Trinseo Reports First Quarter 2020 Financial Results; Provides COVID-19 Update

Trinseo

BERWYN, PA — Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, recently reported its first quarter 2020 financial results.

First Quarter 2020 and Other Highlights

  • Liquidity-focused actions taken in response to COVID-19 to improve the already strong position, including the reduction of capital spending, operating expenses, and working capital, which resulted in quarter-ending cash and cash equivalents of $440 million and Liquidity* of $937 million
  • Net loss of $36 million and diluted EPS of ($0.94), inclusive of a one-time pre-tax $38 million charge related to the impairment of certain long-lived assets in Boehlen, Germany and Schkopau, Germany, aligned to management’s ongoing strategy implementation; Adjusted EPS of $0.26
  • Adjusted EBITDA of $57 million, including a $15 million unfavorable impact from net timing

“Trinseo has taken proactive steps to minimize the potential impact of the COVID-19 crisis on our employees and other stakeholders, as well as the financial impacts to the Company. Our primary focus has been maintaining a safe and healthy workplace for our approximately 2,700 employees and other stakeholders,” said Frank Bozich, President and Chief Executive Officer of Trinseo. “I’m extremely grateful for our operational personnel and business partners who have enabled the continued, safe operation of all of our facilities that are meeting customer demand, including products that are essential to the recovery from this pandemic.”

Net sales in the first quarter decreased 16% versus prior year. Lower volumes in the Polystyrene, Performance Plastics, Feedstocks, and Synthetic Rubber segments led to an 8% decrease. Lower prices, mainly due to the pass through of lower raw material costs, resulted in a 6% decrease. First quarter net loss of $36 million was $72 million below prior year net income and first quarter Adjusted EBITDA of $57 million, including an unfavorable net timing impact of $15 million, was $45 million below prior year. The net loss included a pre-tax charge of approximately $38 million related to the impairment of certain long-lived assets in Boehlen, Germany and Schkopau, Germany. In March, unrelated to COVID-19, the Company initiated a consultation process with the Economic Council and Works Councils of Trinseo Deutschland regarding the disposition of these assets. Operationally, profitability was lower than prior year due mainly to lower styrene margins, which impacted the Feedstocks and Americas Styrenics segments, as well as a large planned turnaround at Americas Styrenics’ St. James, Louisiana styrene monomer facility that lasted the majority of the quarter.

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Cash used in operating activities for the first quarter was $6 million and capital expenditures were $24 million, resulting in Free Cash Flow for the quarter of negative $30 million. This result included approximately $30 million of spending for our systems and process transition from Dow, which is now largely complete, as well as for plant turnarounds, restructuring, and manufacturing systems upgrades. It also reflected a $15 million increase in net working capital from inventory builds ahead of second quarter turnarounds. The Company repurchased approximately 0.8 million shares in the first quarter for approximately $25 million. The cash balance at the end of the quarter was $440 million. For a reconciliation of Free Cash Flow to cash provided by operating activities, see Note 3 below.

Commenting on the Company’s first quarter performance, Bozich said, “We saw sequential improvements across all of our derivative businesses to start the year, which were partially offset by lower styrene margins and the planned turnaround at Americas Styrenics. The first quarter COVID-19 impacts, which had an adverse impact of approximately $6 million, were primarily related to lower Synthetic Rubber demand in China. I am very proud of our employees as we were able to work safely and meet customer demand under some challenging conditions.”

First Quarter Results and Commentary by Business Segment

  • Latex Binders net sales of $219 million for the quarter decreased 2% versus prior year as higher volume was more than offset by lower price from the pass through of lower raw material costs. Adjusted EBITDA of $22 million was $4 million higher than prior year due to higher volume in coatings, adhesives, sealants, and elastomers (CASE) applications, which increased 11%, as well as contribution from the Rheinmünster acquisition.
  • Synthetic Rubber net sales of $102 million for the quarter decreased 18% versus prior year. This was due to both a volume decline of 8%, primarily caused by COVID-19, and a price decline of 7%, mainly from the pass through of lower raw material costs. Adjusted EBITDA of $15 million was $6 million above prior year due mainly to favorable year-over-year net timing as well as higher fixed cost absorption ahead of the planned second quarter turnaround. These impacts were partially offset by lower sales volume.
  • Performance Plastics net sales of $305 million for the quarter were 17% below prior year due mainly to lower sales volume from an upstream supplier issue in polycarbonate as well as pre-Brexit customer purchases in the prior year. Adjusted EBITDA of $37 million was slightly higher than prior year as higher margins from improved customer mix and lower raw material costs were largely offset by lower volume. Engineered Materials sales volumes were 1% higher than prior year.
  • Polystyrene net sales of $183 million for the quarter were 20% below prior year. Lower sales volume impacted net sales by 13% due primarily from strong re-stocking activity in the first quarter of last year. Lower price, from the pass through of lower raw material costs, impacted net sales by 6%. Adjusted EBITDA of $12 million was $5 million lower than prior year due mainly to lower sales volume.
  • Feedstocks net sales of $45 million for the quarter were 33% below prior year due mainly to lower styrene-related net sales. Adjusted EBITDA of negative $16 million was $33 million lower than prior year due to lower margins in Europe and Asia from weaker market conditions as well as an unfavorable net timing impact of $10 million.
  • Americas Styrenics Adjusted EBITDA of $10 million for the quarter was $22 million below prior year due mainly to lower styrene margins and the impact from the planned styrene turnaround.
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COVID-19 Response and Outlook

The Company previously withdrew its full-year 2020 guidance due to market uncertainty from the COVID-19 pandemic. In response to the pandemic, it took various actions to ensure employee safety, meet customer demand, and improve its operating and liquidity position, including:

  • Formation of a COVID-19 crisis response team and pandemic response plan
  • Implementation of actions that are expected to result in 2020 cost savings of approximately $25 million; this is incremental to the expected savings from the corporate restructuring program announced in late 2019
  • Reduction in anticipated 2020 capital spending from $100 million to $80 to $85 million
  • Drawdown of $100 million on revolving credit facility, as a precautionary measure
  • Continued focus on working capital optimization as a cash source

Commenting on the outlook for 2020, Bozich said, “So far in the second quarter we are seeing sustained demand for polystyrene and latex binders for food packaging, polycarbonate for isolation sheeting, and engineered materials for medical applications. However, there has been a significant decline in demand in other applications, particularly in automotive, tires, and textiles, and we anticipate that this will have a more pronounced impact on second quarter performance.”

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Bozich continued, “As we look out into the second half of the year, the duration of these impacts and the rate of recovery are unknown. Regardless, we’ve already taken actions to reduce operating costs and improve our existing strong liquidity position. In addition, we continue to remain focused on investing in the higher growth applications we previously outlined – CASE, Engineered Materials, and SSBR – so that we are better positioned to accelerate growth and profitability when the recovery occurs.”

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