Shares of VNTR are set to open on the NYSE after the market open this morning.
VNTR is a global manufacturer of chemical products that are used in many everyday life items, such as construction materials, plastics, paper, printing inks, pharmaceuticals, food, cosmetics, fibers, and personal care. Its products include a broad range of pigments and additives that bring color and vibrancy to buildings and reduce energy consumption. Currently, VNTR operates 27 facilities and it sells its products in more than 110 countries.
It operates through two segments, Titanium Dioxide (TiO2, 72.4% of revenue) and Performance Additives (28% of revenue). There is some overlap, in terms of end markets, between the two groups. But, its Performance Additives are exclusive to the construction materials market and are used in concrete blocks and roof tiles.
Over the past few years, the company has invested $1.3 billion in both of these businesses, in the form of acquisitions, restructuring, and integration. Currently, it is implementing additional business improvements within both segments, which it expects will provide further contributions to Adj. EBITDA this year until the end of 2018. These actions will include the launch of new products, optimization of its manufacturing network, and the closure of some facilities.
VNTR's growth is largely going to be driven by the overall health of the global TiO2 market, and the global economy in general. The TiO2 market is huge, estimated to be about $12.6 billion, but, it is also highly competitive and commoditized. With little difference in the product itself, companies mainly compete on price and technical service.
While TiO2 prices have shown signs or recovery, prices and margins remain below historical averages. The good news is, capacity utilization rates are expected to increase, driving margins higher, which would result in increases profitability and cash flow for VNTR since 70%+ of its business is related to TiO2.
For the three months ended March 31, 2017, VNTR's revenue (solely the Titanium Dioxide & Performance Additives divisions of HUN) declined by 1% year/year to $537 million. This followed a flat year for revenue in FY16 at $2.14 billion. VNTR has not been profitable in recent years, with net losses of ($162) million, ($352) million, and ($77) million in FY14, FY15, and FY16 respectively.
The company also has a significant amount of debt on the books at about $1.3 billion as of March 31, 2017. The company is already dealing with razor thin gross margins (6-8%), so, any large expense -- like, high interest expense -- is going to be felt on the bottom line.
On the positive side, Adjusted EBITDA has been improving nicely, attributable to the business improvements it has undertaken. Specifically, Adjusted EBITDA more than doubled in FY16 to $130 million. The business improvements it has made in recent years -- acquisitions, restructuring, integration -- is expected to continue benefiting VNTR throughout FY17. Longer term, though, the company will need stronger TiO2 pricing in order to stimulate more robust growth and continued improvement on the bottom line.