Q4 2021 Trinseo PLC Earnings Call
Speaker 1: Good morning ladies and gentlemen and welcome to the Trenzio fourth quarter 2021 Financial Results Conference call. We welcome the Trenzio management team, Frank Boseich, President and CEO , David Stacey, Executive Vice President and CFO , and Andy Myers, Director of Investor Relations.
Good morning.
Ladies and gentlemen, and welcome to the <unk> fourth quarter 2021 financial results Conference call.
We welcome the transient management team, Frank Bozich, President and CEO .
David Stacey Executive Vice President and CFO , and Andy Myers Director of Investor Relations.
Speaker 1: Today's conference call will include brief remarks by the management team, followed by a question and answer session.
Today's conference call will include brief remarks by the management team followed by a question and answer session.
Speaker 1: The company distributed its press release along with its presentation slides at close of market Tuesday, February 8th.
The company distributed its press release, along with its presentation slides at close of market Tuesday February eight.
Speaker 1: These documents are posted on the company's investor relations website and furnished on a Form 8K file with the Securities and Exchange Commission.
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.
Speaker 1: If anyone should require operator assistance during the call, please press star then zero on your telephone.
If anyone should require operator assistance during the call. Please.
Please press Star then zero on your telephone.
Speaker 1: I will now hand the call over to Andy Myers.
I would now hand, the call over to Andy Myers.
Speaker 2: Thank you D and good morning everyone at this time all participants are in a listen only mode. After our prepared remarks instructions will follow to participate in the question and answer session.
Thank you D and good morning, everyone. At this time all participants are in a listen only mode. After our prepared remarks instructions will follow to participate in the question and answer session.
Speaker 2: Our disclosure rules and cautionary note on forward looking statements are noted on slide 2. During this presentation, we may make certain forward looking statements. Including issuing guidance and describing our future expectations.
Our disclosure rules and cautionary note on forward looking statements are noted on slide two during this presentation, we may make certain forward looking statements, including issuing guidance and describing our future expectations.
Speaker 2: We must caution you that actual results could differ materially from what is discussed described or implied in these statements.
Must caution you that actual results could differ materially from what is discussed described or implied in these statements back.
Speaker 2: Factors that could cause actual results to differ include, but are not limited to risk factors set forth in item 1 a of our annual report on Form 10-K . Or in our other filings made with the securities and exchange committee.
Factors that could cause actual results to differ include but are not limited to risk factors set forth in item <unk> of our annual report on Form 10-K .
<unk> and our other filings made with the Securities and Exchange Commission.
Speaker 2: The company undertakes no obligation to update or revise its forward-looking state.
The company undertakes no obligation to update or revise its forward looking statements.
Speaker 2: Today's presentation includes certain non-GAAP measurements.
Today's presentation includes certain non-GAAP measurements.
Speaker 2: A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release. And in the appendix of our investor presentation.
Reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our Investor presentation.
Speaker 2: A replay of the conference call and transcript will be archived on the company's investor relations website shortly following the conference call.
A replay of the conference call and transcript will be archived on the company's Investor Relations website. Shortly following the conference call.
Speaker 2: The replay will be available until February 9th, 2023. Now, I'd like to turn the call over to Frank Bosa.
The replay will be available until February 19, 2023, now I'd like to turn the call over to Frank <unk>.
Speaker 3: Thanks, Andy, and I'd like to welcome everyone who's listening in.
Thanks, Sandy and I'd like to welcome everyone, who is listening in.
Speaker 3: 2021 was a great year for Turnzio as we achieved record profitability, including $440 million of net income and $729 million of adjusted EBITDA.
2021 was a great year for <unk> as we achieved record profitability.
Excluding $440 million of net income and $729 million of adjusted EBITDA.
Speaker 3: And I'm very proud of everything we accomplished on our transformation journey toward becoming a specialty materials and sustainable solution provider.
And I am very proud of everything we accomplished on their transformation journey towards becoming a specialty materials and sustainable solution provider.
Speaker 3: At the end of 2020, we announced the first major step in our transformation, the acquisition of our PMMA business, which was completed in May.
At the end of 2020, we announced the first major step in our transformation the acquisition of our PMA business, which was completed in May.
To complement PMMA.
Speaker 3: and further our transformation, we acquired the continuous cash sheet PMMA producer, ArisTech Surfaces in September .
And further our transformation, we acquired the continuous cast sheet PMMA producer Arris Tech surfaces in September .
Speaker 3: We also completed the divestiture of our synthetic rubber business in December and in early January we began a formal process to divest our styrenics business.
We also completed the divestiture of our synthetic rubber business in December and in early January we began a formal process to divest our <unk> business.
As a result of these actions.
Speaker 3: Our portfolio is shifting more toward that of a specialty material provider, providing solutions to higher value, higher growth applications.
Our portfolio, we're shifting toward.
More towards data, especially material provider, providing solutions to higher value higher growth applications.
Speaker 3: The acquisitions have enabled us not only to increase our product offerings to our current customers in markets such as automotive, consumer products, and construction.
The acquisitions have enabled us not only to increase our product offerings to our current customers in markets, such as automotive consumer products and construction.
Speaker 3: but also to expand into additional applications like wellness and sanity.
But also to expand into additional applications like wellness and sanitary.
Speaker 3: The financial benefits of the acquisitions, aside from being tied to products with higher margins and more stable earnings, are expected to earn more than $60 million of cost centers.
The financial benefits of the acquisitions aside from being tied to products with higher margins and more stable earnings are expected to earn more than $60 million of cost synergies.
Speaker 3: and numerous additional revenue synergies that we've identified.
And numerous additional revenue synergies that we've identified.
Speaker 3: On the sustainability side, in January of this year, we completed our acquisition of Heathland BV.
On the sustainability side in January of this year, we completed our acquisition of <unk> BV.
Speaker 3: a leading collector and recycler of post-consumer and post-industrial waste in Europe .
Leading collector and recycler of post consumer and post industrial waste in Europe .
Speaker 3: This aligns with both of our 2030 sustainability goals to increase our offering of sustainable products and with our overall strategy of becoming a sustainable solution provider.
This aligns with both of our both our 2030 sustainability goals to increase our offering of sustainable products and with our overall strategy of becoming a sustainable solution provider.
Speaker 3: One of the largest constraints of growing sales of sustainable products is access to recycled feedstock.
One of the largest constraints of growing sales of sustainable products is access to recycle feedstocks the.
Speaker 3: The Heathland acquisition will provide us with an increased and more secure supply of PMMA, polycarbonate, ABS, polystyrene, and other thermoplastic waste to be recycled and processed into a wide range of products, including those that serve high-end applications like consumer electronics.
The Heath when the acquisition will provide us with an increased and more secure supply of PMMA polycarbonate, ABS polystyrene and other thermal plastic waste to be recycled and processed into a wide range of products, including those that serve high end applications like consumer electronics.
Speaker 3: Heathland is a great fit and the transaction has a lot of industrial logic given that we were already their largest customer prior to the acquisition, making up more than 10% of the revenue in 2021.
He fund is a great fit and the transaction has a lot of industrial logic, given that we were already their largest customer prior to the acquisition, making up more than 10% of the revenue in 2021.
Speaker 3: We're also focusing on growing our sales of sustainable products organically. In 2021, our sales volume of post-consumer recycled polycarbonate products to consumer electronics market increased by more than 50% over prior year.
We are also focusing our sales focusing on growing our sales of sustainable products organically.
In 2021, our sales volume of post consumer recycled polycarbonate products to consumer electronics market increased by more than 50% over prior year.
Speaker 3: Our recycled polystyrene products were used commercially for the first time in food contact application.
Our recycle polystyrene products were used commercially for the first time in food contact applications, which.
Speaker 3: which provide the packaging industry with a viable environmentally friendly product which delivers margins that are two to three times that of standard grade.
Which provide package the packaging industry with a viable environmentally friendly product, which delivers margins that are two to three times that of standard grades.
Speaker 3: In addition, to further the use of recycled polystyrene, we are progressing on our polystyrene recycling plant in Tescendelou, Belgium, which should be operational by 2023.
In addition to further the use of recycled polystyrene, we are progressing on or polystyrene recycling plant in <unk>, Belgium, which should be operational by 2023.
Speaker 3: From a business operation standpoint, 2021 was a challenging year, not just for Trinzio, but I'd say for the chemical industry in general.
From a business operations standpoint, 2021 was a challenging year not just for <unk>, but I'd say for the chemical industry in general.
Speaker 3: Numerous external factors ranging from weather events to COVID-19 created logistical challenges and tightness in materials, freight, and labor markets. I'm extremely proud of the efforts our people made to address these obstacles in order to deliver our high quality products.
Numerous external factors ranging from weather events. The COVID-19 created logistical challenges and tightness in materials freight and labor markets I'm extremely proud of the efforts our people made to address these obstacles in order to deliver our high quality products to our customers, especially while achieving yet in.
Speaker 3: especially while achieving yet another year of stellar EHS performance.
Another year of stellar EHS performance.
Speaker 3: 73% of eligible sites in the company received our triple zero award, meaning those sites experienced no injuries, spills, or process safety incidents.
73% of eligible sites and the company received our Triple Zero award, meaning those sites experienced no injuries spills our process safety incidents as.
Speaker 3: As impressive as that number is, we continue to raise the bar we set for ourselves, and will attempt to improve our EHS performance in 2022.
As impressive as that number as we continue to raise the bar, we set for ourselves and we will attempt to improve our EHS performance in 2022.
Speaker 3: Now I'm going to turn the call over to Dave who will provide more color on our record financial purpose.
Now I'm going to turn the call over to Dave who will provide more color on our record financial performance.
Speaker 2: Thanks, Frank. I'd like to start by talking about the fourth quarter, which, despite some unexpected headwinds, still delivered healthy earnings and very strong cash generation.
Thanks, Frank I'd like to start by talking about the fourth quarter, which despite some unexpected headwinds still delivered healthy earnings and very strong cash generation.
Speaker 2: We were encouraged by the continuation of robust demand for many of our products, and that strong demand environment allowed us to maintain healthy margins in ABS, polycarbonate, and polystyrene.
We were encouraged by the continuation of robust demand for many of our products and that strong demand environment allowed us to maintain healthy margins in ABS polycarbonate in polystyrene.
Speaker 4: fourth quarter earnings were impacted by two significant and unexpected events.
Fourth quarter earnings were impacted by two significant and unexpected events.
<unk> the.
Speaker 4: The first was a sharp and unprecedented increase in European natural gas prices late in the quarter, which impacted the quarter by...
The first was a sharp and unprecedented increase in European natural gas prices late in the quarter.
Which impacted the quarter by $30 million.
Speaker 4: About half of this was in engineered materials, and the remaining half was primarily in feedstock.
About half of this was in engineered materials and the remaining half was primarily in feedstocks.
Speaker 4: The second headwind was from an unplanned outage at our Ternusen styrene plant, which was caused by an upstream forest majeure. This impacted results by about $20 million, mostly in feedstock.
The second headwind was from an unplanned outage at our tier news in styrene plant, which was caused by an upstream forced mature this.
This impacted results by about $20 million, mostly in feedstocks.
Speaker 4: Adjust to the EBITDA and our engineer materials segment was about $25 million lower than expected.
Adjusted EBITDA in our engineered materials segment was about $25 million lower than expected.
Speaker 4: with $15 million, as I just mentioned, from natural gas costs and with the remainder from higher raw materials and freight costs.
With $15 million as I, just mentioned from natural gas costs and with the remainder from higher raw materials and freight costs.
Speaker 4: While we did take pricing actions in the fourth quarter, they did not cover the extreme pace and steepness of the cost increase.
While we did take pricing actions in the fourth quarter. They did not cover the extreme pace and steepness of the cost increases.
Speaker 4: Looking ahead to the first quarter, we believe that the pricing actions that we've taken will cover what is still very high natural gas costs in Europe , and that this will be the main driver for sequential earnings improvement in the segment.
Looking ahead to the first quarter, we believe that the pricing actions that we've taken will cover.
What is still very high natural gas costs in Europe and that this will be the main driver for a sequential earnings improvement in the segment.
Speaker 4: For the full year, we delivered record net income and adjusted EBITDA.
For the full year, we delivered record net income and adjusted EBITDA.
Speaker 4: Net income from continuing operations was $280 million and adjusted EBITDA was $729 million.
Net income from continuing operations was $280 million.
And adjusted EBITDA was $729 million we.
Speaker 4: We also generated $453 million of cash from operations and free cash flow of $329 million.
We also generated $453 million of cash from operations and free cash flow of $329 million.
Speaker 4: The combination of high earnings and strong cash generation led to substantial deleveraging as we ended the year with net leverage in the low two times range pro forma for the full year impact of the acquired and divested business.
The combination of high earnings and strong cash generation led to substantial deleveraging as we ended the year with net leverage in the low two times range pro forma for the full year impact of the acquired and divested businesses.
Speaker 4: Given this improvement in the balance sheet and our confidence in continued strong cash generation, we made the decisions in the fourth quarter to increase our quarterly dividend from $0.08 to $0.32 per share, and to reinstate our share of purchase program.
Given this improvement in the balance sheet and our confidence in continued strong cash generation, we made the decisions in the fourth quarter to increase our quarterly dividend from <unk> 32 per share and to reinstate our share repurchase program.
Speaker 4: Now we'll turn the call over to Frank to walk through our outlook for 2022.
Now I'll turn the call over to Frank to walk through our outlook for 2022.
Thanks, Dave.
Speaker 3: Looking ahead to the first quarter, we expect earnings to be similar to the prior year based on continued demand strength for most of our products and less impact from the rising higher costs that hindered the fourth quarter earnings.
Looking ahead to the first quarter, we expect earnings to be similar to the prior year based on continued demand strength for most of our products and less impact from the rising higher cost that hindered the fourth quarter earnings for.
Speaker 3: For example, natural gas prices in Europe have declined from the fourth quarter, and even though the styrene production outage in Ternusen has persisted into February , we've had more time to manage plant costs.
For example, natural natural gas prices in Europe have declined from the fourth quarter and even though the styrene production outage ensure news in his persisted into February we've had more time to manage client costs.
Speaker 3: and to procure materials to more effectively handle the downtime.
And to procure materials to more effectively handle the downtime.
Speaker 3: So while we expect our first quarter results to be similar to the prior year, there should be an improvement in the quality of our earnings.
So while we expect our first quarter results to be similar to the prior year.
There should be an improvement in the quality of our earnings is the more specialty side of our portfolio in engineered materials replaces the spike in earnings that occurred in Q1 2021 on the commodity side of our business in feedstocks.
Speaker 3: as the more specialty side of our portfolio in engineered materials replaces the spike in earnings that occurred in Q1 2021 on the commodity side of our business and feedstocks.
Over the full year.
Speaker 3: We're expecting net income of $294 million to $332 million, with adjusted EBITDA of $700 million to $750 million.
We're expecting net income up 294 million to $332 million with adjusted EBITDA of 700 million to $750 million.
Speaker 3: This outlook is based on similar underlying demand conditions as 2021, including continued constraints in automotive from chip shortages and strength in construction, consumer electronics and appliance markets.
This outlook is based on similar underlying demand conditions as 2021, including continued constraints in automotive from chip shortages and strength in construction consumer electronics and appliance markets.
Speaker 3: The last two years have reinforced the fact that world and geopolitical events can quickly change business conditions. But we're confident in this earnings range based on the robust demand we're seeing for our products, the additional earnings and synergies from our acquisitions, and the proven ability of our teams to overcome logistical hurdles and to innovate to provide customers with unique product solutions.
The last two years have reinforced the fact that world and geopolitical events can quickly change business conditions, but we're confident in this earnings range based on the robot.
Bus demand, we're seeing for our products the additional earnings and synergies from our acquisitions and the proven ability of our teams to overcome logistical hurdles and to innovate to provide customers with unique product solutions.
Speaker 3: We expect 2022 to be another year of solid cash generation as well, with expected cash from operations of $530 million to $580 million, and free cash flow of $350 million to $400 million, after capital spending of $180 million.
We expect 2020 to be another Europe's solid cash generation as well.
With expected cash from operations of 530 million to $580 million and free cash flow.
$350 million to $400 million.
After capital spending of $180 million.
Speaker 3: That capex number is higher than our historical run rate due to approximately $50 million for our ERP implementation, which we expect to result in at least $25 million of run rate savings.
That capex number is higher than our historical run rate due to approximately $50 million for our ERP implementation, which we expect to result in at least $25 million of run rate savings.
Speaker 3: and $20 million of CapEx for our manufacturing DCS upgrade.
And $20 million of Capex for manufacturing Dcs upgrades.
Speaker 3: Even with this higher capital spending level, we're anticipating robust cash generation, which we plan to deploy in a mix of M&A and growth projects in line with our transformation strategy while continuing to return cash to our shareholders.
Even with this higher capital spending level, we're anticipating robust cash generation, which we plan to deploy in a mix of M&A and growth projects in line with our transformation strategy, while continuing to return cash to our shareholders.
Speaker 3: It's an exciting time for TRNSEO as we continue our transformation strategy and move TRNSEO down the path of becoming a specialty materials and sustainable solution provider. Thank you and we're happy to have you here.
It's an exciting time for <unk> as we continue our transformation strategy and move trends you were down the path of becoming especially materials and sustainable solution provider.
Thank you and we're happy to take any questions.
Okay.
Okay.
Yes.
Speaker 1: As a reminder, if you would like to ask a question, simply press star then the number one on your telephone keypad now. Your first question comes from the line of Frank Mitch of Furman Research.
As a reminder, if you would like to ask a question simply press star.
Then the number one on your telephone keypad now your first question comes from the line of Frank Mitsch Fermium research.
Speaker 4: Hey, good morning appreciate appreciate all the color on a lot of the moving parts. I am curious in terms of I know that you just recently started the, the strategic process on styrenics. Is there anything that you can offer in terms of potential timing and any thoughts that you could provide us there that would be helpful?
Hey, good morning, I appreciate I appreciate all the color.
On a lot of the moving parts I am curious in terms of I know that you just recently started the.
The strategic process on <unk> is there anything that you can offer.
In terms of potential timing and any any thoughts that you can provide us there that would be helpful.
Yes, Thanks Frank.
Speaker 3: Yeah, I would just say that consistent with what I said on the last call when we announced our intention to start the process, we anticipated that we would see good interest from sort of three classes of buyers. Those are, you know, which were strategics that are looking to generate synergies, regional players that would look to get greater exposure into North America and Europe , as well as financial sponsors.
Yes, I would just say that.
System with what I said on the last call when we announced our intention to start the process. We anticipated that we would see good interest from sort of three classes of buyers those are.
Strategics that are looking to generate synergies regional players.
That would look to get greater exposure into North America, and Europe , as well as financial sponsors.
Speaker 3: who would be interested in executing a roll-up strategy and looking for a high cash on cash return.
Who would be interested in executing a roll up strategy and looking for high cash on cash return.
Speaker 3: And I would say what we're seeing is very consistent with that and we feel good about the process.
And I would say.
What we're seeing is very consistent with that and we feel good about the process.
Speaker 3: You know, we think we should be able to give you updates in the coming quarters on.
We think we should be able to give you updates in the coming quarters on on.
Speaker 3: you know, where the exact timing, but we feel very good about where we are right now.
We are.
The exact timing, but we feel very good about where we are right now.
Speaker 4: That's very helpful. And you just indicated, you know, you're very strong free cash flow expectation, which will, you know, you said, you know, M&A and but you also indicated returning cash to shareholders. You obviously started out with a very strong 48 million buyback in fourth quarter. Any any sense as to what we should be anticipating in terms of a pace of buybacks in 2022?
Uh huh.
That's very helpful and you just indicated you know youre very strong free cash flow expectation.
Which will.
You said that you know M&A and.
But you also indicated returning cash to shareholders. You, obviously started out with a very strong $48 million buyback in fourth quarter any any sense as to what we should be anticipating in terms of the pace of buybacks in 2022.
Speaker 4: Yeah, Frank good morning. This is Dave. I think when we put this buyback program in place, our intention was to make it opportunistic in nature and buy. You know, when we think the, when we think we're undervalued.
Yeah, Frank Good morning. This is Dave I think.
Liquid when we put this buyback program place our intention was to make it opportunistic in nature and buy.
When we think the when we think we're undervalued.
Speaker 4: And I think we'll continue to run that way for the first quarter. I would probably expect a similar number to what we did in the fourth quarter. And then for future quarters, I think, as I said, it's going to be opportunistic in nature. And
And I think we will continue it will continue to run that way for the first quarter.
I would probably expect a similar number to what we did in fourth quarter.
And then for future quarters, I think as I said, it's going to be opportunistic in nature and.
Speaker 4: buying back heavier, obviously when we're trading at lower levels.
Buying back heavier obviously, when we're trading at at lower levels.
That's very helpful. Thanks, so much David.
Speaker 1: Your next question comes from the line of Hassan Hamid of Alabik Global Advisors.
Your next question comes from the line of Hoffmann Hamid <unk> Global advisors.
Good morning, Frank and Dave.
Speaker 5: You know, question around the margins within engineered materials.
Question around the margins within engineered materials.
Speaker 5: You know, obviously you guys are doing a good job in boosting the overall margin profile of the company. I just noticed obviously that it's a bit of a tricky quarter with all of the sort of raw material inflation that we saw, but you know, the margins were sort of below 10%.
Obviously, you guys are doing a good job in boosting the overall margin profile of the company I just noticed obviously that it's a bit of a tricky quarter with all of this sort of raw material inflation that we saw but the margins were sort of below 10%.
Speaker 5: I'm just trying to sort of figure out again what the sustainable margin level within that segment should be. And being a specialty sort of business, how quickly should we expect a boost in these margins.
I'm, just trying to sort of figure out.
Again, what the sustainable sort of margin level within that segment should be.
And being a specialty business.
How quickly should we expect a.
Boost in these margins.
Speaker 3: Yeah, so let me take that great question. And as Dave said, we in Q4, if you were looking at normalizing the Q4 margin, you'd add back $25 million of
Yes, So let me take that great question and as Dave said, we in Q4, if you were looking at normalizing the Q4.
Margin you'd add back $25 million of.
Speaker 3: EBITDA, and that is split between $15 million in gas due to the gas spike and about $10 million due to rapidly rising in raw materials and freight. Let me spend a minute to explain sort of our pricing mechanism and also what we saw with raw materials in the quarter. And I think that will give you some context for
EBITDA and that is split between $15 million in gas due to the guests spike in about $10 million due to rapidly rising raw materials and freight.
Let me spend a minute to explain sort of a pricing mechanism and also what we saw with raw materials in the quarter.
And I think that will give you some context for.
Speaker 3: for what we experienced and why it was depressed in the quarter.
What we experienced and why it was depressed in the quarter.
Speaker 3: When we, everybody's aware of what happened in natural gas, and I don't think I need to spend any more time on that, but what we also saw in the quarter was that as gas prices spiked up, many of our raw materials suppliers cut back production because they couldn't profitably produce. And so we, to fulfill demand and continue running, we were required to go into the spot market and buy.
When we are.
Everybody is aware of what happened in natural gas and I don't think I need to spend any more time on that but what we also saw in the quarter was that as gas prices spiked up many of our raw material suppliers cut back production.
Because they couldn't profitably produce and so we to fulfill demand and continue running we were.
Required to go into the spot market and buy.
Speaker 3: materials at really elevated prices and with higher logistics costs to keep the plants running at optimal levels.
Materials that really elevated prices and with higher logistics costs to keep the plants running at optimal levels and so.
Speaker 3: And so because we, so that impacted the business on the raw materials side. Now I'd say it's been normalized since that spike up in the second half of the quarter.
Because we.
So that impacted the business on the raw materials side now I'd say, it's been normalized since that spike up in the second half of the quarter.
Speaker 3: As we mentioned on previous calls, the pricing mechanism we have in engineered materials is not formula-based pricing.
As we mentioned on previous calls the pricing mechanism. We have in engineered materials is not formula based pricing.
Speaker 3: we have a value-based pricing system where we provide monthly and quarterly pricing to our clients. So if during that period our store picks up to over corner to our buyers, our vehicles.
We have a value based pricing system, where we provide monthly and quarterly pricing to our clients. So if during that period.
Speaker 3: costs dramatically spike, like they did in an unprecedented way, will have a pricing lag. And so I would expect that in Q1 we won't see the impact of that headwind based on the pricing actions that we put in place. And I would tell you that January is consistent with it.
Cost dramatically spike like they didn't unprecedented way, we will have a pricing lag and so I would expect that in Q1, we won't see the impact of that headwind based on the pricing actions that we put in place.
And I would tell you that January is consistent with that view.
Speaker 5: Very helpful, very helpful. And just sticking to the raws, more on the guidance side.
Very helpful very helpful and just sticking to the raws.
More on the guidance side of things.
Speaker 5: You know, the 700 to 750 million EBITDA guidance for 2022 that you guys have given.
The $700 million to $750 million EBITDA guidance for 2022 that you guys have given.
Speaker 5: What sort of European gas pricing regime is that factoring in? And I guess where I'm going with that question is, you know, you alluded to the pricing lag. I mean, could we be in a situation where, you know, if the whole European gas situation does get rectified, that because of that lag you could actually see sort of outsized margins on the way down if gas comes down.
What sort of European.
Gas pricing regime is that factoring in and I guess, where im going with that question is you alluded to the pricing lag.
Could we be in a situation where.
If the whole European gas situation does get rectified that because of that lag you could actually see sort of outsized margins on the way down if gas comes down.
Speaker 3: So there's two parts of the question. So the first question is that what our current outlook reflects the current natural gas price.
So.
There's two parts of the question. So the first question is that what our current outlook.
It reflects the current natural gas price.
Speaker 3: So that range is reflective of the current environment. I would say that if costs go down, again, we don't have a
So.
That range is reflective of the current environment I would say that.
If costs go down again, we don't have it.
Speaker 3: you know, in most, in the formula-based pricing part of our businesses, it'll...
In most in the Formula based pricing part of our businesses at all.
Speaker 3: it'll continue to flow through the P&L irrespective of the volatility because of the pricing formulas. However, in EM, as we just said, we have a structural price in EM. It's based on market and value pricing.
It will continue to.
Flow through the P&L.
Irrespective.
Of the volatility because of the pricing for inflows, however, and as we just said we have a structural pricing is based on market and value pricing. So.
Speaker 3: you know, we would see improvement in a declining cost environment.
We would see improvement in a declining cost environment.
Very helpful. Thanks, Thank you so much.
Sure.
Speaker 1: Your next question comes from the line of David, the glitter of Dorkia Bay.
Your next question comes from the line of David Begleiter of Deutsche Bank.
Speaker 4: i think your morning uh... franken uh... and a difficult yet the uh... he put that commission have to fit into your overall recycling strategy and how they can write recycling be at a portion of the business down down the road three or five years maybe even longer
Thank you and good morning.
And Dave just looking at the Heath wind acquisition, how does that fit into your overall recycling strategy and.
How big can write recycling b as a portion of the business down down the road three years five years, maybe even longer.
Yes, Hi, David.
Yes so.
Speaker 3: And Heathland is really important to us and we're excited about it because for
<unk> really.
Important to us and we're excited about it because.
For us too.
Speaker 3: go to our markets and many of our end customers with a sustainable solution, recycled solution. We have to be able to guarantee that we can have a steady and consistent stream of recycled feed stocks.
<unk> to our markets and many of our end customers with a sustainable solution recycled solution, we have to be able to guarantee that we can have a steady and consistent stream of beads of recycled feedstock.
Speaker 3: And so we believe that securing that with Intrinsio and being able to own the manufacturing or recycling processes is the best way for us to ensure that we have and guarantee we have that ability. So in the future, we will be able to do that.
And so.
Okay.
We believe that securing debt within <unk> and being able to meet.
One the manufacturing of recycling processes is the best way for us to ensure that we have and guarantee we have that ability.
So in the future.
Speaker 3: you know, we would see significant growth from this, granted on a smaller base, but we would expect to see by 2030, our sustainability goal is 30% of our portfolio to be sustainably advantaged. So we see see a well before...
We would see significant growth from this granted on a smaller base, but we would expect to see by 2030, our sustainability goal is 30% of our portfolio to be sustainably advantaged. So.
We see it.
Speaker 3: That would be a target by 2030 and we expect that the financial benefits would accrue with that because we're seeing that the margins on sustainable solutions to be significantly higher and some cases more orders of magnitude multiples higher in other cases you know 20 to 30% higher than petrochemical based products.
That would be a target by 2030, and we expect that.
The financial benefits would accrue with that because we're seeing that the margins on.
Sustainable solutions to be significantly higher in some cases multiple orders of magnitude multiples higher in other cases, 20% to 30% higher than <unk>.
Petrochemical based products.
Speaker 4: Very good and they've just signed catbacks looking at the new Trinziou X-dironics How should we think about maintenance catbacks as well as growth catbacks for the new portfolio?
Very good and Dave just on Capex looking at the new <unk> ex <unk>, how should we think about maintenance capex as well as growth capex for the new portfolio.
Speaker 2: Yeah, I think, well, if we look at it in terms of 2022, including, you know, the portfolio, including Stiorenex maintenance cap-ex is about $70 million. If you take...
Yes, I think well if we look at it in terms of the 2022 include the portfolio, including <unk>.
Maintenance Capex is about $70 million.
If you take.
Speaker 2: If you take, if you take, take, take, take, by running out of that.
If you take start if you take takes <unk> add to that it's probably it's between 50 and $60 million as maintenance Capex for the go forward portfolio.
Speaker 2: It's between 50 and $60 million as maintenance cat-backs for the Go Forward portfolio.
Speaker 2: So the other thing I point out is it relates to CapEx, Dave, as Frank mentioned, and you've been covered in a so while, see, you know, about this multi-year project we have with the distributed control software upgrades.
So the other thing I'd point out as it relates to Capex, Dave is as Frank mentioned and you've been covering us a wildly about this multiyear project, we have with the distributed control software upgrades.
Speaker 2: You know, that's spent, that we've been spending for several years now.
That's been that we've been spending for for several years now 2023 will be the last year. So this year, we're spending $25 million in that project next year will be 10, and then it will be over.
Speaker 2: 2023 will be the last year. So this year we're spending 25 million on that project next year, we'll be 10, and then it'll be over. The other big spend we have this year, it's for our SAP install, which is 50 million this year, 25 million next year, and that goes to zero after that. So...
The other big spend we had this year is for SAP.
Install which is $50 million this year $25 million next year, then that goes to zero after that so.
Speaker 2: You know, those are kind of discrete items, I would say that have, you know, we've been spending on
Those are kind of discrete items I would say that have been.
Spending on this year at a lesser amount next year that will go away after that now having said all that we have a.
Speaker 2: this year and a lesser amount next year that will, you know, go away after that. Now, you know, having said all that, we have a
Speaker 2: very robust pipeline, I would say, of growth projects we've identified around, you know, the new portfolio and the acquisitions that we've made.
Very robust pipeline I would say of growth projects we've identified.
Around.
The new portfolio and the acquisitions that we've made so.
Speaker 2: you know i think it's fair to say i'm not ready to give guidance on twenty three cap ex obviously but it is fair to say that we will while we'll have some of these kind of more structural capic capic x-latives leaving uh... you know there will be uh... i think a healthy spend on growth projects
Yes, I think it's fair to say, we're not ready to give guidance on 'twenty three capex, obviously, but it is fair to say that.
While we will have some of these kind of more structural capex capex items, leaving.
There will be.
I think a healthy spend on growth projects.
Excellent. Thank you very much.
Speaker 1: Your next question comes from the line of Eric Fetrie of City.
Your next question comes from the line of Eric Petrie of Citi.
Hey, good morning, Frank and Dave.
Hi, Eric.
Speaker 2: Just going back to engineering materials, I think when you did the acquisitions, both businesses had low 20% EBITDA margins, excluding the natural gas and raw materials, second half, 21 year in the mid teens. So can you talk about the track back to that 20% plus level?
Just going back to engineered materials I think when you did the acquisitions both businesses had.
Low 20% EBITDA margins.
Excluding the natural gas and raw material.
Second half 'twenty one year.
Mid teens, so can you talk about the <unk>.
A track back to that.
20% plus level.
Sure.
Okay.
Speaker 3: As I explained earlier in the second half of the year, we had, you know, I don't want to repeat the dialogue on the Q4 headwinds. But what I would also point to is two other market factors that impacted engineered materials relative to the historical run rate.
As I explained earlier in the second half of the year we had.
I don't want to repeat the dialog gun on the Q4 headwinds, but what I would also point to as to other market factors that impacted engineered materials relative to the historical run rate.
Speaker 3: and that is that the chip shortage affecting automotive, we will, our current forecast is that the automotive volumes will be lower than the historical build rate. And so that-
And that is that the.
The chip shortage affecting automotive.
Sure.
We will <unk>, our current forecast is that the automotive volumes will be lower.
Then the historical build rate and so that's it.
Speaker 3: in a headwind for EM. The other thing that the, and so it returned to normal in automotive builds, you know, when the chip shortage fully resolves itself, will be a help. And then the other impact that we are seeing is that the logistics cost out of China.
A headwind for the.
The other thing that the and so have returned to normal in automotive builds.
When the chip shortage fully resolves itself will be a help and then the other impact that we are seeing is that the logistics cost out of China.
Speaker 3: has reduced some of the demand for some of the products that we were solutions we were providing into China because the freight rates out of China made them less competitive in their export business. So we've seen depressed sales into some of our wellness, bath and wellness customers in China. And that's been a bit of a headwind. So those two factors. Ever
Has reduced some of the demand for some of the products that we were supplying solutions, we're providing into China, because the freight rates out of China made them less competitive in their export business. So we've seen depressed sales into some of our.
Wellness Bath and wellness customers in China, and that's been a bit of a headwind. So those two factors are.
Speaker 3: plus the energy and raw material spike that we saw in Q4 get us back to that run.
Plus the.
The energy and raw materials Spike that we saw in Q4 get us back to that run rate.
Speaker 2: And secondly, in terms of ABS and polycarbonate prices, would you say 2022 earnings in base plastics? How would you directionally point that compared to 21?
Okay, and secondly in terms of ABS.
And Polycarbon on prices would you say 2022 earnings and based plastics, how would you directionally point that compared to 21.
Sorry.
Speaker 3: And so I would say that it's slightly lower than 2021. And that's really on the...
So I would say that it's slightly.
Lower than 2021, and that's really on the.
Speaker 3: relaxation of a lot of the supply chain constraints that occurred during 2021 Where we saw earning spike up and I just point to you know things like the Suez blockage that prevented materials from going back and forth between Europe and Asia You know also the freezing Texas
<unk>.
Relaxation of a lot of the supply chain constraints that occurred during 2021, where we saw earnings spike up and I just point to it seems like the Suez blockage that prevented materials from going back and forth between Europe and Asia.
Also the freeze in Texas.
Speaker 3: affected those markets. So I think there was a bit of an earnings spike that occurred early in the year and those two businesses that We don't see repeating itself in our current forecast, but we see very healthy and demand. So
Affected those markets so I.
I think there was a bit of an earnings spike that occurred early in the year in those two businesses that.
We don't see repeating itself and our current forecast, but we see very healthy and demand so.
<unk>.
Speaker 3: That's the comment color I would give you on those two materials.
That's the comments color I would give you on those two materials.
Okay. Thanks.
Thanks.
Speaker 1: Your next question comes from the line of Matthew Blair of Tudor Pickering in Holt.
Your next question comes from the line of Matthew Blair of Tudor, Pickering and Holt.
Hey, good morning, Frank how are you.
Very good.
Speaker 3: Great. I was hoping you could discuss dynamics in the P MMA market a little bit more. Some of the commentary seems a little bearish. Just talking about, you know, demand headwinds from autos and elevated raw material pricing. Would you agree with that? And I guess where would you, you know, if you're thinking about PMMA and in the cycle, would you say, you know, earnings are kind of at peak levels or maybe mid cycle? Where does that stack up?
Great.
I was hoping you could discuss dynamics in the MMA market, a little bit more some of the commentary seems a little bearish.
I'm, just talking about demand headwinds from autos.
And elevated.
Raw material pricing.
Would you agree with that and I guess where would you.
If youre thinking about PMMA and the cycle would you say earnings are kind of at peak.
Peak levels or maybe mid cycle, where does that stack up.
So what I would tell you is I don't see that there is a cycle at all for PMMA and you know.
Speaker 3: So what I would tell you is I don't see that there's a cycle at all for PMMA. And you know, it's really...
It's really.
Speaker 6: You know where you're selling a solution, you're winning business, not...
You know, where you are selling a solution you're winning business not.
Speaker 6: by supply and demand dynamics, but really by bringing a solution forward and to a customer that allows you to win a platform. So, I do think that we have some unusual impacts that occurred in the past two quarters, but I don't.
By supply and demand dynamics, and but really by.
Bringing a solution forward and.
To a customer that allows you to win a platform so.
Do think that we have some unusual impacts that occurred in the past two quarters, but I don't I.
Speaker 6: I would not at all characterize our Outlook as bearish. In fact, and let me give you a little bit more color on this. One of the big opportunities we see for PMMA is our ability to substitute alternative materials with PMMA or PMMA blends or PMMA construction.
Net at all characterize our outlook is bearish in fact, what let me give you a little bit more color on this one of the big opportunities. We see for PMMA is our ability to substitute alternative materials with PMMA or PMMA blends our PMMA construct.
Speaker 6: And so I would give you three examples.
<unk>.
And so in.
Would give you three examples we we've demonstrated the ability to replace metal can.
Speaker 6: We demonstrated the ability to replace metal constructions with PMMA and certain applications.
Instructions with PMMA and certain applications.
Speaker 6: like in automotive and appliance. We've also demonstrated and by doing that, replace painting. There's a huge value proposition for that type of application. We can also replace painted and coated parts in building and construction applications because of the coloring and UV stability of PMMA Laminate.
Like in automotive and appliance, we've also demonstrated and and by doing that replace painting.
As a huge value proposition for that type of application. We can also replace painted in coated parts and building and construction applications because of the coloring and UV stability of PMMA laminates.
Speaker 6: And in the third area and very exciting is that we can replace fiberglass, glass reinforced
And the third area and very exciting is that we can replace fiber glass glass reinforced.
Speaker 6: polyester constructions that also are gel coated in transportation as well as bath and wellness applications.
Polly polyester.
Constructions that also our gel coated in transportation as well as Bath and wellness applications. So.
Speaker 6: We have the ability with PMMA and our portfolio to expand the total addressable market for Trinzio. So I am not bullish at all. I'm very excited about the prospects of PMMA because of that. And like I said, I don't see it as cyclical because it's truly a solution rather than a commodity.
We have the ability with PMA and our portfolio to expand the total addressable market for <unk>. So.
I am not bullish at all I am very excited about the prospects of PMA because of that and like I said I don't see it as secure.
Cyclical because it it's truly a solution rather than a commodity.
Speaker 3: Sounds good. That's very helpful commentary. And then Dave, I think you talked about, you know, capital allocation going forward is, is including both M&A and, in buybacks, you know, based on your guidance, I think the midpoint three cash for yield next year would be around 17%. And so, you know, it's a fair to say that buybacks are, are perhaps a little more attractive than M&A at the, at the standpoint or how would you characterize that?
Sounds good that's very helpful commentary and then Jay I think you talked about capital allocation going forward is it is including both M&A and buybacks based.
Based on your guidance I think the midpoint free cash flow yield next year would be around 17%.
And so.
Is it fair to say that buybacks are perhaps a little more attractive than M&A at this at this standpoint, or how would you characterize that.
Speaker 2: No, I don't think I characterized it that way. I mean, look, one thing we've done a lot obviously in a short period of time, we've done two acquisitions and a divestiture and we're working on another divestiture. So from a corporate development perspective, I mean, we have a lot going on in the company. So...
No I don't think I'd characterize it that way I mean look one thing we've done a lot obviously in.
In a short period of time, we've done two acquisitions and a divestiture and we're working on it.
The divestitures so from a.
Corporate development perspective, I mean, we have a we have a lot going on in the company. So.
Speaker 2: you know, our appetite to do M&A in the immediate term was somewhat constrained by that, I would say. But that's only the immediate term.
Yes.
Our appetite to do M&A in the immediate term is somewhat constrained by that I would say, but thats only the immediate term.
Speaker 2: you know, having said that, I mean, we're still looking at the pipeline and building out a pipeline of acquisitions. We do expect some of the vestige proceeds to come in. And we'll, you know, want to have a healthy pipeline to look at and we'll balance that against.
Having said that I mean, we're still looking at the pipeline and building out a pipeline of acquisitions, we do expect some divestiture proceeds to come in.
And we will want to have a healthy pipeline to look at that and we'll balance that against.
Speaker 4: return to shareholders. So I wouldn't necessarily say that one is more attractive than the other right now. As I said to Frank Swellish an earlier, our buyback certainly will be scaled.
Return to shareholders. So I wouldn't necessarily say that one is more attractive.
Then the other right now.
As I said to <unk> question earlier.
Yes, our buybacks are clearly it will be scaled.
Speaker 2: where we'll be buying more at taking advantage tips in the market.
Where it will be buying more at.
Taking advantage of dips in the market.
Great. Thank you.
Speaker 1: Your next question comes from the line of Lawrence Alexander of Jeffries.
Your next question comes from the line of Laurence Alexander of Jefferies.
Speaker 7: Good morning, I just want to follow up on the acquisition of the recycling platform. What's your thought process around?
Good morning, I, just wanted to follow up on the acquisition of the recycling platform.
Thought process around <unk>.
Speaker 7: the explosion of innovation in each dog handling. And how Trinziot will be either investing or keeping up with changes in the technology there. And secondly, the business you acquired, does it process the full gamut of consumer mixed at a profitable margin, or how do we think about the economic?
The explosion of innovation in.
Feedstock handling.
And how <unk> will be either investing or keeping up with.
Changes in the technology, there and secondly, the business you acquired does it.
Process the fall.
Gamut of.
Humor mixed waste.
Profitable margin or is it or how should we think about the economics there.
Yes, Hi, Lawrence.
Speaker 6: Yeah, I have our own theme. So what Heathlin does is actually target certain streams of waste, and they built a collection network across Europe that allow them to specialize.
So what <unk>.
<unk> does is actually target certain streams of waste and they've built a collection network across Europe that allowed them to specialize.
Speaker 6: in the materials that frankly are important to Trinzio's. So polycarbonate, PMMA, ABS, and some polystyrene. So they're not just, they're not getting, you know, a massive...
In the materials that frankly are important to <unk> so polycarbonate.
May.
ABS and some polystyrene so they're not just they're not getting.
A massive mixed waste stream that they then have to.
Speaker 6: mixed waste stream that they then have to do tremendous separation toward. You know, it's more of a targeted collection that they do. And this is why they're such an important part. You know, we see them as so attractive.
Do tremendous separation towards its more of a targeted collection that they do and this is why there is such an important part.
We see them is so attractive.
Speaker 6: from an intellectual property standpoint, they're developing their own IP on both.
No.
From an intellectual property standpoint, they are developing their own IP on both.
Speaker 6: Separation technology as well as chemical recycling capabilities for those speed stuff
Separation technology as well as chemical recycling capabilities for those feedstocks. So.
Speaker 6: We like them for that reason, you know, that they are innovating, they are developing new processes. And at the other, and at the same time, they're controlling some significant streams of post-consumer and post-industrial waste that are targeted toward our important polymers.
We like them for that reason.
They are innovating they are developing new processes.
And at the and at the same time, they are controlling some significant streams of <unk>.
Post consumer and post industrial waste that are targeted toward are important.
<unk>.
Okay, great. Thank you.
Speaker 1: Your next question comes from the line of Angel Castillo of Morgan Stanley .
Your next question comes from the line of Angel could steel.
Morgan Stanley .
Hi, Good morning, gentlemen, and thanks for taking the question just wanted to circle back on I guess the discussion around based plastics.
Speaker 2: Just wanted to circle back on the discussion around based plastics and a lot of the commentary that you've had around and markets, whether it's appliances or rotors. Curious, but it seems like ABS, probably carbonate and perhaps polystyrene as well, have been...
A lot of the commentary that you've had around end markets, whether it's a client base or autos.
Curious, but it seems like ABS, and polycarbonate and perhaps Palestine as well have been.
Speaker 2: having pretty resilient or strong here and you talked about polyphonic thang returning to mid-2021 range.
Having pretty pretty resilient are strong here and you talked about returning to mid 2021 range.
Speaker 2: So as we think about the cycle, it seems like end market demand remains for boss right now, but these products or perhaps earnings spreads today that are seem to be at the higher end of what they've been throughout the cycle. So how do you think about this longer term, where these businesses can be from a profitability perspective and if you do see any kind of normalization, what the cadence of that would be?
If you think about the cycle. It seems like end market demand remains robust trying now.
These products are perhaps earning spreads today, there seem to be at the higher end of what it had been.
The cycle. So how do you think about this longer term.
Why are these businesses.
Can be from a profitability perspective.
If you do see any kind of normalization.
So that would be.
Yes.
Well.
Speaker 6: I do believe, let me take each of them separately. I believe ABS, we have a unique product in ABS and it has unique attributes.
I do believe let me take each of them separately I.
I believe the ABS, we have a unique product in Aps and it has unique attributes that in the tight market like we saw late in 2020 and in early 2021, we began to understand the true value proposition for our products in certain applications.
Speaker 6: that in the tight market like we saw late in 2020 and in early 2021, we began to understand the true value of proposition for our products in certain applications. And I would say that the margin profile we have in ABS reflects.
And I would say that the margin profile, we have an ABS reflects the value would offers to our customers and so I would say that the margin, we're getting and ABS is reflective is structural.
Speaker 6: the value it offers to our customers. So I would say that the margin we're getting in ABS is reflective, is structural.
Speaker 6: you know, what we're seeing now, excluding some of these anomalies like I described in early 2021 with supply chain disruptions, where there was some desperation buying in the markets. I would say the same about polycarbonate. We have a unique product in polycarbonate that lends itself.
What we're seeing now excluding.
Excluding some of these anomalies like I described in early 2021 with supply chain disruptions, where there were some desperation buying in.
In the markets.
I would say the same about polycarbonate, we are a unique product in polycarbonate that lends itself.
Speaker 6: uniquely to some of the applications that we focus on. And I'll remind you, 40% of our polycarbonate goes into compounds internally, is compounded to a solution internally. So again, I think that's a pretty structural margin
Uniquely to some of the applications that we focus on and I'll remind you 240% of our polycarbonate goes into.
Compounds internally is compounded to a solution internally. So again I think that's a pretty structural maher.
Margin.
Speaker 6: we should expect in that business going forward. Polystyrene, I believe we've done a great job, and again, our portfolio is
We should expect in that business going forward.
Polystyrene I believe we've done a great job and again, we our portfolio is.
Speaker 6: more than half or approximately half going into the appliance markets and high impact polystyrene and value added materials. So you know, we have very little exposure into the plastic packaging side. So again, I think we've value, we've understood how to value price those and
More than half or approximately half.
Going into the appliance markets and high impact polystyrene.
And value added materials, so we have very little exposure into.
The plastic packaging side, so again I think we value.
Understood how to value price those in.
Speaker 6: see those margins as relatively stable in those more specialized applications.
See those margins is relatively stable in those more specialized.
Application so.
Speaker 6: You know, and as I mentioned on PMMA, I think the value proposition and the margin profile should improve as we continue funding growth in these more specialized material substitution opportunities like metal replacement or fiberglass replacement.
And as I mentioned on PMMA.
I think the value proposition and the margin profile should improve as we continue funding growth in these more specialized material substitution opportunities like metal replacement or fiberglass replacement.
Speaker 2: very helpful. Thank you. And maybe go on back to the conversation around sustainability. As we think about the portfolio beyond the potential to have us to run its business, a number of initiatives that you've undertaken are perhaps around the polystyrene recycling arena. So as we think about maybe your 2030 target of sustainability for 30% of your portfolio.
That's very helpful. Thank you.
Maybe going back to the conversation around.
Sustainability as we think about the portfolio.
Beyond kind of the potential divestiture of the <unk> business, a number of the initiatives that you've kind of undertaken are perhaps around the polystyrene recycling.
So as we think about maybe a 2030 target.
Sustainability for.
30% of your portfolio.
Speaker 2: How does that look once you do divest the ceramic's business and the polystyrene business? It seems like Evelyn does offer a lot within PMMA and PC and others. So yeah, just if you could help us understand how your sustainability or how your metrics compare once you do divest the ceramic's business.
Does that look once you do divest the <unk> business into polystyrene business.
It seems like when does offer a lot with <unk> and others.
So just if you could help us understand how you're a sustainability arc.
Higher metrics compare once you do divest that.
Thanks goodness.
Speaker 6: We would expect that target would remain.
Yes, we would.
We would expect that.
Target would remain.
Speaker 6: you know that's an aggressive target for us we would expect also that the divestiture of our sterex business would include the projects
That's an aggressive target for us we would expect to also.
The divestiture of our <unk> business would include the projects for recycled.
Speaker 6: for recycled chemically recycled polystyrene, but we would expect that we would be a customer of that business for that recycled feed stock into our downstream businesses as we exit. So the 30% would remain our target. And like I said, we would expect to be a customer through off take agreements from those plants to a certain extent after we separate. So we would expect to be a customer through off take agreements from those plants to a certain extent after we separate.
Chemically recycled polystyrene, but we would expect that we would be a customer of that business for that recycled feedstock into our downstream businesses as we exit so the 30% would remain our target and.
Like I said, we would expect to be a customer through offtake agreements from those.
Plants to a certain extent after we.
After we separate.
I appreciate it thank you.
Speaker 1: Your next question comes from the line of Bob, a court of Goldman Sachs. Good morning, this is actually my carousass sitting in for Bob.
Your next question comes from the line of Bob <unk> of Goldman Sachs.
Hi, Good morning, this is actually Mike Harrison sitting in for Bob.
Just a couple of questions if I could.
Speaker 8: on the increase in the total energy pipeline, what steps did you guys take after that initial assessment to identify the additional synergies? And what's the likelihood that there could be additional increases?
The increase in the total synergy pipeline.
What steps did you guys take after that initial assessment to identify the additional synergies and.
What's the likelihood that there could be additional increases.
Still to be found.
Speaker 6: Yeah, so maybe I'll start and the day you can add on...
Yes, so maybe I'll start and Dave you can add.
Hey, Ed on.
Speaker 6: You know what we would obviously once we owned an asset we...
What we would obviously once we owned an asset we.
Speaker 6: brought our different functional work streams together to identify opportunities for both cost savings as well as growth and what I would say is
Broader different functional work streams together to identify.
Opportunities for both cost savings as well as growth in what I would say is.
Speaker 6: There's always the opportunities that are bigger than you expected, whether it's in procurements and things that where you buy the same classes materials and you can buy more from similar vendors or we had logistics opportunities that we had and identified theoretically when we were doing the due diligence. And that's
There is always opportunities that are bigger than you expected, whether it's in procurement and things that.
Where you buy the same classes of materials and you can buy more from similar vendors or we had logistics opportunities that we had an identified theoretically when we were doing the due diligence and thats.
Speaker 6: basically what happened. I would say where we're extremely pleased and saw much greater opportunity is on the growth side because what we...
Basically what happened.
I would say, where we were extremely pleased and saw much greater opportunity is on the growth side because what we.
Speaker 6: as an example, and Dave can probably give you more color. For example, one of the key...
As an example, and Dave can probably give you more color.
For example, one of the key.
Speaker 6: products that applications that
Products that.
Applications that.
Our <unk> business sells into is it uses up PMMA ABS laminate construction and this is very quickly growing its going into a lot of applications, where you're replacing alternative materials like metal or fiberglass and so.
Speaker 6: cells into is it uses a PMMA ABS.
Speaker 6: laminate construction and this is very quickly growing. It's going into a lot of applications where you Replace alternative materials like metal or fiberglass
Speaker 6: And so at, you know, tremendous value propositions, but it was
At tremendous value propositions, but it was a rate limited in its growth by the availability of avs.
Speaker 6: are rate limited in its growth by the availability of ABS. And so with our ABS, we're going to place Alexa because we are still???binda.
So with with our ABS.
Speaker 6: portfolio and PMMA and I remind you we're the only producer in the world that has both PMMA and ABS in their portfolio We see that we can accelerate the growth rate of those construction so that's
Our portfolio and PMMA and remind you we are the only producer in the world that has both PMA and ABS in their portfolio.
We see that we can accelerate the growth rate of those construction. So that's.
Speaker 6: You know, that's the process we used and bringing the teams together and identified those opportunities that weren't necessarily visible to us during the due diligence.
That's the process, we used in bringing the teams together and identified those opportunities that werent necessarily visible to us during the due diligence.
Speaker 8: Okay, great color thanks. And then speaking of cost savings, as you get the ERP implemented and perhaps upgrade some of the plant control rooms, are you expecting any material cost savings? And if so, would that be something we'd see an impact in cost of goods sold or SDA?
Okay, Great color. Thanks, and then speaking of cost savings as you get the ERP implemented perhaps upgrade some of the plant control rooms are you expecting any material cost savings and if so would that be something we would see an impact in cost of goods sold or SG&A.
Speaker 4: Hi, Mike. This is Dave. I'll take that. Yeah, I mean, the plant control room software, I think, is more of a project where we're
Okay.
Hi, Mike This is Dave I'll take that yes, I mean, the plant controller and software I think is more of a project where we are.
Speaker 9: replacing unsupported equipment. So we won't see cost savings of significance there. But the ERP clearly we will when we announce the project originally.
Replacing.
Unsupported equipment. So I don't think we want to see cost savings of significance there, but the ERP clearly we will win.
When we announced the project originally.
We said there.
Speaker 9: Yeah, we said there would be at least $25 million of cost statements from that project.
Yes, we said there'll be at least $25 million of.
Cost savings from that project.
Speaker 9: You know, I think most of that you'll probably see in cost of good soul versus SGA and the timing of that would be...
I think most of that Youll, probably seeing in cost of goods sold versus SG&A.
And the timing of that would be.
Speaker 9: you know, late 23, you know, after we finished the project, obviously, and then full realization in 24.
Late 'twenty three.
After we finish the project, obviously and then the full realization in 'twenty four.
Okay perfect. Thanks for taking my questions.
Speaker 1: Your live question comes on a line of Duffy Fisher of Barclays.
Your last question comes from the line of Duffy Fischer of Barclays.
Speaker 4: Yeah, good morning. If we're doing some pro forma work for the divestiture as pyrenics, can you help us? What percent of the midpoint of your guide this year would be from what would be divested? And then does it do anything to your tax rate? And are there any stranded costs with that that we need to bring back to remain co-after the fact?
Yes, good morning.
If were doing some pro forma work for the divestiture of <unk> can you help us what percent of the midpoint of your guide this year would be from what would be divested.
And then does it do anything to your tax rate and are there any stranded costs with that that we need to bring back to remain co. After the fact.
Okay.
Speaker 9: Dr. Hyg, the more in this is Dave. I would say...
Fluffy hi, good morning, this is Dave I would say.
Speaker 9: to give you some kind of rough numbers. I would say about a third of the perimeter of the tram.
To give you some kind of rough numbers.
I would say about a third of the.
The the perimeter of the transaction.
Speaker 9: which again, just to reiterate is our feedstock segment, our polystyrene segment, and our 50% ownership in America's dyrenics. That's the printer, the transaction of our guidance this year, guided range this year that represents about a third of that.
Which again just to reiterate is our feedstock segment, our polystyrene segment and our 50% ownership in an Americas Irenics. That's the perimeter of the transaction of our guidance. This year guided range. This year that represents about a third of that.
Speaker 9: as it relates to stranded costs, we're going through that exercise now. I mean, clearly that will be some stranded, some stranded cost. You know, as I said earlier, will either have to address that stranded cost or will have other portfolio actions that would absorb that cost, other acquisitions. So,
As it relates to stranded costs, we're going through that exercise now I mean, clearly there will be some stranded some stranded cost.
As I said earlier, we'll we'll either have to address that stranded cost sure will.
Have other portfolio actions that would.
That would absorb that that cost other acquisitions so.
Speaker 9: Is there a tax rate? There was a real change. On the tax rate, does it do anything to the tax rates for the company? No, I don't think it does. We're kind of in the process now of migrating the acquisitions that we've done where possible into our tax structure. I think in the...
I think that the Texas <unk>.
Oh tax rate.
Tax rate does it do anything to the tax rate for the company.
I don't think it does we've ever kind of in the process now of migrating the acquisitions that we've done where possible into our tax structure.
So I think our.
I think in the end.
Our Tam.
Speaker 9: tax rate as a company post the, post the divestiture will be.
Tax rate as a company post the post the divestiture will be.
Speaker 9: similar to what it would have been free, which is, you know, for this year, low 20.
Similar to what it would have been pre which is for this year low twenties.
Speaker 4: Okay. And then just last one around cash, obviously we'll get some cash back in if this sale goes through, you're generating a lot of cash. What's kind of the highest level that we should think about cash on the balance sheet that you would be comfortable holding, you know, not for one quarter, for some, you know, period of time over the next couple of years? Yeah.
Okay, and then just last one around cash obviously, you'll get some cash back in.
This sale goes through you're generating a lot of cash whats kind of the highest level that we should think about cash on the balance sheet that you would be comfortable holding not for one quarter for some period of time.
Over the next couple of years.
Yes, I don't think we haven't put a number out there.
Speaker 9: Like frankly, to be honest with you, Duffy, we've got some requirements or decovonents, there are decovonents that requires to do things with divester of clericies if they're not utilized for, if they're not reinvested in other assets.
Like frankly to be honest with you Duffy we've got we've got some requirements of our covenants in our debt covenants that require us to do things with.
With divestiture proceeds if they're not utilized for not reinvested in other assets.
Speaker 9: So our constraint, I think, on utilizing those proceeds is more governed by that. And frankly, the intern, as I said earlier, the intern of resources in the company to work on those integration projects and redeploy the money. So I think those are really more of the limiters than any guardrails that we would set arbitraris.
So our constraint I think.
Utilizing those proceeds is more governed by that and frankly, the interim as I said earlier, the internal resources in the company to work on those integration projects and redeploy the money. So I think those are really more of the limiters.
Any guardrails that we would set arbitrarily.
Okay. Thanks, guys.
Thank you.
Speaker 1: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Thank you. This concludes today's conference call. Thank you for participating you may now disconnect.