Q4 2023 Trinseo PLC Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to the Trinseo fourth quarter 2023 financial results conference call. We welcome the Trinseo management team, Frank Bozich, President and CEO, David Stasse, Executive Vice President and CFO, and Andy Myers, Director of Investor Relations. Today's conference call will include brief remarks by the management team, followed by a question and answer session. The company distributed its press release, along with its presentation slides, at the close of market on Monday, February 12. 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 operator assistance during the call, please press star then zero on your telephone.
Good morning, ladies and gentlemen, and welcome to the trends El fourth quarter 2023 financial results Conference call.
We welcome the frenzy on management team, Frank Bozich, President and CEO, David Stacey Executive Vice President and CFO, and Andy Myers Director of Investor Relations.
<unk> 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 Monday February 12. These.
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 operator assistance during the call. Please press Star then zero on your telephone.
I will now hand, the call over to Andy Myers. Please go ahead.
Andy Myers: I will now hand the call over to Andy Myers. Thank you, Audra, and good morning. At this time, all participants are in a listen-only mode.
Okay.
Andy Myers: Thank you Andre and good morning, everyone.
Andy Myers: 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.
Andy Myers: After our brief remarks, instructions will follow to participate in the question and answer session. Our disclosure rules and cautionary note on forward-looking statements are noted on slide 2. During the presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. However, we must caution you that actual results could differ materially from what is discussed, described, or implied in these statements.
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.
Andy Myers: We must caution you that actual results could differ materially from what is discussed described or implied in these statements factors that could cause actual results to differ include but are not limited to risk factors set forth in item <unk> of our annual report on Form 10-K or in our other.
Andy Myers: Factors that could cause actual results to differ include, but are not limited to, risk factors set forth in Item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise this forward-looking statement. Today's presentation includes certain non-DAP measurements.
Filings made with the Securities and Exchange Commission the company undertakes no obligation to update or revise its forward looking statements.
Today's 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.
Andy Myers: The reconciliation of these mechanics to corresponding gap measures is provided in our earnings release and in the appendix of our investor presentation. The replay of the conference call and transcript will be archived on the company's Investor Relations website shortly following the call, and the replay will be available until February 13, 2025.
Andy Myers: A 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 February 13, 2025, now I'd like to turn the call over to Frank <unk>.
Frank A. Bozich: Now, I'd like to turn the call over to Frank Bozich. Thanks, Andy, and welcome to our year-end 2022 earnings call. Although this was arguably the most challenging year in our company's history and one of the most difficult in recent memory for the chemical industry, I'm proud of what we accomplished during the year to improve our cost position and strengthen our market position when global markets normalize. While unprecedented customer beef stacking, competitive pressure from imports into Europe, and weak market demand persisted throughout the year, we didn't sit idle.
Thanks, Andy and welcome to our year end 2023 earnings call.
Frank: Although this was arguably arguably the most challenging year in our company's history and one of the most difficult in recent memory for the chemical industry.
<unk> of what we accomplished during the year to improve our cost position and strengthen our market position when global markets normalize.
Unprecedented customer destocking competitive pressure from imports into Europe, and weak market demand persisted throughout the year. We didn't sit idle we took decisive action on items within our control to liberate cash improve profitability and extend our near term maturities to provide ample runway for the continued shift of our.
Frank A. Bozich: We took decisive action on items within our control to liberate cash, improve profitability, and extend our near-term maturity to provide ample runway for the continued shift of our portfolio. In the second half of 2023, we announced a series of additional restructuring actions, including the closure of our staggering facility introduced in the Netherlands, the consolidation of operations across our PMMA camp and extruded sheet network in Europe, as well as other cost savings measures. In addition, we structurally reduced our working capital days to further preserve cash, and we expect to improve on these lower levels.
Our portfolio.
In the second half of 2023, we announced a series of additional restructuring actions, including the closure of our styrene facility introducing the Netherlands the <unk>.
Frank: <unk> of operations across our PMMA cast.
In extruded sheet network in Europe.
As well as other cost savings measures.
Frank: In addition, we structurally reduced our working capital days to further preserve cash and we expect to improve on these lower levels.
Frank A. Bozich: We also successfully refinanced $1.1 billion in near-term maturities until 2028, which will allow us to continue advancing our market-leading sustainability program. These actions helped us generate positive pre-cash flow for the year, despite the macroeconomic challenges we faced, resulting in $47 million of year-over-year increase in cash on our balance sheet. Regarding our sustainability investments, I would like to point out that we have remained focused on advancing our sustainability initiatives and working toward our 2030 Sustainability Goals. Through continued investment and significant advancements in our made-in-risk rifling over the past year, we have become a larger contributor to the circular economy. We have commenced full operation at our polycarbonate dissolution pilot facility in Chernivtsi, Nevada, and recently announced the inauguration of our PMMA depolymerization plant in Roe, Italy, which is on track to be commissioned later this year. Once operational, this facility will be able to recycle a broad range of PMMA waste, including end-of-life PMMA by reducing it back to its constituent monomer MMA These recycled monomers can then be used to produce PMMA resins, sheets, and compounds containing recycled materials that will match the quality of virgin materials.
We also successfully refinanced $1 $1 billion in near term maturities until 2028.
Allow us to continue advancing our market leading sustainability programs.
These actions helped us generate positive free cash flow for the year. Despite the macroeconomic challenges we faced.
Frank: Resulting in $47 million of year over year increase in cash in our balance sheet.
Regarding our sustainability investments I would like to point out that we have remained focused on advancing our sustainability initiatives and working toward our 2030 sustainability goals through continued investment and significant advancements in our made in recycling over the past year, we are becoming a larger.
Attributable to the circular economy.
Have commenced full operations at our polycarbonate dissolution pilot facility introduced in the Netherlands.
And recently announced the inauguration of our PMO made the polymerization plants in Italy, which is on track to be commissioned later this quarter.
Once operational this facility will be able to recycle a broad range of PMA waste, including end of life PMA by reducing it back to its constituent monomer MMA.
These recycled monomers can then be used to produce pea MMA resins sheets and compounds containing recycled materials that will match the quality of Virgin materials.
Frank A. Bozich: In summary, this depolymerization facility will help promote a circular plastic value chain without compromising quality or performance. I'm also happy to report the sales of our recycled content-containing products were up 16% year-over-year, and we've continued growth as our recycling operations mature. And we continue to develop new sustainable solutions for our customers for these high-demand offers. Additionally, specialty and sustainable solutions technologies, which include most of our formulated technologies and engineered materials, such as rigid compounds, PMMA resins, continuous PMMA shoots, and PPE, as well as case and battery applications and latex binders, continue to see stable margins and experience less volume decline than our commodity applications. From an EHS standpoint, I'm happy to share that 72% of our eligible sites received our Triple Zero award this year, meaning the site achieved no injuries, spills, or safety events.
In summary, this deep polymerization facility will help promote circular plastics value chain without compromising quality or performance.
I'm also happy to report the sales of our recycled content containing products were up 16% year over year and we expect continued growth. There is a recycling operations mature and we continue to develop new sustainable solutions for our customers for these high demand offerings.
Frank: Additionally, our special teams sustainable solutions technologies, which include most of our formulated technologies in engineered materials, such as rigid compounds PMMA resins continuous PMMA sheets, and TPS as well as case and battery applications in latex binders.
<unk> continued to see stable margins and experienced less volume decline than our commodity applications.
From an EHS standpoint, I'm happy to share that 72% of our eligible sites received our Triple Zero Award this year.
Meaning the site the cheap no injuries spills or process safety events.
Frank A. Bozich: This is a testament to the diligence that our people work with on a daily basis, and I'm extremely proud of this industry-leading EHS performance. Now, I'd like to take a few minutes to provide an update on our fourth quarter results. As we expected, adjusted EBITDA was sequentially lower than Q3 as year-end customer inventory management and destocking led to a more pronounced seasonality than usual. We saw this dynamic throughout our value chains, but most predominantly in building and construction, appliances, and consumer durable applications. However, we've already seen volume recovery early in the first quarter and expect sequentially better results, which I'll discuss later. Now, I'd like to turn the call over to Dave to discuss our 4th quarter and full year results. Thanks, Frank.
Frank: This is a testament to the diligence that our people work on work with on a daily basis and I'm extremely proud of this industry, leading EHS performance.
Now I'd like to take a few minutes to.
To provide an update on our fourth quarter results.
As we expected adjusted EBITDA was sequentially lower than Q3 as year end customer inventory management, and Destocking led to a more pronounced seasonality than usual.
We saw just dynamics, Roger Bailey, who changed the most predominantly in building and construction appliances and consumer durable applications.
We've already seen volume recovery early in the first quarter, and except expect sequentially better results, which I'll discuss later.
Now I'd like to turn the call over to Dave to discuss our fourth quarter and full year results.
Thanks, Frank fourth quarter, adjusted EBITDA was below our expectations due to pronounced seasonality and destocking as well as $9 million of unfavorable impacts from natural gas hedges.
David P. Stasse: Fourth-quarter adjusted EBITDA was below our expectations due to pronounced seasonality in the stocking as well as $9 million of unfavorable impacts from natural gas hedges. However, we expect a significant rebound in Q1, which Frank will discuss in more detail. Our whole year of results studies included unfavorable impacts of $51 million from natural gas hedges.
However, we expect a significant rebound in Q1, which Frank will discuss in more detail.
Our full year adjusted EBITDA results included unfavorable impacts of $51 million from natural gas hedges.
$20 million from that timing and $13 million from fixed cost under absorption related to our actions to reduce inventory.
David P. Stasse: $20 million from net timing and $13 million from fixed costs under absorption related to our actions to reduce inventory. Despite the challenging macroeconomic environment that we endured throughout the year, we generated cash from operations of $149 million and cash flow of $79 million in 2023, which reflects the significant efforts by our organization to manage CapEx and working capital very tightly, realizing the benefits of our ERP and supply chain investments. We released $250 million of working capital in 2023, and about two-thirds of that is a structural reduction in days that we believe we can keep when market conditions improve. For the full year in 2024, we will continue to maintain a very disciplined cash focus with a lower than historical CapEx of about $70 million, as well as further progress in reducing our working capital days.
Despite the challenging macroeconomic environment that we endured throughout the year, we generated cash from operations of $149 million and free cash flow of $79 million in 2023, which reflects the significant efforts by our organization to manage Capex and working capital very tightly.
Realizing the benefits of our ERP and supply chain investments.
We released $250 million of working capital in 2023 and about two thirds of that is a structural reduction in days.
That we believe we can keep when market conditions improve.
For the full year in 2024, we will continue to maintain a very disciplined cash focus with lower than historical capex of about $70 million as well as further progress in reducing our working capital days.
David P. Stasse: While we expect a working capital release for the year, please keep in mind that working capital is likely to increase in Q1 due to seasonality. We ended 2023 with $259 million of cash and $471 million of liquidity, including our underwriting bank facility. While we are comfortable with our cash and liquidity levels heading into 2024, we remain highly focused on opportunities that prioritize liquidity and profitability improvement while exercising disciplined working capital management. Now, I'll turn the call back over to Frank. Thanks Dave.
While we expect a working capital release for the year. Please keep in mind that working capital is likely to increase in Q1 due to seasonality.
We ended 2023 with $259 million of cash and 479 $471 million of liquidity, including our Undrawn bank facilities.
While we are comfortable with our cash and liquidity levels heading into 2024, we remain highly focused on opportunities that prioritize liquidity and profitability improvement.
Frank: While exercising disciplined working capital management.
Now I'll turn the call back over to Frank Thanks, Dave.
Frank A. Bozich: So far, to begin the year, we're seeing sequentially higher volumes in Q1 due to customer orders reflecting underlying market demand levels following the strict inventory management that we saw at the end of 2023. We're also beginning to recover volumes in Europe that have been taken by imports from Asia. Additionally, starting in Q1, we expect to see the full benefit of the restructuring initiative that we took in the second half of last year, as well as much lower natural gas price losses. As a result, we expect Q1 profitability to be significantly higher than Q4, with adjusted EBITDA of about $40-$50 million. We view first quarter profitability as the low point of the year due to turnaround activity in the first quarter.
So far to begin the year, we're seeing sequentially higher volumes in Q1 due to customer orders, reflecting underlying market demand levels. Following the strict inventory management that we saw at the end of 2023.
We're also beginning to recover volumes in Europe.
Been taken by imports from Asia. Additionally, starting in Q1, we expect to see the full benefit of the restructuring initiatives that we took in the second half of last year as well as much lower natural gas hedge losses. As a result, we expect Q1 profitability to be significantly higher than Q4 with adjusted <unk>.
EBITDA of about $40 million to $50 million, we view first quarter profitability is the low point of the year due to turnaround activity in the first quarter seasonality seasonally lower volumes nonrecurring costs in Q1 and growth from New business Awards that phasing later in the year.
Frank A. Bozich: Seasonal, seasonalally lower volumes, non-recurring costs in Q1, and growth from new business awards that phase in later in the year. In addition, we're currently seeing higher input costs in several segments related to Red Sea shipping surcharges that we expect to fully recover in our prices in Q2. Please note that we don't believe these higher sequential Q1 volumes represent a broad underlying market recovery, and for the full year, we currently anticipate underlying market demand to remain constrained and generally in line with 2023. Despite this, we expect higher volumes in our more specialty businesses as we recover share against Asian imports due to moderating costs in Europe and as we win new business in our target applications. In addition, we expect significantly higher profitability in 2024 as the restructuring actions we've taken, combined with expected lower natural gas hedge losses, are expected to contribute approximately $100 million of sequential benefits.
In addition, we're currently see our higher seeing higher input costs in several segments related to Red Sea shipping surcharges that we expect to fully recover and our prices in Q2.
Frank: Please note that we don't believe these higher sequential Q1 volumes represent a broad underlying market recovery and for the full year. We currently anticipate underlying market demand to remain constrained and are generally in line with 2023.
Despite this we expect higher volumes in our more specialty businesses as we recover share against Asian imports due to moderating cost in Europe, and as we win new business and our target applications. In addition, we expect significantly higher profitability in 2024 as the restructuring actions we've taken.
Frank: And combined with expected lower natural gas hedge losses are expected to contribute approximately $100 million of sequential.
Shall benefit.
While we anticipate the logistics cost increase related to the Red Sea see shipping crisis may help reduce cost differential between our European products and imports from Asia, it's difficult to determine the impact of this at this time.
Frank A. Bozich: While we anticipate the logistics cost increase related to the Red Sea shipping crisis may help reduce the cost differential between our European products and imports from Asia, it's difficult to determine the impact of this at this time. Along with this, we have additional network optimization opportunities in Europe that we continue to explore, which we hope to benefit from later in 2024. I want to be clear that our strategy remains unchanged.
Along with this we have additional network optimization opportunities in Europe that we continue to explore which we hope to benefit from later in 2024.
Frank: I want to be clear that our strategy remains unchanged since the second half of 2022. Our company has faced unprecedented challenges marked by persistent customer destocking throughout our value chain, along with geopolitical conflicts that have significantly impacted trade flows and the competitiveness of European chemical <unk>.
Frank A. Bozich: Since the second half of 2022, our company has faced unprecedented challenges marked by persistent customer de-stocking throughout our value chains, along with geopolitical conflicts that have significantly impacted trade flows and the competitiveness of European chemical production. In this environment, we took decisive actions to increase our manufacturing network flexibility, which enables us to take advantage of regional cost differences while reducing capital expenditures and optimizing working capital, and we will continue to assess additional opportunities. In fact, since 2022, we have reduced fixed costs by over $70 million, while also offsetting inflation.
Reduction amid.
Amid this environment, we took decisive actions to increase our manufacturing network flexibility, which enables us to take advantage of regional cost differences, while reducing capital expenditures and optimizing working capital.
And we will continue to assess additional opportunities in fact since 2022, we have reduced fixed costs by over $70 million, while also offsetting inflation visa.
Frank A. Bozich: These actions have improved profitability and cash flow, allowing us to continue investing in higher-value product offerings and sustainable solutions and to be in a better position when demand returns to normalized levels. Lastly, I want to take a moment to thank our employees across the globe for their relentless efforts in 2023 and for the dedication to our transformation strategy as we continue to navigate this difficult macroeconomic environment. And now, I'm happy to take your questions. Thank you.
These actions have improved profitability cash flow, allowing us to continue investing in higher value product offerings and sustainable solutions to be in a better position when demand returns to normalized levels.
Lastly, I want to take a moment to thank our employees across the globe for their relentless efforts in 2023 and for the dedication to our transformation strategy as we continue to navigate this difficult macroeconomic environment.
And now we're happy to take your questions.
Thank you at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Operator: At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We'll take our first question from Frank Mitch at Fermion Research Center. Hey, good morning.
We'll take our first question from Frank Mitsch at Fermium Research.
Hey, good morning.
Frank Mitsch: Frank Frank you indicated.
Frank Mitsch: Frank Thank you as we're sitting here in the Middle of February you indicated that you are seeing sequentially higher volumes, so far relative to the fourth quarter.
Frank A. Bozich: Frank, as we're sitting here in the middle of February, you indicated that you're seeing sequentially higher volumes so far relative to the fourth quarter, and you also mentioned you're getting a volume benefit in Europe due to less imports coming out of Asia. Can you be more granular in terms of the end markets that you're seeing those impacts? Um, I would say it's mainly in our specialty business applications in Europe, such as the automotive and some of the building and construction applications.
And you also mentioned you're getting a volume benefit in Europe due to less imports coming out of Asia can you be more granular.
In terms of the end markets that youre seeing.
Those impacts.
I would say.
It's mainly in our specialty.
Business applications in Europe, automotive and some of the building and construction applications.
Frank A. Bozich: Some of the consumer products applications is where we've seen those volumes come back. For the first time in 20 months, in January, we saw year-over-year volume increases, and the order book in February looks similar. So I would say it's clear two months don't make a trend, and I would say it's too early to tell if this reflects the end of the stocking or some of this is from orders that shifted from Q4 to Q1, but again, it's significantly better than Q4, but difficult to... Difficult to say that it's a trend.
Frank Mitsch:
Some of the consumer products applications is where we're seeing those volumes come back but look.
For this is really for the first time in 20 months in January we saw year over year volume increases and the order book in February looks similar.
So I would say it.
It's clear two months don't make a trend but it.
And I would say it's too early to tell if this reflects the end of destocking or some of this is from orders that shifted from Q4 to Q1, but again, it's it's significantly better than Q4, but difficult to.
Difficult to say that it's a trend.
Speaker Change: Okay, Alright, that's helpful.
David P. Stasse: Okay, all right, that's helpful. And if I look at your slide 13, where you list all the puts and takes in terms of cash flow components, next to about $300 million cash outlay in 2024. How are you thinking about your ability to progress through the year based on your profitability levels in terms of where you have to draw down cash, where you have to borrow cash, or your expectation of profitability will more than exceed those put in place on cash from operations? I know it's kind of early in the year to forecast that with the uncertain economic background, but it's just curious how you're thinking about the cash generation and cash burn in 24. Hi. Good morning, Frank. It's Dave.
And if I if I look at your slide 13, where you.
With all the puts and takes in terms of cash flow components.
That nets to about $300 million.
Net cash outlay in 2024.
So how are you thinking about.
Your ability to progress through the year.
Based on your profitability levels in terms of where you have to draw down cash we have to borrow cash or.
Your expectation I need the unprofitability.
More than exceed those puts and takes on cash from operations. How do you I know it's.
Kind of early in the year to forecast that with the uncertain economic background, but I was just curious as you how are you.
David P. Stasse: I'll answer that. So, you're right. We have a page in our slide deck 13 that shows our cash flow components for the year, and included in that is an estimated working capital benefit of $50 million. And we've got actions identified and already underway to realize that. So, I'm confident we're going to be able to achieve that working capital relief again in 2013. But nonetheless, all that adds up to about $300 million of cash outlays. You'll notice, obviously, that we didn't give – we're not giving annual guidance on this call because of – Yeah, the degree of uncertainty, the pretty significant lift in volume that we've seen with, you know, we need to see if that persists or not. But to the extent our EBITDA for the year is, you know, is higher or lower than $300 million, that would be our positive or negative free cash flow for the Now, what I would say related to drawing on lines, if we end the year with $260 million of cash on the balance sheet, and we do have undrawn lines behind that for a total of almost $500 million of liquidity, we've not drawn any of our lines.
How youre thinking about the cash generation or cash burn in 'twenty four.
Hi, Good morning, Frank It's Dave I'll answer that so so you are right. We have a page in our slide deck 13 that shows our cash flow components for the year and included in that is an estimate that working capital benefit of $50 million.
And we've got actions identified and are already underway to realize that so I'm confident we're going to be able to achieve.
Does that working capital release again in 2013, so nonetheless, all adds up to $300 million of about $300 million of cash outlays.
You will notice obviously that we didn't give we're not giving annual guidance on this call because of.
The degree of uncertainty that the pretty significant lift in volume that we've seen with we need to see if that persists or not.
But to the extent, our EBITDA for the year is higher or lower than $300 million.
Speaker Change: That would be the positive or negative free cash flow for the year now.
I would say related to drawing on lines. If we ended the year with $260 million of cash.
On the balance sheet, and we do have undrawn lines behind that for a total of almost $500.
$500 million.
Of liquidity, we have not drawn any of our lines.
David P. Stasse: I don't expect to need it with what we generate this year. I think we have plenty of cash on the balance sheet. If we do, in fact, have a negative free cash flow this year, I would expect us to finance that with cash off the balance sheet and not rely on mine. Sounds good.
I don't expect to need to with the what we generate this year I think our work we have plenty of cash on the balance sheet.
Speaker Change: I would expect us to.
Finance that with cash off the balance sheet I'm not drawing on lines.
It sounds good and just lastly, what is the kind of minimum cash level, you feel comfortable with having on the balance sheet to.
David P. Stasse: Just lastly, what is the kind of minimum cash level you feel comfortable with having on the balance sheet? So long, folks. Yeah, I think the minimum level of cash, Frank, is about a hundred million. Look, the way I would define that minimum level, first of all, is how much cash you need to weather interim months, working capital swings, ups and downs, and I'd say that's probably about $100 million. Very helpful. Thanks so much.
To run the company.
Yeah, I think the minimum level of cash Frank is about.
Speaker Change: Look the way I would define that minimum level first of all is how much cash you need to weather intra month, working capital swings ups and downs and I'd say thats, probably about $100 million.
Very helpful. Thanks, so much again.
Sure.
Speaker Change: We will take our next question from David Begleiter at Deutsche Bank.
Thank you good morning.
Frank and Dave talked about Q1 being the low point of the year for a number of reasons, how should we think about the ramp to Q2.
David Begleiter: We'll take our next question from David Begleiter at Deutsche Bank. Thank you, good morning. Frank and Dave talked about Q1 being a low point of the year for a number of reasons. In terms of, what elements will contribute to a buildup in Q2? You know, what I would say the drivers for that are seasonality, normal seasonality in building and construction. We would always see those application volumes improve in those end markets.
In terms of.
David Begleiter: What elements will contribute to <unk>.
David Begleiter: Buildup in Q2, you know what I would say the drivers for that are season, yet normal seasonality and building and construction, we would always see those applications.
Volumes improve in those end markets.
David Begleiter: There.
Significant.
Frank A. Bozich: The significant impact that will go away in Q1 is that the Amcdyte turnaround is going to be over in Q1, and so we'll have the whole benefit of Amcdyte's earnings contribution back in Q2. And then we'll see mid-single-digit, million-per-quarter EBITDA contributions from new business awards that will phase in in subsequent quarters. You know, at the time, I can't predict exactly whether it'll be Q2 to Q3, but I would expect it to be mid-single-digit contributions from those. You know, we're seeing that somewhat depressing Q1 relative to what we expect in Q2, the freight surcharges that we're seeing related to raw materials that we source from Asia now, coming from our, you know, couple hundred dollars a ton higher due He mentioned this, again, $100 million in costs and improvement, including a natural gas hedge loss. 24.
David Begleiter: Impact that will go away in Q1 is that the <unk> turnaround is is going to be over in Q1, and so we will have a full benefit of <unk> earnings contributions in Q2.
And then we will see mid single digit millions per quarter.
EBITDA contributions from new business awards that will phase in in subsequent quarters, the timing I cant predict exactly what it will be Q2 to Q3, but I would expect it to be mid single digit contributions from those the other thing.
You know that we're seeing that somewhat depressing Q1 relative to what we expect in Q2 is.
The freight surcharges that were seeing related to raw materials that we source from Asia now.
David Begleiter: I'm coming from.
David Begleiter: Our.
Couple of hundred dollars, a ton higher due to freight and that's mainly in our plastic solutions value chain and we expect to recover that in pricing.
David Begleiter: In Q2.
If it still persists.
Very good and you mentioned this again $100 million cost improvement, including natural gas hedge losses in 2024.
Frank A. Bozich: What's the potential for that number to be higher than $100 million? Hmm. What's the potential for the savings associated with all the restructuring to be higher than $100 million? Correct, yes. Is that the question? Okay. Yeah, I'll try and take a stab at that, Dave.
David Begleiter: What's the potential that number to be higher than the $100 million you forecasted.
David Begleiter: The.
David Begleiter: For the.
Whats can you just repeat the question, what's the potential for the savings associated with all the restructuring to be higher than $100 million correct is that the question.
David Begleiter: Okay.
I'll try and take a stab at that Dave look I think the the largest contributor.
Frank A. Bozich: Look, I think the largest contributor to that $100 million is obviously shutting down those firing facilities. And I wanted to say this on this call, just, you know, Dave, you've been following us since we were public, and almost that entire duration since we were public. A large part of our identity has been a styrene producer, so we've been long styrene. We're the opposite now.
Of that $100 million is obviously shutting down to styrene facilities the.
And I wanted to say this on this call just Dave even followers since we've been public.
That entire duration since we've been public.
David Begleiter: A large part of our identity has been a styrene producers so even long styrene, where the opposite that were short styrene, we're a buyer of styrene.
Frank A. Bozich: We're short of styrene. We're a buyer of styrene for our downstream businesses. Um, what would lead to that number being higher is, you know, a more depressed styrene market. So, you know, we're no longer producing styrene; we're buying it. If we were producing it now, we would have made a significant, significant loss, you know, as our other European styrene producers now as we speak.
David Begleiter: For our downstream businesses so.
David Begleiter: What would lead to that number being higher.
Is it a more depressed styrene market. So we're no longer producing styrene, we're buying it if we were producing it now we would have significant significant losses.
As our other European styrene producers now as we speak so.
Frank A. Bozich: So, you know, I guess, kind of, in a perverse way, a worsening environment would result in that $100 million being higher because we would benefit, you know, we'd benefit from lower styrene pricing now, you know, that may or may not have. That kind of environment would be apt to have maybe a negative environment elsewhere in the business, but look, I'm very comfortable with the $100 million number. As I said, if we were producing styrenoid now, we would be generating, you know, starting in Q1. We no longer have a feedstock segment, but if we did and we were producing, it would be significantly negative. Yeah, maybe I just add one thing.
<unk>.
I guess kind of in a perverse way a worsening environment would result in that $100 million being higher because we would benefit we benefit from lower styrene pricing now.
Debt that may or may not have.
That kind of environment would be apt to have maybe a negative environment elsewhere in the business, but.
But look I'm very comfortable in the 100 million dollar number.
As I said, if we were producing styrene right now we generally start.
Starting in Q1, we no longer have a feedstock segment, but if we did and we were producing it will be significantly negative.
Yes, I guess, maybe let me just add one thing as I said this in my prepared remarks, but we have additional opportunities that we continue to evaluate.
David P. Stasse: I said this in my prepared remarks, but we have additional opportunities that we continue to evaluate. You know that if we implement those and move forward, they would accrue in the latter part of the year. And, you know, so again, we're always looking at our significant market opportunities to take advantage of inter-regional cost differences and change our supply chain and flex the network. And we will continue to evaluate those. So those could be additive to the $100 million also. We'll take our next question from Matthew Blair at PCC. Hey, good morning.
You know that we would expect.
If we implement those and move forward that they would accrue in the in the later part of the year.
So again were.
Always looking there are significant market opportunities to take advantage of.
In our regional cost differences and change our supply chain and flex the network and we.
We will continue to evaluate those so those could be additive to the $100 billion also.
Thank you.
We will take our next question from Matthew Blair at Tpa.
Hey, good morning, I was wondering if theres any update on the styrene.
Unnamed Speaker: I was wondering if there's any update on the sirene fail process, the cybernetic fail process, and is that something that could happen in 2024? So we don't really have an update. I would say there's nothing imminent. We continue to field questions about and feel interest in specific aspects, but nothing's imminent. Okay, and then I was hoping you could help us just a little bit more with the bridge from the 20 million in Q4 to 40 to 50 million in Q1. It sounds like some of the specialty volumes are picking up a little bit.
Sale process Sirenic sale process and is that something that could happen in 2024.
Matt Andrejkovics: So we don't really have enough data I would say there's nothing imminent.
Continue to field questions about and fueled interest on specific assets, but nothing is imminent.
Matt Andrejkovics: Okay, and then I was hoping you could help us just a little bit more with the bridge from.
The $20 million in Q4 too.
$40 million to $50 million in Q1, it sounds like some of the.
Unnamed Speaker: Are you seeing margin improvement anywhere? And then also, do you expect to roll off any of the natural gas headwinds or net timing benefits in Q1? Well, let me tell you there are three things that are really driving, three elements that are driving the improvement from Q4 to Q1, and number one is volume. Number two is the whole benefit of the restructuring activities. And the third thing I would say is we did have a turnaround in our EM business; our biggest resident plant in Bristol had an extended turnaround in Q4. And you know, that's behind us now.
<unk> seen margin improvement anywhere and then also do you expect to roll off like any of the.
Natural gas headwinds or our net timing benefits into Q1.
Sure.
Sure well let me.
It's three things that are really driving three elements that are driving the improvement from Q4 to Q1 and number one is volume.
Number two is the full benefit of the restructuring activities.
And the third thing I would say is we did have a turnaround in our bid.
Business, our biggest resin plant in Bristol ahead, an extended turnaround in Q4 and that's behind US now so those are the drivers that would.
Unnamed Speaker: So those are the drivers that would, you know, as well as, you know, volume, the you know, volume, the restructuring benefit, and the turnaround, you know, as it relates to the natural gas hedges. We had $9 million; it was a $9 million loss in Q4, and it's going to be about a $5 million loss in Q1. I expect to not really be talking about that anymore on Tuesday, but a significant number in 23 for the full year, 24 is going to be about $10 million, and as I said, four or five of that is going to be in Q1, and then it falls off. So there is a sequential pickup of four here. Great, thank you very much. We'll go next to Hassan Ahmed at Olympic Global Advice. Morning, Frank and Dave.
Well as.
Volume.
Volume the restructuring benefit and the turnaround is it.
Matt Andrejkovics: It relates to <unk>.
Matthew as it relates to the natural gas hedges, we had 9 million there was a $9 million loss in Q4, it's going to be about a 5 million loss in Q1.
And for the full look I expect to not really be talking about that anymore.
Significant number.
In 23 for the full year 'twenty, four it's going to be about $10 million and as I said.
Five of that is going to be in Q1, and then it falls off.
So there is a sequential pickup of four there.
Great. Thank you very much.
Sure.
We'll go next to Hassan Ahmed of Alembic Global Advisors.
Frank A. Bozich: Um, look, I obviously understand that you guys aren't giving, you know, full year 2024 guidance with sort of all the uncertainties and macro issues and the like. But again, you know, back in Q3, you guys were alluding to sort of, you know, somewhat of a bridge to 2024 in terms of, you know, all the controllables, right? And, you know, you alluded to the restructuring benefits, you know, the benefits from the Tenusian side of things, you know, restructuring was, call it 100 million, net timing was another 16 million tailwind, Tenusian was around 60 million, so call it 175 million of tailwinds. Now, if I tack that on to, you know, even the low point, call it annualized, you know, Q4 EBITDA But if I were to then, you know, get a little more aggressive, annualize your, you know, Q1 guidance, we're well north of 300 million. You know, how are you, what are you thinking about at least the floor for 2024 EBITDA? Good work!
Good morning, Frank and Dave.
Look I, obviously understand that you guys aren't giving.
Full year, 2024 guidance, which sort of all of the uncertainties and macro issues and the like but again.
Yes.
<unk> two <unk>.
Matt Andrejkovics: Somewhat of a bridge to 2024.
<unk>.
All the controllable rage and.
You alluded to the restructuring benefits the benefits from the <unk> side of things.
Restructuring was call it 100 million.
Net timing was another $16 million tailwind the news and was around $60 million.
So correlate.
$175 million of tailwind now if I died on to.
Even the low point call it.
Annualized Q4, EBITDA of $80 million I come up with a number which is $2 $50 million to $260 million for 2024.
Matt Andrejkovics: If I were to then get a little more aggressive annualize your Q.
Q1 guidance.
Well north of $300 million.
Speaker Change: How are you how are you thinking about at least a floor for 2020 for EBITDA.
Well look.
Frank A. Bozich: Maybe let me start with what's changed since Q3 and what we're seeing in the markets, because I think you can't, I wouldn't, sitting here today, I don't think we can look at Q3 as a reference and build off of that. And the reason is that we've seen a significant margin deterioration in polycarbonate, ABS, and polystyrene. And what those chemistries all have in common is a significant overhanging capacity in China.
Maybe let me start with what's changed since Q3.
And what we're seeing in the markets because I think you can't I wouldn't sit.
Speaker Change: Sitting here today I don't think we can.
Look at Q3, as a reference and build off of that and the reason is that we've seen a significant margin deterioration polycarbonate ABS in polystyrene.
And what those Chemistries all have in common is a significant overhanging capacity in China.
Frank A. Bozich: And as in some market recovery in China, I don't really expect to see margins at the Q3 levels in the near term. And I would say, frankly, this is very consistent with the views expressed by all of our industry peers, and, You know, I'll just give you an anecdote. Look, I spent the last two weeks in Asia visiting clients across our value chain. And what I would tell you in general is that all of our Chinese customers are of the view that there will be no domestic growth in their business or domestic demand growth in their business in 2024, and the growth that they can expect and that they're planning for is due to exports into Europe, which is the highest cost region, show. You know, I think that's what's changed and why we're reluctant at this point to provide any certainty about the full year
And absent some market recovery in China.
Don't really expect to see margins at the Q Q3 levels in the near term.
I would say frankly this is very consistent with the views expressed by all of our industry peers.
Speaker Change: And.
Speaker Change: Yes.
Just give you an anecdote I look I spent the last two weeks in Asia.
Visiting clients.
It's across our value chains.
And what I would tell you in general is that all of our Chinese customers are of the view that there will be no domestic growth in their business, our domestic demand growth in their business in 2024, and the growth that they can expect and they're planning for is due to exports into Europe.
<unk>, which is the highest cost region. So.
Speaker Change: I think that's what's changed and why we're reluctant.
Speaker Change: And at this point too.
Provide any certainty about the full year 2024.
Frank A. Bozich: You know, there's just too many moving parts in how China will develop and some of the other costs will develop. However, that being said, there are opportunities for us to continue flexing the network and to take advantage of regional cost arbitrage, as well as reduce fixed costs. And that's what we're focused on, what's in our control.
Just too many moving parts and how China will develop in some of the other costs will develop however that being said.
There are opportunities for us to continue flexing that the network and to take advantage of.
Regional cost arbitrage as well as reduce fixed costs and that's what we're focused on what's in our control.
Frank A. Bozich: And let me sort of, you know, take another stab at just sort of the market environment, right? You know, particularly as it pertains to, call it seasonality, inventory levels, and the like. I mean, you know, in terms of your Q4 results and the weakness over there, you guys talked about pronounced seasonality, particularly in Asia and Europe, right? Which kind of surprised me a little bit, keeping in mind how severe the quote-unquote de-stock has been, right?
Understood understood and let me, let me sort of take another Scott just sort of the market environment rate, particularly as it pertains to call it seasonality inventory levels and the like I mean.
In terms of your Q4 results and the weakness of the day are you guys.
Speaker Change: About.
Speaker Change: Pronounced seasonality, particularly in Asia and Europe right.
Which kind of surprised me a little bit keeping in mind, how severe the quote unquote destock has been right I mean, as I sort of sit there and listen to some of the other companies you know some of the other companies are talking about.
Frank A. Bozich: I mean, you know, as I sort of sit there and listen to some of the other companies, some of the other companies are talking about, you know, the lack of seasonality in Q4 because of, you know, how de-stocking started, call it, in the back half of 2022 and carried on through most of 2023. So what I'm trying to understand is what, you know, on the inventory side and the demand side is cyclical versus secular, right? I mean, you know, I think that coming out of the lockdowns, you know, with COVID and the like, maybe people overbought and, you know, have buying patterns, you know, with China the way it's looking, with Europe the way it's looking, have buying patterns, at least for the foreseeable future, changed relative to history.
The lack of seasonality in Q4, because of how Destocking started call it into the back half of 2020, due and got it on through most of 2023.
Speaker Change: Im trying to understand is what on the inventory side and the demand side is cyclical versus secular right.
<unk>.
I mean, I think that coming out of the Lockdowns.
With Covid and the like maybe people overbought.
Speaker Change: And.
No.
I mean have buying patents with China the way, it's looking with Europe. The way, it's looking have buying Titan at least for the foreseeable future.
Yes, no change relative to history.
Speaker Change: So I think the simple answers yes.
And.
In particular in Europe.
Frank A. Bozich: So, I think the simple answer is yes, and What I would say is, in particular in Europe, and what I would say is, in China or in Asia in general, what we're seeing is consumer behavior dramatically changing significantly and changing buyer patterns as it relates to building and construction applications as well as consumer durables. You know, in particular in those two areas, and against that backdrop of lower consumer demand, you have continued capacity additions in Asia in some of these So, you know, it's changing. I do think demand patterns and demand have certainly changed over the past, uh, several quarters. To answer the question simply, fair enough. Thank you so much, Mike. We'll take our next question from Lawrence Alexander at this time. Good morning to you two quick ones.
Behavior dramatic changing significantly in that changing buyer pattern as it relates to building and construction applications as well as consumer durables.
Okay.
And in particular in those two areas and against that backdrop of lower consumer demand you have continued.
<unk> additions in Asia in some of these chemistries so.
It's Chris.
Speaker Change: Are changing.
I do think demand patterns and demand.
<unk> has certainly changed over the past.
Several quarters that well.
To answer the question simply.
Speaker Change: Fair enough. Thank you so much Mike.
Speaker Change: Sure.
We will take our next question from Laurence Alexander of Jefferies.
Good morning, two quick ones first can.
Laurence Alexander: First, can you characterize the mixed effects you're seeing as volumes start to improve? Are your higher-margin products rebounding first, or should we expect that we're going to start Q2 and Q3 with a bit of a drive on there? So we are seeing the more formulated solutions being more resilient and the volume improvement being more significant in those than in the more commodity, you know, base polymer type products. So the answer, the simple answer, is yes.
You characterize the mix effects youre seeing as volumes start to improve or your higher margin products rebounding first store should we expect as we go into Q2 and Q3 a bit of a drag on mix.
So we are seeing the.
Morris.
Formulated solutions being more resilience.
And the volume improvement being more significant than those than in the more commodity based polymer type products. So the answer the simple answer is yes.
Speaker Change: And secondly, just in terms of.
Frank A. Bozich: And secondly, just in terms of, you know, now that you're seeing sort of markets revert to baseload demand, can you give a sense for just how much of the volume hit, in retrospect, was just the D stock? So if your volumes were down 7%, is the new run rate down 3% earlier? Can you give us some sense we can try and think about what the... Agents of the bounce may just be just to adjust from the de-stocking environment to the underlying demand environment. You know, I think this goes back to the question that David asked, or Frank, I can't recall.
Now that youre seeing sort of markets revert to base load demand can.
Can you give a sense for just how much of the volume hits in retrospect was just the destock so.
If your volumes were down 7% as the kind of new run rate down 3% year over year can you give some sense, we can try and think about what the.
Agents of the balance may be just to adjust from the destocking environment to the underlying demand environment.
Well.
I think this goes back to the question I think David asked Sir Frank I can't recall.
Right now it's difficult to pinpoint that because.
Frank A. Bozich: Right now, it's difficult to pinpoint that because... You know, I'm not sure in the first two months of the quarter. We're seeing a solid volume improvement. After a very low volume in Q4, it's difficult for us to unpack how much of that is actually volume shift from Q4 into Q1 and give you the arithmetic that you're looking for. So I think we need to get through Q1 or begin to see March orders. And then we'll be able to see more effectively when we see the Q2 order book begin to develop. We'll have a better understanding of what that is.
I'm not sure in the first two months of the quarter.
We're seeing it.
There are solid.
<unk> improvement.
After a very low volume in Q4, so it's difficult for us to unpack how much of that is actually volume shift.
From Q4 into Q1.
And and do.
If you do the arithmetic that you are you are you.
You're looking for so I think we need to get through Q1.
Speaker Change: Seat or begin to see March orders.
And then we'll be able to see more effectively when we see the Q2 order book begin to develop will have a better understanding of what that is.
Okay, great. Thank you.
Operator: Thank you. Thank you. And this concludes today's question and answer session and today's conference call. Thank you for your participation. You may now disconnect.
Thank you.
And this concludes today's question and answer session and today's conference call. Thank you for your participation you may now disconnect.
Please wait the conference will begin shortly.
Yes.
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Speaker Change: Yes.
Okay.
Yes.
Speaker Change: Yes.
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