Earnings Call Transcript - HUN Q4 2021

Operator, Operator

Greetings, and welcome to Huntsman Corporation Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ivan Marcuse, Vice President, Investor Relations. Thank you, and over to you, sir.

Ivan Marcuse, Vice President, Investor Relations

Thank you, operator, and good morning everyone. Welcome to Huntsman's Fourth Quarter 2021 Earnings Call. Joining us on the call today are Peter Huntsman, Chairman, CEO and President; Phil Lister, Executive Vice President and CFO. This morning before the market opened, we released our earnings for the fourth quarter '21 via press release and posted on our website. We also posted a set of slides on our website, which we will use on the call this morning while presenting our results. During this call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release. I'll now turn the call over to Peter Huntsman, our Chairman, CEO and President.

Peter Huntsman, Chairman, CEO and President

Thank you, Ivan. Good morning, everyone. Thank you for taking the time to join us. Let's turn to slide number five. Adjusted EBITDA for our Polyurethanes division in the fourth quarter was $218 million versus $201 million a year ago or an 8% increase. Revenues grew 35% as our proactive selling price actions more than offset significant inflationary feedstocks and logistics cost increases. Our volumes improved 2% year-over-year and we benefited from slightly higher equity earnings. We saw strong demand in our North American region with 7% growth. Asian and European volumes were essentially flat versus the fourth quarter a year ago. We are pleased to see strong pricing development in China, the world's largest MDI market as we head into the first quarter of 2022. Our core construction markets including insulation, adhesives, and coatings continue to be the strongest markets for Polyurethanes. Underlying demand remains strong. We continue to see excellent growth in our commercial insulation and composite wood businesses. Our Huntsman building solutions business continues to benefit from strong pent-up demand and product substitution gains. HBS fourth quarter revenues were 20% above the prior year and $560 million in 2021. I would note that when we purchased each of Demilec and Icynene-Lapolla in 2018 and 2020, the combined revenues at acquisition were approximately $400 million. HBS did continue to be hindered by logistics and shortages of certain raw material ingredients, which restricted growth. The backlog for our order book remained very strong, and we're implementing price increases that are more than offsetting higher costs, resulting in increased margins. Further, our efforts to expand internationally continue to gain momentum. We remain very positive about this platform and we will look to add to it through bolt-on acquisitions and organic investments when feasible. Our elastomers platform, which includes our global footwear business, is another core growth platform for Polyurethanes. Revenues overall grew by 33% versus the fourth quarter of 2020. Demand is strongest in the industrial markets and this platform is implementing price increases globally to offset the headwinds of raw material supply chain costs that are pressuring margins. During the quarter, our volumes in our automotive platform continued to be impacted by the well-publicized global chip shortages. We did see improving trends as we moved through the quarter as the year-over-year volumes declined in each month and each month moved from high teens to low single-digit declines. Overall, revenues increased in 2021 by 24% to over $550 million. Our automotive platform is the core business we will continue to invest in to bring innovative solutions to our customers. As we discussed in detail at our recent Investor Day, the key goal of our Polyurethanes business is to upgrade the quality of our portfolio and continue to push molecules downstream. We will keep redirecting more of our plants' output to our differentiated businesses and bottom-slicing lower margin component business. We will invest in our downstream businesses organically where it makes sense through bolt-on acquisitions, where we can generate higher and more stable margins through long-term contracts in our component businesses we are also doing this. Our MDI splitter investment in Geismar, Louisiana is consistent with this strategy helping us to drive our downstream growth and increase overall margins. This project will be mechanically complete in April. We will have commercial beneficial operations towards the end of the second quarter of 2022. We remain confident that once fully operational and selling at capacity, this investment will contribute $45 million in incremental adjusted EBITDA on an annualized basis by the end of 2023. We expect $10 million to $15 million of incremental EBITDA in the second half of this year. Our PO/MTBE joint venture with Sinopec in China, where we own a 49% interest, benefited from a strong 2021 and contributed approximately $130 million in equity earnings for the year, including $22 million in the fourth quarter. We expect equity earnings to be approximately $50 million lower in 2022 as propylene oxide margins in China normalize. As we look into the first quarter of 2022, we foresee global demand remaining on track in our three core markets North America, Europe, and China. Globally, we have offset over $300 million raw material pricing headwinds; the area of greatest impact is Europe at $140 million, with higher gas and electricity prices being the largest driver for this increase. Rather than waiting for this to pass, we've initiated multiple steps to offset this impact. First, on September 22nd, we announced in Europe a €125 per ton surcharge on our MDI to offset rising energy costs. We have continued to adjust this as needed. Secondly, we have moved nearly 90% of our pricing contracts to be settled on a monthly basis. Previously, about 20% of our volume was settled monthly while the remainder was settled quarterly. This move will give us better flexibility to react to changing market conditions. Thirdly, we've accelerated our efforts to optimize our cost structure. During our Investor Day, we announced that we would complete our initial $40 million cost reduction program by mid-2022. We have now reached that target ahead of schedule and we build on that achievement as we focus on our previously announced $60 million cost optimization program. Fourth, as part of our $60 million cost optimization program, we will be moving tonnage to more differentiated markets where we can achieve higher margins. So we stated last year our focus is to increase the margin per pound on our nearly £3 billion of MDI, not to invest in more tonnage at any price. Throughout 2022, we will be exiting lower margin markets and will either increase margins or divert tonnage to our core markets in North America, Europe, and China. Rather than waiting for markets to return to more normalized conditions, we intend to emerge from this period of higher raw materials and supply chain disruption stronger than when we entered it. Looking into the first quarter, despite approximately $20 million of lower equity earnings and saving significantly higher feedstock costs in the year-ago, we would expect our Polyurethanes first-quarter adjusted EBITDA to be strong at between $200 million and $220 million of adjusted EBITDA. Turning to Slide 6. The performance products segments reported adjusted EBITDA of $105 million for the fourth quarter, which was modestly above the high end of our expectation and accompanied by strong adjusted EBITDA margins. We continue to see the benefit of our commercial excellence programs including pricing initiatives and good cost control, which more than offset higher raw material costs and supply chain headwinds. Volumes increased 3% versus the prior-year period. This increase understates true underlying demand as we exited some non-core low margin business during 2021, which impacted volumes in the quarter by roughly 3%. Demand fundamentals in coatings and adhesives construction, wind, clean energy, fuel and lube additives, and other industrial markets are benefiting both our maleic and anhydride businesses. As we described in detail on our Investor Day, this business is benefiting from several positive factors that we expect will continue to keep EBITDA margins in excess of 20% for the foreseeable future. First, an increased focus on the remaining business and a value over volume strategy since the sale of our commercial intermediates business continues to benefit this business. Throughout all of our divisions, we are focused on value over volume, and performance products is no different. Secondly, we are making good progress pushing volume into higher value and more demanding end-use applications and customers. Third, demand has demonstrated that has been demonstrated by our sales volume and selling prices that have been consistently strong. The three performance product capital projects we announced during 2021 in polyurethane catalysts and chemicals serving the EV and semiconductor markets in North America and Europe continue to move forward. We expect all of these projects to contribute to results in 2023, delivering more than $35 million of EBITDA in 2024. We've said several times in the past, we will be highly interested in doing bolt-on acquisitions in performance products, but these opportunities tend to be few and far between. The opportunities that have come up recently have ultimately traded hands at multiples above our required hurdle rate. We will continue to assess bolt-on targets, but we will also continue to remain very disciplined with our capital. We expect improvements in profitability and earnings momentum that we saw in performance products during 2021 to continue into 2022 and beyond. The first quarter tends to be a seasonally stronger quarter when compared to the fourth. As a result, we currently expect performance products to report a first-quarter adjusted EBITDA of $115 million to $120 million. Let's turn to Slide number 7. Advanced materials reported adjusted EBITDA of $54 million in the quarter, significantly above last year's fourth quarter and the best fourth quarter ever despite the aerospace market being still some time away from a full recovery. Typically, the fourth quarter is a seasonally weaker quarter. However, the positive momentum in our sales and pricing actions continued into the fourth quarter across our specialty portfolio. We've discussed throughout 2021, our core aerospace business continued to show year-over-year growth with modest improvements in commercial production rates. We estimate that our aerospace EBITDA is approximately $45 million below pre-pandemic levels. In addition, we continue to increase prices across our portfolio in response to raw material and logistic cost inflation. These pricing actions have positively positioned us well for improved margins in the first quarter of 2022. The recent acquisitions of CVC and Gabriel helped to drive our record results in the quarter, and the integration of these businesses remained well on track. To date, we've achieved $12 million in synergies, and we're confident that another $11 million will be achieved by 2023. Underlying demand for the Advanced Materials division is tracking well, and as aerospace recovers, we expect this division to consistently generate additional EBITDA margins of 20% or better. We will continue to grow this division organically and through targeted bolt-on acquisitions. We expect the momentum with which we exited the fourth quarter to continue into the first quarter. The combination of improved automotive and aerospace demand synergies and improved margins will drive year-over-year growth. As a result, we expect first-quarter adjusted EBITDA to be between $58 million and $62 million, which is an impressive 36% year-over-year improvement at the midpoint of this guidance. Let's move to slide number eight. Our Textile Effects division reported an adjusted EBITDA of $22 million for the fourth quarter. This represents a 22% improvement versus the year-ago period. Overall volumes declined 7% in the quarter as we deselected lower margin and non-core business and increased our focus on growing the sustainable and specialty end of our business. Volumes in our sustainability-based products grew 22% year-over-year. Our margins also benefit from this portfolio shift and pricing adjustments to offset higher raw materials and logistics costs. Our specialty products are gaining market share as our customers, as well as global brands and retailers look for ways to reduce waste and increase transparency in their supply chain. As these groups make more meaningful commitments to improve their environmental and social footprints, we would expect to see our leading specialty and sustainability products continue to grow. We remain positive on the long-term prospects of this business and are confident that EBITDA will continue to improve. Looking forward to the first quarter, we have a very strong order book and expect to see solid improvements versus the prior year. We expect adjusted EBITDA in the first quarter to be in the range of $26 million to $28 million. I'll now turn a few minutes over to our Chief Financial Officer, Phil Lister.

Phil Lister, CFO

Thank you, Peter. Turning to Slide 9. Our fourth quarter adjusted EBITDA improved by $109 million or 45% compared to the fourth quarter of 2020. Our adjusted EBITDA margin was 15% for quarter four and 16% for the full year as guided at our Investor Day. Each of our divisions increased adjusted EBITDA compared to a year ago, with our performance products division delivering the largest gain. As Peter indicated, we expect our Performance Products margins to be in excess of 20% for the foreseeable future following another strong performance in quarter four at 26%. Our total company year-on-year improvements in adjusted EBITDA were driven by gross profit expansion as price increases more than offset over $400 million in feedstock and logistics cost headwinds. Sequentially, since quarter three, we were also able to more than offset over $100 million in cost inflation with further price increases. Let's turn to Slide 10. Our cost optimization and synergy plans remain on track. As we highlighted in November, we increased our target from $140 million to $240 million with full run rate to be achieved by the end of 2023. We delivered approximately $100 million of benefits in 2021, impacting both gross profit and SG&A, and we exited with an annualized run rate of approximately $120 million. In an inflationary environment, it is critical that we continue to deliver on our program and drive improved margins. As we said at our Investor Day, we will manage this through further expansion of our functional global business services model, supply chain optimization, and as Peter highlighted, improving polyurethanes margins with an additional $60 million improvement target. Regarding SG&A, which includes divisional, functional, and corporate costs, we closed the year at 10% SG&A to sales equal to the number we have guided at Investor Day, and we expect that number to decline towards 9% through 2023 as we deliver upon our cost program. I would note that our Textile Effects division requires the highest SG&A to sales ratio; excluding TE, we would expect that ratio to be closer to 8% once we are complete with our cost optimization program. Turning to Slide 11. Net cash provided by operating activities in quarter four was $790 million with free cash flow at $698 million after deducting $92 million of capital expenditures, which includes our Geismar splitter investment. Free cash flow for the quarter included approximately $333 million of cash related to the Albemarle Settlement. Excluding this benefit, our full-year free cash flow was $281 million, slightly above the guidance range of $250 million to $275 million we provided on our quarter three earnings call. In the bottom left of Slide 11, we show a breakdown of the accounting for the Albemarle Settlement. Our expected cash benefit net of legal fees and taxes is $410 million, with $333 million received in quarter four 2021, with the remainder to be received in quarter two of 2022. All of the legal fees and taxes associated with the settlement are expected to be paid in Q2 of 2022. We closed the year with a strong and flexible balance sheet with $2.5 billion of liquidity, which allows for our continued balanced approach to capital allocation. We returned just over $200 million to shareholders through share repurchases in the second half of 2021, including $101 million in the fourth quarter at an average price of $32.76. Our adjusted effective tax rate was 19% in quarter four, and with an expected reduction in our Chinese propylene oxide joint venture equity earnings and one-time tax benefits in 2021, the expected adjusted effective tax rate is in the range of 22% to 24%. Moving forward in 2022, as we said at our Investor Day, we expect the free cash flow to adjusted EBITDA conversion, excluding net cash from the Albemarle Settlement, to be above 40%. We will see a seasonal cash outflow in quarter one with cash inflows throughout the remainder of the year, leading to a much stronger operating and free cash flow performance in 2022 compared to 2021. Peter, back to you.

Peter Huntsman, Chairman, CEO and President

Thank you, Phil. I'm pleased with the results of this past year. 2020 was a year where most companies were looking to survive. Because of our investment-grade balance sheet into a leaner and stronger portfolio, we were able to further strengthen our company. By the time we started 2021, we were more than ready to continue to move forward to accomplish with this present portfolio of assets, the best year in our history. Now it's time to focus on 2022. A year that looks to be better than the year we just completed. As we stated at our Investor Day presentation, we expect our businesses to earn approximately $1.4 billion in 2022. As we sit here today with the results of January in hand, we believe this number is on the low end of our expectations, again subject to macroeconomic and geopolitical conditions. Through our pricing and cost actions, we see clear adjusted EBITDA margin improvements at the start of the current year. Our biggest challenge that we see is the volatility and high prices we see for energy and certain raw materials. As we move closer to the end of the first quarter, we should have better clarity and may provide further updates to the market conditions after the conditions we've experienced. We expect that global supply chains will sort themselves out during 2022, but there are some obvious structural issues around energy, especially in Europe. Despite these headwinds, we feel that these will be offset by a combination of pricing discipline, higher margins as we continue to focus on downstream products, aerospace recovery, and continued cost discipline. We announced at our Investor Day that all of our corporate officers, including our top 80 managers, are aligned not just to deliver improved results in 2022, but continued improvements in 2023 as well. We reported this past quarter approximately $100 million of share buybacks, with the continuation of our collection of proceeds from Albemarle and our improved outlook. We would expect that our earlier commitment to accomplish our $1 billion buyback in the next three years to be accelerated and should be completed in less than two years. We also announced an increase of $0.10 per share in dividends. These are part of our balanced allocation of capital as we remain competitive and return value to our shareholders. We also reaffirm our guidance of $300 million of capital expenditures; this will allow us to assure safe and reliable operations, the completion of our MDI splitter in Geismar, Louisiana, and the previously announced projects to move our means and performance products downstream into catalyst EV batteries and semiconductor chips. We reported to you at the beginning of this year our decision to explore our strategic options with our Textile Effects division. I've said over the past few years, this is not the first time, but if you give this option. Given our focus and investment in our Polyurethanes, Performance Products, and Advanced Materials, as well as the strong M&A markets that we currently see, it makes sense to review this option once again at the present time. We are in discussions with multiple interested parties and are moving ahead with an orderly process. Lastly, I'd also like to acknowledge our newest board members and look forward to their skill sets being used to execute the plan we presented. I want to publicly recognize the strong contributions of our outgoing board members for what they've achieved in getting our portfolio and balance sheet to where it is today. Likewise, our newest board members bring current experience to add further value as we continue to reshape our portfolio, return cash to shareholders, and improve our margins and multiples. With that, operator, we'll open the lines up for any questions.

Operator, Operator

Our first question is from Bob Koort with Goldman Sachs. Please go ahead.

Robert Koort, Analyst

Thank you very much. Good morning. Peter, I was hoping maybe you could talk about the expectations for the year. You guys gave some first quarter guidance, it's obviously well received by the market but you didn't comment on the full year. Is there any reason to expect anything different than what you offered up at the Investor Day? And maybe you could talk to some puts and takes sort of the cadence as you go through the year. Thanks.

Peter Huntsman, Chairman, CEO and President

Bob, yes, great question. I think as we look short term over the course of Q1, I feel quite optimistic about the conditions and pricing margin development so far. The biggest concern I have would be the EU, raw materials, gas, electricity. Just in the past 24 hours, gas in the EU has gone from $29 at a high down to a low of around $24. That range in the last 24 hours with the news that Putin might be pulling out some of the troops from the Ukrainian front. That movement, alone that I just mentioned, on an annualized basis is equivalent to around $50 million in cost for the company. So again, that sort of shock and volatility is something that concerns me in the short term. But I think that we've been very disciplined on working with surcharges, pushing prices through, and cutting off lower-margin businesses that don't compensate us for the value we provide. We think that the forecast we've given of $1.4 billion for this year is on the low end of what we're seeing as of today. I would see a range between that $1.4 billion to $1.5 billion as we sit here today. As we go throughout the year, if demand continues as it has seen over the last three to six months and raw materials were to moderate and come down a little, I would probably feel even more optimistic. But again, I think given the volatility that we're seeing in Q1, I'll have a much better picture in the coming weeks. And given the fact that we'll be meeting with several shareholders here in the next couple of weeks, we'll probably update the market before the end of the quarter.

Operator, Operator

The next question is from Aleksey Yefremov with KeyBanc Capital Markets. Please go ahead.

Aleksey Yefremov, Analyst

Peter, can you discuss the changes you made to long-term management incentives, how - what are they, how could they impact the performance in the company?

Peter Huntsman, Chairman, CEO and President

I think that rather than moving our quarterly and yearly numbers, we'd like to focus more on a multi-year basis that will take some of the volatility out. Now again, that means that we're going to be more focused on moving some of the spot material. And I'll remind the market that sometimes when you get into a situation where spot material is unusually at a multiyear high, we may not be benefiting from that as much as some of our competitors. But on an overall basis, I'm absolutely confident that as we move products further downstream, we'll provide better margins overall and stability. This needs to be coupled with obviously CapEx discipline and cash flow generation. So it really will be around the improvement of EBITDA, the minimum of 40% free cash flow generation. Again, I would hope that it would be higher than that and that we would be able to deliver on projects pricing, volumes, and so forth. The bottom line of that is improved EBITDA margins. I don't want to get too transfixed on the margins themselves, as much as the actual EBITDA that's generated and the free cash flow that goes along with that.

Operator, Operator

The next question is from Angel Castillo with Morgan Stanley. Please go ahead.

Angel Castillo, Analyst

Thanks for taking my question. Peter, just a quick one on China and just, I guess, more broadly on polyurethanes. As you think about - you noted maybe some pricing developments in the first quarter. If you could just unpack that a little bit. And also, as we think about the contracts that you noted transitioning from 20% of them being monthly to 90% of them. Is that broadly across your polyurethane portfolio? Or what is kind of the impact of that and the benefits, as we think about financially and just how broad that could be?

Peter Huntsman, Chairman, CEO and President

Yes. As we look at - the first part of your question is about Chinese pricing, again, as we see polymeric pricing in China. I don't want to get too transfixed on this. Because overall, the amount of impact this has on our overall business is declining as one of our major thrust in China is to take that polymeric price and to continue to split it, and further derivatize it into higher-value markets. But as we look into the first quarter, we're seeing polymeric pricing around RMB21,000 - RMB22,000 per ton. To give you an idea, a year ago, this time, it was around RMB20,000 - RMB25,000 per ton, but again, that was a fallout of a year ago. You remember the freeze we had here in the Gulf Coast that played havoc on chemical pricing globally. Last year, we saw a great deal of volatility. The first quarter benefited from that one-time gain. I think what we're seeing in the first quarter of 2022 is - while it's a lower price, it's a more stable price. And I like the overall direction and stability that, that is presenting. When I talked about the price movements and contracts, that is virtually all of that is taking place in Europe. Traditionally, Europe has been very much a quarter-to-quarter basis in pricing. We're about 90%, just around 90% of our contracts in Europe have now been moved to monthly pricing, which means we're going to have a lot more flexibility to be able to move pricing and to be able to pass through some of that volatile energy shock that we're seeing in the market. Again, this is what we're doing, it's the steps we're taking. I'm not saying that that's being done by the industry. Our competition, I'm sure, will do whatever suits them best.

Operator, Operator

We have the next question from the line of David Begleiter with Deutsche Bank. Please go ahead. David, your line is unmuted. You may ask your question.

David Begleiter, Analyst

If you do about $1.5 billion this year, Peter, how do you see the longer-term earnings power for Huntsman? And can you see a path to $2 billion? And if so, how do you get there?

Peter Huntsman, Chairman, CEO and President

Well, I'm not sure that we put necessarily $2 billion out there as a target. I'll take it in incremental steps as we're able to earn it. But I think that as we look into the future, we are quite optimistic about the cost programs and the corporate restructuring we have in place. This will deliver over the course of the next 12 to 18 months. We're looking forward to recovery of the aerospace and aircraft industry, which will return another $40 million to $50 million. And that's just getting us back to where we were in 2018 and 2019. The new models that we're being spec'd into, I would expect us to continue to grow from that level. I certainly don't want to represent that as a plateauing number. I think that as we look at Performance Products further downstream investments into EVs, into the MIRALON products that will be coming to market in 2023, and as we look at the investments we're making into polyurethane catalyst and semiconductor markets, that certainly will be incrementally expanding our EBITDA. More so as we look at the continued growth of our HBS and our sustainable products that we're making across the board, home insulation, and so forth, which are growing at multiple times the rate of GDP. I'm not putting in any M&A activities or anything like that, but yes, we remain very optimistic on all of our businesses and all of our divisions across the board. So we'll take them in, I don't know if we're going to get to $2 billion overnight, but we'll take it in $100 million increments as we can get it.

Operator, Operator

The next question is from Hassan Ahmed with Alembic Global Advisors. Please go ahead.

Hassan Ahmed, Analyst

Peter, a question on polyurethane. So keeping in mind the European natural gas situation, through the course of Q4 and call it, January through today, did you guys see broadly in the European industry any curtailments on the back of sort of inflated natural gas prices? I mean, I'm cognizant of the fact that call it, roughly 20% of the MDI industry is out there. And I would imagine certain raw materials like chlorine, which are directly sort of linked in nat gas, procuring those may have been an issue.

Peter Huntsman, Chairman, CEO and President

No, Hassan, we did not see anything matter of fact. In Europe, we think that the MDI capacity's operating rates and utilization rates were probably in the mid-to-high 90% utilization rates. Most everybody was running and operating at design capacities. I haven't read of anybody curtailing capacity, and we haven't heard anything from customers about that happening.

Operator, Operator

The next question is from Frank Mitsch with Fermium Research. Please go ahead.

Frank Mitsch, Analyst

Good morning, gentlemen. Congrats on a nice end to the year. I wanted to follow up on the European energy situation, which, based on your comments, Peter, might become a moot point. But I was curious about what success did you have in pushing through the energy surcharges? And then, I guess, more broadly, if we do see some of these energy inputs, nat gas, butane, etc., come off, how do you think about the scope to hang on to pricing and margins if we see a deflationary environment on the energy side?

Peter Huntsman, Chairman, CEO and President

Great question, Frank. I think we were about 90% successful in the energy surcharges. There are some people - there's some volume that we walked away from. It was tough for our sales groups and so forth, but we remain resolute to it. We're going to continue to make sure that that stays in place. As long as energy prices are higher, we need to be disciplined, and we need to move this down to the consumer level. So as we look at this on an ongoing basis, as prices start to come down, and I look at operating utilization rates across Europe and America and globally in general, in MDI, it's probably - I would guess it's somewhere in the low 90%, 91%, 92% utilization, particularly tight in Europe and the Americas. If we see deflationary impacts on our products across the board, members, not just polyurethane, that's had these price increases; it's really happened across the board. Most of our products will have opportunities for margin expansion. A number of our customers aren't in what I would say is more commoditized into the business or in pricing contracts where you have energy pass-through. They will see price increases when the price of energy and natural gas go up, and they’ll see it come down as it comes down. The vast majority of our tonnage that we move around the world will certainly benefit from a deflationary raw material environment.

Operator, Operator

The next question is from Mike Leithead with Barclays. Please go ahead.

Mike Leithead, Analyst

Good morning and congrats on a strong 4Q. Just one question on the balance sheet and capital deployment. It looks like you ended the year, call it, about 0.4 times net debt to EBITDA. And I think with your forecasted earnings growth and more money to come from Albemarle, you're probably on pace to roughly stay at that leverage level or similar to it by the end of this year. So even with the stepped-up dividend and buybacks. So I guess what I'm trying to get at is what - how do you think about the right leverage ratio for Huntsman? And when and how do you think you will get there?

Peter Huntsman, Chairman, CEO and President

I think that we're probably a bit under-levered right now. As we look at the share buyback, we continue looking for opportunities to make bolt-on acquisitions. I'd say bolt-on acquisitions because we committed at Investor Day that yes, we would with our ideal size of a bolt-on acquisition would be somewhere between $300 million to $500 million at the end of that extreme. I don't see us going after an acquisition that would certainly get us above an investment-grade sort of rating. As we look at that, if we're not able to get the bolt-on acquisitions at the right multiples and values, then we'll be even more aggressive in share buybacks. But we want to ensure that our leverage remains at or below 2 times; we're significantly below that today. This will probably give us an opportunity depending on where the Board wants to go to an accelerated share buyback.

Operator, Operator

The next question is from John Roberts with UBS. Please go ahead.

John Roberts, Analyst

On Slide 9, on the right-hand side where you've got the bridge by account, the $103 million from gross profit and mix. How much of that was the acquisitions, which I assume is the mix? And how much was price costs; is that minimal?

Phil Lister, CFO

Yes, John, hi, it’s Phil. Thank you for the question on the $103 million. Acquisitions year-on-year were approximately $10 million to $15 million from a cost-benefit perspective overall. We've highlighted our cost improvement program year-on-year being about $70 million. About two-thirds of that was gross profit and about one-third was SG&A. The remainder in gross profit was really exceeding the raw material increases that we saw with substantial price increases.

Operator, Operator

The next question is from Kevin McCarthy with Vertical Research Partners. Please go ahead.

Kevin McCarthy, Analyst

Peter, would you provide an update on your organic growth projects? If we look beyond the splitter project, it sounds like it will be completed in the second quarter. What are the other initiatives that are resident in the $300 million CapEx budget that you put forth this morning?

Peter Huntsman, Chairman, CEO and President

Yes. Let's remember that over half of that CapEx is going to be around just making sure that we have the proper maintenance levels and replacement levels of our equipment and so forth. The remainder of that is going to be going largely into the Performance Products areas, where we will be expanding capacity in Petfurdo, Hungary to produce more polyurethane catalysts materials. Some of this will be going into HBS for use as a blowing agent in home insulation and other applications as well. In Conroe, Texas, we have two projects that will be ongoing. One will be producing ultrapure amines and also ultrapure carbonates. One will be going into the semiconductor. We will be the only people - the only company in North America producing ultrapure amines and ultrapure carbonates. The ultrapure carbonates are one of the raw materials needed for the EV market. As you think about all those EV battery plants that have been announced in North America, virtually all the rare earth metals and chemicals required to produce those batteries are imported materials, largely from Africa and China. We'll be one of the few suppliers outside of those regions capable of supplying ultrapure carbonates and so forth for those applications. We're also continuing to invest in the MIRALON process, which is the paralysis of methane. We'll be producing a unique and, I think, a proprietary product that will be used in our Advanced Materials area. We highlighted this new product during the Investor Day, more than what we have on huntsman.com, and get a two-minute cursory video on MIRALON technology and its applications. I think later this year, we should be completed with what we think will be a commercially viable reactor and should have product going to the markets by the end of this year, beginning part of next year. Those applications usually require anywhere from a 9 to 12-month product approval process; we're going into high-end applications in the aerospace industry and NASA and so forth. We might be producing products late this year, but by the time they're approved and into the market generating revenues, it will probably be closer to the end of next year. There will be a gradual ramp-up. So sorry, Kevin, for the long-winded answer, but those are just among some of the projects we have on deck right now.

Operator, Operator

The next question is from Mike Harrison with Seaport Research Partners. Please go ahead.

Mike Harrison, Analyst

Was wondering in the Polyurethanes business, can you help us think about how to model the contribution of Geismar? I believe you said it would be a $10 million to $15 million contributor to EBITDA this year. But what does that ramp look like? And are there some startup costs that we need to keep in mind that would weigh on Q2 and then turn into mix benefits later in the year? And then the second piece of my question is any key turnarounds in polyurethanes that we need to think about as we model out the rest of the year?

Phil Lister, CFO

Mike, thanks for your question. It's Phil. So in terms of the split, as we've said, we'd expect to start up the facility at the beginning of Q2, with commercial products coming off towards the back end of Q2. Think about the benefits coming in the second half of the year, as we ramp that up through '23 and '24. We've guided to $10 million to $15 million of EBITDA benefit in the second half of 2022. As you move through 2023, think about that as $30 million to $35 million of benefits. We hit the full run rate in 2024 of $45 million overall. To your second question, Mike, around any major turnarounds? Not this year. We continue to have turnarounds; you have to do many turnarounds every year with your MDI facilities, but we don't have anything as significant as we did last year, towards the back end of Q1 and the start of Q2 when we had the Waterdown cluster shut down. I'd also just want to take a second and remind you that as we look at this entire splitting capacity, remember that we are not adding MDI pounds into the market. We're taking existing MDI pounds and upgrading that tonnage. That means that the polymeric materials that we have left are less available to our customers, which gives us the opportunity again. We've got a growing demand at the same time, and we have a shrinking supply going into that. I would not say that it's more commoditized. It's an important segment to us. Traditionally, it's been one of our lowest margin products. As we move tonnage further downstream, the existing tonnage we have upstream will allow us to renegotiate those contracts, and I believe to make those contracts more competitive to justify the ongoing production into those materials. The benefit that Phil just provided is the benefit we've seen just from taking the product and upgrading it to a higher level. There will also be a benefit to the North American MDI business with the ability to renegotiate contracts on the polymeric side of the business that will also benefit the business. I don't expect that benefit to be much less than what we've stated as the benefit we'll see this year from the splitter project. Again, I'll be candid about what we're upgrading and also what's left.

Operator, Operator

The next question is from PJ Juvekar with Citigroup. Please go ahead.

PJ Juvekar, Analyst

And Peter, great to see quick pricing actions in Europe. You had surcharges, you mentioned quarterly pricing going to monthly pricing. Which products benefited from that monthly pricing? And what was the reaction from customers to the monthly pricing strategy?

Peter Huntsman, Chairman, CEO and President

Well, it probably wasn't the most popular thing we've ever done with our customers. But again, I think it is necessary. I would say that it was - the movement from quarterly to monthly was done across the board. It's done in polymeric, it's done in our variants, it's done in our contracts - the high-end contracts. It's across the board on all the contracts. Again, I mentioned that - it's something that may not be the most popular thing among customers, but I think it gives them an opportunity to better understand what we're going through on the raw material. It does require more communication and more education about why what's going on. We will not be the shock absorber for the industry; we have said that on our last earnings calls, as we did at Investor Day. That's where our industry has been. We take raw material costs and our customers have a tendency to not really see the day-to-day impact of it. We've got to do a better job in that area.

PJ Juvekar, Analyst

Great. And an unrelated question on China. A report said the Chinese industrial economy is slowing down, the government is trying to cut rates and revive that economy. What signs are you seeing in China? Has it impacted your business? Can we just talk about that? Thank you.

Peter Huntsman, Chairman, CEO and President

As we look at China, we're trying to focus on those areas. Even in an economic slowdown, we're going to continue to see growth and opportunity. Automotive continues to be - especially on the higher end, continues to be a growing market for us. Insulation, energy conservation, the entire cold chain; a lot of the crops that are growing in China are done on the western side and brought into the large coastal high-population areas. That cold chain is going to require a great deal of investment over the next couple of years. We’re seeing strong demand in that area as well. If you look at large commodity applications that are readily turned around and exported, you’re probably seeing a falloff in demand in many of those areas. However, you're investing in the economy, in insulation, infrastructure, automotive, and so forth; it remains strong. Our associates are there; we've got a great Chinese national workforce that is doing an extraordinary job of building a business from the ground up, not just on something based on the vicissitudes of export markets. Our business there has been quite stable.

Operator, Operator

The next question is from Mike Sison with Wells Fargo. Please go ahead.

Mike Sison, Analyst

Nice quarter. Peter, a lot of specialty businesses are struggling to grow EBITDA here in the first quarter, so I just wanted some color on polyurethanes, how the differentiated businesses are going to do in Q1 and how they're going to generate the growth. Maybe a comment on Performance Products; I know you have an acquisition there, but where are you seeing the growth year-over-year in Q1 there?

Peter Huntsman, Chairman, CEO and President

We're seeing growth in volume. But more importantly than volume, let's focus on value. One of the criticisms of Huntsman that I think has been unfairly thrown in our direction is the lack of volumetric growth. The chemical industry by and large, we can go out and spend billions of dollars and grow volume for the sake of growing volume, but if you're not growing value in that volume, I think you're missing a great deal of opportunity. If we talked about absolute growth in tonnage, we're not walking away from volumes; it's an intricate part of our industry and business. But more importantly than just focusing on volume, I want to ensure that we're taking that volume we have and investing to get the ultimate value out of it. Ultimately, that's where we need to be. That's why we're going to increase our margins, and thus we're going to increase our trading multiple.

Operator, Operator

The next question is from Matthew Blair with Tudor, Pickering, Holt, and Co. Please go ahead.

Matthew Blair, Analyst

Hi, Peter. I was hoping you could talk about dynamics in the maleic market, especially any comments on the demand side? Should we think of the rising crude oil price environment as being supportive of Huntsman's maleic margins because it would raise benzene feed costs for some of your international competitors?

Peter Huntsman, Chairman, CEO and President

The maleic market continues to be very strong. Looking at the largest downstream derivative of maleic anhydride, UPR; everything from boats to construction markets, bathroom and kitchen fixtures, remains strong. I think it will remain strong for the next couple of years. We’re being aggressive as we look at the maleic market to move as much maleic into areas like fuel additives, lube additives, and so forth. We want to diversify that customer base aggressively. We want to ensure that our formulations and downstream applications are going to be comprehensive enough to sell beyond just one application. Higher-priced raw materials, we're mostly a North American-based company. North America - butane is our raw material; that typically is a benefit. Higher crude prices are of benefit to the maleic business for two reasons: One, butane is usually traded at a lower MMBT value to crude oil. Secondly, maleic anhydride is also energy-producing, meaning it generates steam, it generates energy for our maleic facilities in Pensacola, Florida, and Geismar, Louisiana - well-placed with larger chemical plants that take that energy effectively and efficiently. Higher energy prices will not be detrimental to the maleic business.

Operator, Operator

Thank you. The next question.

Peter Huntsman, Chairman, CEO and President

Operator, I think we have time for one more question. We usually try to finish at the top of the hour. We've gone a little bit over that. We'll take one more question here.

Operator, Operator

We have the next question from Arun Viswanathan with RBC Capital Markets. Please go ahead.

Arun Viswanathan, Analyst

Great, thanks for taking my question. Congrats on a good year. I guess, just wanted to understand your thoughts on capital structure here. Your debt levels have obviously come down, and you've done a great job of deleveraging. You've been able to increase your free cash flow conversion as well. You went through some organic projects in mind, but CapEx is going to remain $300 million or below. You potentially have some cash coming in from Textile's disposition as well. Looking at that, where do you see your leverage going in the next couple of years? Would it be safe to think that maybe you could see that rise up to the two level or what do you think is optimal? If you do have all that cash, how do you plan to spend it?

Peter Huntsman, Chairman, CEO and President

I think we've said that we want to spend our cash and we want to ensure that it's mixed over four areas. One of those being making sure that we're investing organically within the business. Second, that we're looking at bolt-on acquisitions. Third, we're paying a competitive dividend. Fourth, share buyback. If we're unable to get the opportunity to buy bolt-on acquisitions, I'd be surprised at the high multiples being paid for relatively decent businesses, but I'm not sure they're warranted in terms of recent multiples. We're not going to chase after those; we'll continue to be disciplined in our capital and M&A opportunities. We will be increasing our share buyback, I would imagine, and getting even more aggressive in those areas. We're looking at our organic investments and making sure we pay a competitive dividend. If things continue as they are today, I see more capital being pushed towards share buybacks.

Operator, Operator

Thank you. Ladies and gentlemen, this was the last question for today's conference. This concludes today's conference. You may now disconnect your lines. Thank you, and have a great day.