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Edited Transcript of KRA earnings conference call or presentation 28-Feb-19 2:00pm GMT

Q4 2018 Kraton Corp Earnings Call

HOUSTON Mar 5, 2019 (Thomson StreetEvents) -- Edited Transcript of Kraton Corp earnings conference call or presentation Thursday, February 28, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Christopher H. Russell

Kraton Corporation - VP & CFO

* H. Gene Shiels

Kraton Corporation - Director of IR

* Kevin M. Fogarty

Kraton Corporation - President, CEO & Director

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Conference Call Participants

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* Christopher John Kapsch

Loop Capital Markets LLC, Research Division - MD

* James Michael Sheehan

SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst

* James Peter Finnerty

Citigroup Inc, Research Division - Director

* John Ezekiel E. Roberts

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals

* Michael Joseph Sison

KeyBanc Capital Markets Inc., Research Division - MD & Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the Kraton Corporation Fourth Quarter 2018 Earnings Conference Call. My name is Jovie, and I will be your conference facilitator. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Mr. Gene Shiels, Director of Investor Relations.

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H. Gene Shiels, Kraton Corporation - Director of IR [2]

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Thank you, Jovie. Good morning, and welcome to the Kraton Corporation Fourth Quarter 2018 Earnings Call.

With me on the call this morning are Kevin Fogarty, Kraton's President and Chief Executive Officer; and Chris Russell, Kraton's Vice President, Chief Accounting Officer and Interim Chief Financial Officer.

A copy of our fourth quarter news release and the related presentation material we'll review this morning is available in the Investor Relations section on our website.

Before we review the fourth quarter and full year 2018 results, I'll draw your attention to the disclaimers on forward-looking information and the use of non-GAAP measures included in our presentation and in yesterday's press release.

During the call, we may make certain comments that are not statements of historical fact and thus constitute forward-looking statements. Investors are cautioned that there are risks, uncertainties and other factors that may cause Kraton's actual performance to be significantly different from the expectations stated or implied by any forward-looking statements we may make today. Our forward-looking statements speak only as of the date they're made, and we have no obligation to update such statements in the future.

Our business outlook is subject to a number of risk factors. As the format of this morning's presentation does not permit a full discussion of these risk factors, please refer to our forms 10-K, 10-Q and other regulatory filings available in the Investor Relations section of our website.

With regard to the use of non-GAAP financial measures, a reconciliation of each used non-GAAP financial measure to its most comparable GAAP financial measure was provided in yesterday's earnings release and is included in the presentation we will review this morning.

Following our prepared remarks, we'll open the line for your questions. I'll now turn the call over to Kevin Fogarty.

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [3]

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Thanks, Gene, and good morning, everyone. Before we review our fourth quarter results, I want to first acknowledge the 2 important initiatives we announced last week that underscore our commitment to unlock value for the benefit of our shareholders.

Specifically, we're evaluating strategic alternatives for our Cariflex business, including a possible sale as a means to realize an appropriate valuation for what we believe to be a truly unique speciality business. And secondly, our board has approved a $50 million share repurchase authorization. The rationale for these 2 undertakings is founded on our belief that the intrinsic value of our specialty businesses is not fairly reflected in today's current market valuation. I'll come back to these 2 initiatives later on our call, and I want to ensure that they are appreciated within the context of the broader longer-term value creation strategies underway here at Kraton.

Now turning to the fourth quarter and full year results, our fourth quarter was largely in line with our expectations. Our Chemicals segment delivered favorable results in the fourth quarter, despite disruption at our Panama City, Florida site, resulting from the impact of Hurricane Michael. Sales volume growth and improved margins contributed to adjusted EBITDA growth of nearly 18% compared to the year-ago quarter. We believe this minimal carry into 2019 with good trends in both our Performance Chemicals business and our Tires business and overall stability in our Adhesives business.

Regarding Hurricane Michael and the impact on Panama City, Chris will walk you through financial details. But I'm pleased to say that at Panama City, our CST capacity will be fully restored by the end of this week, at which time our Panama City site will be back to 100% operational capacity and achievement that can only be attributed to the hard work and dedication of our employees. And this is especially true considering the level of damage we experienced at Panama City, just a little over 4 months ago.

Looking at our Polymer segment, in the fourth quarter of 2018, we saw a strong rebound in our Cariflex business with sales volumes up 18% compared to the fourth quarter of 2017 when Cariflex sales were impacted while we resolved certain processing issues our customers were experiencing with materials from our newly deployed direct connect capacity at Paulinia.

Overall, margins for the Polymer segment were consistent with our long-term expectation as evidence by adjusted gross profit for the segment of over $1,000 per ton, both for the quarter and for the full year of 2018.

However, as anticipated, our fourth quarter results were affected by the production disruption at our Wesseling, Germany plant, caused by low water levels on the Rhine River, which impacted product availability in your Performance Products business. We also experienced continued weaker sales of SIS into global adhesive markets, softer HSBC demand, particularly in China and North America automotive applications, and higher costs predominantly associated with transportation logistics. As a result, fourth quarter 2018 adjusted EBITDA for the Polymer segment was down 13% compared to the fourth quarter of 2017.

Given that the improvement in our Chemical segment adjusted EBITDA was largely offset by weaker Polymer segment results, consolidated adjusted EBITDA for the fourth quarter of 2018 of $85.1 million was essentially flat relative to the fourth quarter of 2017. On a full year basis, we reported 2018 consolidated adjusted EBITDA of $378 million. Chemical segment adjusted EBITDA for the full year of 2018 of $163 million was up 8% compared to 2017, driven my modestly higher sales volume, despite the negative effect of Hurricane Michael in the fourth quarter and the year-long trend of improving pricing for TOFA and TOFA derivatives as well as other high-value product streams, including sales into our tire markets.

Polymer segment adjusted EBITDA for 2018 was $215 million, down 4% principally due to the impact of production challenges in the second half of 2018, lower sales volume into noncore paving markets, China and North American automobile or automotive applications and higher costs, including, again, transportation and logistics.

Cash generation was favorable in 2018. And during the year, we reduced consolidated net debt by $76 million, net of foreign currency benefit, exceeding our most recent guidance for the full year consolidated net debt reduction of $50 million to $60 million and bringing consolidated leverage down to 3.9x.

Had we not incurred $53 million of transaction costs and call premium associated with the opportunistic refinancing of our 10.5% notes, the reduction in net debt would have been closer to $125 million, again, net of foreign currency benefit.

In 2019, debt reduction will remain a priority. We expect to reduce consolidated net debt by another $170 million to $190 million, excluding the effect of foreign currency and the impact of purchases under our share repurchase authorization. Thereby, making significant progress towards our targeted consolidated net debt leverage ratio to -- of 3.0x.

At this time, I'm going to turn the call over to our intern Chief Financial Officer, Chris Russell, for a more in-depth view of the financial results. Over to you, Chris.

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Christopher H. Russell, Kraton Corporation - VP & CFO [4]

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Thank you, Kevin, and good morning, everyone. I will begin my remarks on Slide 5 with a review of the Polymer segment financial results.

Adjusted EBITDA for the Polymer segment in the fourth quarter was $44 million or 16% of revenue as compared to $51 million or 18% of revenue in the fourth quarter of 2017. The decline in our 2018 fourth quarter adjusted EBITDA resulted from slowing global demand, particularly in China, and to a lesser extent, lower sales in the noncore paving markets as well as the supply disruptions at our Wesseling site.

We also experienced higher operating costs, including freight and logistics, all of which we mentioned during the third quarter earnings call. Volumes in the fourth quarter of 2018 declined by 8%, predominantly in our Performance Products business due to lower paving sales in noncore markets and the supply disruptions at our Wesseling site.

Our HSBC volumes were down 11% when compared to the fourth quarter of 2017, driven by weakness in consumer demand in Asia as a result of the ongoing trade dispute between the U.S. and China and lower sales in the North American automotive applications.

On a positive note, with the direct connect technology issues behind us, we are pleased to see meaningful growth return to our Cariflex product group. Our Cariflex business reported 18% volume growth in the fourth quarter of 2018, driven by strong market demand for our latex applications, a trend we expect to continue into 2019.

Overall, unit margins in the fourth quarter of 2018 were relatively flat when compared to the fourth quarter of 2017, despite modest inflation in monomer pricing. Our unit margins remained in line with our long-term expectation, as evidenced by an adjusted gross profit per ton in excess of $1,000.

Similar to the third quarter, we continued to experience higher freight and logistics cost coming from a shortage of U.S. truck drivers and a consolidation of ocean freight carriers, a trend which is negatively impacting most industries.

Full year 2018 Polymer segment adjusted EBITDA was $215 million or 18% of revenue versus $223 million or 19% of revenue for the full year 2017. The decline was primarily from the issues we discussed with you during our third quarter earnings call, mainly volume decline in paving applications in noncore markets, the unplanned outages and higher operating costs, especially freight and logistics, which I mentioned earlier.

Furthermore, the supply disruption at our Wesseling site impacted volumes in our USBC business, and we did see softening demand in Asia. Offsetting these challenges was full year volume growth in our Cariflex product group of 8%.

Despite the volume declines in our USBC and HSBC product groups, execution of our Price Right Strategy contributed to higher full year unit margins across all product groups. The higher unit margins are evidenced by the achievement of a full year adjusted gross profit per ton in excess of $1,000.

With respect to the cost reset initiatives, we are pleased to report that all necessary actions required to achieve the $70 million of benefit have been substantially completed. As a result, we expect to be at annualized run rate of $70 million by the end of the first quarter 2019. This is a significant milestone achieved through the dedication and focus of our teams.

Moving to the Chemical segment on Slide 6. As a reminder, when we provided our revised guidance on October 25 of $380 million of adjusted EBITDA, we were unable at that time to estimate the operational and financial impacts of Hurricane Michael. As we noted in our press release on December 21, the CTO portion of our Panama City facility was fully restored in November and the CST refining capacity was restored to approximately 60% in December. With the restoration of full CST capacity by the end of this week, our Panama City site will be fully operational for both CTO and CST.

From a financial standpoint, during the fourth quarter of 2018, we incurred $12.3 million of direct cost, which were included in our cost of goods sold, but which have not been reimbursed under our insurance policy. Given this, these costs have been added back for purposes of adjusted EBITDA. With respect to lost sales in the quarter, we estimate the associated margin to be $8.9 million. And in the quarter, we recognized $8.9 million of reimbursement under our business interruption policy, which is included in operating income, and therefore, reflected in adjusted EBITDA.

We currently estimate the replacement cost associated with damaged equipment to be in a range of $5 million to $7 million, and we have not yet been reimbursed under our property and casualty policy for these replacement costs above our deductible.

In addition, during the fourth quarter, we recognized an impairment loss related to the damaged equipment with a net book value of $1.3 million. We currently anticipate filing our initial claim with our insurance carrier during the first half of 2019, and we expect reimbursement for the direct costs incurred following the submission of this claim. While the reimbursement of these direct costs will be reflected as a gain in our GAAP financial statements in the period received, this gain will be excluded from our adjusted EBITDA in that same period.

Given our CST refining capacity was only recently fully restored, our first quarter 2019 results will be negatively impacted by the applicable margin associated with lost revenue.

As opposed to the fourth quarter in which we received offsetting reimbursement for lost margin, we expect to be reimbursed for these first quarter loss margins later in the year. We estimate this margin impact to be approximately $5 million to $7 million.

Adjusted EBITDA for the Chemical segment in the fourth quarter was $41 million or 23% of revenue, 21% when including an estimated amount of lost revenue as a result of Hurricane Michael, this as compared to $35 million or 19% of revenue in the fourth quarter of 2017. This $6 million increase in adjusted EBITDA was driven by improved unit margins as a result of the successful implementation of our Price Right Strategy, which contributed to higher prices for our TOFA, TOFA derivative and specialty tires applications.

Despite the continuation of excess supply coming from the Asia C5 hydrocarbon-based resin market, we continued to see stable adhesives demand, a trend we expect to continue into 2019. Our fourth quarter 2018 adjusted EBITDA also benefited from lower planned maintenance, partially offset by higher operating cost and the same logistics and transportation inflation I mentioned, impacting our Polymer segment.

Full year 2018 Chemical segment adjusted EBITDA was $163 million or 21% of revenue, 20% when including an estimated amount of lost revenue as a result of Hurricane Michael. This, as compared to $151 million or 20% of revenue for the full year 2017. These results were driven by the continued execution of our Price Right Strategy and, to a lesser extent, volume growth. The higher prices drove margin expansion for TOFA, TOFA derivatives and specialty tire applications, albeit partially offset by higher operating cost, including plant maintenance and turnarounds at a number of our refining sites as well as the aforementioned freight and logistics.

Looking now at our consolidated results for the fourth quarter and full year of 2018 on Slide 7. Adjusted EBITDA in the fourth quarter of 2018 amounted to $85 million or 19% of revenue, 18% when including an estimated amount of lost revenue as a result of Hurricane Michael. This was essentially flat when compared to the like period in 2017.

As I mentioned in the segment reviews, we continued to execute on our Price Right Strategy. Thus, the quarter-over-quarter results reflect healthy unit margins in both of our segments, albeit offset by supply disruptions at our Wesseling site and slowing consumer demand in Asia, both of which impacted our Polymer segment. Full year 2018 adjusted EBITDA is $378 million with an adjusted EBITDA margin of 19%, unaffected when including an estimated amount of lost revenue as a result of Hurricane Michael. This is compared to $374 million of adjusted EBITDA or 19% of revenue for the full year 2017.

Adjusted earnings per share was $0.67 per share in the fourth quarter of 2018, unchanged from the fourth quarter of 2017. While full year adjusted EPS improved $0.31 to $3.16 per share, largely due to a $39 million reduction in interest expense, driven by the actions we have taken to improve the capital structure.

Now moving to Slide 8. I am pleased to report another solid year of cash flow generation and net debt reduction. Our consolidated net debt amounted to $1.48 billion at December 31, 2018, representing a reduction of $113 million as compared to December 31, 2017. Excluding a $38 million favorable foreign currency effect, our consolidated net debt was reduced by $76 million, which is $16 million better than the high end of our previous guidance of $50 million to $60 million.

As a reminder, the $76 million reduction in the year net of FX also includes $53 million of cost associated with the successful refinancing of our 10.5% senior notes.

I'll note that now as we have a substantial indebtedness denominated in the euro, it may be the case that we have periodic fluctuations in our consolidated net debt due to currency effects. For purposes of full year guidance around debt reduction, we exclude the impact of FX.

Since closing the [euros] on a chemical acquisition, our focus on net debt reduction has resulted in 1.5 turn improvement in our net debt leverage ratio. And at December 31, 2018, our net debt leverage ratio was a sub 4 turns. We continue to have confidence in the cash flow profile of Kraton and are committed to further debt reductions, while prudently investing for future growth.

You will note in our 10-K, which will be filed later today that on December 6, 2018, we commenced a repurchase program for up to 20 million of our 7% senior notes, which at the time, were trading a significant discount to par. As of today, we have repurchased 5.3 million of these shares at an average discount of par of 93.3%.

Before I turn the call back to Kevin, I want to spend some time on Slide 9, speaking to our current outlook for 2019. We currently anticipate 2019 adjusted EBITDA will be in a range of $370 million to $390 million. We expect 2019 to be a dynamic year with adjusted EBITDA influenced by a number of both Kraton-specific and broader macroeconomic factors. For example, in our Chemical segment, we expect continued margin improvement, particularly in our TOFA and TOFA derivatives, driven by the recent pricing improvements in the vegetable oil markets. Similarly, in our Polymer segment, we expect a continuation of margin expansion in our Cariflex business and significant volume growth in our USBC business, particularly in paving applications in emerging markets.

While there are a number of tailwinds which should benefit 2019, the headwinds noted on Slide 9 create both known and unknown financial uncertainty. The largest being associated with the major lubricant additive customer that has notified us of their intent to implement an inventory management program with an estimated impact of $17 million.

We also expect ongoing pressure in transportation and logistics cost, with the full year 2019 impact being higher than 2018, particularly given our expectations for volume growth. We are working on a number of mitigation efforts through a combination of logistics optimization and pricing initiatives. However, these factors coupled with the continuing uncertainty coming from slowing growth in Asia, particularly in China, and the fact that 2019 is a significant turnaround year for Kraton with planned maintenance costs expected to increase $7 million relative to 2018. These headwinds put significant pressure on our 2019 adjusted EBITDA.

I'll close with a reminder that 2019 guidance for specific line items, such as noncash compensation, interest expense, tax rate and the like are included in the Appendix to the earnings material reviewed this morning.

I'll now turn the call back over to Kevin.

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [5]

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Okay. Thank you, Chris. Now while we did not achieve our financial objectives that we established for Kraton early in 2018, we enter 2019 well-positioned to benefit from our clear strategic focus to pursue growth and improve operational and financial results. We have good momentum in our Chemical segment. And despite pockets of demand softness in our Polymer business, primarily in China and greater Asia, our broader outlook for demand in North America and Europe remains positive.

Regarding our outlook for our Polymer segment, on Slide 10, in 2019, we intend to focus on organic growth, driven by innovation, building upon the foundational work to reposition our Polymer business that is now complete. As a reminder, in 2015, we outlined a strategy for our legacy Polymer business designed to deliver a step-change increase in profitability and to position the business for the future. Elements of the strategy included specific initiatives designed to reset the cost structure of our manufacturing footprint. In addition, we outlined objectives related to our innovation programs that, we believe, would contribute to our portfolio shift towards higher value products.

As of year-end 2018, I'm pleased to say that we have successfully completed all projects contributing to the $70 million of run rate cost reductions, and importantly, at an all-in cost of $48 million, which is well below our initial estimated cost to achieve of $93 million.

We completed our state-of-the-art, 30-kiloton HSBC plant in Mailiao, Taiwan, as you know. And during 2018, product qualifications and great transitions continued. And we ended 2018 with a significant increase in production from that new plant. That production ramp is expected to continue into 2019. We also completed the 18-kiloton USBC expansion in Berre, France, allowing us to further leverage very attractive local cost for raw materials.

And lastly, but certainly not least, we completed the direct connect Cariflex process in Brazil, demonstrating the effectiveness of the new manufacturing process. Regarding our focus on innovation, in 2015, we set a goal to increase the revenue contribution from differentiated product grades from 57% of the portfolio in 2015 to 61% by the end of 2018. Our efforts have been successful. As of year-end 2018, 63% of Polymer revenue is derived from differentiated product grades, a testament to our innovation progress.

Through market growth, the benefits of cost reductions and our innovation efforts, we have grown adjusted EBITDA for the Polymer segment from $167 million in 2015 to $215 million in 2018. And this is despite the impact of operational headwinds we discussed in our third quarter call, amounting to approximately $10 million. While impressively, we have improved adjusted gross profit from $842 per ton in 2014 to over $1,000 per ton in 2018. And we expanded our adjusted EBITDA margin from 16% in 2015 to nearly 18% in 2018.

In 2019, we intend to build upon the improved cost structure and profitability, continuing our focus on organic growth through innovation. In addition, our capital budget in 2019 includes certain investments to specifically improve our overall operational performance to prevent or mitigate the impacts experienced in 2018.

In our third quarter call, we also discussed our plan to arrange alternative truck and rail logistics at our Wesseling site in Germany as a means to mitigate the operational impact of low water levels on the Rhine River. Those alternatives are now evaluated and should be available if we see potential for future disruption at Wesseling.

We are considering similar alternatives to provide raw material flexibility in Berre, France. Likewise, in Belpre, Ohio, we have historically been relying upon barges for the supply of key raw materials such as butadiene. From time to time, high water levels on the Ohio River have disrupted barge access and raw materials' supply. A project is now underway at the Belpre site to expand rail access for raw materials, lessening the potential for operational disruption in the future and lowering shipping cost for critical raw materials.

Turning now to our Chemical segment on Slide 11. As you know, we acquired this business at the beginning of 2016. While 2018 marks the first full year of adjusted EBITDA growth during our ownership, we believe the business has substantial value to be realized through 3 main drivers.

We expect global adhesive markets will return to historical levels of profitability. We project continued growth in existing markets, resulting in increased utilization of our European refinery system. And three, we expect to diversify our sales mix through realization of innovation-led growth initiatives deployed these past 3 years.

With regard to our Performance Chemicals business specifically, as we've discussed before, a significant amount of which is TOFA-based, contraction in oil field drilling activity in 2016 contributed to excess market availability of TOFA. Although, Kraton did not have significant sales of TOFA-based products into the oil field markets at that time, overall supply surplus cause market pricing to collapse.

With a rebound in drilling activity, TOFA pricing began to improve in early 2017 and through 2018. We have seen improved pricing and margins for TOFA and TOFA derivatives. We believe the outlook for TOFA is favorable, and that pricing should also benefit from more recent increases in pricing for vegetable oils. In fact, TOFA margins, as expressed in terms of fundamental raw material margin, were back to pre-acquisition levels.

Most recently, we announced a global price increase for tall oil fatty acids effective March 1, which further reflects our view of underlying positive momentum in these markets. With respect to our adhesive business, in late 2016, pricing for rosin esters came under pressure due to excess hydrocarbon tackifier capacity that was added in Asia. As a reminder, our prices for rosin esters typically mirror trends of hydrocarbon-based tackifiers. While we were mindful of the significant capacity additions in the tackifier industry, we've projected at the very least that integrated producers of base hydrocarbons and derivative tackifiers would passed along underlying crude oil-based cost increases.

In other words, we did not fully anticipate the willingness of Asian producers to price commodity tackifiers at levels that suggest, in many cases, negative cash margins as crude oil prices almost doubled since dipping below $40 in late 2015.

Beginning in 2018, we saw stability in our adhesive business with modest improvements in rosin ester pricing being largely offset by higher feedstock costs.

While we still believe a recovery margins in the broader tackifier markets and, thus, our rosin esters market will occur in the interim, our strategies are clear. First, we intend to preserve our share by being market responsive with hydrocarbon-based tackifiers substitute pricing. Our customers consistently maintain, all else being equal, with respect to quality, performance and price. We will use Kraton's renewable rosin esters offerings, which leads to the second key component of our strategy, improving both quality and performance of our offerings. For example, we are developing a process to reduce sulfur contained in CTO and its precursor black liquor soap. If successfully commercialized, we believe this game-changing advancement in product quality will offer our adhesive customers a cost-competitive renewable solution to utilize Kraton's offerings in a much larger cross section of the adhesive marketplace.

We also intend to continue to leverage the attractive growth prospects in specialty margin profile of our CST chain, both in primary fraction sales as well as derivatives. For example, we recently completed an expansion of our tread enhancement agent plant in Niort, France. Our Tier 1 tire OEM customers utilize Kraton's offerings in their highly differentiated tread enhancement technologies, used primarily in wet grip and reduced rolling resistance tire applications.

Our Chemical business remains a highly profitable enterprise with 20% EBITDA margins and impressive cash flow profile and, we believe, real growth prospects that should unlock further value for our shareholders, customers and the dedicated global teams, charged with delivering this future.

Turning now to Slide 12. I believe all our key stakeholders appreciate that we fundamentally believe innovation plays a role, and a vital one, at Kraton in creating organic growth and realizing margin enhancement in both our Polymer and Chemical segments.

Two years ago, we made a significant change in our innovation approach, and today, we are seeing the benefits such as the portfolio shift we have achieved in our Polymer segment. I've commented before that I believe our current innovation pipeline is the best I've seen in years. Our innovation focus is now more market driven, and we have reprioritized the platforms we are investing in, working with fewer projects but placing more resources on projects that we feel are higher probability for near-term commercialization and, thus, meaningful market penetration potential.

Moreover, we are driving efficiency on our innovation processes and working to accelerate product development. A radical departure from the past, we have embraced an open innovation model in which we are leveraging expertise and capabilities of external research organizations, many of those based in India. This is helping us not only significantly accelerate our innovation programs, but also explore novel chemistries and process technologies more cost effectively.

Let me share a few thoughts on our overall R&D spend for 2018, which totaled $41 million, split approximately 70% to our Polymer segment and 30% to our Chemical segment and encompassing 3 main activities: product development, customer technical support and operational process improvements, which includes quality-enhancement initiatives. We have found that housing these 3 essential competencies under a broader technical community leads to efficient knowledge sharing, career development and adoption of best practices.

Moreover, our approach allows our leadership flexibility to balance current timeline priorities such as seeking customer approvals of existing product grades being produced on new assets as in the case of Mailiao, Taiwan with longer-term initiatives, specifically new product developments.

Being a committed provider of specialty products and solutions and seeking to share in the value we ultimately help create downstream requires industry-leading technical service and support, which again, we provide through our R&D organization.

Fundamentally, we believe our multidimensional approach to providing, both internal and external customers technical support while maintaining our core growth commitment to develop new products and improving overall sales derived from innovation and differentiation is a true source of competitive advantage for Kraton.

As we look to the future, we must be also mindful of calibrating our growth plans and expectations with capacity availability. In other words, we can't expect to grow without having capacity in the ground to fuel it.

Beginning with our Cariflex business, which in 2018, saw return to more normal growth as the past 2 years were impacted by the significant pull forward of growth we benefited from in 2016, associated with the FDA ban on patterned latex natural rubber surgical gloves. We typically manage our supply capability as a global system, optimizing between our wholly owned facility in Paulinia, Brazil, which -- where we now employ the direct connect process, and in Japan, with our long-standing strategic tolling relationship. We strive to maximize Paulinia's output to fully capitalize on the economies of scale of the new direct connect process. While we presently have sufficient capacity to serve near-term growth, we must plan ahead to ensure we are never the constraint on our customers' ability to grow.

Fortunately, the reduced capital intensity of the direct connect process provides for compelling expansion economics. In 2019, we intend to commence planning for the next edition of capacity for Paulinia.

In our Performance Products business, we expect to see continued growth in global paving demand, led by infrastructure spending and overall emerging markets such as India. Therefore, as with Cariflex, we expect we'll need additional capacity to serve this growth. Given the lead times required, planning is currently underway, and we are fortunate that we have multiple options for consideration weighing critical factors such as capital cost, timing, feedstock availability, trade flows, to name a few. You should expect to hear more about these plans in the coming quarters.

Now turning to Slide 13. Fundamentally, we believe Kraton remains well positioned for growth and continued margin expansion, which we expect to deliver through our focus on innovation. We have seen growth and significant margin improvement in our Polymer segment over the past 3 years, and we expect this trend to continue. Again, this is precisely why we are now planning for capacity expansion.

Similarly, the outlook for our Chemical segment is positive, and we believe there is significant opportunity for margin expansion and growth, particularly with an expected recovery in adhesive markets and a return to rosin esters profitability in line with historical norms.

We ended 2018 below 4 turns of leverage, and we further expect to reduce consolidated net debt this year by $170 million to $190 million, again, net of the impact of foreign exchange and any activity under our share repurchase authorization.

Debt reduction remains our primary focus, and we expect to achieve our targeted and consolidated net debt leverage ratio irrespective of any decision we ultimately take regarding the Cariflex business.

To conclude, we believe the intrinsic value of Kraton is not appropriately reflected in our market valuation, and this brings us back to the 2 announcements we made last week. First, given our valuation, we believe a modest share repurchase program is in the best interest of our shareholders, particularly as we do not expect to detract from our primary goal of deleveraging.

Turning to our Cariflex business, by any definition, it is truly a specialty business. Having built the business over the past 10 years, we still relish the margin profile and the long-term growth opportunity it represents.

As you've heard this morning, after a 1 year respite, following the 19% volume growth in 2016, our Cariflex volume was up 8% in 2018. Profitability for Cariflex has been enhanced even further by the success of our direct connect conversion. And so for the Cariflex business, the valuation disconnect is particularly punitive. For this reason, we are evaluating strategic alternatives for the Cariflex business, including a possible sale as a means to secure a proper valuation for our shareholders. We look forward to updating you on our progress on all these fronts as we move through 2019.

With that, I'd be happy to open the call up for questions. Back to you operator.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question will come from the line of Jim Sheehan of SunTrust.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [2]

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So could you give us your outlook for a CTO cost in 2019, please?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [3]

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Jim, so I think that from a CTO cost perspective, I think you fundamentally appreciate that the costs are driven by really a combination of 2 factors: one is just underlying energy values, crude oil, natural gas and the like; and secondly, obviously, we have to recognize that there is supply/demand fundamentals that we must always be mindful of. And I'd say that today, as we look at the CTO markets, we'd say that the markets are pretty tight in terms of availability. Some of that availability, of course, is driven by just the uplift in the overall TOFA markets that I spoke of, and to a lesser extent, I suppose, but still relevant, we have one major facility in the U.S., namely our neighbor in the Panama City that is still down or parts of the plant is still down as a result of Hurricane Michael.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [4]

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And on the Cariflex business, what do you see as a normalized growth rate for that? And what are the key drivers of that growth?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [5]

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You're talking about Cariflex?

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [6]

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Cariflex.

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [7]

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Yes. So look, I mean, Cariflex, it's a fairly simple business proposition where we're replacing natural rubber in surgical glove and condom applications primarily. The history of the business has been such that the replacement is a direct result of a risk mitigation strategy, if you will, if not and a customer preference for some material, that is a synthetic does not carry the natural rubber containing proteins that can cause allergenic reactions, but mimics the performance in terms of form, fit and feel, tensile strength and whatnot that mimics natural rubber, and we see that trend continue. In particular, as we look from 2019 and beyond, certainly, the European market presents an opportune target market for our customers to continue to grow in. And the exact same value proposition exists that allowed the business to penetrate into the U.S. as rapidly as it did.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [8]

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Okay. And on your modeling slide, you've got CapEx at $110 million for 2019. Do you see that moving higher in 2020 and beyond, in line with these capacity expansion plans that you referenced?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [9]

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Well, I think that the one thing I wanted to make clear. One, we see obviously good growth prospects that would drive our capacity requirements. You have 2 things happening at the same time. Some of the initiatives that we have been embarking on to bring our plants up to the reliability and performance that we expect that we've been embarking on since, particularly in our Chemical business, we closed the deal in 2016, those things will start to phase down. While at the same time, we'll be introducing some of these capacity initiatives. And without knowing exactly, which initiatives, particularly in our Performance Products business, we're going to pursue. It's possible that the CapEx could ramp up a little bit over this base level that we're experiencing in 2019, but I think it's too early for us to say definitively.

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Operator [10]

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Our next question is from the line of Mike Sison of KeyBanc.

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Michael Joseph Sison, KeyBanc Capital Markets Inc., Research Division - MD & Equity Research Analyst [11]

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Kevin, when you think about the Chemical business, I mean, margins there have clearly been very good for the last couple of years. I mean, not very good, but they've been steadily around 20% solid. Definitely indicative of a good specialty business, but what do you think needs to happen for EBITDA to grow? And where do you think that EBITDA number should be over the next several years?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [12]

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Well, we've never veered from our view that the value-added offering we have should be reflective in the overall EBITDA margin of the business. But there is no question that -- just like I said, there is really 2 elements to that, that are kind of more in the immediate term. One is clearly a return to more normal margin profile for the adhesive business. And again, in order for it to improve, you've got to start with stability, and that stability occurred in 2018. It's hard for us to predict exactly because this is more behavioral than it is supply/demand on the part of the hydrocarbon space. But nevertheless, like all good markets, people can't continue to absorb these cost increases forever. So that's why our first element of our strategy must be to preserve our share against those hydrocarbon alternatives. The second element clearly is the fact that we've got surplus capacity in our refining system in Europe, and we expect to grow into that across all our product families in our Chemical business. And then lastly, perhaps a little bit more longer term, but we're not just sitting back and waiting for those adhesive markets to return. We know that one key element of the overall offering we provide our customers has a significant relevant performance criteria that our customers will like to see us improve, and that's reducing the amount of sulfur contained in our material and the effects it has on color and smell. And that's exactly what we're working on.

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Michael Joseph Sison, KeyBanc Capital Markets Inc., Research Division - MD & Equity Research Analyst [13]

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Okay. And then in terms of a follow-up for Cariflex. It's been your best growth business, I would imagine, one of your higher margin businesses. Can you maybe walk us through how you are going to think about monetizing that business? What type of value -- any -- probably can't get into specifics do you think that business should provide?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [14]

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Well, as I said in my comments, Mike, and we certainly feel that we think that if you just think about Kraton's valuation today, that nowhere near represents the underlying value of this Cariflex business. And that's why I made the comment that, that's particularly punitive for our shareholders. So yes, our board has a view that this value -- this business has a real attractive value in the marketplace, and clearly, we expect to realize that if we choose down to go down that path.

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Michael Joseph Sison, KeyBanc Capital Markets Inc., Research Division - MD & Equity Research Analyst [15]

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Okay. And then maybe a quick one on some of the headwinds. Can you maybe -- a lot of companies have struggled a little bit first quarter here, first half of the year is going to be a little bit tougher. Can you maybe talk about some of the headwinds you're seeing? And is it more first quarter, second quarter loaded? And the second half looks a little bit better in terms of growth for the businesses?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [16]

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Well, look, we called out kind of 4 headwinds as we think about the guidance we provided for 2019. Clearly, there is not a whole lot I can do about our inventory reduction plan on the part of a major, as Chris commented, lubricant additives customers. That's their choice. They take that risk. We obviously, at the end of the day, therefore, continue to work on alternatives to fill that volume gap. But we called out that as a very finite headwind facing our business for 2019. The logistical issue, I don't consider that to be first half, second half. It's going to take some time, quite frankly, for a combination of the supply side in this case to increase capacity like every business does when their margins improve. They are going to invest in capacity. And that's going to take a little bit of time. But however, our goal in Kraton is not just to sit back and take it, our goal in the Kraton is obviously do 2 things. Do anything we possibly can internally with respect to the optimization around logistics to minimize this impact. And then secondly, a realization has to occur downstream with our customers that this is a very real cost inflation facing every business, and we're no different. So through our pricing policies, we'll be pushing through as much as we can. But the net effect of that is what we called out in terms of headwind for the balance of the year. And then that last one, which is a turnaround issue, again, that is unique to us. We're on a 5-year cycle at our major plant in Germany. I think in this case, it's the second half of the year, in which we'll have that turnaround. So the only one of the 4, therefore, that you can really talk about in terms of is it first half, is it second half? How long is it going to last? Is really this China issue. And I'm not going to sit here and speculate. If you've got an opinion, I'd love to hear it, obviously, but at the end of the day, we know there is 2 factors here. We know there is the [terror] factor in and itself, which is direct. And the second factor is just what is -- what cause that's had on underlying market or, if you will, end-user sentiment in China specifically. And while we think those 2 things are related, it's very hard to kind of get your arms around whether that's true or not. So we take that as kind of a sign that in our guidance, we presume that it's going to carry on for quite some time in 2019. We hope that's not the case like most people, but I think these things don't reverse course and really have a 1 quarter effect. We think it probably carries for the balance, at least, the balance of the first part of the year.

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Operator [17]

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Our next question is from Chris Kapsch from Loop Capital Markets.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [18]

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I had a couple of questions. One is regarding the 2019 guidance range in the Polymer segment, specifically. You mentioned you expect, I guess, volume growth, just is there any order of magnitude? And then along those lines, what is your expectation in terms of gross profit per ton expectation for the segment that's baked into the guidance. And just some color on -- are you seeing continued mix uplift and what are the drivers around that dynamic?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [19]

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So Chris, look, when you think about the Polymer business, we have 3 sub businesses there. We have our Performance Products business, which is primarily our paving and infrastructure business. We have our specialty materials business or specialty polymers business, which is our hydrogenative portfolio, which is particularly dealing with these China issues that we just discussed. And then we have, of course, our Cariflex business. I mean, Cariflex business is clearly where we see the growth coming from. I just talked about that. In the case of our Performance Product business, we see growth coming from 2 factors: one is just generally the underlying markets in our Performance Products business are still solid. Infrastructure spending is there. Our customers' expectation in terms of the ability for us to supply their growth this year is clear, and we have every intention to satisfy their expectation. And of course, there is also an element of some of the markets that kind of disappeared on us in 2018, particularly in South America and Australia. Every indication tells us they're coming back. And of course, this is the high season for those markets. So I think we have a pretty good feel for that.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [20]

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And is there -- in terms of the expectation for gross profit per ton, do you have a magnitude that's baked into your guidance?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [21]

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Well, we haven't raised our expectations that things should be considerably better than a $1,000 a ton. So for the time being, we've always maintained this business ought to be able to, at least, average $1,000 a ton. And then, of course, take that and extrapolate it over increased volume, and you've got truly incremental economics to benefit the EBITDA line.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [22]

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And do you see -- based on your outlook, do you see better mix or actually adverse mix, but higher profitability despite adverse mix?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [23]

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Look, embedded in everything we do in innovation is improved mix. That's just kind of our middle name. And what I mean by that is, it's not just a function of product developments driving just pure organic growth, it's also, in many cases, we're replacing our very own polymer offerings that were developed several years ago or multiple years ago with new offerings today at higher margins for our customers because of the higher value add we're offering. So it's a function of both. So definitely mix improvement each and every day, each and every quarter, each and every year.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [24]

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And Kevin, just the follow-up to one of your answers to another question related to the pine chemicals business and specifically the sulfur out innovation. I'm just curious about the timing of the commercialization there. Are you at a point where you're able to sample your product to adhesives company to try in their formulations? And also just maybe a feel for what sort of IP, if any, is around that technology, that process or application technology? Or is there patent surrounded or more trade sequence?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [25]

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No, we expect to definitely create the intellectual property to protect whatever development we have in mind here. With respect to where we are in the development stage, I suspect, in 2019, customers will start to see samples.

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Operator [26]

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Our next question is from James Finnerty of Citi.

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James Peter Finnerty, Citigroup Inc, Research Division - Director [27]

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On Cariflex, could you just give us any kind of way of thinking about how much EBITDA is on LTM basis that the business generated? Or if you don't want to give specific numbers, just what kind of margin that business could or has generated on the EBITDA basis?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [28]

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We're not going to talk about that yet. Obviously, we're in the stages now of preparing some of those materials for the benefit of parties that have expressed interest. I suspect probably just because those numbers will become more aware in the marketplace, we'll comment on something like that in our next call, perhaps.

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James Peter Finnerty, Citigroup Inc, Research Division - Director [29]

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Okay. But safe to say, it's much higher than the remainder of the business?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [30]

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The margin, I don't think that would be -- if you're talking about the EBITDA margin itself?

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James Peter Finnerty, Citigroup Inc, Research Division - Director [31]

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Yes.

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [32]

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There is no doubt Cariflex brings our company average up. But I'm -- they're not going to share just yet as the absolute EBITDA that comprises the Cariflex business.

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James Peter Finnerty, Citigroup Inc, Research Division - Director [33]

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Okay. And then on the destocking from the lubricant customer, it's safe to say that it's just sort of more of a one-time destocking and something that is -- this customer is experiencing? (inaudible)

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [34]

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Right. So they're basically -- this has nothing to do with their growth prospects. They're just going to take down their overall, both raw material and finished good inventory in 2019 to generate some cash. And then once that's depleted, then they're back to the usual bind to reflect their consumption.

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James Peter Finnerty, Citigroup Inc, Research Division - Director [35]

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And in terms of revenue, I know you hit -- you've given profit impact, what kind of revenue impact is that expected to have?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [36]

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I'm looking at Chris. Chris, do you want to answer that question?

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Christopher H. Russell, Kraton Corporation - VP & CFO [37]

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Yes. I don't -- obviously, we don't give revenue by specific category. So I'm not going to comment to revenue.

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [38]

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Look, but needless to say, this reflects a hydrogenated styrenic block copolymer customer, which basically means it's coming from our specialty materials. And therefore, that $17 million that we called out is attractive margin because this is a customer that buys some of our highly differentiated grades. We're not happy about the development, but there is not a whole lot that we can do about it. And I've charged our specialty polymers team to go out and find potentially new places where we can place some of this volume that is now available on our system.

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Operator [39]

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And our next question is from John Roberts of Kraton (sic) [UBS Investment Bank]

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [40]

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Several years ago, you had a strategic evaluation done that included looking at all options, including selling the company. Was this just a refresh of that 5-year-ago study? Or was this narrowly limited just to the Cariflex business?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [41]

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I'm not sure, John, what you're referring to. I can assure you that what I have said is that this is not the first time that we've thought about Cariflex in this way. But nevertheless, if you think about where the business was 2 or 3 years ago, in particular where the new technology was yet to be proven, this is a much better time to think about these types of strategic options for the business.

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John Ezekiel E. Roberts, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst, Chemicals [42]

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Okay. Then I don't want to put Chris on the spot, but is this now a permanent CFO position? Or do you still have an outside search going on for a CFO?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [43]

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I think it'd be more prudent if I answered that. Chris has, as you know -- Chris has stepped in at a time when he was clearly capable to manage, obviously, this transition period. And I've been very clear with investors that we are looking externally, and Chris is also one of those candidates. And I keep the board updated on this process. We expect to kind of make a final decision on the permanent CFO position, hopefully, in the next month or 2, if not a little sooner.

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Operator [44]

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We have a follow-up question from Chris Kapsch of Loop Capital Markets.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [45]

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Yes, I got disconnected temporarily. So if you touched on this, I apologize, but just wanted to reconcile the narrative around spending capital to increase the capacity on the Polymer segment versus if you look at sort of the results in '18 and where you see '19, volumes in that segment were down in '18, and they're going to be up. You didn't provide a magnitude but up in '19, but let's just call that a wash. I'm just wondering, if you -- the capacity expansion that you're referring to, to support growth, what sort of time frame are you talking about in terms of bringing on capacity? And what sort of visibility do you have behind those growth drivers to rationalize the investments?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [46]

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Sure, Chris. Well, first of all, back to your volume comment, look, there were a couple of clear issues impacting our business in '18 that caused our performance product business volume to be down versus the prior year. We called out, of course, everything associated with the Rhine River and that impact it had on our production, not on markets. The markets demanded our material, we just didn't have it to supply. And then secondly -- and the second issue, of course, is those kind of one-offs down in the South American market as well as Australia, which I just commented, we see in a much more positive light this year in 2019. We have a additional capacity that we're introducing this year with -- that will be a full year benefit of the Berre expansion. So if I think about it in terms of timing, it -- what really reflects is where we see the opportunity for growth, which we think is very clear, with the different options that we have internally about expanding its one location or the other. And that's where I commented, we need to take into account the timing, the capital requirements, and of course, the all-important availability of feedstock. In the case of Performance Products, certainly, more so than our specialty polymers business, the availability of our butadiene supply is vital to the decision about where we expand. So the good news is we have options to consider, and each one of them carries with it kind of different assumptions vis-a-vis capital and timing. But I hope you take it the same way I do, which is -- this is a very firm confirmation that we're making about our view of future prospects in this business. And it's our goal, obviously, to continue, not just to grow with the market, but to grow with the innovation grades that we're introducing to accelerate our ability to penetrate in the highest end of the Performance Products value chain.

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Christopher John Kapsch, Loop Capital Markets LLC, Research Division - MD [47]

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Kevin, just to follow-up on that. I guess, one of the -- maybe the -- from where I sit, engaged with a lot of folk on the buy side, maybe the one of the fundamental understanding about the company is just the nature and characteristics of this niche polymers business. Maybe in the context of investing for future growth that you envision, maybe you could just maybe put it in the context of how do you see this niche subsegment, if you will, in the polymers space? The growth characteristics secularly of the industry niche. And then how you see Kraton's position to presumably exceed that growth? Can you put a number on that sort of secular growth characteristic?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [48]

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So Chris, if you -- and please excuse me, but when you use the word niche, I think you're using it in the context of the broader polymer industry overall. I assure you when it comes to styrenic block copolymers, particularly unhydrogenerated styrenic block copolymers. In the markets of North America, South America and Europe, Kraton is highly relevant, more relevant than anybody else. And that we take as a very strong affirmation of how we've grown the markets to that position over time, and in the context of our expansions, how we think about continuing, not just to preserve our share, but to do so in a way in which we enhance our overall margin profile through the innovative grades we introduce. And of course, to do that, what I'm saying to you is we will require new capacities to serve that growth, and it's that simple. Our customers want to see us make these investments over time so that they can continue to plan for their own growth and not have the risk of supply in question.

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Operator [49]

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We also have a follow-up question from James Finnerty of Citi.

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James Peter Finnerty, Citigroup Inc, Research Division - Director [50]

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Just wanted to touch on -- if Cariflex is sold or a portion of it is sold and proceeds come in, what are your thoughts with regard to the use of those proceeds in terms of debt reduction, reinvesting in the business, potential inorganic growth? Just to know how -- your thought there?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [51]

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Great. I think what I heard you say that the proceeds from any sale of the Cariflex business. And the answer there is real clear. The majority of those proceeds are certainly going to go to debt reduction. I mean, that's our stated priority, and we're going to stand behind that. To the extent, we have the opportunity, obviously, to consider some other uses of some of the capital proceeds. It will be driven by our usual capital allocation programs around here where we look at what is the highest value of return for our shareholders, whether that's expanding or whether that's returning that capital to you or to the shareholders. But definitely, the number one use of proceeds will be to retire debt.

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Operator [52]

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And we have a follow-up question from Jim Sheehan's line from SunTrust.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [53]

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You provided a real helpful bridge on Slide 8 regarding 2018 debt reduction. How do you see that bridge shaping up in 2019?

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Christopher H. Russell, Kraton Corporation - VP & CFO [54]

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Yes, I think when you look at it, I would kind of characterize. If you look at the midpoint of the range of $380 million of adjusted EBITDA, back off $110 million of CapEx, $75 million of estimated interest expense, up $10 million in cash tax payments, and then we assume working capital would be largely a push. You're looking at debt reduction somewhere in about $180 million, $185 million. So that's kind of how we think about the debt reduction for 2019.

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James Michael Sheehan, SunTrust Robinson Humphrey, Inc., Research Division - Research Analyst [55]

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Perfect. And in Chemical, how would you describe the competitive environment for rosin esters, particularly in Europe? Are you experiencing any pricing pressure?

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Kevin M. Fogarty, Kraton Corporation - President, CEO & Director [56]

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I think as I look around our business, clearly, Europe is the most competitive marketplace in our rosin ester business. And to some extent, that is a reflection of clearly what happens in terms of the hydrocarbon chain that I explained a moment ago. But there is also intra-material competition as well. Needless to say, if you have softer overall demand trends pursuant to what I talked about, that means all producers are experiencing the same. And what I would characterize is we need to work with our leading customers who have come to depend upon us for a reliable, ratable service and supply. And as I said in my earlier comments, protect the share that we still have in that process because there will come a day with improvement. That improvement will come from the overall markets improving, and that improvement will come from our overall material performance and quality improving. And we're going to be well situated when that happens.

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Operator [57]

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At this time, speakers, there are no further questions. You may continue.

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H. Gene Shiels, Kraton Corporation - Director of IR [58]

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Alright. Jovie, thank you. We want to thank all of our participants this morning for their interest in Kraton and some very good questions. I'll note that there is a replay of this morning's call available later today. To access that replay, dial (866) 395-9164.

With that, it concludes our prepared commentary.

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Operator [59]

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This concludes the Kraton Corporation Fourth Quarter 2018 Earnings Conference Call. You may now disconnect.