Trinseo Plc Q1 FY2024 earnings call

• Transformation strategy actions: Announced sale process for Americas Styrenics interest, potential closure of virgin polycarbonate production in Germany, focus on products with recycled material, and new flame-retardant polycarbonate and PC/ABS compounds without PFAS.
• Volume and margin updates: First year-over-year volume increase in 2 years, highest volume quarter since Q3 2022; margin expansion in Engineered Materials and Americas Styrenics due to market tightness.
• Working capital and liquidity: Cash used in operations $66 million, free cash flow negative $82 million; extended accounts receivable securitization facility maturity to November 2025, increasing borrowing capacity by $36 million.

Engineered Materials saw margin expansion due to market tightness, with over half of quarterly adjusted EBITDA in March. Americas Styrenics had a turnaround in January-February, returned to production in March, and benefited from styrene supply tightness. MMA saw margin expansion in Europe due to supply tightness, with reduced byproduct feedstock availability in Asia and Red Sea issues affecting shipments. Products containing recycled material had record sales in Q1, a 65% increase over the prior year. In terms of absolute financials, first quarter adjusted EBITDA was $45 million, with over half of that coming in March.

• Q2 adjusted EBITDA expected to be $60 million to $75 million, including $5 million to $10 million negative timing.
• Q1 profitability expected to be the low point of the year; base assumption of constrained demand in 2024 but stronger EBITDA due to tighter markets and restructuring actions.

• Geopolitical tensions in the Red Sea affecting MMA shipments from Asia to Europe.
• Weakness in epoxy, nylon, and polycarbonate value chains in Asia constraining MMA feedstock availability.
• Soft demand and price declines in polycarbonate leading to potential closure of virgin polycarbonate production line in Stade, Germany, straining financial viability.

Q: David Begleiter from Deutsche Bank asks about EBITDA earnings potential in Engineered Materials in Q2.

A: Frank Bozich responds that Engineered Materials is expected to be in the above $20 million EBITDA in Q2.

Q: Matthew Blair from TPH asks about AmSty turnaround impact and ownership exit provision.

A: Frank Bozich and David Stasse discuss the turnaround impact and the joint venture exit process, stating interest in AmSty from strategic and financial parties and details of the JV exit provisions.

Q: Hassan Ahmed from Alembic Global Advisors asks about EBITDA run rate and MMA trade patterns.

A: Frank Bozich and David Stasse talk about EBITDA expectations and MMA trade dynamics, noting reduced trade patterns and constraints from Asian value chain weakness.

Q: Kevin Estok from Jefferies asks about mix and destocking.

A: Frank Bozich discusses mix improvement with Engineered Materials growing faster than other segments and destocking in downstream building and construction related to polystyrene in Europe and North America.

Q: Edward Brucker from Barclays asks about demand and debt maturity.

A: Frank Bozich answers on demand levels, stating about 20% below historical run rate volumes, and David Stasse discusses debt maturity, mentioning covenant reasons for leaving the $150 million stub and plans to address it through payoff or refinancing.

Q: Roger Spitz from Bank of America asks about AmSty sale.

A: Frank Bozich confirms that the process will result in a joint marketing of AmSty, with a definitive agreement expected by early 2025 and the asset being sold to a potential buyer.