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spk06: Good morning, ladies and gentlemen, and welcome to the Transio fourth quarter 2021 financial results conference call. We welcome the Transio management team, Frank Bozich, 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 Tuesday, February 8th. 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 hand the call over to Andy Myers.
spk10: Thank you, Dee, and good morning, everyone. At this time, all participants are in a listen-only mode. After our prepared 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 9, 2023. Now, I'd like to turn the call over to Frank Bozich.
spk08: Thanks, Andy, and I'd like to welcome everyone who's listening in. 2021 was a great year for Turnzeo as we achieved record profitability, including $440 million of net income and $729 million of adjusted EBITDA. And I'm very proud of everything we accomplished on our transformation journey toward becoming a specialty materials and sustainable solution provider. At the end of 2020, we announced the first major step in our transformation, the acquisition of our PMMA business, which was completed in May. To complement PMMA and further our transformation, we acquired the continuous cash sheet PMMA producer, Aristek Surfaces, in September. We also completed the divestiture of our synthetic rubber business in December. And in early January, we began a formal process to divest our Styrenix business. As a result of these actions, our portfolio is shifting more toward that of a specialty material provider, providing solutions to higher value, higher growth applications. The acquisitions have enabled us not only to increase our product offerings to our current customers in markets such as automotive, consumer products, and construction, but also to expand into additional applications like wellness and sanitary. The financial benefits of the acquisitions, aside from being tied to products with higher margins and more stable earnings, are expected to earn more than $60 million of cost synergies. and numerous additional revenue synergies that we've identified. On the sustainability side, in January of this year, we completed our acquisition of Heathland BV, a leading collector and recycler of post-consumer and post-industrial waste in Europe. This aligns with both our 2030 sustainability goals to increase our offering of sustainable products and with our overall strategy of becoming a sustainable solution provider. One of the largest constraints of growing sales of sustainable products is access to recycled feedstocks. The Heathland acquisition will provide us with an increased and more secure supply of PMMA, polycarbonate, ABS, polystyrene, and other thermoplastic waste to be recycled and processed into a wide range of products. including those that serve high-end applications like consumer electronics. Heathland is a great fit, and the transaction has a lot of industrial logic, given that we were already their largest customer prior to the acquisition, making up more than 10% of the revenue in 2021. We were also focusing on growing our sales of sustainable products organically. In 2021, our sales volume of post-consumer recycled polycarbonate products to consumer electronics market increased by more than 50% over prior year. Our recycled polystyrene products were used commercially for the first time in food contact applications, which provide the packaging industry with a viable, environmentally friendly product, which delivers margins that are two to three times that of standard grades. In addition, to further the use of recycled polystyrene, we are progressing on our polystyrene recycling plant in Saint-Denis, Belgium, which should be operational by 2023. From a business operations standpoint, 2021 was a challenging year, not just for Trinzio, but I'd say for the chemical industry in general. Numerous external factors ranging from weather events to COVID-19 created logistical challenges in tightness in materials, freight, and labor markets. I'm extremely proud of the efforts our people made to address these obstacles in order to deliver our high quality products to our customers, especially while achieving yet another year of stellar EHS performance. 73% of eligible sites in the company received our triple zero award, meaning those sites experienced no injuries, spills, or process safety incidents. As impressive as that number is, we continue to raise the bar we set for ourselves, and we'll attempt to improve our EHS performance in 2022. Now I'm going to turn the call over to Dave who will provide more color on our record financial performance.
spk11: Thanks, Frank. I'd like to start by talking about the fourth quarter, which, despite some unexpected headwinds, still delivered healthy earnings and very strong cash generation. We were encouraged by the continuation of robust demand for many of our products, and that strong demand environment allowed us to maintain healthy margins in ABS, polycarbonate, and polystyrene. Fourth quarter earnings were impacted by two significant and unexpected events, headwinds. The first was a sharp and unprecedented increase in European natural gas prices late in the quarter, which impacted the quarter by $30 million. About half of this was in engineered materials, and the remaining half was primarily in feedstocks. The second headwind was from an unplanned outage at our Ternus and Styrene plant, which was caused by an upstream force majeure. This impact results by about $20 million, mostly in feedstocks. Adjusted EBITDA in our engineered materials segment was about $25 million lower than expected, with $15 million, as I just mentioned, from natural gas costs and with the remainder from higher raw materials and freight costs. While we did take pricing actions in the fourth quarter, they did not cover the extreme pace and steepness of the cost increases. Looking ahead to the first quarter, we believe that the pricing actions that we've taken will cover what is still very high natural gas costs in Europe and that this will be the main driver for sequential earnings improvement in the segment. For the full year, we delivered record net income and adjusted EBITDA. Net income from continuing operations was $280 million, and adjusted EBITDA was $729 million. We also generated $453 million of cash from operations and free cash flow of $329 million. The combination of high earnings and strong cash generation led to substantial deleveraging as we ended the year with net leverage in the low two times range pro forma for the full year impact of the acquired and divested businesses. Given this improvement in the balance sheet and our confidence in continued strong cash generation, we made the decisions in the fourth quarter to increase our quarterly dividend from $0.08 to $0.32 per share and to reinstate our share repurchase program. Now we'll turn the call over to Frank to walk through our outlook for 2022. Thanks, Dave.
spk08: Looking ahead to the first quarter, we expect earnings to be similar to the prior year based on continued demand strength for most of our products and less impact from the rising higher costs that hindered the fourth quarter earnings. For example, natural gas prices in Europe have declined from the fourth quarter, and even though the styrene production outage in Tjernuzen has persisted into February, we've had more time to manage plant costs and to procure materials to more effectively handle the downtime. So while we expect our first quarter results to be similar to the prior year, there should be an improvement in the quality of our earnings. as the more specialty side of our portfolio in engineered materials replaces the spike in earnings that occurred in Q1 2021 on the commodity side of our business and feedstocks. Over the full year, we're expecting net income of $294 million to $332 million, with adjusted EBITDA of $700 million to $750 million. This outlook is based on similar underlying demand conditions as 2021, including continued constraints in automotive from chip shortages and strength in construction, consumer electronics, and appliance markets. The last two years have reinforced the fact that world and geopolitical events can quickly change business conditions, but we're confident in this earnings range based on the robust demand we're seeing for our products, the additional earnings and synergies from our acquisitions, and the proven ability of our teams to overcome logistical hurdles and to innovate to provide customers with unique product solutions. We expect 2022 to be another year of solid cash generation as well. With expected cash from operations of $530 million to $580 million, and free cash flow of $350 million to $400 million after capital spending of $180 million. That CapEx number is higher than our historical run rate due to approximately $50 million for our ERP implementation, which we expect to result in at least $25 million of run rate savings and $20 million of CapEx for our manufacturing DCS upgrades. Even with this higher capital spending level, we're anticipating robust cash generation, which we plan to deploy in a mix of M&A and growth projects in line with our transformation strategy while continuing to return cash to our shareholders. It's an exciting time for Transio as we continue our transformation strategy and move Transio down the path of becoming a specialty materials and sustainable solution provider. Thank you and we're happy to take any questions.
spk06: As a reminder, if you would like to ask a question, Simply press star, then the number one on your telephone keypad now. Your first question comes from the line of Frank Mitch of Furman Research.
spk12: Hey, good morning. Appreciate all the color on a lot of the moving parts. I am curious in terms of I know that you just recently started the strategic process on Styrenix. Is there anything that you can offer in terms of potential timing and any thoughts that you could provide us there that would be helpful.
spk08: Yeah, thanks, Frank. Yeah, I would just say that consistent with what I said on the last call when we announced our intention to start the process, we anticipated that we would see good interest from sort of three classes of buyers, which were strategics that are looking to generate synergies, regional players that would look to get greater exposure into North America and Europe, as well as financial sponsors who would be interested in executing a roll-up strategy and looking for a high cash-on-cash return. And I would say what we're seeing is very consistent with that. And we feel good about the process. think we should be able to give you updates in the coming quarters on the exact timing, but we feel very good about where we are right now.
spk12: That's very helpful. And you just indicated your very strong free cash flow expectation, which you said M&A But you also indicated returning cash to shareholders. You obviously started out with a very strong $48 million buyback in fourth quarter. Any sense as to what we should be anticipating in terms of a pace of buybacks in 2022?
spk11: Yeah, Frank. Good morning. This is Dave. I think, look, when we put this buyback program in place, our intention was to make it opportunistic in nature and buy, you know, when we think we're undervalued. And I think it'll continue to run that way for the first quarter. I would probably expect a similar number to what we did in fourth quarter. And then for future quarters, I think, as I said, it's going to be opportunistic in nature and buying back heavier, obviously, when we're trading at lower levels. That's very helpful. Thanks so much, David.
spk06: Your next question comes from the line of Hassan Hamid of Alibic Global Advisors.
spk05: Morning, Frank and Dave. You know, question around the margins within engineered materials. You know, obviously, you guys are doing a good job in boosting the overall margin profile of the company. I just noticed, obviously, that it's a bit of a tricky quarter with all of the sort of raw material inflation that we saw, but, you know, the margins were sort of below 10%. I'm just trying to sort of figure out, you know, again, you know, what the sustainable sort of margin level within that segment should be. And, you know, being a specialty sort of business, how quickly should we expect, you know, a boost in these margins?
spk08: Yeah, so let me take that great question and As Dave said, we in Q4, if you were looking at normalizing the Q4 margin, you'd add back $25 million of EBITDA. And that is split between $15 million in gas due to the gas spike and about $10 million due to rapidly rising raw materials and freight. Let me spend a minute to explain sort of our pricing mechanism and also what we saw with raw materials in the quarter. And I think that will give you some context for what we experienced and why it was depressed in the quarter. Everybody's aware of what happened in natural gas, and I don't think I need to spend any more time on that. But what we also saw in the quarter was that as gas prices spiked up, many of our raw material suppliers cut back production because they couldn't profitably produce. And so to fulfill demand and continue running, we were required to go into the spot market and buy materials that really elevated prices and with higher logistics costs to keep the plants running at optimal levels. Because we, so that impacted the business on the raw material side. Now I'd say it's been normalized since that spike up in the second half of the quarter. As we mentioned on previous calls, the pricing mechanism we have in engineered materials is not formula-based pricing. We have a value-based pricing system where we provide monthly and quarterly pricing to our clients. So if during that period, price costs dramatically spike like they did in an unprecedented way, we'll have a pricing lag. And so I would expect that in Q1, we won't see the impact of that headwind based on the pricing actions that we put in place. And I would tell you that January is consistent with that view.
spk05: Very helpful. Very helpful. And just sticking to the ROAS, more on the guidance side of things, you know, the 700 to 750 million EBITDA guidance for 2022 that you guys have given, what sort of European gas pricing regime is that factoring in? And I guess where I'm going with that question is, you know, you alluded to the pricing lag. I mean, could we be in a situation where, you know, if the whole European gas situation does get rectified, that because of that lag, you could actually see sort of outsized margins on the way down if gas comes down?
spk08: So there's two parts to the question. So the first question is that what our current outlook reflects the current natural gas price. So that range is reflective of the current environment. I would say that if costs go down, again, we don't have a You know, in most, in the formula-based pricing part of our businesses, it'll, you know, it'll continue to flow through the P&L, you know, irrespective, you know, of the volatility because of the pricing formulas. However, in EM, as we just said, we have a structural price in EM. It's based on market and value pricing. So, you know, we would see improvement in the declining cost environment. Very helpful, Frank. Thank you so much. Sure.
spk06: Your next question comes from the line of David, spec leader of Deutsche Bank.
spk09: Thank you. Good morning. Frank and Dave, just looking at the Heathland acquisition, how does that fit into your overall recycling strategy? And how big can right recycling be as a portion of the business down the road, three to five years, maybe even longer?
spk08: Yeah. Hi, David. Yeah, so, Heathland is really important to us and we're excited about it because for us to go to our markets and many of our end customers with a sustainable solution, recycled solution, we have to be able to guarantee that we can have a steady and consistent stream of recycled feedstock. We believe that securing that with Intrinseo and being able to own the manufacturing or recycling processes is the best way for us to ensure that we have and guarantee we have that ability. So in the future, we would see significant growth from this, granted on a smaller base, but we would expect to see by 2030, sustainability goal is 30% of our portfolio to be sustainably advantaged. So we see it, that would be a target by 2030 and we expect that, you know, the financial benefits would accrue with that because we're seeing that the margins on sustainable solutions to be significantly higher. In some cases, orders of magnitude, multiples higher. In other cases, you know, 20 to 30 percent higher than petrochemical-based products.
spk09: Very good. And, Dave, just on capbacks, looking at the new Trinzeo X-Direnics, how should we think about maintenance capbacks as well as growth capbacks for the new portfolio?
spk11: Yeah, I think, well, if we look at it in terms of the 2022, you know, the portfolio including Styrenix, maintenance capex is about $70 million. If you take Styrenix out of that, it's between $50 and $60 million as maintenance capex for the go-forward portfolio. So the other thing I'd point out as it relates to CapEx, Dave, as Frank mentioned, and you've been covering this a while, so you know about this multi-year project we have with the distributed control software upgrades, you know, that we've been spending for several years now. 2023 will be the last year. So this year we're spending $25 million on that project. Next year it will be $10 million, and then it will be over. The other big spend we have this year is for our SAP install, which is $50 million this year, $25 million next year, and then that goes to zero after that. So, you know, those are kind of discrete items, I would say, that have, you know, we've been spending on this year and a lesser amount next year that will, you know, go away after that. Now, you know, having said all that, we have a – very robust pipeline i would say of growth projects we've identified around um you know the new portfolio and the acquisitions that we've made so um you know i think it's fair to say we're not ready to give guidance on 23 capex obviously but it is fair to say that we you know while we'll have some of these kind of more structural cap but capex items leaving um you know there will be a you know, I think a healthy spend on growth projects.
spk09: Excellent. Thank you very much.
spk06: Your next question comes from the line of Eric Petrie of Citi.
spk02: Hey, good morning, Frank and Dave. Hi, Eric. Just going back to engineer materials, you know, I think when you did the acquisitions, both businesses had, you know, low 20% EBITDA margins. you know, excluding the natural gas and raw materials, you know, second half 21, you're in the mid-teens. So, can you talk about the track back to that, you know, 20% plus level?
spk08: Sure. As I explained earlier, in the second half of the year, we had, you know, I don't want to repeat the dialogue on the Q4 headwinds, but what I would also Point two is two other market factors that impacted engineered materials relative to the historical run rate. And that is that the chip shortage affecting automotive, our current forecast is that the automotive volumes will be lower than the historical build rate. And so that's a headwind for EM. The other thing that the – and so a return to normal in automotive builds, you know, when the chip shortage fully resolves itself, will be a help. And then the other impact that we are seeing is that the logistics cost out of China – has reduced some of the demand for some of the products that we were, solutions we were providing into China because the freight rates out of China made them less competitive in their export business. So we've seen depressed sales into some of our wellness, bath and wellness customers in China, and that's been a bit of a headwind. So those two factors are, plus the energy and raw material spike that we saw in Q4 get us back to that run rate.
spk02: Okay. And secondly, in terms of ABS and polycarbonate prices, would you say 2022 earnings in base plastics, how would you directionally point that compared to 21?
spk08: So I would say that it's slightly lower than 2021. And that's really on the, you know, the relaxation of a lot of the supply chain constraints that occurred during 2021, where we saw earnings spike up. And I just point to, you know, things like the Suez blockage that prevented materials from going back and forth between Europe and Asia. You know, also the freeze in Texas. affected those markets. So I think there was a bit of an earnings spike that occurred early in the year in those two businesses that we don't see repeating itself in our current forecast, but we see very healthy end demand. So, you know, that's the common color I would give you on those two materials. Okay.
spk03: Thanks.
spk06: Your next question comes from the line of Matthew Blair of Tudor Pickering and Holt.
spk07: Hey, good morning, Frank. How are you?
spk08: Very good.
spk07: Great. I was hoping you could discuss dynamics in the PMMA market a little bit more. Some of the commentary seems a little bearish. Just talking about, you know, demand headwinds from autos and elevated raw material pricing. Would you agree with that? And I guess where would you, you know, if you're thinking about PMMA in the cycle, would you say, you know, earnings are kind of at peak levels or maybe mid-cycle? Where does that stack up?
spk08: So what I would tell you is I don't see that there's a cycle at all for PMMA. And, you know, it's really, you know, where you're selling a solution, you're winning business not by supply and demand dynamics. and but really by bringing a solution forward and you know to a customer that allows you to win a platform so um you know i i do think that we have some unusual impacts that occurred in the past two quarters but i don't i would not at all characterize our outlook as bearish in fact what and let me give you a little bit more color on this. One of the big opportunities we see for PMMA is our ability to substitute alternative materials with PMMA or PMMA blends or PMMA constructions. And so I would give you three examples. We've demonstrated the ability to replace metal constructions with PMMA in certain applications. like in automotive and appliance. We've also demonstrated, and by doing that, replaced painting. There's a huge value proposition for that type of application. We can also replace painted and coated parts in building and construction applications because of the coloring and UV stability of PMMA laminates. And in the third area, and very exciting, is that we can replace fiberglass, glass reinforced polyester constructions that also are gel-coated in transportation as well as bath and wellness applications. So we have the ability with PMMA in our portfolio to expand the total addressable market for Trinzio. I'm not bullish at all. I'm very excited about the prospects of PMMA because of that. And like I said, I don't see it as cyclical because it's truly a solution rather than a commodity.
spk07: Sounds good. That's very helpful commentary. And then, Dave, I think you talked about capital allocation going forward as including both M&A and buybacks. you know, based on your guidance, I think the midpoint free cash flow yield next year would be around 17%. And so, you know, is it fair to say that buybacks are perhaps a little more attractive than M&A at this standpoint, or how would you characterize that?
spk11: No, I don't think I'd characterize it that way. I mean, look, one thing we've done a lot, obviously, in a short period of time, we've done two acquisitions and a divestiture, and we're working on another divestiture. So from a You know, corporate development perspective, I mean, we have a lot going on in the company, so, you know, our appetite to do M&A in the immediate term is somewhat constrained by that, I would say. But that's only the immediate term. You know, having said that, I mean, we're still looking at the pipeline and building out a pipeline of acquisitions. We do expect some divestiture proceeds to come in. and will want to have a healthy pipeline to look at. And we'll balance that against return to shareholders. So I wouldn't necessarily say that one is more attractive than the other right now. As I said to Frank's question earlier, our buyback certainly will be scaled where we'll be buying more at taking advantage of dips in the market. Great. Thank you.
spk06: Your next question comes from the line of Lawrence Alexander of Jefferies.
spk03: Good morning. I just want to follow up on the acquisition of the recycling platform. What's your thought process around the explosion of innovation in feedstock handling and how Trinzio will be either investing or keeping up with changes in the technology there. And secondly, the business you acquired, does it process the full gamut of consumer mixed waste at a profitable margin? Or how should we think about the economics there?
spk08: Yeah. Hi, Lawrence. So what heathland does is actually target certain streams of waste and they've built a collection network across europe that allow them to specialize in the materials that frankly are important to trinzio so polycarbonate pmma abs and some polystyrene so it they're not just they're not getting you know a massive mixed waste stream that they then have to do tremendous separation toward. It's more of a targeted collection that they do. And this is why they're such an important part. We see them as so attractive. Now, from an intellectual property standpoint, they're developing their own IP on both separation technology as well as chemical recycling capabilities for those feedstocks. We like them for that reason, you know, that they are innovating. They are developing new processes. And at the same time, they are controlling some significant streams of post-consumer and post-industrial waste that are targeted toward our important polymers.
spk03: Okay, great. Thank you.
spk06: Your next question comes from the line of Angel Castillo of Morgan Stanley.
spk01: Good morning, gentlemen, and thanks for taking the question. Just wanted to circle back on, I guess, the discussion around base plastics and a lot of the commentary that you've had around and markets, whether it's appliances or autos. I'm curious, but it seems like ABS, polycarbonate, and perhaps polystyrene as well have been pretty resilient or strong here in You talked about polystyrene returning to mid-2021 range. So as we think about the cycle, it seems like end market demand remains robust right now, but these products are perhaps earning spreads today that seem to be at the higher end of where they've been throughout the cycle. So how do you think about this longer term, where these businesses can be from a profitability perspective? And if you do see any kind of normalization, what the cadence of that would be?
spk08: Yeah, well, I do believe, let me take each of them separately. I believe ABS, we have a unique product in ABS and it has unique attributes that in the tight market like we saw late in 2020 and in early 2021, we began to understand the true value proposition for our products in certain applications. And I would say that the margin profile we have in ABS reflects the value it offers to our customers. And so I would say that the margin we're getting in ABS is reflective, is structural. You know, what we're seeing now, excluding some of these anomalies like I described in early 2021 with supply chain disruptions where there was some desperation buying in the markets. I would say the same about polycarbonate. We have a unique product in polycarbonate that lends itself uniquely to some of the applications that we focus on. And I'll remind you, 40% of our polycarbonate goes into compounds internally, is compounded to a solution internally. So again, I think that's a pretty structural margin that we should expect in that business going forward. Polystyrene, I believe we've done a great job. And again, our portfolio is more than half or approximately half going into the appliance markets and high impact polystyrene and value added materials. You know, we have very little exposure into the plastic packaging side. So, again, I think we've understood how to value price those and see those margins as relatively stable in those more specialized applications. So, you know, and as I mentioned on PMMA, I think the value proposition and the margin profile should improve as we continue funding growth in these more specialized material substitution opportunities, like metal replacement or fiberglass replacement.
spk01: That's very helpful. Thank you. And maybe going back to the conversation around sustainability, as we think about the portfolio, you know, beyond kind of the potential divestiture of this Tyrannix business, a number of the initiatives that you've kind of undertaken are perhaps around the polystyrene recycling. So as we think about maybe your 2030 target of, you know, sustainability for 30% of your portfolio, how does that look once you, you know, do divest the Sirenix business and the Polystyrene business? You know, it seems like Evelyn does offer a lot within PMMA, PC, and others. So, yeah, just if you could help us understand how your sustainability or, you know, how your metrics compare once you do divest the Sirenix business.
spk08: Yeah, we would expect that, you know, that target would remain. You know, that's an aggressive target for us. We would expect also that the divestiture of our styrenics business would include the projects for recycled chemically recycled polystyrene, but we would expect that we would be a customer of that business for that recycled feedstock into our downstream businesses as we exit. So the 30% would remain our target. And like I said, we would expect to be a customer through offtake agreements from those plants to a certain extent after we separate. Appreciate it. Thank you.
spk06: Your next question comes from the line of Bob Cord of Goldman Sachs.
spk04: Good morning. This is actually Mike Harris sitting in for Bob. I had just a couple of questions, if I could. On the increase in the total synergy pipeline, what steps did you guys take after that initial assessment to identify the additional synergies? And what's the likelihood that there could be additional increases still to be found.
spk08: Yeah, so maybe I'll start, and Dave, you can add on. You know, what we would, obviously, once we owned an asset, we brought our different functional work streams together to identify opportunities for both cost savings as well as growth. And what I would say is, there's always opportunities that are bigger than you expected, whether it's in procurement and things where you buy the same classes of materials and you can buy more from similar vendors, or we had logistics opportunities that we hadn't identified theoretically when we were doing the due diligence. And that's basically what happened. I would say where we're extremely pleased and saw much greater opportunity is on the growth side because what we, as an example, and Dave can probably give you more color, for example, one of the key products that applications that our ArisTech business sells into is it uses a PMMA ABS laminate construction. This is very quickly growing. It's going into a lot of applications where you're replacing alternative materials like metal or fiberglass. And so at tremendous value propositions, but it was a rate limited in its growth by the availability of ABS. And so with our ABS portfolio and PMMA, and I remind you, we're the only producer in the world that has both PMMA and ABS in their portfolio, we see that we can accelerate the growth rate of those constructions. So that's, you know, that's the process we used in bringing the teams together and identified those opportunities that weren't necessarily visible to us during the due diligence.
spk04: Okay. Great color. Thanks. And then speaking of cost savings, As you get the ERP implemented and perhaps upgrade some of the plant control rooms, are you expecting any material cost savings? And if so, would that be something we see an impact in cost of goods sold or SG&A?
spk11: Hi, Mike. This is Dave. I'll take that. Yeah, I mean, the plant control room software, I think, is more of a project where we're you know, replacing unsupported equipment. So I don't think that we want to see cost savings of significance there. But the ERP, clearly we will. When we announced the project originally, we said there would be at least $25 million of cost savings from that project. You know, I think most of that you'll probably see in cost of goods sold versus SG&A. And the timing of that would be, you know, late 23, you know, after we finish the project, obviously, and then full realization in 24.
spk04: Okay, perfect. Thanks for taking my question.
spk06: Your last question comes from the line of Duffy Fisher of Barclays.
spk13: Yeah, good morning. If we're doing some pro-forma work for the divestiture styrenics, can you help us? What percent of the midpoint of your guide this year would be from what would be divested? And then does it do anything to your tax rate? And are there any stranded costs with that that we need to bring back to RemainCo after the fact?
spk11: Sophie, hi. Good morning. This is Dave. I would say To give you some kind of rough numbers, I would say about a third of the perimeter of the transaction, which again, just to reiterate, is our feedstock segment, our polystyrene segment, and our 50% ownership in America's styrenics. That's the perimeter of the transaction. Of our guidance this year, guided range this year, that represents about a third of that. As it relates to stranded costs, we're going through that exercise now. I mean, clearly there will be some stranded costs. As I said earlier, we'll either have to address that stranded cost or we'll have other portfolio actions that would absorb that cost, other acquisitions. I think, is there a third? Oh, tax rate.
spk13: No, no, just on the tax rate, does it do anything to the tax rate for the company?
spk11: No. No, I don't think it does. You know, we're kind of in the process now of migrating the acquisitions that we've done where possible into our tax structure. So I think our, you know, I think in the end, our tax rate as a company post the divestiture would be
spk13: similar to to what it would have been uh pre which is you know for this year low 20s okay and then just last one around cash obviously you'll get some cash back in um if this sale goes through you're generating a lot of cash what's kind of the highest level that we should think about uh cash on the balance sheet that you would be comfortable holding you know not for one quarter for some you know period of time um over the next couple years
spk11: Yeah, I don't think we haven't put a number out there. I don't, like, frankly, you know, to be honest with you, Duffy, we've got, you know, we've got some requirements or covenants or debt covenants that requires to do things with, you know, with divestiture proceeds if they're not utilized for, you know, if they're not reinvested in other assets. So our constraint, I think, on, you know, utilizing those proceeds is more governed by that And frankly, as I said earlier, the internal resources in the company to work on those integration projects and redeploy the money. So I think those are really more of the limiters than any guardrails that we would set arbitrarily.
spk13: Okay.
spk11: Thanks, guys.
spk13: Thank you.
spk06: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
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