Trinseo PLC

Good morning, ladies and gentlemen, and welcome to the Trendzeo Fourth Quarter 2020 Financial Results Conference Call. We welcome the Trendzeo Market Management Team, Frank Bovich, President and CEO David Stacey, 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 close of market yesterday. These documents are posted on the company's investor relations website and furnished on the Form 8K filed with Securities and Exchange Commission. If anyone should need 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, Christelle, 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 February 4, 2022. Now, I'd like to turn the call over to Frank Bozich.

Thanks, Andy, and welcome to Trinzio's fourth quarter earnings call. First and foremost, I'd like to start by thanking our employees for all of their continued hard work, especially given the unprecedented economic and social issues during 2020, which made for the most challenging environment I've experienced in my 35 years in the industry. I was very impressed with how agile our team was and how they adapted to rapidly changing working conditions. We were never overwhelmed by the crisis, as everyone remained very collaborative, focused, and engaged throughout the year. I have no doubt that their passion enabled us to successfully weather the storm and emerge in an even stronger financial position compared to the beginning of 2020. I'm very proud of what we accomplished, and I'm looking forward to a very bright future for Trinzeo. Moving to our financial performance, I'm overall very pleased with our 2020 results. As we noted in our December issued guidance, we continued to see improved demand and profitability across the company in the fourth quarter, with strong pre-tax income and adjusted EBITDA at its highest level in more than three years. Excluding feedstocks, our total sales volume in the fourth quarter was 6% higher than prior year, as we observe strength in demand in many of our end markets, including appliances, tires, and especially automotive, where fourth quarter volume was 7% higher than the prior year after declines of 65% in the second quarter and 13% in the third quarter. Stronger automotive demand led to tighter ABS market, which along with our commercial excellence actions, resulted in the highest quarterly adjusted EBITDA for our base plastic segments since the beginning of 2018. In addition, our polystyrene segment enjoyed its highest full-year adjusted EBITDA ever. The polystyrene team has done an excellent job of implemented value-based pricing in its more differentiated products like high-impact polystyrene for appliances. For the full year, Our engineered material segment achieved its highest adjusted EBITDA ever, despite a challenging macroeconomic environment. The fourth quarter, which was our highest earnings quarter ever for the segment, experienced volume improvement from prior quarters due to demand strength mainly in consumer electronics and footwear applications. In latex binders, sales volume for the full year was essentially flat versus prior year. as increases to the higher margin case and board applications were offset by a decrease in graphical paper. Case volumes grew by 5% over the course of the year, including a 13% growth in the fourth quarter. This mix improvement in latex binders is in line with our strategy for the segment, and we expect continued growth in case applications as the Rhinemunster acquisition from the fourth quarter of 2019 has enabled us to expand into alternative chemistries in more attractive applications. Looking back at 2020, when we celebrated our 10-year anniversary as a company, I'm very proud of what we were able to accomplish. The safety of our employees remains the utmost important to Trinzio, and I'm happy to announce that in 2020, 16 of our 25 plants earned the Triple Zero Award. meaning that there were no injuries, spills, or process safety incidents at those facilities during the year. That impressive statistic reflects the commitment to safety that our employees and site leaders adhere to daily. And our goal is to achieve one or more years of zero recordable injuries for all of our global employees and contractors by 2030. This is an example of one of the 2030 sustainability goals that we set for ourselves this year. These goals, which include initiatives like increasing our offering of sustainably advantaged products, further reducing our carbon emissions, and increasing the percentage of women in senior management and executive positions, were released in July along with our annual sustainability report. Setting these goals is part of our vision to become a leader in providing sustainable solutions and to position ourselves as a workplace which attracts top talent while we successfully compete in a sustainable economy. I was pleased with the sustainability progress that we made in 2020, especially the ways in which we increased the sustainability of our product portfolio. There were several milestones that were truly market leading, including the launch of our Pulse Echo series of recycled containing resins for the automotive market. In polystyrene, we partnered with the German food packaging customer, Fernholz, to use form fill seal formulations with 40% recycled polystyrene. In engineered materials, sales with recycled based polycarbonate compounds which are used mainly in consumer electronics applications, grew 50% in 2020, and sales volume doubled in bio-based footwear applications. Three of our sites achieved mass balance certification in 2020, which will allow for a more transparent tracking of sustainably advantaged materials at a large scale. Most importantly, we can expand our offering of circular materials to our key customers. Lastly, we made further progress on our joint plan with INEOS for our polystyrene recycling plant in Europe. This plant will represent a significant step forward for polystyrene circularity, as its goal is to break down polystyrene back to styrene monomer for use in numerous applications. While we'll still have more to accomplish in sustainability, I'm proud of this year's achievements, and we continue to be recognized as a leader in this area, as evidenced by Newsweek naming us as one of the top 100 most responsible companies for 2021, which made us number three in the materials industry. I look forward to sharing more sustainability updates and accomplishments over the course of 2021. 2020 was an excellent year for cash generation. Our full-year cash from operations was $255 million, which led to free cash flow of $173 million. Throughout the year, we were able to effectively manage costs from structural programs put in place prior to the pandemic, as well as short-term cost actions in response to the pandemic, which were successful thanks to the quick and thorough implementation by our employees. For the full year, we captured cost savings of $30 million, which were split roughly equally between structural and short-term savings. Going forward, we expect structural savings of $25 million per year, and we will keep short-term cost actions in place as long as we feel this is prudent. We ended the year with $589 million in cash, and enter 2021 with a strong balance sheet and liquidity position. Perhaps the biggest development of the past year was our agreement to acquire Arkema's PMMA business, which represents the first steps in the transformation of Trendzeo into an advanced materials specialty solutions provider. We're very excited to add this business to our portfolio, as we believe it will significantly increase our scale in engineered materials and provide higher margins, high free cash flow conversion, and lower volatility throughout the cycle. In addition to being a strong strategic fit, we anticipate that the transaction will allow us to harmonize IT systems within Trinzio, which will create significant efficiency in the legacy Trinzio organization. In the time since we announced the acquisition, we have established and fully staffed an integration management office comprised of members of both Arkema and Trinzio. Integrating this business is one of our highest priorities, and we're still targeting closing the acquisition by the middle of the year. 2020 ended the year with a favorable market conditions for many of our segments. That positive momentum has continued into the first quarter. as we are now observing similar, and in some instances, improved market conditions. Demand strength in applications such as automotive and appliances are not only providing volume benefits to many of our segments, but the increased demand is contributing to higher margins in ABS, polycarbonate, and polystyrene. However, despite this improvement in underlying market performance, we expect first quarter adjusted EBITDA to be sequentially lower as we don't expect to enjoy the favorable net timing benefit of $29 million that we did in Q4 to repeat itself in Q1. Given the strong start to the year, we estimate full year earnings in 2021 to be significantly higher than each of the prior two years with an estimated net income of $167 million to $200 million and adjusted EBITDA of $400 million to $450 million. This range assumes a full year contribution from synthetic rubber and no contribution from the announced PMMA acquisition. With this expected performance and resulting cash generation, we are now targeting a net leverage ratio of approximately three times at the end of 2021 pro forma for the PMMA acquisition with further deleveraging thereafter. Let me conclude by saying how excited I am about the company's future and our transformation into a specialty materials and sustainable solution provider, where our success will be determined more by how we differentiate our products and the value we create by working with our customers to solve problems. I'm looking forward to closing the acquisition and integrating the PMMA business, implementing best practices, welcoming our new employees, and upgrading and harmonizing our business systems. In addition, we will continue to pursue additional growth and business optimization activities. I'm equally enthusiastic about the pursuit to achieve our long-term sustainability goals, including working with our customers to provide value-based and sustainable products. As always, we remain extremely focused on maximizing shareholder value. Now, Christelle, you can open the phone line for questions.