Trinseo PLC

Good morning, ladies and gentlemen, and welcome to the Trinzio fourth quarter 2022 financial results conference call. We welcome the Trinzio 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 Wednesday, February 8th. These documents are posted on the company's investor relations website and furnished on a Form 8K filled with the Securities and Exchange Commission. If anyone should require operator assistance during the call, please press star then zero on your telephone. And I will now hand the call over to Andy Myers.

Thanks, Abby, 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 the 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 call. The replay will be available until February 9, 2024. Now, I'd like to turn the call over to Frank Bozich.

Thanks, Andy, and welcome to our year-end 2022 call. I'm proud of what we accomplished over the course of 2022 while being faced with significant macroeconomic headwinds, which are well documented at this point. Operating in this challenging environment did lead to earnings and cash generation that were below our expectations, especially following our record profitability in 2021. But we focused our efforts throughout the past year on initiatives that will improve our strategic position when demand recovers. These can be broken down into three categories, asset restructuring, organizational improvements, and growth in specialty products and our sustainable technologies. In the second half of 2022, we announced an asset restructuring plan to improve our competitive footprint. This included the closure of our styrene production plant in Bolland, Germany, and one of the carbonate production line in Stade, Germany. Both closures are expected to result in lower costs, as well as reduced exposure to cyclical commodity markets. The restructuring is expected to result in $60 million of annual profitability improvement versus the fourth quarter run rate, and essentially all of it should be realized in 2023. In addition, we still plan to separate the Sirenix business as an integral step to further shift our production portfolio towards specialty materials. While the formal sales process remains paused, we have largely completed the separation work and will be well prepared to complete the process when the opportunity comes. We improved our organizational structure through the creation of a Chief Commercial Officer, Chief Sustainability Officer, and Chief Technology Officer roles. These three key positions will enhance the execution of our strategy, enabling us to better serve our customers, achieving our sustainability goals, and grow our product portfolio. We continue our growth in specialty products and sustainability, even in a challenging economic environment. We made significant progress on integrating the 2021 acquisitions of PMMA business, and ArisTech services to unlock cost synergies and tap into additional revenue opportunities through new specialty product offerings. For example, our North American volume and unit margin of specialty residents grew 2% and 12% year-over-year in 2022, despite a slowing market. In November, we completed the ERP implementation for the legacy all-to-glass sites, which resulted in lower costs by exiting the Arkham of TSAs. We remain on schedule to capture the $60 million of annual run rate synergies by the end of 2024. These acquisitions have expanded our offerings of unique solutions to our customers, especially in material substitution applications. For example, replacing fiberglass with ABS to provide rigid backing for PMMA sheets in bath and spa applications. provides our customers with high-performing product that's also more environmentally friendly. We're also seeing strong results in both of our products containing recycled materials, which are in very high demand from our customers. During 2022, the volume and variable margin of these products grew 63% and 69%, respectively, versus the prior year. While these products represented only 1% of the sales volume of the company, they delivered 3% of the variable margin for the whole company, which confirms they have very high growth potential and more market resiliency. Supporting this effort, we have created a strong IP pipeline, which has more than doubled from the 2020 level. This gives me confidence that we'll continue to grow our product offerings in both sustainable solutions and specialty materials. The growth of products containing recycled materials is moving us closer to achieving one of our 2030 sustainability goals, which is that 40% of Trinzio products will be sustainably advantaged by 2030. We're making progress on our other goals as well, including reduced carbon emissions and achieving improved gender balance in our workforce. Perhaps most importantly, we delivered another excellent year of VHS performance with 74% of eligible sites receiving a triple zero award, meaning the site achieved no injuries, spills, or process safety incidents. Trinzio has been an industry leader in safety and responsible operations since its formation, and I want to commend our employees and leaders for continuing to make safety and responsible site operations a priority. Next, I'd like to briefly discuss our view on the economic environment during the fourth quarter. We observed many of the same macroeconomic headwinds that were prevalent during the third quarter, including subdued demand stemming from geopolitical conflict and elevated energy costs in Europe, COVID-19-related impacts in China, and rising interest rates, which especially curbed demand for building and construction applications. These lower demand levels and overall economic uncertainty prompted a continuation of significant de-stocking from our customers and an earlier than normal year-run shutdowns. Additionally, the low level of demand in China, coupled with high production costs in Europe, created a temporary arbitrage window for Asian produced products to make their way into Europe and North America. This created volume and margin pressure for some of our globally traded, less specialized products, including ABS, polycarbonate, MMA, and PMMA extruded sheets. While this situation existed in the second half of 2022, we don't view this as a structural change in trade flows, and we expect this temporary headwind to fade, especially as demand improves in China and the costs continue to moderate in Europe. Before I turn the call over to Dave, I'd like to provide more detail on the drivers of the recent performance and engineered materials segment. The fourth quarter was adversely affected by several factors which impacted both volumes and margins. First, the quarter was impacted by $10 million due to the losses on natural gas hedges that were put in place in the second half of 2022. Customer destocking continued in the fourth quarter due to declining prices, inventory management, and extended year-end shutdowns, which resulted in an EBITDA impact of about $10 million. We anticipate that we will see an end of destocking early this year, likely in the first quarter. In addition, underlying market weakness from economic uncertainty and high interest rates continue to impact demand, particularly in building and construction and consumer durable applications. And this had an EBITDA impact of about $15 million during the quarter. I would also like to highlight the spike in MMA-related feedstock costs in Europe in the second half of 2022 and the window this created for lower-cost Asian imports. Like most of the industry, we utilized the C3 route to MMA synthesis. but we are somewhat unique in the European market in that we neutralize spent sulfuric acid in our process with ammonia to produce ammonium sulfate, which we sell into the fertilizer market. In almost all market conditions, this is a cost advantage as we realize the credit for ammonium sulfate sales as an offset to MMA manufacturing costs. Two critical raw materials in this process are methane and ammonia. And in the second half of 22, 2022, methane and ammonia prices rose in dramatic fashion. Even with a significant increase in ammonium sulfate prices, we could not offset the net impact of the cost increases because the price of ammonium sulfate was capped by lower cost imports and because of economic considerations for farmers. The high ammonia cost was driven by extensive shutdowns in ammonia production in Europe, which led to our main supplier to declare force majeure. Conversely, a significant amount of MMA capacity in China utilizes the C4 production route. Low gasoline demand in China, stemming from COVID shutdowns, created an abundant supply of C4, which temporarily lowered MMA production costs in China. This, along with the lower end market demand in Asia, created a temporary window for lower cost MMA and standard grade PMMA to be sold into Europe. We do not believe these are long-term structural issues for us, and we anticipate this situation will normalize, with lower energy and ammonia prices in Europe, along with more normal mobility and demand returning in China over the course of this year. In any event, we have other supply chain options to help alleviate this impact in the medium term if necessary. We estimate this temporary arbitrage impact The fourth quarter results by about $10 million in engineered materials. Obviously, we're not satisfied with the recent earnings in engineered materials, but we view the current headwinds as temporary and expect significant earnings improvement when energy prices normalize and demand returns. We take an action where possible, such as restructuring of the PMMA sheet business in North America, and we're prepared to take additional steps as appropriate. As we'll also add, I'm encouraged that the margin of our more specialized products in the segment, such as specialty and modified PMMA resins and PC-ADS compounds, have been maintained in this environment, in an environment with steeply rising costs. And now I'd like to turn the call over to Dave. We'll talk through the financials.