Chris Pappas - President & CEO John Feenan - EVP & CFO David Stasse - VP, Treasury & IR.

David Begleiter - Deutsche Bank Kevin McCarthy - Bank of America Merrill Lynch Eric Petrie - Citi Matt Andrejkovics - Morgan Stanley.

Good day ladies and gentlemen, and welcome to the Trinseo First Quarter 2015 Financial Results Conference Call.

Turning to Slide 2, we welcome the Trinseo management team; Chris Pappas, President and CEO; John Feenan, Executive Vice President and CFO; and David Stasse, Vice President of Treasury and Investor Relations; who will be conducting the call. I will now hand the call over to David Stasse. Please go ahead..

Thank you, Catherine, and good morning, everyone. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. If anyone should require operator assistance during the call please press star then zero on your telephone.

The Slide presentation for today's call has been posted on the company's Investor Relations website, in the webcast viewer, and with the financial results press release by means of Form 8-K filing with the SEC.

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 May 6, 2016. Our disclosure rules and a cautionary note on forward-looking statements are noted on Slide 2.

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 described or implied in these statements.

Factors that could cause actual results to differ include but are not limited to factors set forth in our Annual Report on Form 10-K under the item 1A Risk Factors. The agenda is on Slide 3 and I will now hand the call over to Chris Pappas..

Thank you, Dave. Good morning and thanks for joining us to discuss our first quarter 2015 financial results. Our agenda today, as shown on Slide 3, will be as follows. First, I will give a business overview, covering key highlights from quarter. John, will then review the details of our latest results from both a consolidated and segment perspective.

After that, I will comment about the current business conditions and our focus for the remainder 2015. We will then open the call up for your questions. Before reviewing the results for the quarter, I do want to highlight a couple of other items.

First, as mentioned during our previous 2014 financial results conference calls, we announced a new business alignment which became effective on January 1, 2015. We created two business divisions, Performance Materials and Basic Plastics & Feedstocks which we believe provides better visibility for investors to understand our company.

By grouping businesses with similar strategies and business drivers, we can manage and operate them more effectively, driving accelerated growth and performance materials and improving profitability in Basic Plastics & Feedstocks for cash generation. Our first quarter financial results are reported with this new segmentation.

We provided quarterly financial data back to 2012 on this new basis in the fourth quarter earnings slides. Second, we recently completed refinancing our company's balance sheet. The refinancing which closed yesterday is comprised of a $500 million senior secured term loan due 2021.

€375 million of unsecured bonds and $300 million of unsecured bonds both due in 2022. The proceeds we use to repay all of our $1.2 billion of 8.75% senior secured notes due 2019 on May 13. At current interest rates the transaction will reduce our cash interest by approximately $37 million per year, which equals approximately $0.65 per diluted share.

As part of the transaction, we also entered into a new five year $325 million revolving credit facility.

This new capital structure is more similar to our public company peers and provides us with increased liquidity and natural hedge against our euro denominated EBITDA, and a much lower cost of borrowing, which is expected to significant increase our annual cash flow. Now let's turn to Slide 4.

Trinseo had a great start to 2015 with a very strong first quarter. We had record adjusted EBITDA, excluding inventory revaluation at the consolidated level and in the Basic Plastics & Feedstocks division. In addition, we had record adjusted EBITDA in the performance plastics segment.

We also had positive free cash flow of $16 million in the first quarter, despite a $52 million semi-annual interest payment, and a working capital bill due to seasonality and second quarter turnaround. This was the first time in our history that we had positive free cash flow in a first quarter.

Our total company adjusted EBITDA for the quarter was $151 million, excluding inventory revaluation, a record for Trinseo. The first quarter inventory revaluation impact of $42 million was split almost evenly between the divisions and was in line with our expectations from the fourth quarter of 2014 call.

Our adjusted earnings per diluted share were $0.80. Now let's look at the first quarter at the division and segment levels. Our performance material division had a very strong quarter with $93 million of adjusted EBITDA, excluding inventory revaluation.

Latex, synthetic rubber, and performance plastics, each performed in line with expectations as we outlined on our fourth quarter call. Latex delivered adjusted EBITDA of $21 million but excluding inventory revaluation the result was in line with recent performances.

Sales volume was 305 million pounds and slightly above prior year as we had higher sales to the carpet and paperboard markets. We continue to focus on our lower cost starch emulsion technologies, particularly to the coated paper market.

We sold a record high volume of those products [indiscernible] and double the volume sold in the first quarter of 2014. And we continue to refine this technology and have introduced second generation products that continue to have similar performance but at even lower cost.

Moving to synthetic rubber, adjusted EBITDA for the year was $26 million, excluding inventory revaluation EBITDA was in line with expectations, and similar to the average over the last two years, despite a $5 million year-over-year headwind from the weaker euro.

First quarter sales volume of 162 million pounds was an all-time high with strong volumes in both, ESBR and SSBR. In fact, we had record SSBR sales volume and our most advanced grades, which we called enhanced SSBR, continue to lead this growth.

These achievements in rubber are result of delivering on our strategy, focusing on investing in high-performance tires, and commercializing higher value differentiated products. Moving to performance plastics, adjusted EBITDA for the quarter was $25 million, including an unfavorable inventory revaluation impact.

The record result was driven by higher volumes sold in the consumer essential end markets, and by declining raw material costs during the quarter.

Now our application engineering and the design teams continue to work closely with our customers to develop new lightweight applications for the automotive industries current and future challenges generally to reach emission and fuel efficiency targets. We believe this will drive our growth as well as higher margins in the future.

To support these new automotive applications, Trinseo recently launched the new ENLITE line of glass-reinforced semi-structural application in cars, ENLITE's long glass fiber polypropylene and glass fiber alloys can replace existing materials such as steel and aluminum with lighter, globally available, cost efficient solutions.

One recent success is our ENLITE application technology being used in the Renault Espace for the lift-gate and front-end carrier, which supports the headlights, radiator, fan unit, and bumpers. Several additional lift-gates are currently in development and we expect to commercialize these within the next two to three years.

Our strategy is to continue to increase our market share in a rapidly growing exterior and semi-structural applications where value-added products are appreciated.

This is just one example of our team meeting customers goal of reducing vehicle weight by develop an engineer polymer that provide similar structural characteristics as metal, but at a fraction of the weight.

Now moving to our Basic Plastics & Feedstocks division, which had adjusted EBITDA of $59 million for the quarter or $81 million excluding inventory revaluation. These results included $37 million of equity affiliated income of which $35 million was from Americas Styrenics.

We are very encouraged by our performance in this segment and it is further evidence of the cyclical rebound that is underway in polycarbonate, and in styrene monomer, as well as the structural and supply-demand improvement occurring in polystyrene.

Global styrenic polymers demand rebounded into the first quarter after a period of destocking in the third and fourth quarters. In Europe, polystyrene customers started replenishing their inventories in preparation for the high season in appliance and construction markets.

ABS demand was very strong as well with a typical stronger first quarter in the sheet extrusion and edge band markets. This higher demand, combined with a supply shortage from European producers, and less imports, because of the weaker Euro, led to a very tight market.

In Asia, polystyrene demand was stronger than expected primarily driven by restocking activities, while our appliance customers are still running moderately ahead of the high season.

Americas Styrenics strong performance was driven by higher polystyrene margin from lower raw material prices and from higher volumes of styrene monomer sold particularly into the export markets.

Americas Styrenics continues to show year-by-year growth in equity income with 2012 at $27 million, 2013 at $39 million, 2014 at $50 million, and 2015 is off to a record start.

Moving to polycarbonate, we are pleased to report breakeven results in the first quarter, driven by our restructuring efforts as well as improved market conditions due to better supply-demand dynamics. Global demand growth of about 5% annually, combined with a lack of new supply, has now increased operating rates to nearly 80%.

In addition, the weak euro constrained imports into Europe and opened export opportunities for us creating a very tight market in Europe. Polycarbonate margin started to increase in the fourth quarter and by the end of the first quarter of 2015, we are about $300 per metric ton higher.

Now let's turn to Slide 5 and look at some recent trends in styrene monomer. These are our Europe and Asia styrene monomer charts that we normally show, including a proxy for styrene monomer margin, which is a styrene price less the cost of benzene and ethylene.

As expected, styrene margins increased in latter part of the first quarter due to stronger demand fueled by industry restocking, seasonality, and preparation for planned outages.

Scheduled planned outages also had a significant positive influence on styrene production margins in Asia during the quarter, as rising feedstock cost were outgained by styrene price. Overall, the first quarter margins are in line with a $10 million sequential decline that we discussed on the fourth quarter call.

However, we were able to largely makeup for that decline via a combination of better raw material and utility yields, as well as numerous carefully selected spot styrene market moves throughout the quarter. Now I'd like to turn the call over to John for a more detailed review of our financial results at a consolidated and segment level..

Thanks, Chris, and good morning. As you heard in Chris's opening comments, we had very strong results in the first quarter. Please turn to Slide 7 where you can see the first quarter results for Trinseo along with two comparison periods, the first quarter of 2014, and the fourth quarter of 2014.

First quarter 2015 revenue of $1 billion was 25% below prior-year, and 9% below prior quarter. Overall, you will notice lower revenue in the first quarter compared to other periods.

While we had higher sales volume across all of our operating segments, this was more than offset by the pass-through of lower raw material cost with a significant decline with the overall energy complex as well as currency.

The impact of the lower raw material cost was particularly significant with lower prices driving nearly all of the variance versus the comparison periods. First quarter adjusted EBITDA, excluding inventory revaluation, was $151 million which included $37 million of equity affiliate income, of which $35 million was from Americas Styrenics.

This compares to $83 million in the first quarter of 2014, and $104 million in the fourth quarter of 2014 on the same basis. For the quarter, we had adjusted net income of $39 million which translated into an adjusted EPS on a diluted basis of $0.80 per share. Now turning to Slide 8.

The Latex segment revenue was $238 million for the quarter; higher volume had a 2% favorable impact versus prior-year, driven by a 13% increase in volumes sold into the carpet market. Adjusted EBITDA of $21 million was below prior-year due primarily to inventory revaluation and above prior quarter due to seasonality.

Excluding inventory revaluation, first quarter EBITDA was in line with our two-year trend and consistent with our expectations from the fourth quarter of 2014 conference call. Now turning to Slide 9.

In synthetic rubber, revenue decreased 27% and 5% versus prior-year and prior quarter respectively driven by the pass-through of lower raw material cost as well as currency. Higher sales volume increased revenue by 3% versus prior-year driven by SSBR, and 19% versus prior quarter driven by both ESBR and SSBR.

In addition, enhanced SSBR represented 57% of total SSBR volume in Q1, up from 46% a year ago. Adjusted EBITDA of $26 million was below both prior-year and prior quarter due mostly to inventory revaluation and currency, with some offset from higher sales volume.

Excluding inventory revaluation, rubber was in line with our expectations from the fourth quarter call. Turning to Slide 10.

Performance plastics revenue was $197 million for the quarter; higher volume had a favorable impact of 6% versus prior-year driven by higher sales to the Asia consumer electronics market, and 3% versus prior quarter from higher sales to the automotive market.

Adjusted EBITDA of $25 million was a record for the segment, and was $8 million above prior-year, and $9 million above prior quarter driven mostly by higher margins with decreasing raw material cost during the quarter. We estimate that these declining costs benefit performance plastics by close to $10 million during the quarter. Turning to Slide 11.

Basic Plastics & Feedstocks revenue of $454 million was below prior-year and prior quarter due to the pass-through of lower raw material cost and currency.

Sales volume was favorable versus the comparison periods, and in particular, versus prior quarter due to seasonality, as well as the industry restocking in the first quarter of 2015 in contrast to the destocking in the fourth quarter.

Adjusted EBITDA of $59 million included $37 million of equity affiliate income almost entirely from Americas Styrenics. This included an unfavorable inventory revaluation impact of about $21 million.

Excluding inventory revaluation, adjusted EBITDA of $81 million was approximately $59 million above prior-year, and $41 million above prior quarter, due to higher Styrenics margins, very strong performance at Americas Styrenics, as well as higher polycarbonate margins due to the restructuring efforts and overall market improvement.

Now let's turn to Slide 12 for the discussion on cash and liquidity. Free cash flow for the quarter was $16 million, inclusive of a $15 million dividend from Americas Styrenics, capital spending of $28 million, and a cash interest payment of $52 million. This was the first time in the company's history of positive first quarter free cash flow.

Quarter end liquidity was $658 million, including $219 million of cash. Looking to the second quarter, I want to highlight that we will use approximately $105 million of cash from our balance sheet in the second quarter to pay for call premiums, fees, and accrued interest, related to our recent financing.

Excluding this, we expect strong free cash flow in the second quarter, due to both solid EBITDA, and a release of inventory that we built in Q1 for Q2 turnarounds. All in, we expect liquidity at the end of the second quarter somewhat above the end of the first quarter level.

For 2015, we expect capital expenditures of around $125 million and cash taxes of $35 million to $40 million which is in line with our previous estimate. With that, I'll now turn the call back to Chris..

Thanks, John. One of the key questions that you all have is where is Trinseo EBITDA and earnings per share going through the balance of 2015 following this record first quarter performance, both for Performance Materials and Basic Plastics & Feedstocks.

Performance materials should continue to be a steady performer with the back half of the year in line with recent trends. We believe rubber will continue to do well as we drive our focus on high performance tires.

Latex will have some new capacity in China late in the third quarter and we have announced price increases in North America and Europe as well. Performance plastics looks to be quite strong over the balance of 2015.

Now I'd like to spend a few minutes on this call and talk about why we think the cyclical rebound occurring in Basic Plastics & Feedstocks is sustainable. Slide 14 shows the data to support the cyclical rebound in styrene monomer and its impact on margins.

In the upper left, you can see the rising styrene monomer margin slope over the last couple of years. You can also see the quarterly fluctuations. Again we have consistently commented on the quarter-over-quarter dynamic but the rising slope is clear and is driven by rising styrene monomer operating rates.

On the bottom half of this slide, you can see Trinseo's gray bar data which gives more granularity on the styrene monomer margins in Western Europe. What you'll observe is that the spikes in margins are now occurring with higher frequency.

With styrene monomer operating rates now at about 85%, any planned or unplanned outages can cause these spikes in styrene monomer margin. Note that our view of the second quarter styrene monomer margin leads to a relatively stronger second quarter. Finally, on the upper right part of the slide is the projection for styrene monomer supply and demand.

It also tells a clear story with no meaningful styrene supply capacity announced for the next four years, we should generally see a rising styrene margin and the potential for higher spikes during planned or unplanned outages.

Recall our styrene monomer margin to EBITDA, a $50 per metric ton change in styrene monomer margin yields approximately $45 million of annual EBITDA change. Now let's turn to Slide 15 and look at a couple of panels on polycarbonate. First, you can see the rise on operating rates in polycarbonate over the last two years.

Global industry operating rates are about 80% which has led to margin expansion in polycarbonate. Also shown are historical polycarbonate margins and the IHS forecast for the next two years. You can also see the regional industry structure in polycarbonate.

We are a small player in Europe, a minor player in Asia via our joint venture Sumika Styron Polycarbonate Limited, and not a producer in North America. You can also see the projections for polycarbonate supply and demand. It also tells a clear story.

With limited additional polycarbonate supply coming, and a compounded annual demand growth rate of about 5%, we would expect generally rising polycarbonate margins and the potential for improving our polycarbonate performance.

Recall our polycarbonate margin sensitivity; a $100 per metric ton change in polycarbonate margin yields a $15 million annual EBITDA change across Trinseo. Now let's go to Slide 16 and look at the regional polystyrene industry structure.

You can see clearly that North America and European industry structures are generally consolidated, while Asia is much more fragmented. What you would expect is that North America would have somewhat better results than Europe with Asia lagging behind both of these regions. And we do see that in our JV income from Americas Styrenics.

We also see that our own styrenic polymers, which is the sum of our Europe and Asia polymer footprint is improving across the board. Finally, we have a dynamic of several major styrenic companies that now rely on styrene monomer and styrenic polymer as their means for EBITDA and cash flow, not benzene or ethylene.

This creates an increased focus on styrene and styrenic polymers profitability. Now just to reiterate our stated strategic intension in Basis Plastics & Feedstocks. We are not expanding or building styrene monomer, polystyrene, or polycarbonate capacity.

Our joint ventures Americas Styrenics and Sumika Styron Polycarbonate Limited are not expanding or adding capacity in styrene monomer, polystyrene, or polycarbonate. In other words, we are focused on EBITDA and cash generation in Basis Plastics & Feedstocks.

So with that backdrop for Performance Materials and Basis Plastics & Feedstocks, let's move to Slide 17 and discuss our view for the second quarter and full-year 2015. First, I'd like to discuss the impacts of inventory revaluation and currency.

We are estimating a second quarter favorable inventory revaluation impact of approximately $30 million due to increasing raw material prices. We expect most of this impact to be in the Basis Plastics & Feedstocks division as the revaluation is largely driven by styrene related materials.

It is difficult to estimate the inventory revaluation impact for the remainder of the year, given the volatility of our feedstocks but through the first six months of 2015, it looks like inventory revaluation in total will be minimal.

Moving to currency, and looking out to the remainder of the year, please recall that our rule of thumb of 1% change in the euro compared to the dollar is about $2 million of annual EBITDA impact. Assuming an exchange rate of $1.1 per euro for full-year 2015, the year-over-year currency impact on Trinseo will be approximately $35 million.

Now excluding inventory revaluation, we expect continued strong performance in the second quarter but sequentially lower than our record first quarter performance.

The Basic Plastics & Feedstock divisions see similar performance quarter-over-quarter while there will be some headwinds in Performance Materials division and let's go through each segment.

We expect Latex adjusted EBITDA in Q2 to be similar to the first quarter, much of our Latex business uses a one-month price lag so increase styrene cost through the quarter will impact margin by several million dollars. However, we expect more favorable inventory revaluation to offset this impact.

Assuming stable feedstock cost, the second half of the year in Latex should be back to the normal run rate of mid-20s million dollar EBITDA per quarter.

Overall for 2015, we continue to focus on countering the secular challenges in coated paper with new technologies, our growth in new capacity in China, and a focus on higher growth Latex market segments. For the full-year, our expectations in Latex are for an approximately $6 million decline from the prior-year due mostly to currency.

Now let's move to synthetic rubber. On the fourth quarter call we mentioned a second quarter turnaround that will result in about $10 million sequentially lower EBITDA.

However, we do expect this should be offset by more favorable inventory revaluation with increasing raw material cost, resulting in adjusted EBITDA that is roughly flat quarter-over-quarter.

For the year, we expect adjusted EBITDA for rubber to be about $20 million lower than 2014 due to currency impacts, as well as our continued investment in technology, some of which will be offset by SSBR volume growth.

In performance plastics, we expect the second quarter decrease in adjusted EBITDA, as raw material stabilize and prices and margins reset.

However, this again would mostly be offset by favorable inventory revaluation in the quarter and quarterly performance for the rest of the year should be several million dollars above the average of last year, as we look for higher volumes and margins on the strength of our differentiated product offerings across consumer central markets as well as automotive.

In total, we expect this to result in about $20 million higher adjusted EBITDA than in 2014 for performance plastics. Overall for the performance materials division in the second quarter, we expect adjusted EBITDA to be similar to the first quarter but lower by $25 million to $30 million excluding inventory revaluation.

Overall for the year, performance materials should be slightly lower in 2015 versus 2014 due mainly to currency, with some offset from higher volumes and margin in performance plastics and higher volume in SSBR.

Now in Basic Plastics & Feedstocks, we expect the second quarter EBITDA excluding inventory revaluation to be right about the same as the record first quarter. But we expect significantly higher sequential adjusted EBITDA in this division due to an expected more favorable inventory revaluation in the second quarter.

We expect higher styrene monomer margins of about $25 million versus the first quarter but a significant portion of this will be offset as our production will be lower doing a planned outage at one of our styrene units. In addition, we don't expect to repeat of the first quarter's opportunistic spot market activity.

Polycarbonate margins are expected to be slightly better in the second quarter, as we see the full quarter of higher margins driven by the overall stronger market. For the full-year we expect Basic Plastics & Feedstocks to perform much better than it did in 2014.

Restructuring and improvement in polycarbonate market conditions should alone result in an estimated $60 million to $70 million of year-over-year improvement. And while we don't expect to repeat the first half Styrenics planned outage driven tightness in the second half of 2015, the market overall for the year should be better than 2014.

Due to the strong start of the year, along with the styrene monomer dynamics that we previously discussed, we anticipate styrene monomer and styrenic polymer margins to be significantly better than in 2014.

In addition, due to the same dynamics, we expect Americas Styrenics to have a record year, resulting in equity affiliate income that is much higher than in 2014. And finally, given the current feedstock outlook, inventory revaluation should be much more favorable in 2015.

Now look, adding all this up, we believe that in 2015 Basic Plastics & Feedstocks, adjusted EBITDA, excluding inventory revaluation, will be about $175 million better than 2014, and even a higher increase when including inventory revaluation.

This is predicated on styrene margins in the second half remaining at similar levels to Q1, not including any of the quarterly outages. Finally, we expect corporate cost to continue at a steady $20 million per quarter. Now before we move to Q&A, I want to summarize a few items.

Number one; clearly we had an excellent and record first quarter across Trinseo albeit with a couple of tailwinds as described. Two, we expect the second quarter to be quite good with significantly higher adjusted EBITDA and EPS versus the first quarter.

Third, we expect significant improvement in full-year 2015 versus 2014 in adjusted EBITDA, EPS, and cash flow. And fourth, our recently completed financing sets Trinseo up with a public company capital structure that is more in line with our peers and which is expected to lower our cash interest expense by $37 million per year.

The financing is accretive to earnings per diluted share by approximately $0.65. From a portfolio standpoint, we believe our performance materials division is positioned to consistently deliver $70 million or $75 million of EBITDA per quarter.

We also believe our Basic Plastics & Feedstock division is now positioned for and is delivering cyclical upside across styrene monomer, polycarbonate, and styrenic polymers. We believe this combination is creating a performance step change versus previous years for Trinseo.

Recall for a moment that in 2012, our adjusted EBITDA excluding inventory revaluation was $217 million, rising to $318 million in 2013 and to $326 million in 2014. In those years, we were not experiencing the combined effects of our polycarbonate rebound, Americas Styrenics strength, or styrene monomer cyclical lift.

As you can tell from our comments, we believe Trinseo is now taking another big step in EBITDA, EPS, and cash flow generation. We are committed to driving value for our shareholders overtime. Based on our positive results, and the improving dynamics we have shared, I believe that Trinseo represents a significant opportunity for investors.

Within a representative peer group of comparable companies, we have one of the lowest multiples on either an EBITDA or EPS basis, and we have one of the lowest price to cash flow ratios as well. Adding it all up, I'm very proud of our first quarter performance and the momentum we have generated for the second quarter and the rest of the year.

And Catherine, we can now open the line up for questions..

[Operator Instructions]. Our first question is from David Begleiter with Deutsche Bank. Your line is open..

Good morning. Chris, very good job on polycarbonate, very impressive.

How should we think about the progression now of EBITDA as it moves into positive territory throughout the remainder of 2015 and even 2016?.

Thanks, David. Well, obviously, this is a very important change for the company on the Basic Plastics & Feedstocks side. And driven by both the structural changes and the increasing margins from operating rates, as we stated, we are now breakeven in Q1. We do see positive momentum for price and margin improvement.

There are price increases that have been announced into Q2 and they're going into the market, we will have to see how effective they are. But our sensitivity of that, as you know, is a $100 change in margin yields about $15 million per year of annual EBITDA. And the price increases that were announced were substantial in the €300 per ton type range.

So we will have to see all how all that plays into the market both in Q2 and forward, as the operating rates look like they're going to continue to rise in polycarbonate..

Very good.

And John, just on the use of cash going forward and paying off the term loan what's the target there on the term loan and use of cash going forward?.

Yes. I think Dave, as we continue to generate cash, it obliviously gives us some optionality we haven't had historically. We expect, as we said, in the call, a very strong free cash flow in the quarter coming up in very good results for the full-year. So we'll access exactly what we want to do and what our options are in the back half of the year..

Thank you very much..

Thank you. Our next question comes from Kevin McCarthy with Bank of America Merrill Lynch. Your line is open..

Yes, good morning. Chris, impressive forecast on Basic Plastics & Feedstocks as it relates to the $175 million increase. It sounds like you have three drivers there, the AmSty strength, styrenic margins, and then the restructuring.

Can you help us break that down in terms of the relative contributions that you foresee from those three buckets? And any other drivers that I did not include on my list?.

Hi -- hey, Kevin. Those are the three drivers, the polycarbonate, restructuring, and market turnaround, Kevin. The improvement in AmSty of course and the improvement on the own Styrenics business are the drivers.

The one that we've articulated in terms of dollar terms is of course polycarbonate, where we said, we expect about $65 million year-over-year change. And as you guys know, that's really just above the losses we have last year. So it would suggest marginally profitable polycarbonate business. We haven't really broken out the other two.

But if you look at the trajectory of AmSty in either the EBITDA that you have year-over-year or more importantly the equity income and you think about the first quarter that you have for the equity income of AmSty, last year, the equity income from AmSty was about $50 million for us. In the first quarter, it's $35 million.

So you can understand that that's obviously moving quite strongly in a positive way. And our own business of course is moving up in Styrenics as well, although as I mentioned, the Americas is the strongest region, Europe is next, and Asia is still lagging.

So hopefully that gives you a little bit of a context for how we see the development of the total $175 million, Kevin..

Yes, it does. Thank you. A couple of financial questions if I may as well. You mentioned the strong start to cash flow as adjusted for seasonality in 1Q but then John; I think I heard you call out some cash outflows one-time in nature in 2Q.

When you boil that down and take into account your earnings guidance, would you expect to finish the year at a lower net debt level then you started?.

Yes, yes we do..

Okay.

And then third, I guess clarification if I may with regard to your recent refinancing activities, has there been any change through that process with regard to your longer-term ability to establish a common dividend?.

Kevin, its Chris. Look we said we went public almost a year ago that the first thing we wanted to do for the company was to get a capital structure in place that was public co and peer like and we've now done that. And I would add I think quite successfully.

Obviously, we have lower interest expense, the business conditions seem to be cooperating, the cash generation we would expect to be relatively robust, we have no large capital plans in Basic Plastics & Feedstocks. I think I've been pretty adamant about our plans on that division.

So over time, as appropriate, we'll take a look at a policy for dividends but that's not something that we're looking at in the immediate term..

Understood. Thank you very much..

Thank you. Our next question comes from P.J. Juvekar with Citi. Your line is open.

It's Eric Petrie on for P.J. A question on styrene margins in Western Europe. They've improve nicely from $200 to recently about $500 per ton, partly due to lower raw material costs, benzene and ethylene, as well as industry outages.

How do you see that normalizing into second half?.

Hi, Eric. If you’re looking at I think the chart on page 14 in the upper left and a little normalize, I think that the thing we're trying to do clearly communicate on styrene is the following. The general operating rate for styrene monomer is moving up. It's now at 85%, 86%. That's the healthy it's been in some time.

There is no added capacity of substance coming in styrene over the next four years and at a two plus demand, global demand growth, there certainly appears to be the opportunity for rising operating rates, that's number one.

Number two, those operating rates at 85%, 86% as planned and unplanned outages occur, these spikes occur and they're getting more frequent and higher in value, and you would expect that with higher operating rates.

Now they do moderate, they do come back down to your question after the capacity comes back online and we would expect that sometime at the back of the second quarter to the third quarter. But they're coming down to levels that are higher than they have been in the past because of the generally rising operating rate.

And you can see that in the line that we draw through the relatively dynamic line that you see on the top of that slide.

So I think the takeaway is generally rising margins, opportunities for higher spikes during planned or unplanned outages, and a generally healthier styrene monomer business looking forward than looking back and I think that's about as precise as we can be.

Obviously there will be quarter-to-quarter dynamics that will take styrene margins up very high and perhaps back to the line and there may be dynamics that creates styrene squeezes in a given quarter, benzene unplanned outages for example. But the trend is what we're trying to communicate a very good trend for us and for our JV Americas Styrenics..

Great, thanks. And then secondly we've seen competitors announce some new synthetic rubber capacity adds.

First is this product easily traded and second what are your industry -- your utilization rates and how much capacity do you have left to fill?.

We're having another great start to a year in our rubber business. We talked about record volumes in the first quarter, record SSBR volumes, a highest percentage of enhanced SSBR 57% on a quarterly basis. Our rubber business continues to be operating at very high operating rates for us.

We do have some capacity to still move into the market in SSBR that capacity will be moved into the market as part of our new contracts have been put in place, some of those contracts run through 2019, and capacity will be moved into the market probably by the end of this year, certainly by the beginning of 2016.

So we're effectively in a kind of sold out position. Now we do have the conversion to neodymium coming on stream in 2016 that was a nickel PBR plant that we converted. And I think the other thing to note is the tire companies have been very bullish recently about high performance tires.

Michelin is talking about 12% growth in the first quarter and what they call high value add tires, Goodyear is building a new plant in Mexico strictly generated to high value add high performance tires they're sold out. That new plant is going to make 18 million tires per year for the next five years and there is about 3.5 pounds of SSBR in a tire.

So if you do the math on that, that's about 28 Kt per year consumer of SSBR. So the demand side of the equation looks, as we said, very, very strong. Now your other question on supply. There are some new plants coming up. There are also some delays that have been announced.

JSR recently announced that their new capacity in Thailand is going to be delayed, they haven't said for how long, but they've had difficulties in completing the project.

So we still feel net-net very comfortable about our rubber business, about our focus on high performance tires, our technology, our contracts, our position with the major tire companies, their high growth rates in the segment that we're focused on, all of that we think adds up to a pretty reasonable picture for us in synthetic rubber..

Thanks, Chris..

Thank you. [Operator Instructions]. Our next question comes from Vincent Andrews from Morgan Stanley. Your line is open..

Yes, good morning. Actually this is Matt Andrejkovics calling for Vincent. Thanks for taking the call. Really appreciate all of the detail that you guys have included in the slides on the different segments.

Very helpful and I was just wondering if you could help elaborate on may be what's changed in polycarbonate that would cause the margins to change from 2011 until 2014 despite the operating rates being similar?.

So it's not precise, Matt, on operating rate A, operating rate B, margin A, margin B, and first of all the 2015 and 2016 margins you're referring to page 15, upper left. Those are IHS forecast. We don't know what the margins are going to be in 2015 and 2016 for polycarbonate yet. So these are IHS forecast.

We don't know whether they'll return to 2011 margins or not. If you were to go strictly by operating rate, it would suggest they should go back to those kinds of margins.

But I think the main takeaway is again like styrene, increasing operating rate, supply-demand dynamics are driving margin in polycarbonate, there has been a major turnaround in our business driven by structural change and margin improvement and we see margin to the upside.

And our sensitivity is very clear, $100 equals $15 million, $100 change in margin equals a $15 million change in EBITDA. And so the recent closures that occurred in 2013 and 2014, the return of the higher demand growth to 5%, all of that has fueled the response to 80% operating rates.

We'll see whether we get back to 2011, we'll see whether IHS is right or whether market dynamics drive the numbers higher than IHS has in the forecast..

Got it, thanks.

And then in styrene do you get a sense that the restocking is complete and we're now at the seasonal run rate for demand or is there still some restocking demand? I guess I'm just trying to gauge how quickly could pricing may be come back a little lower if the outages were to alleviate today let's say?.

Yes, the outages in styrene are running through Q2 and even into Q3, some of the outages have been delayed and spread out, number one. Number two; there were large increases in styrene monomer in April and in polystyrene €300 plus a ton. And that has kind of at least for April suppressed the restocking.

So there was a lot of restocking or in Q1 it's hard to tell whether we're done because April people pulled back because prices went up, monomer went up as I said, and polymer went up. But my net on all that, Matt, is I think we're probably pretty close to the end of the restocking phase across styrene polystyrene which I think is your question.

April again was the month for the consumers, the purchaser pulled back because of these high increases. But I think net-net we're probably through the restocking. Although Q2 for appliances and other reasons is the high season for demand for polystyrene so there will be a little bit of effect from that in Q2..

Great, thanks very much..

Thank you. At this time I'm showing no --.

Thank you, operator. Thank you, Catherine. I think that's it for the question..

Yes..

Okay. Thank you very much everybody. Talk to you next quarter..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Everyone, have a great day..