Q4 2022 Westlake Corp Earnings Call

Okay.

Okay.

Good morning, ladies and gentlemen, thank you for standing by and welcome to the Westlake Corporation fourth quarter and full year 2022 earnings conference call.

The presentation, all participants will be in a listen only mode.

The Speakers' remarks, you'll be invited to participate in a question and answer session. As a reminder, ladies and gentlemen, This conference is being recorded.

Today February 24th and first.

23.

Now I'd like to turn the call over today's host, Jeff Holly Westlake, Vice President and Treasurer, Sir you may begin.

Thank you Justin Good morning, everyone and welcome to the Westlake Corporation Conference call to discuss our fourth quarter and record full year results for 2022.

I'm joined today by Albert Chao, our President and CEO , Steve Bender, Our executive Vice President and Chief Financial Officer.

Roger <unk>, our Chief operating officer, and other members of our management team.

During the call we will refer to our two reporting segments performance in our central materials, which we refer to as Pam or materials.

And housing and infrastructure products, which we refer to as hit or products.

Today's conference call will begin with Albert who will open with a few comments regarding <unk> performance.

Steve will then discuss our financial and operating results after which Albert will add a few concluding comments and we'll open the call up to questions.

Today management is going to discuss certain topics that will contain forward looking information that is based on management's beliefs as well as assumptions made by and information currently available to management. These.

These forward looking statements suggest predictions or expectations, and thus are subject to risks or uncertainties. These.

These risks and uncertainties are discussed in Westlake Form 10-K for the year ended December 31, 2021, and other SEC filings.

We encourage you to learn more about these factors that could lead our actual results to differ by reviewing the SEC filings, which are also available on our Investor Relations website.

This morning, Westlake issued a press release with details of our fourth quarter and full year results. This document is available in the press release section of our website at Westlake Dot com.

We have also included an earnings presentation, which can be found in the Investor Relations section on our website.

A replay of today's call will be available beginning today two hours. Following the conclusion of this call. This replay may be accessed via Westlake website.

Please note that information reported on this call speaks only as of today February 21, 2023, and therefore, you're advised that time sensitive information may no longer be accurate as of the time of any replay.

Finally, I would advise you that this conference call is being broadcast live through an internet webcast system that can be accessed on our webpage at Westlake Dot com.

Now I would like to turn the call over to Albert Chao Albert.

Thank you Jeff good morning, everyone.

We appreciate you joining us to discuss our fourth quarter and full year 2022 results.

For the full year of 2022, we reported record net income of over $2 $2 billion or $17 34 per share.

And record EBITDA of $4 $2 billion on record sales of $15 $8 billion.

While 2022 was a record year.

It was also a challenging year.

Experienced energy volatility rapidly rising interest rates.

Walgreens Kovac policies impacting Asia demand.

Market dislocations due to the war in Ukraine.

As these obstacles evolved and drove more difficult economic conditions in the second half of the year.

Westlake took proactive actions to navigate a slower GDP growth.

With cost savings initiatives.

This broad based 2022 initiatives included reductions in overhead and energy costs synergies from acquisitions and investments in digital and automation that lowered our cost by approximately $50 million.

And also drove operational efficiencies.

Thanks in part to these actions and despite the challenging external environment.

For a second consecutive year we.

We achieved records for sales EBITDA and net income.

With EBITDA almost doubling from the previous cycle high in 2018.

I want to take a few minutes to review several of our major accomplishments in 2022.

We generated record cash from operations of $3 $4 billion.

This significant level of cash flow allowed us to return $270 million to investors in the form of dividends and share repurchases.

$250 million in debt.

Deploy $1 billion to improve the reliability of our plants and grow our production capacity to meet customers' needs.

Close one 4 billion in acquisitions.

And grow our ending cash balance by $300 million.

The evolution and integration of our business continued in 2022 as we closed the <unk> acquisition and increased our ethylene integration with the additional investment into our L. A C C ethylene joint venture.

Integrating these businesses into Westlake.

As we have with borrow ethical and diverse acquisitions, which closed in 2021 drove synergies in 2022.

We are committed to investing and delivering strong risk adjusted returns across the economic cycle as.

As we prioritize higher return lower risk and faster payback investments.

Our deployment of growth capital in 2022 included several organic projects, including Debottleneck work that increase our chlor alkali capacity by 120000 Isa use.

In addition to a number of cost reduction initiatives.

The evolution of our business through both acquisitions and organic growth efforts drill.

Drove the need for added clarity.

Which he provided by re segmenting the company into the performance and essential materials segment.

And the housing and infrastructure products segment.

New segmentation emphasizes the higher value chemical and building products, we manufacture.

This evolution of our business spurred the changing of our name from Westlake chemical to Westlake cooperation.

Which better represents.

Second breadth of the products, we produce and industries we serve.

Decarbonising, our assets and drive sustainability remain important initiatives and growth opportunities for Westlake.

As part of our sustainability efforts, we established a carbon reduction goal.

Reduce our scope, one and scope two emissions intensity by 20% by 2030.

I'm happy to report that by the end of 2022, we will already approaching a 15% reduction.

As part of that commitment.

We continue to pursue new and innovative materials technologies.

And leverage our nine global R&D centers to advance and commercialize specialty sustainable products.

Such as our polyethylene one pellet solution.

And green beans, chlor vinyl product lines among others.

Taken together I'm very proud of our 2022 accomplishments.

I would like to thank our 16000 team members for their hard work and dedication.

That contributed to these accomplishments and record results.

I would now like to turn our call over to Steve to provide more detail on our financial results for the fourth quarter and full year of 2022.

Thank you Albert and good morning, everyone.

Westlake reported net income of $232 million or $1 79 per share in the fourth quarter on sales of $3 3 billion net.

Net income for the fourth quarter of 2022 decreased $412 million from the fourth quarter of 2021 as a result, lower production and sales volumes in each segment adjusted for the acquisition of a potsy lower performance materials average selling prices in PVC and polyethylene and our policy.

And higher feedstock fuel and energy cost, particularly in Europe .

When compared to the third quarter of 2022 net income decreased by $169 million in the fourth quarter due to customer destocking seasonal demand trends and sales mix shift to export markets.

Looking back there were many challenges in the fourth quarter, but three standout.

First geopolitical conflict continued to drive high energy costs in Europe throughout 2022, pressuring our margins and impacting economic and industrial activity in the region.

In response to this environment.

Lowered operating rates at our European epoxy and vinyl plants during the fourth quarter and continue to serve our customers from our global footprint.

Second we saw customers, becoming more cautious in response to weaker macroeconomic conditions, resulting in a destocking of customer inventories and slowing new orders, which impacted our sales volume.

This destocking was most impactful for us and housing related products in our hip segment as well as PVC resin demand within our <unk> segment.

Third this weaker demand caused us to shift more of our north American polyethylene and PVC resin sales volumes to export markets for pricing and net backs were lower than our traditional domestic market channels.

This sales mix shift to greater export volumes negatively impacted our average selling prices and margins for PVC and polyethylene within our <unk> segment.

Taken together, we experienced lower sales volumes lower average selling prices and tighter margins for PVC and polyethylene when compared to the fourth quarter of 2021.

For the fourth quarter of 2022, our utilization of the FIFO method of accounting resulted in an unfavorable pretax impact of $45 million compared to what earnings would have been reported if we've been on the LIFO method. This is only an estimate and has not been audited.

For the full year of 2022, we reported net income of $2 2 billion and EBITDA of $4 $2 billion on sales of $15 8 billion.

Industry industry supply chain and product availability constraints increased our order backlogs and average selling prices in the first half of the year, leading to high operating rates and profitability.

However in the middle of 2022 in response to softening macroeconomic conditions sales volumes began to weaken moving selling prices lower in PVC and polyethylene within performance materials all.

While driving a sharp reduction in housing and infrastructure product sales volumes.

As the second half of the year progressed into the fourth quarter weaker end use demand along with elevated customer destocking activity drove sharply lower sales volumes in our proxy and polyethylene within Perm.

And nearly every product line within hip.

As a result, Tim volumes fell three 5%, while hip sales fell 24% in the fourth quarter compared to the third quarter.

We also saw average selling prices for PVC and polyethylene fall sharply driving and Pam average selling prices lower by nine 4% in the fourth quarter compared to the third quarter, along with a larger export product mix and performance materials.

One notable exception was chlor alkali where average selling prices for both caustic soda and coring continued improve as 2022 progressed.

At the same time have maintained average selling prices in the fourth quarter compared to the third quarter with some gains in our exterior building products offset by declines in PVC compounds.

Moving to our segment performance our performance in our central materials segment fourth quarter 2022, EBITDA of $443 million decreased $554 million from the fourth quarter of 2021.

As compared to the prior year period performance materials sales in the fourth quarter decreased $378 million, largely driven by lower selling prices, particularly PVC resin as customer inventory destocking led domestic sales volumes to decline much greater than end use demand levels.

Meanwhile, essential materials sales in the fourth quarter of 2022 increased $279 million over the fourth quarter of 2021, primarily driven by higher average selling prices for caustic soda.

As compared to the fourth quarter of 2021, our earnings were impacted by lower integrated margins for all of our products and our performance materials business.

Especially in global PVC markets, lower production and sales volumes for our core <unk> and PVC resin, particularly in Europe .

Our feedstock fuel and power cost and higher turnaround activity.

These headwinds were partially offset by higher production and sales volumes for polyethylene and higher sales prices for caustic soda, where the global supply demand balance tightened as a result of lower global or vinyls operating rates.

And segment EBITDA of $443 million in the fourth quarter decreased $118 million from the third quarter of 2022.

This sequential decline in EBITDA is a result of lower integrated margins for performance materials.

Okay, particularly PVC and lower production and sales volumes for polyethylene.

Barring caustic soda DCM and a proxy resin.

Partially offset by higher sales prices for caustic soda.

Turning to our building products business building and construction markets.

Particularly impacted by rising interest rates with housing starts declining by approximately 22% year over year in December .

Against this backdrop hip segment EBITDA for the fourth quarter of 2022 decreased 29 $29 million to $133 million when compared to the fourth quarter of 2021.

Housing product sales decreased $85 million, which reflect the significant destocking I mentioned earlier compared to the fourth quarter of 2021, driven by the 22% volume declines across our product offerings.

Infrastructure product sales fell $24 million from the fourth quarter of 2021.

As a result of broad based volume declines, particularly.

Particularly in large diameter PVC pipe.

These volume declines were only partially offset by higher prices, both in housing and infrastructure businesses.

When compared to the third quarter of 2022 hip segment EBITDA of $133 million decreased $121 million.

Housing product sales of 758 million in the fourth quarter of 2022 decreased $260 million, while infrastructure product sales of $180 million in the fourth quarter of 2000, 2022 decreased $47 million from the third quarter of 2022.

The lower sales and earnings were the result of lower sales volumes across all lines in our hip business due to both seasonal trends and slowing U S housing construction activity.

Now turning to the balance sheet and cash flows Westlake is cash flow generated reflects our strong continued focus on operational and financial discipline matters.

For the full year of 2022 net cash provided by operating activities was a record $3 4 billion.

Capital expenditures were $1 1 billion, resulting in free cash flow of $2 3 billion.

In 2022, we retired $250 million in debt renewed our committed line of credit of $1 5 billion.

For five years, we closed on $1 $4 billion of acquisitions that were fully funded by cash on hand.

As of December 31, 2022, cash and cash equivalents were $2 <unk>.

$2 billion in total debt was $4 9 billion, whether net leverage remaining below one turn of EBITDA.

We maintain a strong balance sheet with a staggered long term fixed rate debt schedule, we will look to strategically deploy our balance sheet for value, creating opportunities as they become available.

Turning our attention to 2023, let me address some of our modeling questions and provide some guidance for the year ahead.

Based on our current view of demand and prices, we expect 2023 revenue and our hip segment to be between four three and $4 8 billion with EBITDA margin in the high teens.

We expect total capital expenditures to be approximately $1 billion similar to our depreciation run rate.

For 2023, we are prioritizing quick return projects, while also allocating appropriate amounts to maintain and operate our facilities safely. This.

This includes the planned turnaround at our Calvert City ethylene unit scheduled to begin in May is projected to last approximately 30 days for.

For the full year of 2023, we expect our effective tax rate to be approximately 23%. We also expect cash interest expense to be approximately $160 million.

Now, let me turn the call back over to average provide current outlook of our business Albert.

Thank you Steve.

During the fourth quarter.

We saw a deteriorating economic conditions.

The led to inventory Destocking.

Resulting in lower demand for our products and well supplied markets.

Things here and we are seeing modest improvements early in the first quarter and demand for polyethylene and PVC.

With improving feedstock and energy costs.

Regarding some margin tailwind.

The large markets, where proxy in Asia and Europe .

To reflect sluggish demand as China begins its economic recovery.

And Europe continues to address its own economic and energy challenges.

Looking ahead.

Uncertainties remain in the macroeconomic outlook.

We believe there are some positive trends appearing.

Energy costs have improved particularly in Europe .

Albeit still at elevated levels.

Forecast for U S housing starts.

Ranging from one one to one 3 million units over the next two years.

Which will be a 20% decline from the 2021 2022 levels.

Even with the strengthening housing construction that occurred over the past two years.

New housing construction largely remained below the 50 year average of one 5 billion units.

Therefore, we continue to have a deficit from under building that occurred since 2007.

As a leading producer of building products.

Westlake is well positioned to benefit from the eventual recovery of U S New home construction.

Back to a normalized level that supports the strong demographics and household formation trends that are taking place.

In the meantime, although new construction growth has recently stalled.

<unk> and remodeling, all our and our spending.

Which comprises approximately half of our building product sales.

Is forecasted by industry consultants to continue to grow in 2023.

We are cautiously optimistic on the future.

As there have been some recent positive economic signals.

However, inflation and geopolitical tensions continue to weigh on consumer spending and industrial activity.

Thus, we remain focused on actions within our control to grow shareholder value.

Including prioritizing quick payback capital projects.

Progressing our sustainability goals, including continue to support for new product innovations.

Screening being caustic soda and PVC polyethylene, one pillar solutions and PVC pipe.

Maintaining our investment grade credit rating and strong balance sheet.

At $2 $2 billion of cash at the end of 2022.

Using our strong balance sheet with ample liquidity to look for attractive opportunities.

We'll deploy our robust cash generation and a disciplined better <unk>.

Including returning cash to shareholders through both dividends and share repurchases.

And defying acquisition candidates.

Our cost of capital.

Extending the breadth and reach of our part of the portfolio.

Given the dynamic economic environment, we will continue to take a business by business approach to manage our operations and adjust to market conditions.

This begins by maintaining a low cost to serve our customers.

By operating our plants safely and efficiently.

Reducing overhead cost.

And increasing productivity.

With our automation and digital investments.

With this in mind.

Looking on a number of initiatives.

I expect it to deliver an additional $55 million to $105 million of annualized savings in 2023.

Thank you very much for listening to our fourth quarter earnings call.

I will now turn the call back over to Jeff. Thank.

Thank you Albert before we begin taking questions I would like to remind listeners that our earnings presentation, which provides additional clarity into our results is available on our website and a replay of this teleconference will be available two hours. After the call has ended.

We will provide that information again at the end of the call.

We will now take questions.

And thank you.

As a reminder to ask a question. Please press star one one on your telephone and wait for your name to be announced towards <unk>. Your question. Please press star one again, please standby, while we compile the Q&A roster and we please do ask that you limit yourself to one question and one follow up again, we ask that you limit yourself to.

One question one follow up one moment our next question.

And our next question comes from Alexia <unk> from Keybanc capital markets. Your line is now open.

Great. Thanks, guys for taking my question. Good morning, it's Ryan on for Alexia.

This is the first question I would ask you as well.

Can you talk about the mix polyethylene PVC during the quarter with.

With higher exports can you maybe talk about what you've seen so far in <unk>.

Might expect for the rest of the year.

Yes.

Yes, Hi, Alexia. This is Roger good question. Thank you for that.

Certainly I would say the destocking that we talked about we felt it pretty hard in polyethylene and PVC both on the domestic market in the U S and so we shipped a tremendous amount of material in Q4 to the export markets and both of those and what we're seeing in Q1 as I would say a return to more normal numbers that we would see so I think.

Through January and February so far.

Seeing a little bit of a rebound on the domestic side, which is allowing us to get back to what I would consider more normal.

And then I guess just as a follow up you mentioned the cost cutting initiatives you guys are looking to finish it.

Some color on what exactly you guys are looking into doing that thanks.

Sure. This is Steve good morning.

As you can see that we've already accomplished in 2022 meaningful initiatives with about $50 million recognized in 'twenty, two and we're building on that as we look at 'twenty three and so of that 55 to 105 billion that Albert spoke to about 80% of that relates to improvements in logistics and procurement initiatives.

And the other 20% is really additional synergies that we see coming from the opportunities from the acquisitions that we took.

Alright, thanks, guys.

Thank you.

And one moment our next question.

And our next question comes from Kevin Mccarthy from vertical research. Your line is now open.

Yes, good morning.

Steve your cash flow from operations came in a bit higher than we.

We had forecasted so could you comment on.

Your working capital experiencing in 2022, and how you would expect working capital to trend in 'twenty three.

Yeah, Kevin Good question and so as you can see we continue to see the growth in the business and with the elevated pricing that we saw in the first half of 2022 and the latter half of 2022, we continue to collect those higher dollar value of receivables and of course as prices continue to.

<unk> declined during the second half of 2022, those were replaced with lower value dollar receivables. So a strong cash flow year in 2022 as you can see from Roger's comments earlier has seen some pickup in demand in that mix of that product shift into back to a more of a domestic weighted business.

We have better pricing and better margins I would expect to continue to see a strong and robust cash flow as you as you mentioned that we had in 'twenty. Two obviously as we go forward, we will see where prices trend, but I still expect that we'll still see strong cash flows in 'twenty three as we embark forward.

And then secondly, if I may and the segment information that you provide.

Corporate and other is usually an expense and if I'm reading this quarter correctly. It looks like it's swung to a $40 million source of income is that correct and if so what is driving that swing.

Yes, Kevin that is correct and so we had kind of a nonrecurring item that I would characterize it was the release of a PVC related reserve and so it is kind of a nonrecurring item you are right. We typically have a a headwind there between 10 and $15 million in the quarter, but this quarter, we certainly had a benefit this quarter.

Thanks very much.

And thank you.

And one moment our next question.

Yes.

And our next question comes from might lead head from Barclays. Your line is now open.

Great. Thanks, Good morning, guys.

First question just on energy prices in Europe , obviously, they've come down quite a bit in the past the past few months.

Have you started to pick back up your utilization rates in Europe .

It makes much sense I guess.

Relative economics, maybe supplying Europe from U S or other areas versus kind of domestic production as we sit here today.

Yes, Mike Thanks, It's Roger.

Certainly we saw with the with the extremely high energy prices in Europe Europe was in a situation where it could not be competitive at all in the world and so we had production rates down very low in late in Q4, and I think what we're seeing now with the with the lowering of the rates as we can compete and we can even do some exports from Europe , which is helping us get the operation.

<unk> back up I would not say, we're back to full speed, but we're significantly better now in Q1 than we were in Q4, I would say and Thats, both the <unk> business in the vinyls business that we have there.

Great. That's helpful. And then second I know you've kind of touched on a little bit about some pickup in demand as we started the first quarter.

Speak to China, I guess early days, but just kind of what you've seen coming out of lunar new year there.

From the demand standpoint in that region.

Yes. This is Albert <unk>.

Suddenly China as the.

The Colgate <unk>.

Event. It seems has gone in China that people are going back to work and people going to the streets.

The economy is still weak I think picks up a wildfowl economy pick up and the government is doing a lot to try to stimulate the economy. So we expect.

Some timing end of the first quarter beginning of the second quarter things will improve a lot more density.

Great. Thank you.

Okay. Thank you.

And one moment our next question.

And our next question comes from Josh Spector from UBS. Your line is now open.

Yeah, Hi, Thanks for taking my question just curious with hip.

Can you talk about their percentage of that segment, which has a normal start of year pricing reset.

That we should be considering in our models.

Yes, I think most of the pricing reset in hip and and also in Pan pretty much.

<unk> finished at the end of the year.

So maybe some small portion of it.

<unk>.

At the beginning of the year, but mostly it's happened in <unk>.

2022.

Okay, I guess, maybe taking that a bit more than that.

That will mean pricing was pretty stable sequentially, which is a pretty impressive results make PVC prices are off maybe 10% to 20%. So is that more of a December comments that that enrollment in the early part of this year or.

I just missing it through the noise of other things within the segment.

Yes, Josh.

<unk> did remain relatively stable in building products and that's what we're seeing in the first of the year as we've seen a PD any increase in PVC in January there is another nine cents of increases announced for the next two months. So I think that future look, but we're PVC is going is moderating changes in the building products.

<unk> pricing.

Okay. Thank you.

Thank you.

One moment.

And one moment our next question.

And our next question comes from David.

Begleiter of Deutsche Bank. Your line is now open.

Thank you good morning.

Albert on polyethylene you guys <unk> per pound increase in January I know there are about there are six cents per pound increase out there for February .

What's potentially thing for additional polyethylene price increases in February and May be for March.

Yes.

Polyethylene that's has been a lot of the.

Price.

Adjustments year end adjustments. So the January we had a <unk> price increase offset by <unk>.

Non market adjustments, and I think debating, which consulting and looking at.

Chemical market analytics CMA Theyre looking at additional <unk> decrease in in May.

And Thats flat.

Through the year, however, the industry.

Additional three to five cents a pound price announcements in February .

<unk> tried to recruit some of the price decreases that occurred last year.

Time will tell.

With the strengths of.

China recovering I think overseas prices are improving.

Export pricing improving overseas there could be some.

Benefit of increasing.

The prices in February and March.

Very good and just on caustic Albert do you think cost pricing hold up here in this current environment. Thank you.

Yes, that's a good question I think.

Caustic prices has really.

Performed very well in 2022.

And some of the.

Industry consultants are projecting prices to gradually come down this year.

Through the first half into the third quarter.

So.

<unk>.

<unk>.

PVC demand increases across the world.

The more production of caustic is it more supply of caustic, so possibly coffee price will ease.

During the year.

Thank you.

Youre welcome.

Thank you.

And one moment our next question.

And our next question comes from Michael <unk> from Wells Fargo. Your line is now open.

Hey, good morning.

I think you all mentioned that.

Demand.

It looks a little bit better first quarter for PVC and polyethylene.

Our operating rates go up sequentially and given the.

The lower costs that you're seeing.

Yes should margins or EBITDA improve as we head into the first quarter for the fourth.

Directionally.

Yes, Michael it's Roger so.

Certainly I would say we are seeing in Q1 and based on the North American advantage, both PVC and polyethylene can run strong so.

I think the demand kick that we're picking up in domestic helps us make our balance as I say looking much more of a normal mix between export and domestic.

So yes, I would say we will continue to do.

We will continue to run our plant is strong in the first quarter.

Okay, and then for hip you gave us a range for sales for 2023.

There are some folks who think the second half will be more difficult.

First half might be more difficult any thoughts on how the <unk>.

<unk> sort of work out in your hip outlook better first.

Second our or just any thoughts there.

Yes, so Mike, it's Steve and so I would say that you see that we've come down dramatically from the end of the from over 22 as we saw a lot of.

In effect pullback because of rising rates and so as you think about where the federal reserve is moving with their <unk>.

Move on rates there is an expectation that those rates begin to kind of slow down in terms of the level of increases and there is a lot of market chatter about that slowing towards the end of this year and I think if there is a sentiment that rates begin to plateau that you could see some more positive sentiment come into the market I would note that the mortgage bankers.

Association has seen a recent increase in applications and that tells you that our consumers are becoming a bit more confident as they look forward that these rate increases will be less aggressive and home prices become more affordable. So there is some probably market.

View that probably the second half is a more constructive half of the year than the first half of the year.

Thank you.

And thank you.

Yes.

And one moment our next question.

And our next question comes from Duffy Fischer from Goldman Sachs. Your line is now open.

Yes, good morning.

Good morning, My question's just around the Epocrates acquisition, you are kind of a year into it now it's been a tough year here. So can you do an after action review I mean does the industry need to have some structural change does your business seem to have some structural change or is this just really kind of a bad supply demand set up right now that will fix itself.

Over the next couple of years.

Yes, Thanks, Tobey as Roger maybe a couple of comments there I think.

Foxy business, where our first year, we started extremely strong the first part of the year was a very strong part of the business, but as we move through the year. It certainly got weaker and by the end of the year I would say the fourth quarter was really quite weak.

Can you give us a couple of things that we look forward, we have seen China announced already in 'twenty three nearly a doubling of the wind energy installations over 'twenty. Two so we'll have to watch and see how that plays out but that should be kind of a nice boost in.

In the markets as you know there is I mean, there is a limited number of western players will continue to do what we do which is make our plants run more efficiently more cost effective will copy our westlake model into those sites. So I think there's some self help work, we will do but hopefully as well with with aviation automotive and some wind energy.

Picking up a little bit in 'twenty, three we can get to the 23 looking better than certainly the end of 'twenty two.

Fair enough and then.

The standard the projection you threw in there on a remodel and repair at two 6% for the year.

One is youre just talking to your customers as you're looking at your order book does that steel.

Kind of the right number and then maybe like a follow on the last question if that ends up being the right number how does that look first half versus second half do you think.

So duffy, it's Steve and I would say that the the tone that we saw at the builder show recently was constructive and I think it aligns with the tone that we saw from those that visited the builder show and certainly there is some.

Our expectation that will continue on as we go forward typically when housing starts slow repair and remodeling show strength and so there is a typical investment cycle that homeowners always undertake and that is they are either improving their home either to sell to move forward or improving their home because affordability to move on to.

New home is too expensive. So we do think that aligns with the tone, we are hearing from our customers and consistent with the contributions we think it will make to the business over the course of 'twenty three.

Great. Thank you guys.

And thank you.

And one moment our next question.

And our next question comes from Frank Mitsch from Fermium Research. Your line is now open.

Good morning, and thank you Steve you mentioned that you have.

A big turnaround I believe in Calvert City in May and I was wondering if you could provide a little more granularity is that pretty much. The only major turnaround that you are going to be facing this year any sort of color there would be very helpful.

So Frank we do have a turnaround.

Starting in May for 30 days, we certainly have turnarounds in many of our other units all throughout the course of the year.

Because these turnarounds will move from quarter to quarter and change over the course of the year, we've kind of shied away from giving discrete quarter by quarter guidance in terms of turnarounds.

A slightly busier year in current and turnaround activity in 'twenty, three but I would say that if you look at prior year's turnaround activity, it's consistent with the operating rates that we've historically had but I called out the Calvert city turnaround because it is.

Turnaround is going to be 30 days in a link and because it impacts our ethylene units in the entire site accordingly.

Great. Thank you and.

Albert if I could come back to the comment regarding Chlor alkali and.

We're expecting to see higher vol.

Volumes as we progress through the year PVC demand.

Improving and then therefore, you get more co product caustic soda.

And so therefore price might be.

Under some under some pressure but of course, we're ending the year at a higher level than we began 2022. So I'm just curious how you think about 'twenty three average pricing and your Chlor alkali business.

On the essential materials side relative to 'twenty. Two do you think that you know as.

As we look at the full year.

Looking at something like a flattish sort of environment or do you think the degradation might be even greater than that.

Well.

Yes, Frank that's a good question.

What are the industry consultants as I said earlier looking at a gradual decline from January through September .

As I said earlier.

Interesting that in 2022.

Prices start low went up in.

And then 2023, the forecast is from up and keep it lower but the average for the whole year.

For 2023.

It's about a consultant is not that to look different on the average of 2022 and for that information also theyre looking at 'twenty 'twenty four of course is <unk>.

Crystal Buoying, the average flowing for prices.

Similar again to 2023.

So people are expecting some kind of a flat in price.

And.

The demand globally as you know coffee, where they follow GDP.

As the global economy recovers from Covid in China comes back into more normalized growth in India is still one of the strongest in.

Emerging markets economic growth.

We'll see demand for caustic to improve and U S has the lowest cost producer from our low cost natural gas low cost energy and power.

And also we have available salt nearby so I think the U S.

Industries will be able to capitalize any of the demand increase around the world.

Got you. Thank you so much.

Welcome.

And thank you.

And one moment our next question.

And our next question comes from Jeff Zekauskas from Jpmorgan. Your line is now open.

Thanks very much.

On slide four.

You said that you increased your <unk>.

He used by 120000 tonnes.

Where did you do that.

And what utilization rate are roughly what utilization rate is running at.

Yes, Jeff Thanks, It's Roger.

One of the beauties of our footprint as we've got a number of different sites and so we're able to do low cost de bottlenecks and a number of different sites and so that 120000 comes from a couple of different projects.

Mostly across the Gulf Coast.

But I would say in general for our Chlor alkali assets, we're going to run them, we're going to run them strong. So if we're not running them strongest because we've had we've had an issue it's not because we're trying to solve them down.

So this is all up and running and was added.

2022.

We completed them in 2022.

Okay.

My follow up.

There was.

The vinyl chloride relief in Ohio.

Do you think that that has implications for the chloro vinyl industry or do you think that that will lead to some kind of change or.

Or do you have any general comment.

Yes, I think people are waiting for the surface.

Installation safety, but will come back with a report I'm sure there'll be more carbon regulation of railroads.

Possibly all the shippers on safety. These are very important products that shipped around the country.

So the demand has been satisfied but definitely we need to increase the safety.

By the railroads, primarily I will thing called equipment, some other getting old and we heard a new technologies out there to improve the safety aspect also railroads.

Great. Thank you so much.

Okay.

And thank you.

And one moment our next question.

And our next question comes from Matt Matthew Skowronski from Credit Suisse. Your line is now open.

Good morning.

Within your housing and infrastructure products margin guide what are you assuming for raw material costs relative to <unk> levels.

Well as we think about the the margin that you've seen in our hip business I think you've been able to see that we've been able to be able to pass those costs through and so as we see prices rise and I think Roger made reference to the price nominations, we have for PBC.

In the first quarter, we and our housing businesses have been able to see good price.

Good price traction that I think you noted from one of the comments in front of the slides that we are able to hold prices.

Over the quarter and so while we saw reductions in volume pricing was actually fairly stable and so if we see continued pressure on prices coming in on feedstocks.

PVC or others will obviously look to see what we can do to manage that but if we have to we'll pass those through.

Understood. Thank you Steve.

With regard to M&A would you consider moving outside of current market verticals, you're already participate in.

Well I think you've seen that where we see adjacencies and I would use a pax here that I would use some of our acquisition experiences in 'twenty, one like <unk>, where we saw some adjacencies that make good sense, they provide synergies to us and provide an opportunity to extend the integration model that we have whether it's a sales integration.

Approach that we've taken with our boral business or whether it is a materials integration strategy that we have there a proxy acquisitions. So the answer is as long as we see good synergy and good value, we will look at adjacencies to our existing businesses.

Thank you.

Youre welcome.

And thank you.

One moment our next question.

And our next question comes from Angel Castillo from Morgan Stanley . Your line is now open.

Alright. Thanks for taking my question just wanted to maybe flip exports question on federal a little bit and as you think about it.

Yes.

Domestic I think one of the areas that are kind of pressured the industry or kind of in vinyl, but also in areas like.

In the proxy.

Exports were seeing a greater degree of pressure from from other regions.

Excellent product.

What are you seeing in that.

Competitive environment are you still seeing product come from Asia or are you seeing some of that starts data mystically more and as you raised.

Great operating rate, how do you see that kind of evolving in terms of the impact.

Excellent okay.

Yes, thanks, its Raj again, I think what we've seen on the export markets for both polyethylene and PVC is is a bump up in pricing around the world. So PVC is up by more than more than a dime a pound on the export side and so that's helping us I would say, we're still as Albert mentioned little Watson.

See on China's recovery, but India has come out quite strong has really been I would say supporting a lot of the market's heading that direction. So we're seeing improved pricing on exports.

And at the same time that helps a little bit on the impacts a little bit the pressure off.

In the domestic market as well, but so as I mentioned earlier, our U S assets have a cost advantage on raw materials, and we plan to run them.

Helpful. Thank you and then you used to give a sensitivity to natural gas prices could you just remind us what that is that today, particularly given.

Volatility of an operating rate.

The lower costs.

So through on a relatively immediate basis or if there is a little bit of a lag I don't know.

As in the factor compared to that.

Yes, so we.

Sensitivities that we've provided are are still appropriate here. When you think of natural gas in our markets. A dollar in <unk> is about $106 million of EBITDA impact and.

And certainly when we think of in our European business.

Hey, 10 Euro.

<unk> thousand kwh is about $10 million euro impact.

And that number should flow quite quickly right.

Got it thank you.

And thank you.

And one moment our next question.

And our next question comes from Eric Petrie from Citi. Your line is now open.

Hi, good morning, Albert and Steve.

Just going back to the exports, we saw a lot of competitive pressures from China exporting more caustic soda PVC.

PVC and PVC prices in China, right now around 40 cents closer to 90 cents here in the U S. Domestic market. So what are your expectations in 2023, and what have you seen your today out of China.

Yes Chi.

US economy improves.

And China <unk>.

Industry and one half to.

To export low prices and by the way I think the PVC price quoted in U S. It's at this price.

Actual price so.

Suddenly U S can compete with any previous producers around the world.

And as well just add that.

The industry able to export.

And going forward still until the U S housing market returns X will be a big part of the U S PVC producers and.

They have a very high energy costs and.

Even coal some of the PVC are produced from coal based.

Technology, but the coal price are also very high.

So I think China. They were exporting some quantities just to keep the plants running but as the automatic improves.

Exporting less.

Thank you Albert and then maybe a question for Roger on your comment of the doubling of installation.

Installations in China.

Is that due to kind of supply demand balances in the country and then how much capacity is China, adding this year and kind of what needs to be absorbed from last year.

Yes.

Yes, so I think wind in China.

China is a big driver of the wind market and so.

They've got RF queues out say about double this year, what they've done last year. That's a good first step I think and really starting to absorb the extra capacity that has come in as well as.

Avoid the exports right so as Albert mentioned with the China domestic market. So slow the China producers are exporting significant amount I think that will turn back inside and be used in China as opposed to hitting the export markets.

Thank you.

And thank you.

And one moment, our next question and if you would like to ask a question that is star one one again Thats star one one more moment our next question.

And our next question comes from <unk>.

Your line is now open.

Great. Thanks for taking my question just curious you made the comment about points well on new construction guidance rich.

In return.

Much of your business really is tied to new construction now I know.

Within building products, you have some more exposure to.

Repair and remodeling and.

It's kind of it just because there is so many other other overlapping factors. So how much of your business would you say is your sales or EBITDA is maybe tied to new construction.

Yes.

Our building materials business about 50% is targeted to the new construction market.

And 50% to the repair and remodeling market.

And as you heard earlier, Steve mentioned about the new home construction.

Forecast to be going from $1 5 million units last year to about between one 1.13 million units. This year and next year, that's the forecast.

And that's about a 20% drop.

And repair and remodeling as Steve also mentioned the Lira index. They are looking at a modest growth this year.

No.

If it's 50 50.

Weighting than 'twenty.

20% drop of new home construction.

Modest growth in repair and modeling.

Please see potentially a 10% reduction in volume compared with last year. So that's kind of.

Although magnitude estimates impact.

Great. Thanks, Albert and what about I mean, there is.

PVC resin production.

Potentially offset by some of your infrastructure exposure there how would you characterize the new construction exposure within Pam.

Yes. So this is rodger again, I mean, I think we do have certainly some pull through on the perm side through the housing materials construction piece. The second piece, we have there that I would say it's still early on is the impact on the infrastructure part of hip from the infrastructure.

DRA, because we expect still that there'll be significant investments in water systems throughout the U S and so we're still at the early stages of starting to see that through.

So I think those two pieces will continue to pull PVC through.

An exact number I don't have an exact number and Pam on new construction and thinking about that.

Okay.

This is albert as long as it earlier the industry whatever they can.

Supply to the domestic market, we will export.

Okay got it and then just as a quick follow up you said that $1 2 billion closed acquisitions in 'twenty two.

Would you expect a similar amount in 2003.

Or what are your kind of preference is for GAAP attachment point, So Arun I was chuckling.

Answer is where we look for value added opportunities and so it's hard to know exactly whether there'll be an opportunity to transact in any particular year, but we'll always look for opportunities that are going to be value added and so youre right over the last couple of years, it's been a very busy period of time to really add businesses.

The overall portfolio, but those were all businesses that we thought were really great additions to the portfolio that we had compelling synergies as you can see from the numbers, we've talked about earlier, so theres going to be a ongoing process as there always has been to look for opportunities, but it's hard to know whether those will play out materialize in 'twenty three.

Great. Thanks.

Welcome.

And thank you.

And at this time the Q&A session has ended are there any closing remarks.

Yes.

Yes. Thank you again for participating in today's call. We hope you'll join US again for our next conference call to discuss our first quarter 2023 results.

Yes.

Thank you for participating in today's Westlake Corporation fourth quarter and full year earnings Conference call. As a reminder, this call will be available for replay beginning two hours. After the call has ended the replay can be access via Westlake website Goodbye.

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Okay.

Yes.

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Okay.

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Yes.