Trinseo Reports Fourth Quarter and Full-Year 2020 Financial Results

Fourth Quarter 2020 Summary

• Net income of $67 million and diluted EPS of $1.71; Adjusted EBITDA* of $149 million and Adjusted EPS* of $1.84, inclusive of a pre-tax favorable net timing impact of $29 million
• Cash from operations of $128 million; Free Cash Flow* of $106 million

Full Year 2020 Summary

• Net income of $8 million and diluted EPS of $0.20; Adjusted EBITDA* of $299 million and Adjusted EPS* of $2.05, inclusive of a pre-tax unfavorable net timing impact of $27 million
• Cash from operations of $255 million, Free Cash Flow* of $173 million, and year-ending cash and cash equivalents of $589 million

BERWYN, Pa.–(BUSINESS WIRE)– Trinseo (NYSE: TSE):

Trinseo (NYSE: TSE), a global materials company and manufacturer of plastics, latex binders and synthetic rubber, reported its fourth quarter and full-year 2020 financial results. Net sales in the fourth quarter decreased 3% versus prior year. Lower prices, mainly due to the pass through of lower raw material costs, resulted in a 10% sales decrease which was partially offset by higher volume across all segments with the exception of Feedstocks. Fourth quarter net income of $67 million was $61 million above prior year and fourth quarter Adjusted EBITDA of $149 million was $90 million above prior year. The increase in earnings was due mainly to higher volume and margin, particularly within the Polystyrene and Base Plastics segments, as well as a favorable pre-tax net timing variance of $37 million.

Net sales in the full year decreased 20% versus prior year from lower volume, due to COVID-19 impacts, and the pass through of lower raw material costs. Full-year net income of $8 million was $84 million below prior year and full-year Adjusted EBITDA of $299 million was $53 million below prior year. Lower earnings were due mainly to lower volume as a result of COVID-19 impacts as well as a $25 million unfavorable net timing variance. These impacts were partially offset by lower fixed costs as a result of restructuring and other cost reduction initiatives.

Commenting on the Company’s fourth quarter and full-year performance, Frank Bozich, President and Chief Executive Officer of Trinseo, said, “2020 was a challenging year but I am extremely proud of how our team responded. During the peak of the COVID-19 pandemic in the second quarter we were able to meet all customer demand and we undertook cost and capital expenditure reduction initiatives to maximize liquidity. Demand recovery in end markets like appliances and automotive in the second half of the year, as well as commercial excellence initiatives, resulted in robust earnings in the third and fourth quarters. In fact, the fourth quarter Adjusted EBITDA was our highest result in over two years and we ended the year in a very strong liquidity position. In addition, we announced a transformative acquisition in December and continued to improve our position to compete in an increasingly sustainability-focused economy. All of this could not have been accomplished without the hard work and dedication of our employees.”

Fourth Quarter Results and Commentary by Business Segment

Effective October 1, 2020, the Company realigned its reporting segments to reflect the new model under which the business will be managed, which will provide increased clarity within the Performance Plastics segment. Following this change, the number of reporting segments has increased from six to seven. Five of the segments remain unchanged: Latex Binders, Synthetic Rubber, Feedstocks, Polystyrene, and Americas Styrenics. Performance Plastics has been reorganized into two separate reporting segments: Engineered Materials and Base Plastics. The new Engineered Materials segment includes the Company’s compounds and blends products sold into applications such as consumer electronics and medical, as well as thermoplastic elastomer products sold into a variety of applications including footwear and automotive. The new Base Plastics segment contains the results of the remaining product lines, including ABS, SAN and polycarbonate, as well as compounds and blends for automotive and other applications.

This new structure is aligned with the Company’s strategy to invest its efforts and resources into product offerings serving applications that tend to be less cyclical and offer significantly higher growth and margin potential. In 2019 and 2020, Engineered Materials delivered margins that were more than two times the average of products serving all applications within the Company’s former Performance Plastics segment. Prior period amounts herein have been recast to reflect this new segmentation.

• Latex Binders net sales of $200 million for the quarter decreased 9% versus prior year due to the pass through of lower raw materials. Volumes were slightly higher than prior year as sales increases to CASE, textile, board and specialty paper applications were mostly offset by sales decreases to graphical paper applications. Adjusted EBITDA of $22 million was flat to prior year as higher sales volume was offset by net timing. In comparison to prior year, volume to CASE applications increased 13% in the fourth quarter and 5% in the full year.

• Synthetic Rubber net sales of $102 million for the quarter increased 2% versus prior year. Higher SSBR and ESBR sales volume and favorable currency increased sales by 16% and 7%, respectively. These impacts were mostly offset by lower pricing from the pass through of lower raw materials. Demand in the tire market was consistent with the third quarter. Adjusted EBITDA of $16 million, the strongest result since the second quarter of 2018, was $4 million higher than prior year as a favorable net timing variance of $4 million and higher sales volume were partially offset by lower fixed cost absorption. The Company continues to evaluate the potential divestiture of the segment.

• Engineered Materials net sales of $60 million for the quarter increased 5% versus prior year due mainly to higher sales volume to consumer electronics applications in Asia and TPE applications in Europe. Adjusted EBITDA of $12 million was $2 million higher than prior year due mainly to higher sales volume. Sales volume increased 7% versus prior year in the fourth quarter and decreased 5% for the full year.

• Base Plastics net sales of $269 million for the quarter were essentially flat versus prior year as higher sales volume to automotive applications as well as favorable currency impacts were offset by lower pricing, which resulted from the pass through of lower raw materials. Adjusted EBITDA of $51 million was $32 million favorable versus prior year due to higher ABS, polycarbonate and compounding margins as well as higher sales volume.

• Polystyrene net sales of $193 million for the quarter were 10% above prior year from higher sales volume as demand in applications like appliances, construction and packaging remained strong. Adjusted EBITDA of $34 million was $29 million higher than prior year due to higher margins, particularly in Asia, resulting from commercial excellence initiatives, higher sales volume, and a favorable net timing variance of $9 million.

• Feedstocks net sales of $36 million for the quarter were 47% below prior year due to lower styrene pricing as well as lower styrene-related sales volume. Adjusted EBITDA of $15 million was $25 million higher than prior year due to higher styrene margins in Europe as well as a $19 million favorable net timing variance.

• Americas Styrenics Adjusted EBITDA of $25 million for the quarter was $4 million above prior year due mainly to higher styrene volume and margin in North America, partially due to industry outages in the region.

2021 Full-Year Outlook

• Full-year 2021 net income of $167 million to $200 million and Adjusted EBITDA* of $400 million to $450 million, excluding any impact from net timing, the announced acquisition of Arkema’s MMA/PMMA business or the potential Synthetic Rubber divestiture.

• First quarter results are expected to benefit from a continuation of positive trends in both volume, such as in automotive and appliances, and margins, such as in ABS and polystyrene.

Commenting on the outlook for 2021, Bozich said, “We look forward to 2021 as an exciting time for Trinseo. Despite the continued economic impact risk of COVID-19, which we are closely monitoring, we expect significant earnings improvement in 2021. We are starting the year with a very strong balance sheet on the heels of a solid quarter of earnings with the expectation of continued strong demand in the first quarter, particularly in tires, automotive and appliances.”

Bozich continued, “We will continue to act on our strategy of growing the business in areas with higher margins and less cyclicality by investing in Engineered Materials and CASE applications, including the acquisition of Arkema’s MMA/PMMA business. We are still on track to close this transaction by mid-year, at which time we also hope to have concluded our efforts around the exploration of a potential sale of the Synthetic Rubber business. Our strategy, along with a continued focus on our 2030 sustainability goals, will position Trinseo as an advanced specialty and sustainable solutions provider.”