Trinseo (TSE) 6 Nov 222022 Q3 Earnings call transcript

Good morning, ladies and gentlemen, and welcome to the Trinseo Third Quarter 2020 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich, President and CEO; David Stasse, Executive Vice President and CFO; and Andy Myers, Director of Investor Relations. Today's conference call will include brief remarks by the management team followed by a question-and-answer session. The company distributed its press release along with its presentation slides at close of market Wednesday, November 2. These documents are posted on the company's Investor Relations website and furnished on a Form 8-K filed with the Securities and Exchange Commission. operator your the telephone. require star please should on then anyone assistance call, during press If I to Andy now Myers. will hand the call over

all instructions will and At to participate listen-only Thank morning, question-and-answer follow After participants session. the time, mode. remarks, Regina, a are brief you, our in in good this everyone.

cautionary forward-looking rules statements Our on noted and disclosure are note on Slide X.

A Commission. A to The statements. our obligation includes forward-looking no provided appendix future differ that is that we and include, make discussed, Report with presentation and certain Exchange earnings implied will presentation. November to, update of issuing XXXX. Item from limited its describing revise could our our including in investor shortly the the actual call Form website the The Investor is certain of be until release guidance archived results reconciliation in our to cause forth you caution of of could the statements, During or company Securities expectations. forward-looking XA may actual in GAAP described, must on and this measures to transcript undertakes company's call. made on the but conference following non-GAAP these be measurements. in Today's are in corresponding filings materially Relations set Factors presentation, conference what factors differ available XX-K these results We and not or replay Annual our or risk will other replay X, statements. measurements

to to Now Frank turn I'd Bozich. over call like the

Thanks, Andy, and everyone. good morning,

and customer throughout economic prices combination significant the third uncertainty, last our in falling quarterly destocking we As the call, triggered of high material prices, raw quarter. energy highlighted

recover and million. costs was Europe of costs. resulted gas energy input higher impact inability record We on fully lower to prices demand QX about margins addition, In $XX that estimate sequential to due the the margins reduced in in in

fell significant construction building no in COVID continued. there consistent discretionary during of and economic for levels, during restrictions result quarter. was remained a and Europe considerable weakness QX with demand backdrop, interest items and as Asian Against North consumer and improvement rates American applications the this our and showed was demand demand volumes steady but the margins demand as inflation. auto, quarter in rising

energy elevated curve, products cost and industry's the costs the end arbitrage. placed created regional Additionally, of result, opportunities entire a on global more for as high the energy-intensive

For we've to the Trinseo we to largest with the more more and energy-intensive significant globally cost assets styrene announced has products improve on conditions, our to regarding of closure of our with with area August. leading adverse margins optimize and of the position the potential these We've dialogue polycarbonate, market Deutschland on Works several actions, namely in oversupply been response Council the potential and Bohlen, our In traded margins. our like offline was begun considering the plant which styrene polycarbonate. styrene plant in impact the negative The are products focus portfolio, Germany. since

conditions. The economic facility $XX the maintenance during to idled Bohlen million poor June ending EBITDA in planned months response approximately for First contributed then XXXX. to and negative XX

optimize production have polycarbonate, we're in polycarbonate startling for supply In downstream steps chain purchases. We our compounds. to Terneuzen our The needs idled external and at are our via for beyond Netherlands. production downstream production met temporarily the businesses also our be our evaluating styrene to expected

sold polycarbonate closing remaining XX% of As business. reduce is initiated But Stade and closure consume our greatly into a potential downstream market. our the higher-margin cyclical to our Works half would about our lower and merchant production reminder, production plants, the discussions polycarbonate merchant relates and the more have costs the our of potentially line This would the polycarbonate we with valuation Council market. exposure Part one production at compounding to of we lines there.

polycarbonate as reviewing Hamina, reducing of North initiatives, styrene as to sheet our that I'm to to in our current if steps our lead assets, we styrene regarding business $XX footprint. other competitive a profitability an capacity approved, are long all segments, asset the such would restructuring very In Finland improvement as have ways America market potential asset PMMA butadiene plant. well Together, medium we to these conditions. annual in under about at term, addition of confident these and latex footprint optimize million in in our

intensity costs. that carbon are We will initiatives and utility working energy efficiency reduce our exciting both on our decrease very some

recompression. For million example, savings $XX assuming for projects mechanical we these gas of $XXX price set the of significant. hour. estimate natural And be recovery can a through annual megawatt of approximately per initial of vapor heat The benefits financial the

carbon Europe. improve as we However, and that like we an support reinforce also rest a industry, demand, reducing in this to on the challenges the importance such of prioritize provider intensity. priority We our with the to faced want are to the current continue as of operating solutions industry discretionary and capital will the specialty And the and controls in transform a Therefore, that, flexibility. evaluating as understandable to short actively that consequence, continuing low clear a initiatives cost spending, our position we're a materials, we've historically into relationships we're on has of is overarching cost investments encouraged our remain our and transformation. develop be focus strategy. It's limiting high steps face widen recycled particularly our energy the term, costs will The meaning and customers. on they range we portfolio transformation, of enacted our lower operating focused combination these spending. Japan macroenvironment. products of Margins expand To sustainable I'm to been making recycled and current we're we're for in products, facing sustainable a XX% products, Volumes recent PMMA some by of quarter further of prior resilient portfolio, of announcement QX product from how are circular of including products cultivating have year-to-date MMA, the XX%. in that grew highly our sustainable our most third the which contain collaboration of the year, with is progress by offerings, of Steel evidence a which our into But increase that our with to feed headwinds solutions. beneficial the amount significant versus Works valued creating

this reduction substitution PMMA Co-laminated fiber substitution offerings wellness growth help of material We with There also co-lamination adjacent as growing QX. have volumes their applications. through through and grown customers in and mobility are replacing additional year significant our one product that are existing cost glass such XX% this growth and and with material of sustainability the for our potential. opportunities And achieve into additional goals, applications. products ABS is applications several expanding

well conditions as For and recently end with durability into to these for an of inorganic advantaged position transformation range of as example, capstock been addressable our of began a we customers. inevitably benefit emissions remain developing supplying portfolio technology and This this capstock has market and our provides the improve. committed when PMMA of approximately technology will railings our deliver weatherability, with it for VOC the of can total million, which painting consumers. part to lower We wider expansion product as benefits us PVC the in the organic $XXX in high environmental And eliminating has growth. market the decking siding as adopted a siding, We by applications. the place

applications. our recently offering to effort Han Hendriks, expand will appointed into technology Our CTO, higher-value lead this

call over the turn walk some to financial I'll Now additional of through Dave the points. to

material earnings the a give cash little the our Thank of from of included we generation, in still our flow. driven like release initiatives. steep on cash near-term cash million decline more level operations the you, of This allocation. Frank. of working Despite $XX $XX thoughts million and prices detail by profile, to and reduction $XXX quarter, inventory million and capital, liquidity I'd raw on generated capital low in free

the cash for working is strong which generating seasonally expect fourth a We release another in quarter quarter, us. capital

that have continues From industry we're an downturn that have if position quarter and a eventuality. cash strong. liquidity we of continue be Our prolonged very to to to this $XXX and We projects positioned will downcycle. credit allocation the growth capital over of million sustainability $XXX attractive, access facilities. well And through organic with million very ended becomes fund through perspective, undrawn to a number a committed withstand

However, will better we be have until conditions. share buybacks future deprioritized clarity economic into

giving about this and our information current guidance expect To to free cash this environment. the balance we at for flow give XXXX, our in not economic we're million. the For clear, level XXXX to I liquidity context EBITDA instill be in you to confidence sheet wanted of position But point. of breakeven $XXX be

our fourth cover to Now the call over outlook. I'll back Frank to turn quarter

Thanks, Dave.

with Looking costs, face market continues QX. decreased high demand at significantly utility and performance. Europe to similar challenges we QX, to impacting anticipate conditions near-term considerable

are and demand Asia demand steady North destocking. However, improved generally hopefully and end markets, for signaling products, and in polystyrene America the ABS Asia some in seeing of most

QX $XXX full the Further is net million adjusted of expect our million, to the generation due a to $XXX $XX from to CapEx million, million EBITDA guidance a of range $XXX cash year loss number flow million, full and factors. spend we operations of EBITDA of QX, improvement cash to adjusted free above in of For $XXX year, leading including year $XX million full the an $XX expect is $XXX and over quarter a midpoint fourth At which breakeven. of estimated cash million. of implies approximately million, anticipated of

not million of charges third one-time do $XX the of or from quarter. we of timing expect million $XX First, impact a the reoccurrence negative the

factors lead sequential improvement. So earnings $XX those combined almost X of million to should

idling of variable in the margin, Additionally, improved we an styrene including from million production. improvement $XX benefit feedstocks approximately of expect

benefits with be operate support cash We To expect expect performance. actions provide up, will QX announced, footprint conditions to position we will we incremental our from continue improvement the solid financial from in our potential to current further asset transformation the which management. have in and sum a and prudent to our we strategy significant XXXX

integration our on track as Surfaces have acquisitions. we cost to we We now associated synergies a on result realize well progressing the And growth are as and opportunities Aristech of exploit well PMMA are the of the business. these as

hard an is take thank integral business and the SAP Arkema's services. a S/XHANA to new successfully of results of in have part The everything their accomplishment morning, I sale all position to to remains we this report the Styrenics employees on in it this the system significant for that fact, but this TSA on to and done for this transformation. to still our our us happy This of In pause, future. to as reduction want from of opportunity major transitioned ERP of I'm is PMMA system. work step Arkema our sites they've ERP all

focused to in opportunities remain you. portfolio with differentiated happy and additional investing we organic offerings. on our Finally, sustainable your now to growth take product product Thank build We're questions.

Instructions]. [Operator

from Begleiter Our the David question Bank. come with Deutsche first of will line

is and will Dave, end in continuing QX? the of just QX? done QX it destocking, Frank it And And on into be by year? the worse largely you think it than is

me we get I into back it So We're end seeing think let you done question. by We give of largely still will QX. be the And year. point. I'd into as some the level data guess your a of do destocking

just seen decrease example, their the production Xx that reading retail is customers sales. in public ROFO, is the -- in from we've -- production rate we For like announcements reduction appliances, in their

over the largely clearly be there's of destocking end We the think a So by will year. effect. it

good. some results And production options you are site, in are Terneuzen, options obviously, Very the your But this need to the what Europe. there? on with just improve what

for of thanks So yes, part question. so the -- the

part have energy it So part $XX of I big that relates script to in highlighted Terneuzen. we -- opportunities in of the we are that the a million efficiency

advantaged So cost planned, high the investments environment in rest of think the we actually, be Terneuzen, the compared to that the regional production. we with energy will

Research. next with of will question line Mitsch Your from Frank come the Fermium

of CapEx, I wondering that are that i.e., there if you David, embedding million down EBITDA, what you was breakeven et of mentioned, in cetera? the break $XXX the you components could of terms kind

Yes. Frank.

clear, be our still So process. we're going to budget through

What the for of kind tell But process. we Frank, that still things give that can still we're CapEx, going I are pieces now. is you budgeting about again, through -- year. like Interest you I'll CapEx So budgeting next know the still think year's we less will on million $XXX $XXX $XXX it I million than a million. forecast. expense, based this EBITDA to up we're end where contingency Taxes, again, be an

free million and that So to I cash $XXX that's we I of flow realize level kind but some about good there, I -- mean, feel breakeven, there's pretty minuses -- pluses get of think in Frank.

that won't expectations that the I save lot although know required mentioned you trough what be those did to that wondering And mention if that would in shutdowns. But But annually. shutdowns Frank million your EBITDA. And offer you you effectuate awesome. are of terms to would could, Understood. that probably a costs as that of I'm spend that -- $XX

Yes.

So the event no between the through again, and $XX we Frank. $XX those will of next it do been be made million us Works working to all to be Councils, clear, decision actions, we're $XX cash so has But be be only in about -- would the under there, year would cost take million. million,

it's think against decommissioning gave ago, and what $XXX immediate XXXX embedded in could that, would we a than there couple this some then, million selling I But that's is a for I Beyond concern net I and beyond, be less XXXX, get you and be with decommissioning could number the minutes $XX million -- of the costs. Frank. guess, scrap.

will next Michael with Your line come the question Leithead of from Barclays.

Or I the floating there Dave, you maybe back around build balance on expect question, debt kind you to term. of sheet? today? a there the is cash of have First to rate near in way share appreciate some Would buybacks buy out your deprioritizing comments

bonds the we new well the We're in but as We've no stock Well, would QX. year, aware to look, near repurchases near are the going the either is In We'll to we're the preserving focused bonds. term. there and term, where that gotten QX see speak or start of of on I'll the I on question. that comment balance immediate inbounds think term, certainly trading. on, a I'm of But quarter, I all And Mike, in either. protecting term, just sheet. what near think for the be lot have fourth happens be liquidity buybacks of no the for

Fair enough. maybe then And second, picture a question. bigger

Aristech provide us, a had just these businesses. of year the acquisitions, a is you big you X the synergy or and to is, for, when you've Arkema maybe business, Can help different, picked the now. take how so gone On where the integration give just both about of mile or obviously, maybe relative these just markers kind and has but versus bit profitability first macro up

Yes.

acquisition. ahead realize the miss would a lower into aggregate But end or accrue anticipated. I the markets would would this mobility, are significantly we we'll volumes any would and But So have had by say will Dave Asian when synergies and the we of track that. construction, let frankly, than the and we've see mobility, a third the building, X in to largely million realized markets normalized and our EBITDA than growth I on is if growth me $XX said don't things business. say are cost schedule normal any that that, take down what we to and -- And opportunity is seen at cost between to terms, sanitary these environment they we building million reason we businesses, supplement, approximately -- a we've more $XX those. additional return a and lot construction generate post we and Clearly, crack in that the I points. is, expectation do I won't that, than in the synergies anticipated estimate we're the expected. of year There's we're that synergies that contribution

of question the Castillo from Stanley. next Your with Morgan Angel comes line

annualize some a it $XX cash we that $XX below million. kind range laid guess, then for particularly, goes more breakeven were would color you've that it the a us I fourth the, could the the of XXXX give think of was noted. and to if as that kind you And to of million little that, on quarter, still about from kind cost suggest range kind hoping I of out you've is level million of you bit $XXX

how kind think as have just, the year, at factors, you of looking And beyond next help maybe how of million that have -- quarter be us kind much can quantify at kind we of that intakes you puts think positive? least levels? would of you're or to that the anticipate? of about would could for you incremental then Maybe would So then we savings help that about much helpful. fourth the -- incremental some just that destocking that, bridge be the If to normalization you $XX would incremental

Yes.

me budget. that I'm the rate. Dave as of moving will big working -- give to going seasonality able QX XXXX you parts anticipate I the be because our that we're incrementally, the run the put me to really let that let But through is you said, So qualitatively X pinpoint not would normal business. exactly Number there's one numbers give above

of is normal year normally much has of season, -- lower So the QX from seasonality the a one standpoint. is for quarters us a lowest

The thing we of significant. there destocking will the quantify challenge say end the is, much but to done that initiatives is we'll that, And And anticipate to year. we will is -- drive continue by to of It's see which year is -- the there those much destocking, be be then it continuation a second how a the thing we productivity other from -- believe, is benefit we that completion. as those the full largely how over.

the buckets X those us QX substantially rate. think run I above move So

The other…

Say Very again? helpful.

seeing and volumes Sorry, QX. is, Asia a point one to polystyrene I in better in are that of of we in make ABS point sort significantly do want both

XXXX. in signal giving in things return to -- And to to going a that's much a much us -- situation are so that better largely

kind to $XX need I to million specify do September, very million about of terms around what November order noted need sounds that ABS, little Got like outcome? of get guess, range, you the -- $XX versus it. a what to in and next type quarter. in And for with fourth in Frank as instance, trends you you Could what you what's million $XX of October, and patterns good the maybe question, helpful. do then just bit think cadence a saw more embedded That's million was? end to the kind $XX what of And segue we see you it to my see, maybe higher to actually that

that. address I'll Angel, it's Dave.

of No at the no of third the I think, terms clearly I the low in saw would in I of Europe seeing at the quarter. been look, -- really kind it least North continuation restocking. mean duration. demand bouncing Europe. in levels we in what same in we're largely, -- that of this America a patterns I early in order guess, very bottom, is portfolio, off has in our starting the for flat describe

quarter. We have America. the That Frank destocking not then in And yet seen significance North continues as higher. in fourth any the mentioned, Asia is of

higher demand and a the signal destocking prices over. Feedstocks Our is quarter, Asia, have polystyrene down ABS is fourth clearly to the considerably. it's us in come that so

So that's see how it. we'd

of gets midpoint that of range. to of all us the kind So the

think the just I range, outlined. than what what would demand get clearly, us I mean, in better I higher some

Our feedstocks idled. assets are

that guidance. somewhat don't So number think -- delist in I I the think is

go back a think want I -- I to to question. Angel, maybe

I'm good it's trough level it's probably the mind. people's Frank think about EBITDA. point to on a earlier go back to sure in raised a question of the call that I

Frank I earlier gas think the see trough again, and that environment, would cash. is pointed in is, think company natural out third reasons on this just obviously is, mean, for current than a disconnected $XXX the of Frank quarters number EBITDA demand -- in my where $XXX just mean the rate the that's million is question higher to your And a I Angel, mean, for the and fourth run where I comments in we I reasons million. that earlier is, for see from fact. I gave. we this

Alembic line Advisors. Hassan the will Global Ahmed with question from next of Your come

regions. lockdowns I relatively helpful America. declines steep volumes with and very in by was sort slides I surprising was volumes And Asia, North guess, Question and by in the that not intrigued the in broke you flat volume your quite like, COVID the out year-on-year of

of Now I right? not in the for quantitative But Asian mean looking some And about to are qualitatively, forever, not going lockdowns obviously, sort seeing out you're volume green talking I'm already last Asia. shoots guidance. just

guys already Now yet North the as flip is no of side talking housing like. destocking people out was you pointed there are that America of and market that and in weakening about that sort the

this at look are crosscurrents volume your volume, you XXXX, as these broadly so there? expectations what So into

that announced. to growing the there's largely what see point, would of with XXXX, year. construction decline weakness annualize this second And We market seeing North half some building we're consistent at in the in in the is American this

sort in by and a So at into looking in I of guess Asia, destocking planning demand construction the ex America of that's how some year building our we and and go underlying weakening Europe driven North continuation cycle next housing. is and

margins And little follow-up, sort sort I and a have I I variety announced I segment the business restructuring have because X% a was resilient. of would would by at I just you've quarter, surprised been EM a imagined like. mean, that bit of as obviously of this more the the know mean a assets

destocking in and should of where conditions with market -- we 'XX? you would behind think So behind I of sort you about these -- XXXX otherwise that the us we're are if guys us in current continued -- margins sort mean how EM relatively be obviously, destocking restructurings to recessionary tag now how mostly, doing the segment through environment like, sort of with an if

put year. that the teen business in next the margins for low for Yes. level would I

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I just don't if to want one add thing, you mind.

charges onetime Engineered as so were -- you're margins those numbers element are well, Materials deflated was the that. I think in somewhat Hassan, an the by there think I that quoting there of

the of Citi. from with will Eric question next line Petrie Our come

Plastics? the into What's impact your as Base year to XXXX well this build on and auto on Engineered compared as view Materials

assumption to builds. So so come auto number. back that I'd think have what see on we for I have with got into landed don't exactly underlying very number on actually, to we've as would I our a Yes, precise Dave, to -- to assumption you... come well, we've know relates back it to we'd -- XXXX, you -- auto Obviously,

Yes.

I assumption of auto up and 'XX, it our assumption. looking today, in low outlook digits what standing is our that's just at kind building plant think, based versus we're is on here the single Eric, XXXX that

And then do fast styrene, keep can Okay. implementation and come of those secondly, how just idled? then assets quarter? that? energy you you long through to on restarting And and second on your Are planning in that you winter FID how the can efficiency into project,

Yes.

So versus long assets, we downstream spot needs the styrene, -- see idle. cost the meet the or to we at can so advantaged assets the on our with as leave continue a as availability to would idles significant production, market that's asset the

would I significantly from So where improved that conditions we're in though, QX. say, they the were seeing

on XXXX remain take energy And again, to the be continue would the market the it's some begin get So -- programs, - benefit by deliver to the pricing timing it all others idle. of in early advantaged of effect to see the in the would the efficiency or and then spot depends end place will XXXX. we availability we to those on

that joining. conclude all gentlemen, Thank you today's will call. and Ladies for

now disconnect. You may