Q3 2023 Trinseo PLC Earnings Call
Speaker 1: Please stand by, we're about to begin.
Please standby we're about to begin.
Speaker 1: Good morning, ladies and gentlemen, and welcome to the TriMZIO third quarter, 2023 financial results conference call. We welcome the TriMZIO management team, Frank Bozic, President and CEO , David Stacey, Executive Vice President and CFO , and Annie Myers-Direct of Industrial Relations.
Good morning, ladies and gentlemen, and welcome to the <unk> third quarter 2023 financial results Conference call. We welcome the <unk> management team, Frank Bozich, President and CEO, David Stacy 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. The company distributed its press release along with its presentation slides at close of market Friday, November 3rd. These documents are posted on the company's investor relations website and furnished on a form 8K filed with the Securities and Exchange Commission. If anyone should require assistance during the call, please press star then zero on your telephone, and now I'll hand things over to Andy Myers. Please go ahead.
Today's conference call will include brief remarks by the management team followed by a question and answer session. The company distributed its press release, along with its presentation slides at close of market Friday November 3rd. 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.
If anyone should require assistance during the call. Please press Star then zero on your telephone and now I'll hand things over to Andy Myers. Please go ahead.
Okay.
Speaker 2: Thank you, Bo, and good morning everyone. At this time, all participants are in a listen-only mode. After our brief remarks, instructions will follow to participate in the question and answer session.
Thank you Paul and good morning, everyone. At this time all participants are in a listen only mode. After our brief 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 two. 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.
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.
We caution you that actual results could differ materially from what is discussed described or implied in these statements.
Speaker 2: Factors that could cause actual results to differ include, but are not limited to risk factor set forth in item 1A of our annual report on Form 10K. Or in our other filings made with the security.
Actors that could cause actual results to differ include but are not limited to risk factors set forth in item one a R.
Annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission.
Speaker 2: The company undertakes no obligation to update or revise its forward-looking...
The company undertakes no obligation to update or revise its forward looking statements.
Speaker 2: Today's presentation includes certain non-GAAP measurements. The reconciliation of these measurements that correspond to GAAP measures is provided in our earnings release and in the appendix of our investor presentation.
This presentation includes certain non-GAAP measurements, a reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our Investor presentation.
A replay of the conference call and transcript will be carved on the company's Investor Relations website. Shortly following the call a replay will be available until November six 2024, now I'd like to turn the call over to Frank <unk>.
Speaker 2: The replay of the conference call and transcript will be archived on the company's investor relations website shortly following the call. The replay will be available until November 6, 2024.
Speaker 3: Thanks, Andy, and welcome to our third quarter 2023 earnings call. I'd like to start with a discussion of our
Thanks, Andy and welcome to our third quarter 2023 earnings call.
I'd like to start with a discussion of our Q3 results.
Speaker 3: As expected, our Q3 sales volume was roughly flat to Q2 and consistent with the lower demand level we've seen over the past year.
As expected our Q3 sales volume was roughly flat to Q2 and consistent with the lower demand level, we've seen over the past year.
Speaker 3: This reflects lower end customer demand, particularly in consumer durables and building and construction, continued customer destocking, as well as weaker market demand in Asia leading to higher exports to Europe .
This reflects lower end customer demand, particularly in consumer durables and building and construction continued customer destocking as well as weaker market demand in Asia, leading to higher exports to Europe.
Speaker 3: However, looking at our customers, we feel we are seeing a slowing of de-stocking, and are hopeful this will end in the near future, depending on the value.
However, looking at our customers, we feel we are seeing a slowing of destocking.
This will end in the near future depending on the value chain.
Speaker 3: Despite this prolonged period of reduced demand, we've taken numerous asset footprint and other cost reduction actions to improve our profitability.
Despite this prolonged period of reduced demand, we've taken numerous asset footprint and other cost reduction actions to improve our profitability late.
Speaker 3: Late last year, we announced the closures of our styrene plant in Berlin, Germany, and half of our polycarbonate.
Late last year, we announced the closures.
Styrene plant in Poland, Germany and.
And half of our poly carbonate production and started Germany.
Along with consolidating our PMMA sheet production in North America.
Erica.
Speaker 3: This year we've seen significant profitability and free cash flow improvements from these apps.
This year, we've seen significant profitability and free cash flow improvements from these actions.
Speaker 3: I would like to refer to the additional actions we've recently announced, which are highlighted on slide four of our investor deck. First, the closure of our tranews.
I would like to refer to the additional actions, we've recently announced announced which are highlighted on slide four of our investor deck.
First the closure of our choosing the Netherlands styrene plant second the optimization of our PMMA sheet network in Europe, including plant consolidations, and lastly, corporate cost reductions, including the elimination of certain executive positions.
Speaker 3: Second, the optimization of our PMMA sheet network in Europe , including planned consolidations. And lastly, corporate cost reductions, including the elimination of certain executive positions.
In aggregate. These recent actions are expected to result in approximately $75 million of annual cost reductions that we expect to be realized in 2024.
Speaker 3: We believe these actions will not only increase our profitability and cancellation, but will also enable us to continue investing in transformation projects, such as recycling and material substitution innovation.
We believe these actions will not only increase our profitability and cash generation, but will also enable us to continue investing in transformation projects, such as recycling and material substitution innovations, which offer significant growth potential even in the current market environment.
Speaker 3: which offers significant growth potential even in the current market environment.
While market demand has remained challenging for the entire industry. We continue to see the benefit of the shift in our portfolio to one that is more specialty in sustainability solutions oriented.
Speaker 3: While market demand has remained challenging for the entire industry, we continue to see the benefit of the shift in our portfolio to one that is more specialty in sustainability solutions or...
Speaker 3: In 2023, specialty and sustainable solutions comprise about 30% of our variable margin. And this is about double the level of 2020.
In 2023 specialty and sustainable solutions comprise about 30% of our variable margin and this is about double the level of 2020.
Speaker 3: This part of our portfolio has shown better margin resiliency in the current environment.
This part of our portfolio has shown better margin resiliency in the current environment.
Speaker 3: Continued focus on growing these technologies and also taking decisive action on a more cost-sensitive assets gives us additional levers to improve profit. technology.
Continued focus on growing these technologies and also taking decisive action on a more cost sensitive assets gives us additional levers to improve profit.
Market demand remains depressed.
Speaker 3: Looking at Q3 profitability, we reported a net loss from continuing operations of $38 million. And I did just to the EBITDA of $41 million.
Looking at Q3 profitability, we reported a net loss from continuing operations of $38 million and adjusted EBITDA of $41 million. This result was below our expectations due mainly to the styrene related impacts during the quarter, including a short term spike in European <unk>.
Speaker 3: This result was below expectations, due mainly to the styrene-related impacts during the quarter, including a short-term spike in European styrene prices, while we were buying all of our styrene on the spot market.
Styrene prices.
Buying all of our styrene on the spot market during.
During the unplanned outage at <unk>.
Speaker 3: However, I'm proud to say that due to our continued focus on working capital, we were able to generate positive pre-cashful for the third consecutive court.
However, I'm proud to say that.
Due to our continued focus on working capital, we were able to generate positive free cash flow for the third consecutive quarter.
Speaker 3: In addition, as previously announced, we've successfully refinanced all of our 2024 term loan and over 75% of our 2025.
In addition, as previously announced we have successfully refinanced all of our 2024 term loan and over 75% of our 2025 notes.
Speaker 3: Going back to the Ternusen styrene closer, I want to be clear that we did not take the closure of this plant lightly. But styrene profitability has been negative for the last nine years.
Going back to the news and styrene closer I want to be clear that we didn't that take the closure of this plant lately, but styrene profitability has been negative for the last nine quarters.
Speaker 3: With elevated energy prices in Europe , staggering production cost in the region is one of the highest in the world. Plus, given recent and planned global staggering capacity additions, we believe this feedstock will remain structurally long through the end of the day.
With the elevated energy prices in Europe styrene production cost in the region is one of the highest in the world plus given recent and planned global styrene capacity additions. We believe this feedstock will remain structurally long through the end of this month.
Speaker 3: Therefore we believe we'll be able to purchase styrene at lower prices than our production costs
Therefore, we believe we will be able to purchase styrene at lower prices than our production costs.
Speaker 3: The positive result of our previously announced bowl enclosure supports this as the correct course of action.
The positive results of our previously announced bowling closer supports this as the correct course of action.
Speaker 3: This closure also reduces production risk, ongoing capital and turnaround costs, while lowering our energy intensity and carbon.
This closure also reduces production risk ongoing capital and turnaround cost, while lowering our energy intensity and carbon footprint.
Speaker 3: With the closure of kyriosin styrene, we will no longer produce styrene anywhere in the world.
With the closure of <unk> styrene, we will no longer produce styrene anywhere in the world. We will therefore purchase all of our styrene needs from third parties.
Speaker 3: We will therefore purchase all of our stiving needs from third party.
Speaker 3: We have always purchased all of our styrene needs in North America and Asia, as well as a significant percentage of our European requirements. So this...
We've always purchased all of our styrene needs in North America, and Asia as well as the significant percentage of our European requirements. So this model is not new to US we plan to buy a diversified geographic and commercial.
Speaker 3: We plan to buy via diversified geographic and commercial reference providing us with flexibility.
Providing us with flexibility to optimize our purchases.
Speaker 3: Starting in Q1 of 2024, we will no longer have a feedstocks reporting segment, and the actual purchase cost of styrene will flow through to the derivative segments. Holly Styrene, plastic solutions, and latex fine.
Starting in Q1 of 2024, we will no longer have a feedstocks reporting segment and the actual purchase cost of styrene will flow through to the derivatives segments polystyrene plastic solutions and latex binders.
Speaker 3: These businesses pass through staggering costs in the product prices either through market mechanisms or via price warning.
These businesses pass through styrene cost and their product prices either through market mechanisms or via price formulas.
Speaker 3: because we will be buying all of our styrene and generally operate with pass-through economics and our downstream business.
Because we will be buying all of our styrene and generally operate with pass through economics in our downstream businesses. We don't expect to see the volatility of styrene margins in our results.
Speaker 3: We don't expect to see the volatility of Stairing margins in our results.
Speaker 3: Before I hand the call over to Dave, I'd like to talk to you about our progress and sustainability.
Before I hand, the call over to Dave I'd like to talk to you about our progress and sustainability.
Speaker 3: This continues to be a bright spot and our sales volume for recycled content containing products was up 10% year to date from our continued focus in this very important area.
This continues to be a bright spot in our sales volume for recycled content containing products was up 10% year to date from our continued focus in this very important area.
Speaker 3: On this topic, I'd like to provide more details on one of our sustainability projects that I'm particularly excited about.
On this topic I'd like to provide more details on one of our sustainability projects that I'm, particularly excited about.
Speaker 3: Earlier this year we announced the inauguration of our polycarbonate dissolution pilot facility internews in the Netherlands.
Earlier this year, we announced the inauguration of our polycarbonate dissolution pilot facility introduced in the Netherlands since that announcement I'm happy to report that the pilot facilities operational has been qualifying missed mixed waste streams and producing samples of recycled polycarbonate for our customers.
Speaker 3: Since they have announcement, I'm happy to report that the pilot facility is set up.
Speaker 3: has been qualifying mixed waste streams and producing samples of recycled polycarbonate for our customers.
Speaker 3: through this ongoing investment and our ability to repurpose the idle polycarbonate production line in Stade Germany for this process.
Due to this ongoing investment and our ability to repurpose the idle Polycarbon a production line interest out of Germany for this process, we expect to be able to achieve industrial scale production beginning in 2025 with a low capital expenditure.
Speaker 3: We expect to be able to achieve industrial scale production beginning in 2025 with a low-capable expense.
Speaker 3: Now I'd like to highlight some of the unique features of our technology and the advantages it will provide.
Now I'd like to highlight some of the unique features of our technology and the advantages it will provide in the future.
Speaker 3: Our process uses our proprietary advanced physical recycling technology that enables the recovery of polycarbonate polymer from end-of-life plastics, such as automotive parts and consumer electronics. They're difficult to recycle via traditional mechanical recycling.
Our process uses our proprietary advanced physical recycling technology that enables the recovery of polycarbonate polymer from end of life plastics, such as automotive parts and consumer electronics that are difficult to recycle via traditional mechanical recycling methods are.
Speaker 3: Our technology allows us to extract polycarbonate polymer from a mixed waste stream, meaning polycarbonate containing mixed waste mixed with other plastic, metal or glass, giving us the ability to process waste that would otherwise be on the recycle.
Our technology allows us to extract poly color polycarbonate polymer from a mixed waste stream, meaning polycarbonate containing mixed waste waste mixed with other plastic metalwork glass, giving us the ability to process waste that would otherwise be unreached I global as a result.
Speaker 3: As a result, certain waste that could only be sent to a landfill or an incinerator in the past can be recovered and recycled using our technology.
Certain ways that could only be sent to a landfill or incinerator past can be recovered and recycled using our technology.
This will enable closed loop partnerships with automotive electronics and consumer good customers that currently produce end of life plastics.
Speaker 3: automotive, electronics, and consumer good customers that currently produce end of light plan.
Speaker 3: These partnerships are highly attractive to our customers as they provide circular
These partnerships are highly attractive to our customers as they provide circular solutions and.
Speaker 3: In addition to the sustainability advantages of our tech.
In addition to the sustainability advantages of our technology.
Speaker 3: Quality and polycarbonate that we extract through the disillusion process is on power with version
Polycarbonate that we expect through the dissolution process is on par with Virgin PC and contains lower levels of residual bisphenol a.
Speaker 3: and contains lower levels of residual bispinol A.
Speaker 3: These reduced BPA levels could potentially expand the types of applications for which recycled PC is approved.
These reduced BPA levels could potentially expand the types of applications for which recycled PUC has approved.
Speaker 3: I process also emits up to three times less CO2 than virgin PC production, making both the process and end products more.
Our process also admits up to three times less <unk> than Virgin PC production, making both the process and end products more sustainable.
Speaker 3: Finally, because this technology permits the use of lower-value waste in feedstock as feedstock, we anticipate at scale it will result in cost savings compared to virgin PC production.
Finally, because of this technology permits the use of lower value waste and feedstock as feedstock. We anticipate at scale. It will result in cost savings compared to Virgin PC production.
I'd like to thank our research and development team for their truly innovative work and.
Speaker 3: I'd like to thank our research and development team for their truly innovative work.
Speaker 3: and their dedication toward creating a cleaner, more circular polycarbonate.
And their dedication towards creating a cleaner more circular polycarbonate technology.
Speaker 3: This is just one of the many exciting projects that we continue to focus on in order to achieve our 2030 Sustainability and growth goals and continue to increase the mix of specialties in our portfolio Now I'd like to turn the...
This is just one of the many exciting projects that we continue to focus on in order to achieve our 2030 sustainability and growth goals and continuing to increase the mix of specialties in our portfolio.
Now I'd like to turn the call over to Dave.
Frank.
Speaker 4: Our third quarter of adjusted EBITDA was below our expectations to mainly to lower styrene-related margin from our unplanned average checker news end, as well as negative net timing from decreasing raw materials.
Our third quarter adjusted EBITDA was below our expectations due mainly to lower styrene related margin from our unplanned outage for news and as well as negative net timing from decreasing raw materials.
Speaker 4: Results included unfavorable impacts of $15 million related to the Ternusin styrene artist.
Results included unfavorable impacts of $15 million related to the tier newson styrene outage.
Speaker 4: $11 million from natural gas hedge losses and $4 million.
$11 million from natural gas hedge losses, and $4 million net timing.
Speaker 4: Please note that the $11 million impact from natural gas hedges
Please note that the $11 million impact from natural gas hedges.
Speaker 4: had increased from $19 million in the first quarter and $12 million in the second quarter.
Has decreased from $19 million in the first quarter and $12 million in the second quarter.
Speaker 4: We expect this impact to be about $5 million in the fourth quarter and about $5 million overall in 2024.
We expect this impact to be about $5 million in the fourth quarter and.
And about $5 million overall in 2024.
Speaker 4: In the second quarter, we had free cash flow of $16 million, including a working capital reduction of $52 million, which was driven by continued cash and initiative.
In the second quarter, we had free cash flow of $16 million, including a working capital reduction of $52 million, which was driven by continued cash initiatives.
Speaker 4: Near-to-date, we have reduced working capital by over $150 million, and over 80 percent of this reduction is from lower working capital days as opposed to price.
Year to date, we have reduced working capital by over $150 million.
And over 80% of this reduction is from lower working capital days as opposed to price.
Speaker 4: We are comfortable operating at this reduced level of working capital as long as this demand environment persists.
We are comfortable operating at this reduced level of working capital as long as this demand environment persist.
Speaker 4: We ended the third quarter with $279 million of cash and $495 million of liquidity, including our undrawn bank facility.
We ended the third quarter with $279 million of cash and $495 million of liquidity, including our Undrawn bank facilities.
Speaker 4: The last item I'd like to discuss is our recent refinancing. As slide 13 in our deck shows, we refinanced $660 million of the 224 term loan and $385 million of the $22025 senior notes, extending these maturities to 2-
The last the last item I'd like to discuss is our recent refinancing as slide 13 in our deck shows we refinanced $660 million of the 224 term loan.
And $385 million of the 202025 senior notes.
Extending these maturities to 2028.
Speaker 4: This leaves $115 million of notes due on September 2025, and no other maturities until 2020.
This leaves $115 million of notes due in September 2025.
And no other maturities until 2028.
Now I'll turn the call back over to Frank who will talk about our expectations for the remainder of 2023.
Speaker 4: Now we'll turn the call back over to Frank who will talk about our expectations for the remainder of 2023.
Speaker 3: Thanks Dave. Looking at our forecast for the rest of the year, we're guiding to a full year net loss of $509 million to $499 million. And adjusted EBITDA of $175 million to $185 million.
Thanks, Dave.
Looking at our forecast for the rest of the year, we are guiding to full year net loss of $509 million to $499 million.
And adjusted EBITDA of $175 million to $185 million.
Speaker 3: This updated full-year Adjusted EBITDA outlook is below our prior guidance primarily from lower styrene related margin and unfavorable net timing in Q3, as well as a more pronounced UN seasonality impact.
This updated full year adjusted EBITDA outlook is below our prior guidance, primarily from lower styrene related margin and then favorable net timing in Q3 as.
As well as a more pronounced year end seasonality impact in Q4.
Speaker 3: as we continue to navigate a sustained low command environment.
As we continue to navigate a sustained low demand environment, we've been proactive by taking significant action to enhance profitability and cash generation, including numerous initiatives regarding asset optimization cost reductions and liquidity improvements.
Speaker 3: been proactive by taking significant action to enhance profitability and cash generation.
Speaker 3: including numerous initiatives regarding asset optimization, cost reductions, and liquidity.
Speaker 3: The year over your benefit of these actions combined with lower losses from natural gas
The year over year benefit of these actions combined with lower losses from natural gas hedges are expected results in over $100 million of EBITDA improvement.
Speaker 3: I'll expect a result in over a hundred million dollars of eat done.
In addition to these improvements to the 2023 adjusted EBITDA outlook includes Q3 year to date unfavorable impacts of $22 million from net timing.
Speaker 3: In addition to these improvements, the 2023 adjusted EBITDAO look includes Q3 year-to-date unfavorable impacts of 22 million from neck timing.
Speaker 3: from declining raw materials and $14 million from fixed costs under absorption related to our inventory reduction.
From declining raw materials, and $14 million from fixed cost under absorption related to our inventory reduction actions.
Speaker 3: Therefore, we expect these tailwinds to result in significantly higher profitability in 2024.
Therefore, we expect these tailwind to results and significantly higher profitability in 2024.
Now we're happy to take your questions.
Speaker 1: Thank you, Mr. Bozic. Ladies and gentlemen, at this time, if you do have any questions, simply press star one. And if you do find your question has already been addressed, you can remove yourself from the queue by pressing star one again. We'll go first this morning to Frank Misch at Fermi and Research LLC.
Thank you mentioned, both its ladies and gentlemen at this time if you have any question simply press Star one and if you do find your question has already been addressed you can remove yourself from the queue by pressing star one again.
Well go first this morning to Frank Mitsch Fermium Research LLC.
Yes.
Speaker 5: Good morning and hey congrats on the refi. I want to drill a little bit more into the 24 expectation versus 23. You outlined a hundred million dollar benefit from the cost actions that you've taken to the plant shutdown.
Good morning.
Hey, congrats on the refi.
I wanted to drill a little bit more into the 24 expectation versus 'twenty three.
You outlined $100 million benefit from the cost actions that you've taken the plant shutdowns.
Speaker 5: uh... as well as uh... natural gas hedges uh...
As well as natural gas hedges.
Speaker 5: And so far this year, you mentioned the 14 million underabsorption from running your assets lighter. Of course, you also had another 15 million of unplanned adage. What, if I add this up,
And.
So far this year you had you mentioned the $14 million under absorption from running your assets. Later of course, you got you also had another $15 million of unplanned outage.
If I if I add if I add this up.
Speaker 5: You know that 100 million you know that you're expecting something like 40 million less.
That 100 million that youre expecting something like $40 million less.
Speaker 5: in terms of Nat gas hedges impact. So that implies 60 million benefit from the restructuring actions. I believe you've previously said you've expected like 70 to 90 million benefit from the restructuring actions. Are we just rounding here? Can you talk a little bit more about the bridge from 23 to 24 from some of these various noise items?
In terms of Nat gas hedges impact so that implies 60 million <unk>.
<unk> from the restructuring actions I believe you've previously said you expected like $70 million to $90 million of benefit from the restructuring actions are we just rounding here.
Can you talk a little bit more about the bridge from 'twenty three to 'twenty four.
From some of these are from some of these various noise items.
Speaker 3: Frank, I think the best way to look at it is to look at, you know, slide four of the presentation deck where we talk about the tailwinds. There's a little call out box there that shows, you know, 100.
Yes, Frank I think the best way to look at it is to look at.
Slide four of the presentation deck, where we talk about the tail winds theres, a little callout box there that shows.
$100 million related to the asset and cost restructuring and natural gas hedges the $22 million of unfavorable net timing plus $14 million of fixed cost under absorption. So I would say those are the tail winds that we would go into next year.
Speaker 3: related to the asset cost restructuring and natural gas hedges, the 22 million of unfavorable net timing plus 14 million fixed cost underabsorption. So I would say those are the tailwinds that we would go into next year with the benefit of it.
With the benefit of and.
Speaker 3: And, you know, again, I think Q3 is representative of the demand level that we would expect to see in this environment as we bounce along at these levels.
Again, I think Q Q3 is.
Representative of the demand levels that we would expect to see in this environment as we bounce along.
At these levels.
Speaker 3: So a normalized Q3 plus those is probably a good way to think about it in this environment.
So a normalized Q3 plus those is.
Is probably a good way to think about it in this environment.
Speaker 5: a catch got you at at at the previously indicated like seventy to ninety million just based on the restructuring actions from the plane shutdowns etc. uh... it looks like that hundred million includes that as well as the forty million benefit from the net gas you're not implying that uh... that you're expecting the benefits to be less than that seventy ninety that you previously said uh... are you
Got you got you.
We've previously indicated like $70 million to $90 million just based on the restructuring actions from the plant shutdowns et cetera.
It looks like that $100 million includes that as well as the $40 million benefit from the Nat gas youre not implying that.
That you are expecting the benefits to be less than that 70 to 90 that you've previously said.
Are you.
Speaker 4: No, Frank, this is Dave. No, the savings from the restructuring actions. You're right, 70 to 90 is the original range we gave and the amount is 75. So what we expect today to get out of that is 75 million. So the 100 that Frank was referring to was in this slide is the sum of that 75 plus the natural gas saved.
No. Frank this is Dave knows the savings.
The restructuring actions Youre right 70 to 90 is that is the original range we gave.
And the amount is <unk> 75, so what we expect today to get out of that is $75 million. So the 100.
That frankly is referring to is in the slides is the sum of that 75, plus the natural gas savings.
Sure.
Speaker 3: Okay, looks like it looks like we're getting some benefit from we're getting some partial benefit from some of these actions this year Right, right. Okay.
Okay. It looks like it looks like we're just rounding some benefit promise, we're getting some partial benefit from some of these actions this year right right. Okay.
Alright, so the year over year you cannot just.
Speaker 3: Yeah, there's a portion of it that we're getting, you know, for example, the corporate restructuring actions, those were in effect late in Q3. And, you know, so a portion of those were going to get we've already gotten. So we'll only get the euro for your benefit as a tailwind next year. And that's what we've highlighted in that tail that call up box.
Yes, there is a portion of it that we're getting.
For example, the corporate restructuring actions those were in effect late in Q3.
So a portion of those we're going to get we've already gotten so we'll only get the year over year benefit as a tailwind next year and that's what we've highlighted in that tail that callout box.
Speaker 5: All right, very helpful. And then lastly, you mentioned that you're seeing a slowing of destocking, and I was wondering if you might be able to provide some color in terms of the end markets where you might be seeing that, whether they're at the building and construction, you know, especially paper packaging, whatever, any color there on where you're seeing this showing that you're following.
Alright, very helpful. And then lastly, you mentioned that Youre seeing a slowing of Destocking and I was wondering if you might be able to provide some color in terms of the end markets, where you might be seeing that whether it be building and construction, especially.
Specialty paper packaging whenever any any color there on where youre seeing the slowing.
Speaker 3: In the consumer electronics we're seeing slowing, we're seeing some slowing in the case applications in latex binders, as well as in the, well, automotive has been very steady. So that supply chain has been pretty resilient. I'd say we're, and also we've seen a slowing.
In the consumer electronics, we're seeing slowing we're seeing some slowing in the skin.
In the case applications in latex binders as well as in.
The.
While automotive has been very steady so that supply chain has been pretty resilient.
Say, where it is.
And also we've seen a slowing slowing.
Speaker 3: in the white goods or consumer goods areas.
In the white goods or consumer goods areas.
Speaker 3: You know, related to appliances where we still see.
Related to appliances, where we still see.
Speaker 3: You know, some destocking, it probably the most pronounced destocking that still ongoing is in kitchen and bath type applications for our various technologies. You know, it's a redneck building in construction. Gotcha, got you.
Some destocking.
<unk> the most pronounced destocking, that's still ongoing as in kitchen, and Bath type applications for.
Our various technologies.
Terrific building and construction.
Got you got you alright, thank you so much.
Thanks Frank.
Thank you we'll go next now to David Begleiter at Deutsche Bank.
Speaker 6: Thank you. Good morning. Frank, do you have an update on the Tyranix sale?
Thank you good morning.
Frank do you have an update on the <unk> sale.
Speaker 3: So David, we, no real update. We continue to field questions from parties that are interested, but nothing is imminent.
So David we no real.
Update we continue to field questions from parties that are interested but nothing is imminent.
Speaker 6: understood and they just are working capital When vimes do come back to more normalize levels how much rebuild do you think you'll need in working capital?
Understood and Dave just on working capital.
<unk> volumes do come back to more normalized levels, how much rebuild do you think you'll need in working capital.
Speaker 4: Well, Dave, as I said in the prepared remarks over 80% of the reduction this year.
Well, Dave as I said in the prepared remarks over 80% of the production this year.
Speaker 4: is from days. So days of working capital that we've taken out, and we've taken that out, you know, and we believe substantially all that is structural. We take them out those days of working capital because of the systems and processes that we've implemented, specifically around SNOP, and in our new ERP system. So I think, look,
As from days, so days of working capital, we've taken out and.
And we've taken that out and.
We believe substantially all of that is structural we've taken that those days of working capital because of the systems and processes that we've implemented.
Specifically around <unk>.
And in our new ERP system, So I think look.
Speaker 4: You know, prices, price out of that is probably, you know, 15% or less. I think when prices do rise, that will likely be indicative of the covering environment.
Prices price out of that is probably 15% or less I think when prices do rise that will likely be indicative of a recovering environment. So we'd probably see higher EBITDA in that as well but.
Speaker 4: So we probably see higher EBITDA in that as well, but the vast majority of it, the remainder is days of inventory and days of other working capital that we think we've structurally taken out. And don't think we need to add back. So it's up a little faster. We'll give some instructions, thank you.
The vast majority of it the remainder is.
Days of inventory and days of.
Yes.
Other working capital, we think we structurally taken out.
And don't think we need to add back.
Thank you.
Speaker 1: Thank you to the next mouth to Matthew Blair at TTH.
Thank you we'll go next to Matthew Blair at PTH.
Speaker 7: Hey, good morning, Franken Dave. I was hoping you could help us out a little bit on the EBITDA bridge from Q3.
Hey, good morning, Frank and Dave I was hoping you could help us out a little bit on the EBIT bridge from Q3 to Q4, I think midpoint EBITDA guidance.
Speaker 7: the Q4, I think midpoint EBITDA guidance, only has Q4 moving up, you know, maybe about five million quarter-requarter. It seems like you would have some pretty considerable tailwinds from rolling off the feedstocks, impact from Q3, 19 million, as well as it sounds like.
<unk> Q4, moving up maybe about $5 million quarter over quarter. It seems like you'd have some pretty considerable tailwind from rolling off the feedstocks impact from Q3 19 million as well as it sounds like.
Speaker 7: The net gas had wind. It's effectively going to be about a 6 million.
The net gas headwind.
Quickly going to be about a $6 million tailwind. So is that the right way to think about it and I guess, the delta would be the increased seasonality as well as the benzene styrene margins.
Speaker 7: tailwind. So is that the right way to think about it? And I guess the Delta would be the increased seasonality as well as the bending hit on the styrene margin?
Speaker 3: Yeah, I think that's a way to think about it. You know, we'll have some benefit as we outline from SkyReen and from the actions we've taken, and those will be somewhat muted in the results because of the, you know, we expect extended customer shutdowns at during the year round.
Yes, I think that Thats, a good way to think about it.
We will have some benefit.
Offline from styrene and from the actions, we've taken and those will be somewhat muted in our results because of the.
We expect extended customer shutdowns during the year end.
Speaker 4: And Matthew just one other point. Look, Frank mentioned that this prepare remarks, but I think it's important that everybody understands, you know, our earning, you know, you mentioned benzene, right? And benzene, the higher benz, elevated red benzene, putting pressure on styrene margins. And that is in fact happening. Now in the third quarter, or excuse me, the fourth quarter, we're seeing that in Amstie. You know, Amstie has, has is gonna have, you know, a lower performance in Q4 due to styrene margins.
And Matthew just one other point look Frank mentioned in his prepared remarks, but I think it's important that everybody understands.
Our earnings you mentioned benzene and benzene the higher been elevated Brent benzene and pressure on styrene margins and that is in fact happening now in the third quarter or excuse me the fourth quarter, we're seeing that in <unk>.
<unk> has is going to have lower performance in Q4, due to styrene margins, but because we're no longer a styrene producer higher benzene in styrene margins do not impact our results late they used to so I know thats going to take some getting used to.
Speaker 4: But because we're no longer a styrene producer, you know, higher benzene and styrene margins do not impact our results, the late that you used to. So I know that's gonna take some getting used to.
Okay.
Speaker 3: But, you know, but, but styrene margins really only affect us now in Amsti, not in our own results. Maybe, okay, just add one word.
But but.
Styrene margins really only affect us now in <unk> not in our own results.
Maybe just.
Just to add one more.
Sorry go ahead.
Yes, great question.
Speaker 3: The other thing I just do want to point out is that
The other thing I, just do want to point out is that.
Speaker 3: The SkyGreen contracts that we've negotiated begin in January of next year. We've secured the needs we have for the remainder of the year, largely through spot purchases on the market. So the timing for the benefit of that investment in course of the Mills fund will continue under the dome of these jurisdictions.
The staggering contracts that we've negotiated begin in January of next year, we've secured the needs we have for the remainder of the year largely through spot purchases on the market. So.
The timing for the benefit.
Speaker 3: The contracts to kick in is January .
The contracts to kick in is January of next year.
Okay.
Speaker 7: Got it. And then we'll feed stocks be, well, that still be around for Q4. Will that be a zero or will there still be some residual like negative ebit of falling through for feed stocks and Q4?
Got it and then we'll feedstocks b.
Well thats still be around for Q4 would that be a zero or will there still be some residual like negative EBITDA flow through for feedstocks in Q4.
It will be there in Q4, Matthew we will still have a styrene reporting segment.
Speaker 4: It will be there in Q4 Matthew. We will still have a styrene reporting segment. It's not going to reflect.
It's not going to reflect.
Speaker 4: It's not going to reflect the production of styrene and internal sales toward internal businesses. It will just reflect purchases of styrene that we make and internal transfers of that. is really developing.
It's not going to reflect the.
Production of styrene and internal sales.
Our internal businesses it'll just reflect.
Purchases of styrene that we make an interim and internal transfers of that.
Yeah, So I.
Wouldn't.
Speaker 4: I don't expect it to be a negative because of that. I don't expect it to be a negative number in the fourth
I don't expect it to be because of that I don't expect it to be a negative number in the fourth quarter.
Speaker 7: Got it. And then last question is, I believe the cash flow statement reflected 15 or 16 million in the third quarter from proceeds from the sale of business and other assets. What? What, do you remind us what, what, what that was for?
Got it and then last question is I believe the cash flow statement reflected 15 or $16 million in the third quarter from proceeds from the sale of business and other assets.
Can you remind us what that was for.
Speaker 4: That was for, it was kind of small immaterial sales of assets. It wasn't a big deal.
That was for that it was kind of a small immaterial sales of assets.
It wasn't a business it's.
Kind of.
Miscellaneous assets.
Speaker 8: Miss Salini is asked that it's not even worth the time on the call.
Not even worth.
Not even worth the time on the call.
Okay sounds good thank you.
Thank you we'll go next to Michael Light head at Barclays.
Speaker 9: Great. Thanks. Good morning, guys. First, Frank, can you just speak to the intensity of lower cost Asian imports across your portfolio? Is it getting better or worse relative to maybe earlier this year?
Great. Thanks, Good morning, guys.
Frank can you just speak to the intensity of lower cost Asian imports across your portfolio is it getting better or worse relative to maybe earlier this year.
Speaker 3: I would say it's getting better. And that's because the...
Yes, I would say, it's getting better.
And that's because the.
Speaker 3: Costs differential between European production and Asian cost has decreased.
Cost differential between European production and Asian cost has decreased.
Speaker 3: but there's still a pronounced pressure due to the lack of capacity or the lack of...
But there are still a pronounced pressure due.
Due to the lack of capacity.
The lack of it.
The free capacity and under utilization of assets in Asia. So there is still pressure from imports and there still is it just.
Speaker 3: and under utilization of assets in Asia. So there's still pressure from imports, and there still is a dislocation and cost between Europe and Asia. I would say it's most pronounced in plastic solutions and in EM.
Dislocation in cost between Europe.
In Asia, I would say, it's most pronounced in plastic solutions and in yen.
And.
Speaker 3: Due to the nature of, you know, our latex binders is being a water-based product, it's least, you know, almost nonexistent there.
Due to the nature of.
Our latex binders business being a water based product, it's least pronounce almost nonexistent there.
Speaker 9: Great, that's super helpful. And then Dave, after the recent refinancing, can you help us with what your current run rate annual cash interest is?
Great. That's super helpful. And then Dave after the recent refinancing can you help us with what your current run rate annual cash interest. This.
Speaker 4: Yeah, it's $235 million a year.
Yes, it's $235 million a year Mike.
Great. Thank you.
Yeah.
Speaker 1: Thank you for the next now to Hassan Ahmed at Unlimited Global Advisors.
Thank you the next nap to Hassan Ahmed of Alembic Global Advisors.
Good morning, David.
Speaker 10: You know, guys wanted to revisit some of the moving parts associated with, you know, the initial 2024 sort of guidance or bridge analysis you guys have given. Thank you, mention, you know, good way to think about sort of...
I just wanted to revisit some of the moving parts associated with the.
The initial 2024 sort of guidance or bridge analysis, you guys have given thank you mentioned good way to think about sort of run rate quarterly EBITDA as Q3, 2023 level right. So annualize that and I come up with call. It a $164 million in EBITDA than you.
Speaker 10: run rate quarterly bidda is Q3 2020 23 levels right so I annualize that and I come up with you know call it 164 million in ebidda
Speaker 10: Then you talked about the sort of tailwinds from asset and cost restructuring, which is another 75 million, you know, the sort of non-presidents of the unfavorable timing impacts in 23, which is another 22 million, and fixed cost under absorption, which is another 14 million.
You talked about.
Do you sort of tailwind from asset and cost restructuring, which is another 75 million.
D D.
Non presence of the unfavorable timing impact in 'twenty, three which is another 22 million and fixed cost under absorption, which is another $14 million. So you sum it all up and you come to at least $274 million to $175 million.
In 2020 for EBITDA.
Speaker 10: Am I right in assuming first of all that that is the correct way of thinking about it? And of course that does not factor in any sort of demand improvements and it does in fact terrain potentially the benefit from the new styrene contract. Am I thinking about this the right way?
Am I right in assuming first of all the DAC is the correct way of thinking about it and of course that does not factor in any sort of demand improvement and it doesn't factor in potentially the benefit from the new styrene contract and I am I thinking about this the right way.
Speaker 3: So, I guess, let me play back to you, how...
So I guess that.
Let me play back to you how.
Speaker 3: I would think about it, or I've been thinking about it, and I think how we discussed it earlier when Frank asked the question.
I would think about it.
I've been thinking about it and I think.
How we discussed it earlier when Frank asked the question.
Speaker 3: So if we take 41 million for Q3 and add back the 4 million timing plus the negative impact from the sireen outage of 15 million, the gets us to about a $60 million run.
If we take 41 million for Q3 and add back the 4 million timing plus the negative impact from the styrene outage of $15 million that gets us to about a $60 million run.
Speaker 3: performance underlying performance in Q3 and From that we have an additional tailwind of $100 million related to restructuring and natural gas hedges. So, you know, that's how I
Performance underlying performance in Q3 and from that we have an additional tailwind of $100 million related to restructuring and natural gas hedges.
No.
How I would think about it.
Speaker 3: You know, again, we're not guiding yet. We'll guide in February , but sitting here today, that's how I would think about next.
Again, we're not guiding yet we'll guide in February.
February but.
Sitting here today, that's how I would think about next year.
Speaker 10: Serena, Serena. And just again, trying to sort of understand the demand side of things, you know, with this massive destruct that we've seen. You know, back, back, I believe it was Q4 of 22 during the earnings call, you talked about how historically
Fair enough fair enough.
And just again trying to sort of understand.
The demand side of things.
With this massive destocking that we've seen.
I believe it was Q4.
22 during the earnings call you talked about how historically.
Speaker 10: you know, destalkings lasted two quarters and the restock, both those two sort of quarters of destalking, you know, historically had been quite impressive.
Destocking last two quarters and the restock both those two sort of quarters of Destocking historically had been quite impressive now here we are several quarters later.
Speaker 10: Now here we are several quarters later with the de-stocking continuing. So I mean, should we expect after this level of de-stocking?
The destocking continuing so I mean should we expect after this level of Destocking.
Speaker 10: as and when it happens in equally impressive restocking
And when it happens and equally impressive restocking.
Speaker 3: You know what I talked about this and I don't know what to expect going forward to be honest with you because I think that the chemical industry
I talked.
To put this in.
I don't know what what to expect going forward to be honest with you because I think that the chemical industry.
Speaker 3: in general, is at an inflection point that in my 40 years, I've not seen before, with over capacities in Asia, geopolitical effects, dislocations and costs. So it's hard for me to say what to affect going forward. Based on history, I would, you know, based on our prior experience if history would repeat itself, we would say yes, but I'm not, again, sitting here today,
In general is at an inflection point that in my 40 years I've not seen before.
With Overcapacities in Asia geopolitical effects dislocations in cost sell.
It's hard for me to say what to expect going forward based on history.
I would.
Based on our prior experience.
History would repeat itself, we would say, yes, but I'm not.
Again sitting here today.
Speaker 3: Stepping power vibrato
It's difficult to predict when and how that will happen or what it will look like.
Fair enough very helpful. Frank Thank you so much.
Speaker 1: Thank you. We go next now to Lawrence Alexander at Jeffries.
Thank you we'll go next to Laurence Alexander at Jefferies.
Speaker 11: Good morning, could you unpack the comments around extended shutdowns? Is that just in kind of the appliance industry or you also seen that in automotive? And are you thinking about it in terms of shutdowns starting earlier than normal? Or are you also concerned about them spilling over into January more than usual?
Good morning could you unpack the comments around extended shutdowns as that's just in kind of the appliance industry or are you also seeing that in automotive.
And are you thinking about us in terms of shutdowns starting earlier than normal or are you also concerned about them spilling over into January more than usual.
Speaker 3: No, we think that the customers will be...
No we think that the customers will be.
<unk>.
Speaker 3: reworking, managing, working, and I'm reducing stocks through the year end. And so their shutdowns will be kept, will start earlier. And I would say this is across, probably across the value chains.
Working managing working capital.
Juicing stocks through the year end and so theyre shutdowns will be will start earlier.
And I would say this is across probably across the value chains.
And again, if there is an exception as probably automotives.
Speaker 11: And secondly, just in terms of the kind of the comp effects.
And secondly, just in terms of the kind of a comp effects.
Speaker 11: If you take kind of the way your customers talk about their sense of underlying demand.
If you take kind of the way your customers talks about their sense of underlying demand.
Speaker 11: There are at least high level of confidence that volumes are positive comparisons in Q2 year over year.
There are at least the.
The high confidence level of confidence that volumes are positive comparisons in Q2 year over year.
Speaker 3: or a customer is more nervous on the video, just want to make sure I understand what the
Or are customers more nervous on the visit but just wanted to make sure I understand what the.
So.
Speaker 3: I just want to make sure I understand a pair of positive volumes compared to Q.
I just want to make sure I understand.
Positive volume compared to Q2.
Speaker 11: When we think about the year over year cadence on volumes, should you be back in positive territory by Q2 of next year based on what your customers are saying? Or are they indicating too much uncertainty on demand trends? Just trying to think about your lap.
When we think about the year over year cadence on volumes.
Should should you be back in positive territory by Q2 of next year based on what your customers are saying or are they indicating too much uncertainty on demand trends.
Just trying to think about your lab and the selling cycle.
Speaker 3: Yes, I would say in general we would see low single digit demand improvement is the signal we're getting across the portfolio.
Yes, I would say in general we would see low single digit demand improvement is the signal we're getting across the portfolio.
Speaker 3: You know, so some improvement, but not this has done.
So some improvement.
But not.
Hassan it's a recovery.
Speaker 3: So low single digit demand improvement, and it varies by specific segment when that'll kick in. That's how I would think about it and how we're thinking about it right now.
So low single digit demand improvement and it's it varies by specific segment when that will kick in and that's how I would think about it and how we're thinking about it right now.
Speaker 11: And then just lastly, on the recycle polycarbonate, you may have commented if I heard properly that will actually be cheaper than version polycarbonate. Do you have a sense? Is there a kind of structural gap? You know, like a rule of thumb is to just how much of an advantage you should have. And do your customers expect you to sort of split that with them so that they get cheaper product? Or are they off, or are they telling you that they would be willing to pay a premium like we see in other plastics? And then you...
And then just lastly on the recycle Polycarbonates you made a comment if I heard properly that will actually be cheaper conversion polycarbonate do you have a sense is there a kind of structural gap.
Like a rule of thumb as to just how much of an advantage you should have.
Do your customers expect you to sort of split that with them. So that they get a cheaper product or are they off or are they telling you that they would be willing to pay a premium like we see in other plastics.
And then you just got a healthier margin.
Speaker 3: Well, we would, I would say.
Well we would.
I would say in general we <unk>.
Speaker 3: We enjoy a premium in the recycling product based on the significant demand and many of our value change for that type of product. For helping our customers achieve their recycling and circularity goals. So I would expect.
We enjoy a premium in the recycled product based on the the.
This significant demand in many of our value changed for that product.
<unk>.
We're helping our customers achieve their recycling and circularity goals.
So I would expect to get a healthy return.
Speaker 3: get a healthy return on these technologies as we market those in back to our customers.
On these technology says we market those sent back to our customers.
Speaker 3: From a cross standpoint, it will all depend on what seed we begin.
<unk>.
From a cost standpoint.
It will all depend on what speed, we begin with <unk>.
Speaker 3: And I think what we try to explain and what you need about our technology is we can take a mixture.
And I think what we tried to explain and what's unique about our technology is we can take a mixed stream.
Speaker 3: that would contain colors, other types of materials like metal, glass, or other plastics. And we...
That would contain colors other types of.
Materials like metal glass or other plastics, and we can extract the polycarbonate polymer from that and get to almost purified Virgin quality polycarbonate.
Speaker 3: polycarbonate polymer from that and get to an almost purified virgin quality polycarbonate.
Okay.
So depending on.
Speaker 3: The cost to get secure that feedstock.
The cost to get secure the feedstock.
Speaker 3: which in mixed waste these are largely very inexpensive. Whereas previously been landfill, we would expect to get a lower, be able to produce at scale a lower cost than Virgin. I don't know if that helps.
Which.
And mixed waste. These are largely very inexpensive versus previously been landfilled, we would expect to get a lower be able to produce at scale are lower cost than Virgin.
I don't know if that helps.
It's difficult to quantify because it will all depend on.
Speaker 3: What partnership we have with our end customer and, and let me give you an example. So we could take headlamps that are waste.
What partnership we have with our end customer and.
Yes, let me give you. An example, so we could take headlamps.
Our.
Waste.
<unk> by our customer might be end of life or could be.
Speaker 3: might be end of life or could be low quality or off grade from their production, we can recycle it and return that material.
Low quality or.
Off grade from their production and we can recycle it and return that material to them. So same thing we think about our interior door panel.
Speaker 3: So same thing, we think about an interior door panel from a car company. We actually have taken byproduct or scrap door panels from our existing customers and recycled it and made delivered back to them the polycarbonate that we've recycled and they've made virgin door panels and they meet their quality work.
Our car company, we actually have taken.
Byproduct or scrap door panels from our existing customers and recycled made.
<unk> delivered back to them the polycarbonate that we've recycled and they've made virgin door panels and they meet their their quality requirements. So.
Speaker 3: So it's that we've done the same thing in consumer electronics. So, you know, we've yet to... We have very many products. We don't want money.
We've done the same thing in consumer electronics so.
We've yet to.
Speaker 3: We don't see the full potential of it, but we're very excited about it, and early indications are that we have a significant demand from our customer base, and they're excited about it.
See the full potential of it but we're very excited about it and early indications are that.
We have a significant demand from our customer base.
Theyre excited about partnering with us.
Speaker 1: Thank you, ladies and gentlemen, that will conclude our question and answer, especially this morning. And we bring this to the end of this morning's conference call. Again, would like to thank you all so much for joining the Trends Theal 3rd quarter, 2023 financial results conference call. And wish you all a great day. Bye-bye.
Thank you, ladies and gentlemen that will conclude our question and answer session. This morning, and it will bring us to the end of this morning's conference call again, we'd like to thank you all so much for joining the <unk> third quarter 2023 financial results conference call and wish you all a great day Goodbye.
Speaker 12: Please wait, the conference will begin shortly.
Please wait the conference will begin shortly.
Sure.
Yes.
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