q1, then we will see an increase in Q2 and 3 because the impact will be reduced, then we will enter the volume quarter that is usually very second and third quarter. This is how we see this year, the development of this year at this point. Thank you very much. Thank you. This is the end of our Q & A session. At this point in time, I would like to transfer the call to Sean Keohan as a closing note. Sean Keane. Thank you again for joining us, for your support of Cabot, and we look forward to talking again next quarter. Thank you. Thank you for attending today\'s meeting. This is the end of the program. You can all disconnect.