Rockwood Holdings Management Discusses Q4 2012 Results - Earnings Call Transcript

Feb.19.13 | About: Rockwood Holdings, (ROC)

Rockwood Holdings (NYSE:ROC)

Q4 2012 Earnings Call

February 19, 2013 10:00 am ET

Executives

Nahla A. Azmy - Vice President of Investor Relations and Communications

Seifi Ghasemi - Executive Chairman, Chief Executive Officer, President, Chairman of Rockwood Specialties Group and Chief Executive Officer of Rockwood Specialties Group

Robert J. Zatta - Chief Financial Officer, Senior Vice President, Chief Financial Officer of Rockwood Specialties Group and Senior Vice President of Rockwood Specialties Group

Analysts

Robert Koort - Goldman Sachs Group Inc., Research Division

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

David L. Begleiter - Deutsche Bank AG, Research Division

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Dmitry Silversteyn - Longbow Research LLC

Richard O'Reilly

Jaideep Pandya - Berenberg Bank, Research Division

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

James Finnerty

John P. McNulty - Crédit Suisse AG, Research Division

Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Rockwood Holdings 2012 Fourth Quarter Conference Call. [Operator Instructions] And as a reminder, this conference is being recorded. I'll now turn the conference over to Vice President, Investor Relations, Nahla Azmy. Please go ahead.

Nahla A. Azmy

Thank you, Cathy. Good morning, everyone, and welcome to Rockwood's Fourth Quarter 2012 Earnings Conference Call.

Seifi Ghasemi, our Chairman and Chief Executive Officer; and Bob Zatta, our Chief Financial Officer, will provide a formal presentation, after which we'll hold a Q&A session. You can follow the presentation from our call on our website at rocksp.com.

And now, for our Safe Harbor statement. This conference call may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 concerning the business, operations and financial conditions of Rockwood Holdings and its subsidiaries.

Although Rockwood believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, there can be no assurance that its expectations will be realized.

Forward-looking statements consist of all non-historical information, including the statements referring to the prospects and future performance of Rockwood.

Actual results could differ materially from those projected in Rockwood's forward-looking statements due to numerous known and unknown risks and uncertainties, including, among other things, the risk factors described in the Rockwood's periodic reports filed with the SEC.

Rockwood does not undertake any obligation to publicly update any forward-looking statement to reflect events or circumstances under this -- after the date on which such statement is made, or to reflect the occurrence of unanticipated events.

And so with that, I'll turn the call over to Seifi.

Seifi Ghasemi

Thank you, Nahla. And good morning to everyone, and thank you for taking time from your busy schedule to join our conference call. During my presentation, I will refer to the materials we have posted on our website.

During the fourth quarter of 2012 as well as for all of 2012, our 2 key core businesses, Lithium and Surface Treatment, had a very good year. Our Advanced Ceramics business also showed improved profits and margins. Our Performance Additives sector was negatively impacted by lower oil and natural gas drilling activity in North America. Our TiO2 business did not perform well, especially during the fourth quarter, due to lower prices and higher raw material costs.

As promised at our last conference call, in the fourth quarter of 2012, we focused our attention to reducing working capital, especially at our TiO2 business. And as a result, just in the fourth quarter, we generated $87 million of free cash. In the last 6 months of 2012, we generated a total of $170 million of free cash despite heavy capital expenditure in our Lithium and Surface Treatment businesses.

The contents of Pages 5 to Page 9 of our presentation is self-explanatory. So I'm not going to spend a lot of time just reading what you can already read yourself. So would you please turn to Page 10, where we break down the details of our sales? And we do this for the sake of further clarity.

In the fourth quarter, prices were higher in every single one of our business units except for TiO2. To be more specific, prices were up $12.9 million in the quarter in all of the other businesses, compensated by a negative price increase -- price decrease of $13.2 million in our TiO2 business in the fourth quarter. Volumes in the fourth quarter were highly -- were higher mainly due to the acquisition of a TiO2 business in middle of 2012.

Now I will comment more specifically on each one of our business unit sectors. Please turn to Page 11.

Our Lithium business had another excellent quarter with sales up by 15.9% and adjusted EBITDA up by 10.4% in constant currency terms. As you will note, the adjusted EBITDA margin for the business improved from 37.3% to 38.3% for 2012 versus 2011. We continue to see excellent growth in the sales of our battery-grade products. To be specific, in the fourth quarter, sales of our battery-grade products was about 65% higher than the similar quarter last year. And for all of 2012, our lithium carbonate battery-grade products was about 55% higher than last year. So we are seeing significant growth on the area that we had expected.

We were also very successful in starting up our brand-new, state-of-the-art lithium hydroxide production facility in North Carolina. This plant, which has a capacity of 5,000 tons a year of lithium hydroxide, is now producing a lithium hydroxide product which is by far superior in quality to anything else in the market. In addition, we are making good progress in the construction of our new lithium carbonate plant in Chile. This facility is scheduled to come on stream in early 2014, producing superior quality products for the battery market.

Now please turn to Page 12. Our Surface Treatment business saw good growth in all of its markets except for Europe. Despite overall flat volume, our focused and talented management team in this business sector improved their margins to 22% in the fourth quarter and 21.5% for the full year. Considering that 8 years ago we were at 14%, that's a significant accomplishment.

Now please turn to Page 13. Our Performance Additives sector had a weak quarter due to a slowdown in oil and gas drilling in North America and a very weak construction market in Europe. In this sector, we are beginning to see some positive developments in the U.S. housing market. That is why we are optimistic about the performance of this business in 2013.

Now please turn to Page 14. Our TiO2 business did not have a good performance in the fourth quarter of 2012. This is mainly due to lower prices due to industry trends and higher raw material cost. We expect this business to have a weak performance in the coming quarter with results gradually improving as we move forward toward the end of 2013.

Now please turn to Page 15. Our Ceramic business had a good performance in the fourth quarter with adjusted EBITDA up by 7.8% in constant currency and the adjusted EBITDA margin improving from 28.7% in the fourth quarter of 2011 to 30% in the fourth quarter of 2012. We continue to see excellent performance in the medical sector in this business and are optimistic about its performance in 2013.

At this point, I will turn the call over to Mr. Robert Zatta, our Senior Vice President and Chief Financial Officer, to discuss the financials. After his presentation, I will come back with some comments about our overall strategy as we move forward. Bob?

Robert J. Zatta

Thank you, Seifi, and good morning, everyone.

I'm on Page 17 of the presentation. This is our reported income statement for the fourth quarter and full year of 2012.

Rockwood reported sales of $829 million for the fourth quarter as compared with $814 million in the same period last year, an increase of 1.8%. On a constant currency basis, sales were up 4.4%. Sales were up primarily from higher volumes. For the full year, sales were $3.5 billion for a decrease of 4.4%. On a constant currency basis, sales were up slightly as selling price increases offset lower volumes.

We reported gross profit for the fourth quarter of $224.4 million, or 27.1% of sales, compared with $291.1 million of sales last year. For the full year, gross profit as a percent of sales was 32.9% compared to 35.1%. The decline in gross margin year-on-year in the quarter was primarily due to raw material cost increases and lower production levels primarily in our TiO2 Pigments business. For the full year, the decline was primarily due to lower volumes as well as raw material cost increases.

For the fourth quarter, SG&A as a percent of sales was 18.7%, down from 20.8% last year. And for the full year, SG&A as a percent of sales was 18.7% compared to 19.3%. The year-on-year percent decrease was 8.3% in the quarter and 7.2% for the full year, driven primarily by lower variable compensation costs and foreign exchange. We also had some restructuring and severance charges in the fourth quarter and full year. For the fourth quarter, the charges are primarily the write-down of machinery and equipment as part of the optimization of the cost structure of our global butyllithium production network as well as other charges from the continued improvement and operating efficiencies. For the full year, the charges include the write-off of a trade name related to the separation of butyllithium and Surface Treatment businesses earlier in the year. This brings us to operating income of $47.4 million for the quarter and $453.3 million for the full year. For the quarter, this was 5.7% of sales versus 14.3% last year. And for the full year, it's 12.9% of sales versus 15.5%.

The next major item is net interest expense. The composition of interest expense is shown at the bottom of the page. Net interest expense increased in the fourth quarter due to the issuance of the $1.25 billion senior note in September. For the full year, net interest expense declined primarily due to the prepayment of this 2014 senior secured notes in March, which was $534 million, and term loan B under the senior secure facility in October, $250 million. Please note, interest has been accrued on the senior notes issued in September. However, the first cash interest payment will be made in April of 2013.

This brings us to income from continuing operations before taxes, which is $12.8 million for the fourth quarter and $342.3 million for the full year. Against this was an income tax benefit of $1 million for the fourth quarter and $55.9 million for the full year.

On an adjusted basis, the effective tax rate for the fourth quarter was about 25% and for the full year was about 24%.

We then show net income attributable to the noncontrolling interest in the TiO2 and timber joint ventures. The change in the quarter and full year was primarily related to lower earnings in our TiO2 joint venture. This results in net income of $21.2 million for the fourth quarter and $383.5 million for the full year.

Page 18 presents the reconciliation of net income to adjusted EBITDA. For the fourth quarter, beginning with net income of $21.2 million, we have deducted a net loss attributable to noncontrolling interest and an income tax benefit, which gets us to pretax income from continuing operations of $12.8 million. Netting back interest expense and D&A brings us to a subtotal of $111.9 million. We then have several onetime adjusting items, which brings us to adjusted EBITDA in the quarter of $141 million.

Page 19 provides a detailed reconciliation of net income and EPS from continuing operations on a reported basis and net income and EPS from continuing operations as adjusted. As you can see, the adjustments are shown on an after-tax basis and includes the same items already identified on the previous charts. This gives us an adjusted EPS of $0.47 per share for the fourth quarter and $3.89 for the full year.

Page 20 provides a detailed reconciliation between the income from continuing operations before tax of $12.8 million to the normalized as-adjusted profit before tax, which is $43.3 million. The reported tax benefit is $1 million, and the normalized tax provision is $11 million. This gives us an effective tax rate, as I said, of about 25% in the fourth quarter. The lower effective tax rate is primarily due to a beneficial earnings mix.

Page 21 provides a summary of our cash and debt position at December 31, 2012. In September, we issued $1.25 billion of unsecured senior notes due 2020, coupon rate of 4.625%, and used a portion of the proceeds to prepay $250 million of term loan B under our senior secured credit facility in October.

Page 22 shows the long-term trend in Rockwood's leverage ratio. We have continued to deleverage the company in accordance with our plan.

And Page 23 presents our free cash flow. As Seifi has already mentioned, we generated free cash flow of $87 million in the fourth quarter and $168 million in the last half of the year. And again, as he mentioned, this was driven by improved working capital initiatives, particularly in our TiO2 pigments and Color Pigments businesses in the quarter.

As I mentioned before, cash interest on the senior notes distributed in September will begin in April of 2013.

Finally, I would like to provide some selective guidance for 2013. First of all, for depreciation and amortization, we are estimating $274 million. This includes the acquisition, the crenox acquisition. We are estimating interest expense of $120 million, of which $109 million is interest on our debt and $11 million is deferred financing costs. Then our interest will be a lot lower -- well, it'll be only the joint venture with the -- with Viance, so it's about $3 million. And we're looking at an effective tax rate for the year, full year, of about 28%. And this is based on our planned geographic mix of earnings and the fact that we reversed the valuation allowance in the second quarter of 2012, which adds a couple of percentage points to the tax rate, which I think I had mentioned in previous calls.

And with that, Seifi, I will return it back to you.

Seifi Ghasemi

Thank you very much, Bob.

As most of you are aware, on January 17, 2013, at our investor conference, we've delineated our strategy for the next 5 years. For the benefit of those of you who could not attend, and for the sake of further clarity, I want to repeat the key points.

We stated at that conference that as we move forward, our principal strategic objective is to aggressively pursue a course of action that maximizes shareholder value. To achieve that, we will take the following steps regarding each 1 of our 5 business units.

Our core key business units are Lithium and Surface Treatment. Therefore, we will focus our financial and human resources to aggressively promote organic growth and invest in bolt-on acquisitions to further grow these 2 excellent businesses. This is what we have been doing in the last 5 years, and we will even more aggressively pursue this course of action in the next 5 years.

As for our third business unit, TiO2, we did set a timetable that by end of 2013, we plan to divest ourselves of this business either by selling it, spinning it to our shareholders or reducing our share ownership in this business to a very small minority position. Since our Investor Day, we have acted by buying the 39% share of our joint venture partners. Therefore now, with 100% ownership, we do have total flexibility to execute our plan in a manner that maximizes value.

As for our other 2 businesses, that is CeramTec and Performance Additives, both of which are excellent businesses on their own, we have asked our financial advisors, Lazard, to perform an in-depth strategic review of these 2 businesses and develop options for us as we move forward.

Please note that we have started this strategic review in January of 2013, only a month ago. Therefore, it will be premature to draw any specific conclusions as to what the outcome of our review will be. As responsible executives, it is essential for us to constantly review the performance and the prospects of our business units and develop options such as divestiture, joint ventures, mergers or further acquisitions. I do want to repeat again that we are not making any representation here about any specific course of action with respect to these 2 businesses. They could continue to be part of Rockwood's portfolio for another 6 months or another 6 years.

Another point discussed at our Investor Day was that we plan to continue to pay a dividend of approximately 2.8% to 3.2% of our stock price as we move forward. We also mentioned that our Board of Directors has approved the allocation of up to $400 million at this stage to buy back Rockwood shares as long as we believe they are undervalued. We have hired Citibank to execute this buyback program in the open market starting next week after we file our 10-K.

So at this point, we would be delighted to answer any of your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll go first to Robert Koort with Goldman Sachs.

Robert Koort - Goldman Sachs Group Inc., Research Division

Seifi, I was trying to get a handle on the cyclical potential in the Performance Additives business. And I guess if I look at what your guys presented at the Investor Day of $1 billion sales target and 25% EBITDA by '17, that suggests some pretty remarkable incremental margins between now and then of nearly 50%. So I was wondering if -- could you help me size where you get that? Basically, it's a 50% move in EBITDA. How big is the Georgia plant? How much does that help? How much do you get from a cyclical U.S. housing recovery? And then how much do you need the rest of the business -- the other 50% of sales, how much do you need that to lift up as well to get those kind of targets?

Seifi Ghasemi

Yes, Bob, that's a very good question. We will get about $30 million of benefit to our bottom line from the new plant in South Carolina. And in addition to that, the incremental margin on that business is close to about 45%, the contribution margin. So we kind of think that what Mr. Andy Ross presented at our Investor Day is a very realistic expectation for that business. And obviously, the background to that is that the housing starts in the U.S. will go back to about 1.5 million a year, which we believe they will by 2015.

Robert Koort - Goldman Sachs Group Inc., Research Division

Okay. And can I ask, on Surface Treatment, a similar question. You gave a longer-term goal of better-than-20% EBITDA margins. Obviously, you're doing much better than that today. So is there anything cyclical or structural that makes you a little more cautious? Or should I interpret greater-than-20% to mean mid and upper 20s for a target in that business?

Seifi Ghasemi

I think your last statement is correct, Bob.

Robert Koort - Goldman Sachs Group Inc., Research Division

Okay. And the last one for me. You mentioned the buyback could ramp up. Do you have any -- are you inhibited at all, if you're pursuing or contemplating strategic options for businesses, from doing the buyback?

Seifi Ghasemi

Well, we are -- as long as we are not in possession of material knowledge, we are not and we believe that the statement I just made about some of the things that strategically might happen, are obviously very comfortable that we have disclosed what we need to disclose.

Operator

Next question is from James Sheehan with SunTrust.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

Seifi, just wondering if you could comment on your thought process with regard to CeramTec and Performance Additives. In the past, I think you had referred to them as core businesses. And more recently now, you're changing your thought process on that. Could you just provide a little color?

Seifi Ghasemi

I don't think I have ever said that -- use the word core business for our Performance Additives business, first of all. And the second thing is we have always said that our key businesses are Lithium and Surface Treatment. Our Ceramic business is a great business. We just are obligated to look at our options. I mean, if somebody is interested in that business at a price that we think is higher than what we can do with it in the next 5 years, we should take a look at it. That's all we are saying. I think what we are saying is that if somebody wants to make us an offer for Performance Additives or CeramTec or TiO2, we will entertain that. But if somebody comes and gives us an offer, and no matter how high it is, for Surface Treatment or Lithium, then they have to buy all of Rockwood. We wouldn't sell those businesses separately. That's basically what we are saying.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then just on additives and also TiO2, the inventory rationalization that was done this past quarter, has that all been completed? Or do you expect any additional moves on inventory in the first quarter?

Seifi Ghasemi

Well, it obviously depends on what the sales will be. If the sales are -- continue to be very low, then we will continue to draw down inventory. We are right now running our plants at around 59% of capacity. If sales pick up, then our working capital as a percentage of sale will become reasonable. But we are determined to reduce the inventory there, and we have done that.

James Sheehan - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then in Ceramics, you noted the -- and medical applications were quite strong. The others were not quite as strong. Could you just explain which applications were the weakest? And what's your outlook for those in the first quarter?

Seifi Ghasemi

Well in Ceramics, we have always said that our medical business will grow 8% to 10%, and it is doing that. And then the rest of the business are driven by auto and general industry. So the rest of the business grows at around 3.5%, 4% a year, depending on what electronics does or what the auto sector does.

Operator

Your next question is from Alek Yefremov with Merrill Lynch.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Seifi, do you see any potential acquisition targets that could be valued in excess of $1 billion?

Seifi Ghasemi

If it is in Surface Treatment or Lithium, yes. We actually do have a target in Surface Treatment. This will be more than $1.1 billion, yes.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And maybe as a follow-up, do you think that target will become available if you have sort of freed up cash by selling other assets?

Seifi Ghasemi

I hope so.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

A question about Lithium business. What level of price contribution across all your lithium products can we expect in that business in 2013?

Seifi Ghasemi

You mean gross margin?

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

Oh, no, just -- I'm sorry, I'm talking about just the price. How much on average do you think you would be able to raise prices this year in lithium?

Seifi Ghasemi

Yes. I do not comment on pricing. Sorry about that. I have my lawyer, sitting over there looking at me that I should not make any comment whatsoever under any circumstances about pricing.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

That's fine. Then maybe continuing on lithium. If you could elaborate on raw material cost that you -- were mentioned as rising in the press release. What is the outlook for lithium raw materials in 2013?

Seifi Ghasemi

We think that it is stable. There is not -- it's not significant because in lithium, we are the raw material. They do buy some chemicals. But then, they make butyllithium and all that. But those will be stable.

Aleksey V. Yefremov - BofA Merrill Lynch, Research Division

And a final question, if I may. Your lithium carbonate plant in Chile you just mentioned will be completed by early 2014. Should we expect incremental production from that plant already in early '14? Or are you willing to wait until your brine ponds are concentrated enough so there might be 12- to 18-month delay?

Seifi Ghasemi

No, no, no. Our brine ponds are in good shape. We don't have the issues that some other people have. As soon as that plant is mechanically finished, we can produce product.

Operator

Your next question is from David Begleiter with Deutsche Bank.

David L. Begleiter - Deutsche Bank AG, Research Division

Seifi, if you sold CeramTec, would you have trapped cash in Germany? And if you would, how will you be able to get it back to the U.S.?

Seifi Ghasemi

Maybe Bob can answer that. Let me just have him comment.

Robert J. Zatta

David, as we have mentioned in the past, first of all, if we sell any businesses in Germany, given the tax rules there, we have very, very little taxes at 95% exclusion on a gain. As far as the cash is concerned, we have the opportunity to repatriate that cash to the U.S., if that's what we desire to do, via our intercompany loan structure, which does not work as a -- translate as a dividend or anything like that. So we have a very efficient system that, quite honestly, we've had in place for some time. And we've used it before.

David L. Begleiter - Deutsche Bank AG, Research Division

And it's very helpful. And Seifi, just again, what makes Surface Treatment a core business and CeramTec not a core business potentially?

Seifi Ghasemi

Surface Treatment business is very attractive because the business does not require a lot of capital expenditure. Because that business is basically a human services -- we get paid for our expertise. We don't make our money there because we're selling chemicals. And therefore, CapEx in that business is very low. That business is a gigantic cash machine. And if you look at our cash generation in 2012, more than half of it came from our Surface Treatment business. That's what we like about the business. In addition, we are positioned extremely well in Europe, Americas with all of the plants we have built and Asia Pacific in order to continue to grow. That business has grown in the past 8 years at 6% cumulative average growth rate, which is very good for that kind of business. So that is why we like the business a lot, and we also think there are good opportunities for additional bolt-on acquisitions and all of that. So that's why we like it. The Ceramic business, Dave, we like the business. It's a phenomenal business. It's a great business. We just owe it to ourselves to explore options if people think that we will get a lot of money for it basically.

David L. Begleiter - Deutsche Bank AG, Research Division

And just lastly, Seifi, on the buyback, should that be done by the end of the second quarter?

Seifi Ghasemi

We are doing an open market purchases. Therefore, we will go into the market and buy the shares when it is appropriate. Citibank will manage that for us. So when would it be completed? It depends on the share price, and it depends on whether some people are willing to do some block sales or offer their -- a lot of their shares for sale. And so I can't predict when it will be done.

Operator

And next, we have Mike Harrison with First Analysis.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

And Seifi, can you say how much the crenox acquisition contributed in sales in the fourth quarter? Is maybe EUR 30 million in the ballpark there?

Seifi Ghasemi

Approximately in the ballpark, yes. It's about $20 million to $30 million a quarter, yes.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

$20 million to $30 million, okay.

Seifi Ghasemi

Yes.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

And I was hoping that maybe you could give a little more color around the Kemira -- I mean, buying out Kemira's stake in Sachtleben? Can you walk through the scenario that led you to buy their stake? Why is that the best move for you right now if your plan is to exit TiO2 within the year?

Seifi Ghasemi

Mike, one of the options that they have discussed about TiO2 is to spin it off to our shareholders. We could not do it tax-free unless we own more than 80% of the business. So that was one of the driving force in order to create that option for us.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

And can you verify whether a deal was in fact on the table from a third party? And you've found it unattractive, but Kemira found it attractive, and you said you would just go ahead and buy Kemira's stake at that price?

Seifi Ghasemi

No, that's not the case. There was no deal on the table. We have been talking to Kemira for the last 1.5 years about acquiring their shares, and the time came that they were willing to do that and that's why we did that.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Okay. On the Lithium business, Seifi, it's my understanding that you've already brought some new equipment into that new carbonate facility in LaNegra. Are you running ahead of schedule on that project?

Seifi Ghasemi

No, I don't want to characterize it ahead of schedule, but we are on schedule.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

Okay. And then looking at the performance, the margin performance in Lithium, just down a little bit year-on-year. Were there some negative mix factors or potash or higher costs versus pricing that led to the margin decline there?

Seifi Ghasemi

Yes, Mike. We -- as I said, we had a very strong sales in lithium carbonate, battery grade. That is compensated by weakness in butyllithium and weakness in potash, both in volume and price.

Michael J. Harrison - First Analysis Securities Corporation, Research Division

All right. And then my last question. Just looking at pricing being about flat overall in the quarter year-on-year, should we think of that as being TiO2 was negative and the other segments were all modestly higher? Or can you maybe give us some more color on what was going on in pricing in the quarter segment by segment?

Seifi Ghasemi

No. Pricing on lithium was higher. The -- for the quarter, lithium had a price increase of about $6 million or $7 million. Every 1 of our businesses had a price increase, except for TiO2 that I told you it was $13.2 million negative.

Operator

We have Dmitry Silversteyn with Longbow Research.

Dmitry Silversteyn - Longbow Research LLC

I just have a couple of questions, if I may. How big is the Surface Treatment addressable market that you're looking to grow in? We roughly know what the lithium market size is, and we can sort of estimate what the ceramics size is given the current applications. But your Surface Treatment business is a little bit different, and you -- as you talk about, it's mostly a service business. So what do you as your addressable market in terms of the size of the business?

Seifi Ghasemi

Well, it depends on how you define it, but it's in excess of $10 billion.

Dmitry Silversteyn - Longbow Research LLC

Okay, in excess of $10 billion. Okay, great. Second question, on the Lithium part of the business. What utilization rates are you currently running at in that business? My understanding is that the industry overall is somewhere in the low 80s. I was wondering if yours was meaningfully different.

Seifi Ghasemi

We are basically sold out.

Dmitry Silversteyn - Longbow Research LLC

You are sold out?

Seifi Ghasemi

In lithium carbonate. In butyllithium, we have capacity. We are at around 80%.

Dmitry Silversteyn - Longbow Research LLC

Okay, okay. Did your competitor's issues with production in 2012, was that much of a driver for the Lithium business and your sold-out position in carbonate? And what's your outlook for '13 assuming that production issues are resolved and this player comes back into the market in a meaningful way?

Seifi Ghasemi

I really don't want to comment on the operations of our competitors, if you don't mind.

Dmitry Silversteyn - Longbow Research LLC

I don't mind you commenting on their operations. I was just wondering if their lack of presence in the market was something that you took advantage of and how do you see that playing out in 2013.

Seifi Ghasemi

It wasn't too much of a factor.

Dmitry Silversteyn - Longbow Research LLC

It wasn't too much of a factor.

Seifi Ghasemi

Because they are very -- they don't produce very much lithium carbonate.

Dmitry Silversteyn - Longbow Research LLC

Okay. And then final question. Speaking of lithium carbonate and sort of the tight market there that's allowing you to run your plants at these high utilization rates, with the Chinese ownership of Talison, is there -- I'm not going to say concern -- but are there thoughts about sort of what the market dynamics would look like if there's a 40,000-ton plant comes online in lithium carbonate in that part of the world in the next couple of years?

Seifi Ghasemi

Well, first of all, I am not sure that the Talison acquisition is complete. Is it? I thought that still needs a few more weeks to run its course, number one. But the second thing is that we absolutely have no concern because if somebody wants to put out a 40,000 plant in China that would require an additional probably $700 million in investment, the cash cost of those people today is around $4,800 a ton. We sell our product for $5,000 a ton. So if somebody is going to buy Talison for $1 billion, spend another $700 million, the return on that and the interest rate on that, if we keep our prices at $5,000, would create significant problems for those people.

Operator

We have a question from Richard O'Reilly with Revere Associates.

Richard O'Reilly

I have to ask this question. I was in the audience in New York in January. And unless I missed something, nothing was said about Ceramics and performance having a strategic review. So what had changed between that date and, let's say, the end of the month or to date that has changed, you think?

Seifi Ghasemi

Nothing has changed. Nothing has changed. If you actually read the transcripts, you'll notice that in answer to some questions, I was very specific about what is our core businesses. So there has not been any change, sir. We are just being -- the only change is that we are -- since we are going to buy shares, our lawyers have advised me that I need to be a lot more specific about our strategy so that we have 100% clarity. And they did not think it was satisfactory to put me to kind of allude to that. They said, "Come right out and say it" because we need to have total clarity with the shareholders.

Richard O'Reilly

Okay. So you had hired your consultants even before the meeting. Is that might be true?

Seifi Ghasemi

Yes.

Operator

Next question is from Jaideep Pandya with Berenberg Bank.

Jaideep Pandya - Berenberg Bank, Research Division

I have a couple of them. First, can you give us a little bit more color if you were seeing any pickup in your Performance Additives business from oil and gas and also from the U.S. paying to producers, please?

Seifi Ghasemi

No, we are not seeing any of that yet.

Jaideep Pandya - Berenberg Bank, Research Division

Okay. And secondly, with regards to the -- this business overall, I mean, is it fair to assume that if you get a multiple similar to what you're trading on as a company, it's sort of a thing which would make you feel is the right price? Or you would fundamentally require a premium, I mean, given the fact that you're splitting it out so explicitly that this is your noncore business?

Seifi Ghasemi

We believe that all of Rockwood's businesses are worth a lot more than what we are trading at. That's why we are buying shares. So...

Operator

Next, we have Silke Kueck with JPMorgan.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

Can you talk about like the state of the automotive industry in Europe and in the U.S. and how that may affect your Surface Treatment coatings business and perhaps the Ceramics business?

Seifi Ghasemi

Sure. We do not have any exposure in the U.S. auto sector in any of our businesses. So that's -- whatever happens to the U.S. doesn't affect us. In terms of -- we have -- our auto exposure is in Europe and Asia Pacific. In Europe, Silke, we have not seen any slowdown yet on the brands that we serve. As you know, we are focused on the luxury sector. We have a pretty good model that gives us visibility for about 3 months. Looking at that, we don't see any weakness of any significant shape or form in the next 3 months. After that, what happens, I don't know. But from what we know and the visibility that they have, things look fine.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

Okay. Secondly, on the acquisition of the Kemira share, are there any other cash outflows besides the EUR 98 million that you're paying? Like is there -- are there any distribution of earnings or anything else?

Seifi Ghasemi

No.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

Okay, that's helpful. And I know the TiO2 business is sort of like becoming less important in the scheme of things as you try to separate yourself from it. But if the earning in the plant that you acquired contributes $20 million to $30 million in sales and the plant is like 100,000 metric-ton plant, either means that you're running at like 50% utilization rates or the TiO2 price has fallen to, I don't know, $2,000 a ton. So I was wondering which one it is.

Seifi Ghasemi

We are running at around 50% capacity, Silke.

Operator

Your next question is from James Finnerty with Citi.

James Finnerty

Just want to touch base on the plan to pay down some of the term loan with the proceeds from the bonds. Is that still a plan?

Seifi Ghasemi

It will be part of our plan if we are convinced that there is no acquisition that we should keep money for. I mentioned that at our Investor Day meeting. We are going to hold on to that cash until we are sure that Talison is sold to somebody else. And if anything else is not there, and then we will pay down.

Robert J. Zatta

Yes. And just one further comment. As I mentioned in my remarks, we did pay down $250 million of the term loan B back in the fall after we did that bond offering.

Seifi Ghasemi

Absolutely.

Robert J. Zatta

So we've already taken a step in that direction.

Seifi Ghasemi

Right.

James Finnerty

Okay. And just 2 quick follow-up questions. Is investment grade still a target from your point of view in the near-to-medium term? And is the Talison deal still sort of a "Best-or-final-offer" situation where you cannot make another bid?

Seifi Ghasemi

Well, first of all, investment grade is one of our targets. As far as Talison, I don't want to make any comment considering the sensitivity of what's going on.

Operator

And next we have John McNulty with Credit Suisse.

John P. McNulty - Crédit Suisse AG, Research Division

Just a couple of quick clarifying questions. So the guidance that you gave on the interest expense for the $120 million of interest, that does not make any assumptions for the term loan getting taken out, is that right?

Robert J. Zatta

It makes no assumptions about debt paydown, that's correct, John.

John P. McNulty - Crédit Suisse AG, Research Division

Okay, great. And then it's our understanding that the Talison deal hasn't been -- or at least as of now, the financing is not in place. So assuming that they can't get the financing in place, I assume at that point you could actually -- even though you've given a best and final in the past, you could put out an -- essentially a new bid because there are no deals in place at that point. Is that the right way to think about it?

Seifi Ghasemi

We can put a new bid. The question is that do we want to? So we have to wait and see what happens, and then they'll make a decision, John. There's nothing to prevent us from doing it.

John P. McNulty - Crédit Suisse AG, Research Division

Fair enough. And then just one last question. On the TiO2 business, you announced at the Investor Day that it was -- that you would be getting out of it by the end of this year. Have you seen any interest from either strategics or private equity in that asset since you made that announcement, if you can comment on it?

Seifi Ghasemi

I cannot comment on it, John.

Operator

Your next question is from Chris Shaw with Monness, Crespi.

Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division

Usually [ph] you've laid out a plan that eventually, you could get to the point where you're just Surface Treatment and just Lithium. I was wondering, are those 2 businesses integrated at all? Is there any sort of overlap? And then if not, do you sort of have a view maybe of Surface Treatment as some sort of a cash generator to fund the -- maybe the growth in Lithium?

Seifi Ghasemi

Chris, you're asking a very excellent question. Those 2 businesses are very integrated as 1 business called Chemetall. 1.5 years ago, we took steps to separate them. So they are now 2 separate, independent, legal entities. So that's the structure today. And if we get to that point, we will have 2 separate legal entities as our core businesses. And the logic is exactly what you said, that you have a business which is Surface Treatment. It generates a lot of cash that can support Lithium, which has a huge amount of growth and requires cash.

Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division

Right. And then looking at Performance Additives, if you were entertaining divesting it, does -- just because as we talked about or you've been talking about with the TiO2 and the whole Kemira, it's -- does the Viance joint venture cause any problems like the joint venture in TiO2 to get rid of it?

Seifi Ghasemi

The Viance joint venture?

Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division

Could you sell Performance Additives -- I mean, if the Viance joint venture wouldn't impact it, have you ever felt like if TiO2 had problems?

Seifi Ghasemi

No, the Viance joint venture is not--it's very small. And that joint venture is structured in such a way that we can do whatever we want and it wouldn't have any effect whatsoever on the joint venture.

Christopher L. Shaw - Monness, Crespi, Hardt & Co., Inc., Research Division

And just one quick -- in Surface Treatment, do you guys do any surface treatment for carbon fiber substrates or things like that?

Seifi Ghasemi

No, we don't.

Operator

[Operator Instructions] And we do have a follow-up from Silke Kueck with JPMorgan.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

I also had a follow-up on Talison. Is there anything to be really read into that the financing has not been put in place for Talison? Like the way it reads on the website is, is that Chengdu is trying to raise equity to get the deal done and that they're waiting for the shareholder vote to take place before they're willing to do that.

Seifi Ghasemi

Silke, I cannot comment on that at all considering the sensitivity of the situation. I'm sorry. I mean, we know a lot, but I just can't comment on it.

Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division

Okay. But your sense is that you prefer to hold the cash in the event there's maybe an opportunity to step in later?

Seifi Ghasemi

Well, that seems to be a prudent thing to do just in case.

Operator

Thank you. And Mr. Ghasemi, we have no further questions. Please go ahead with any closing remarks.

Seifi Ghasemi

Well, thank you very much. We appreciate everybody being on the call, and we appreciate your good questions. And we look forward to talking to you next quarter. Thank you very much.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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