Trinseo PLC

Good morning, ladies and gentlemen, and welcome to the Trinzeo Third Quarter 2020 Financial Results Conference Call. We welcome the Trinzeo 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 Cult of Market yesterday. 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. I will now turn the call over to Andy Myers.

Thank you, Julie. 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. 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. 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 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 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. A replay of the conference call and transcript will be archived on the company's investor relations website shortly following the conference call. The replay will be available until November 6, 2021. Now, I'd like to turn the call over to Frank Bozich.

Thanks, Andy, and welcome to Trinzio's third quarter earnings call. As we noted in our pre-announcement, the positive demand recovery we observed toward the end of the second quarter gained momentum through the third quarter. This led to significant sequential quarterly volume improvement in many applications. In automotive, third quarter volume was only down 14% versus the prior year after a decline of 65% in the second quarter. and Tyre's third quarter volume was flat to prior year after being down 55% in the second quarter. Styrene margins in Europe continued to benefit from low cost benzene, which led to favorable margins versus the prior year in our feedstock segment. Healthy demand contributed to improved year over year margins in ABS and polycarbonate applications. And our polystyrene segment recorded its highest earnings quarter since 2015 as strong demand, particularly in appliances, as well as commercial excellence actions led to higher margins. The margin expansion across many of our segments along with both short-term and structural cost reductions led to an increase in year-over-year earnings. I'm very proud of our employees for the speed that they adjusted to new conditions and their perseverance through the challenges we have faced over the last two quarters. And I want to thank them for their hard work, which positioned us for success as demand returned. Before I review our outlook for the fourth quarter, I'd like to highlight some announcements and developments occurring in the company, including a change in segmentation beginning in the fourth quarter. As of October 1st, our performance plastic segment has been divided into two new reporting segments. engineered materials, and base plastics. The base plastic segment includes ABS, polycarbonate, and compounds product lines. The compounds are predominantly PC-ABS, serving the automotive market. This segment also serves applications in packaging, appliances, and building and construction. The engineered materials segment creates tailor-made specialty compounds and is composed of two product lines, rigid compounds and soft plastic compounds. The rigid compounds are made up of compounds in PC-ABS and PC-ABS with specialization in consumer electronics and medical applications. The soft plastic compounds include thermoplastic elastomers or TPEs which are used in a variety of applications including footwear, personal care and automotive. These products and applications are a core focus for growth as they serve markets that offer higher margins, faster growth, and less earnings volatility. We feel this new reporting of our performance plastic segment will be important in providing enhanced transparency to investors and is better aligned with how we now manage the business. The appendix of the earnings presentation provides our historical results beginning in 2018 recast under this new segmentation, which will be effective for the fourth quarter and the full year 2020 reporting. During the first quarter earnings call, we announced that we had begun a consultation process with our German Works Council related to the possible closure of our styrene assets in Bohlen, Germany. After a thorough evaluation, we have made the decision to continue operating the plant We recently completed the negotiation of new feedstock supply agreement that will significantly improve the competitiveness of this plant and provide for greater operational flexibility. Next, I'm pleased to share a few notes on our sustainability progress, including the advancement of polystyrene circularity. Offering sustainable solutions and products is a critical mission for our company. and to that end, we continue to make progress toward our goal of reaching full polystyrene circularity. In September, we announced that our partnership with German packaging manufacturer Fernholz has resulted in form fill seal formulations with 40% recycled polystyrene. These formulations can be used in food packaging applications in full compliance with food safety requirements and requires no capital investment by our customers since the same equipment can be used in their production. We also recently announced a joint development agreement with INEOS Styrolution, Agilix, and American Styrenix to share data and accelerate the realization of circular polystyrene. Additionally, we are making progress on our joint plan with INEOS for European polystyrene recycling plant in France, which remains on track to be operational in 2023. This plant represents a significant step forward toward the ultimate goal of full polystyrene circularity, as it will support depolymerization of polystyrene back to the original styrene monomer, which can then be used in numerous applications. All these actions are important steps toward our sustainability goal, to offer an average of 30% recycled content to customers for polystyrene packaging in Europe by 2025. Our joint venture, America Styrenics, is also targeting a similar goal of 25% recycled polystyrene in its products designed for food service and food packaging by 2030. In other areas of sustainability, Three of our European sites receive mass balance certification from the International Sustainability and Carbon Certification System. This will allow us to track the total amount of sustainable input throughout the production cycle and ensure an appropriate allocation to the finished goods. This will apply to our polystyrene from the Sanderloo, Belgium site, polycarbonate from our Stade, Germany site, and synthetic rubber from our Schiphol Germany site. Lastly, we reached definitive agreement with Tire Recycling Solutions on a commercial collaboration and an equity investment in that company. This agreement envisions a pool of R&D resources aiding in our goal of developing new value creating solutions for manufacturing of tires that improves their environmental footprint and creates a sustainable outlet for end of life tires. We continue to make solid progress on numerous sustainability fronts and achievements here benefit not only the overall global environment, but also the financial performance in many of our segments. As products with recycled content command a significantly higher margin. Moving to our views of the fourth quarter, Through October, we observed similar demand pattern to what we saw in the third quarter. We've seen recovery continue in automotive, tire, and medical applications. In addition to continued demand strength in applications of packaging, appliances, and consumer electronics. We're cautiously optimistic that this trend will persist for the duration of the quarter and we expect in our polystyrene and polycarbonate product lines to be similar to the third quarter due to the sustained higher demand while styrene margins in Europe are expected to decline slightly as benzene prices increase. Our cash and liquidity position, already a point of strength heading into the third quarter, has only improved through effective cost control actions, working capital management including inventory control initiatives and higher earnings. Nine months into the year, we have generated 128 million of cash from operations with free cash flow of $67 million. This is added to the strength of our balance sheet as we have 503 million of cash at the quarter end, even after the repayment of the $100 million revolver draw, which is now untapped. This puts us in an excellent position to utilize our strong balance sheet to provide value to our shareholders, including growing the business organically and inorganically in areas of lower cyclicality and higher margins. We look forward to finishing the year with a solid financial performance in the fourth quarter, a strong position in cash and liquidity, and with exemplary EHS performance. And now, Julie, you may open the phone line for questions.