Chris Pappas - President and Chief Executive Officer Barry Niziolek - Executive Vice President and Chief Financial Officer David Stasse - Vice President, Treasury and Corporate Finance.

David Begleiter - Deutsche Bank Bob Koort - Goldman Sachs Frank Mitsch - Wells Fargo Dan Rizzo - Jefferies Hassan Ahmed - Alembic Global Advisors Eric Petrie - Citi Mike Sison - KeyBanc Capital Markets.

Good morning, ladies and gentlemen and welcome to the Trinseo Second Quarter 2016 Financial Results Conference Call.

Turning to Slide 2, we welcome the Trinseo management team, Chris Pappas, President and CEO; Barry Niziolek, Executive Vice President and CFO; and David Stasse, Vice President of Treasury and Corporate Finance, who will be conducting the call. I will now hand the call over to David Stasse..

Thank you, Tamara and good morning everyone. [Operator Instructions] 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 a Form 8-K filing with the Securities and Exchange Commission.

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 August 2, 2017. Our disclosure rules and 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. Today’s presentation includes certain non-GAAP measurements. Reconciliation of these measurements is provided on our earnings release and in the appendix of this presentation.

I will now hand the call over to Chris Pappas..

Thank you, Dave. Good morning, everyone and thank you for joining us. Before I get into results for the quarter, I would like to start by introducing Trinseo’s new Executive Vice President and CFO, Barry Niziolek, who joined the company in June. Barry was most recently Vice President and Controller at DuPont.

He has spent a significant amount of time over the last couple of months with leaders across all of our operations to better understand our business strategies, to visit sites and to engage with the entire organization. Barry is smart, disciplined, extremely well trained in finance and an exceptional leader.

I am very pleased to have Barry by my side as Trinseo’s CFO as we drive the company’s performance forward. Now, turning to Slide 3, I would like to highlight our commitment to sustainability, which is an integral part of our business strategy.

In July, we published the results of Trinseo’s sixth sustainability and corporate social responsibility report. It profiles how our products help our customers, improve their own sustainability in areas such as LED lighting, green tires, life-saving medical devices, electric vehicle charging stations and lighter weight cars that get better mileage.

The report also outlines our programs in product stewardship, quality, safety, ethics and compliance, volunteerism and responsible care. In 2015, we continued the trend of reducing our environmental footprint as measured by a range of environmental performance indicators.

Every year since our first report in 2011, we have achieved reductions in waste, total chemical emissions, volatile organic chemical emissions, greenhouse gas emissions and electricity use.

We continue our work to reduce Trinseo’s environmental footprint, while developing new innovative solutions that enable our customers to create more sustainable products by reducing energies, preserving health, enhancing safety, improving durability and conserving natural resources.

Now please turn to Slide 4, where I would like to highlight the four key points you should take away from this call. First, we have $169 million of adjusted EBITDA excluding inventory revaluation in the second quarter, which is a record quarterly result.

This is well above the guidance of $140 million to $150 million that we provided during the first quarter earnings call driven by higher than expected performance in both our Basic Plastics & Feedstocks and Performance Materials divisions.

Second, cash provided by operating activities, $95 million, was offset by cash used in investing activities of $27 million, resulting in free cash flow for the quarter of $68 million. Third, our third quarter outlook is $140 million to $150 million of adjusted EBITDA, excluding inventory revaluation.

This result would be in line with the higher level of EBITDA we have seen over each of the previous six quarters. This is further support for the sustainability of Trinseo’s profitability driven by improving Performance Materials EBITDA and continued rising operating rates and improved margins and EBITDA in Basic Plastics & Feedstocks.

Fourth and finally, we are increasing our full year 2016 adjusted EBITDA guidance to a range of $605 million to $615 million. This guidance assumes the minimal impacts from inventory revaluation. Now, turning to Slide 5, where I would like to call out some highlights from the second quarter.

Our Performance Material division continues to perform quite well, delivering $76 million of adjusted EBITDA, excluding inventory revaluation in the quarter, which is slightly above our guided range of $70 million to $75 million. We remain on track to deliver, at least 5% EBITDA growth for full year 2016 versus 2015 in Performance Materials.

The Basic Plastics & Feedstocks division delivered $115 million of EBITDA, excluding inventory revaluation, and exceeded our expectations due to higher styrene margins in all 3 regions as well as higher margins in styrenic polymers.

Finally, let me take a moment to update you on a few key corporate transactions that have occurred over the last three months. During the second quarter, we entered into a definitive agreement with the local Brazilian company to divest our Brazilian Latex in automotive plastics businesses.

Our Brazilian operations contributed slightly negative EBITDA over the LTM period and the sale proceeds from this transaction will be immaterial. Our decision to divest these two businesses is in no way indicative of a larger strategic shift. We are still committed to investing in and growing our Performance Materials businesses.

However, after careful consideration, we decided to divest these businesses because we felt that they would be more valuable to a local company that has more scale and critical mass in the region. We expect the transaction to be completed no later than the fourth quarter of 2016.

Second, consistent with our previously discussed intentions on use of cash to shareholders, we repurchased 800,000 shares during the second quarter, including the previous 1.6 million shares purchased from Bain in the first quarter, we repurchased nearly 2.4 million shares since the beginning of the year or about 5% of our outstanding shares.

At board meeting in June, our board authorized an additional $100 million share repurchase plan. In addition, we declared our first quarterly cash distribution of $0.30 per share, which we paid on July 20. At yesterday’s closing stock price, this works out to a 2.5% dividend yield.

Share repurchases and cash distributions should be viewed as a sign of our high level of confidence in the continued strong cash generation of Trinseo as well as our commitment of returning cash to shareholders. Now I would like to hand the call over to Barry, who will discuss the financial details of the second quarter performance..

Thanks Chris and good morning everyone. Please turn to Slide 6 for a deeper discussion of our financial performance this quarter. Second quarter adjusted EBITDA of $182 million, included a favorable inventory revaluation of $13 million. Excluding this, adjusted EBITDA was $169 million.

We also reported $2.30 of adjusted earnings per diluted share, which was inclusive of a $0.22 positive impact from inventory revaluation. As a result of the sale of the Latex and automotive businesses in Brazil, during the second quarter we recorded a total charge of $13 million for the estimated loss on the sale as well as for severance.

Approximately $600,000 of this charge will be cash and will be paid out over the second half of this year. Now turning to Slide 7, let’s go through our segment results. Latex revenue of $230 million was 6% below prior year, primarily from the pass through of lower raw material costs in Europe and Asia.

Latex adjusted EBITDA of $21 million was in line with our guidance and was $6 million above prior year driven by the North America price increase and fixed cost reductions across the business. Latex volume for the quarter was 310 million pounds, in line with historical volume.

The second quarter results were negatively impacted by about $5 million due to a lag in price pass through because of increasing raw materials in the current quarter, which we don’t expect to repeat in the third quarter. Let’s turn to Slide 8.

Revenue from Synthetic Rubber of $111 million, decreased 3% versus prior year, primarily driven by the pass through of raw material costs as well as slightly lower volume, particularly nickel PBR. Adjusted EBITDA of $30 million was in line with our guidance, excluding the favorable impact from inventory revaluation.

This result was $12 million higher than prior year, driven mainly by a large turnaround in 2015. SSBR sales volume in the second quarter was near the record high levels of the first quarter as the higher performance tire market remains very strong. Now turning to Slide 9, Performance Plastics revenue of $184 million was flat to prior year.

Adjusted EBITDA of $31 million was above our guidance of $25 million due to the lower than expected raw material cost, favorable product mix and higher volumes in the quarter. We sold a record volume to the automotive market in the second quarter with increased automotive production in Europe and North America.

Moving to Slide 10, Basic Plastics & Feedstocks revenue of $442 million was 8% below prior year, driven by the pass through of lower raw material cost. Adjusted EBITDA of $120 million was about flat to prior year.

Adjusted EBITDA, excluding inventory revaluation of $115 million was $16 million above prior year, driven by a higher polycarbonate and styrenics margins as well as lower fixed costs from turnarounds in the prior year. Excluding inventory revaluation, this was a record quarter for this segment.

Styrene margins increased sequentially, benefiting from events across the industry including planned seasonal turnarounds, delayed restarts and an unplanned production slowdown in France. The turnaround season also benefited Americas Styrenics, which contributed $38 million of equity income during the quarter.

In addition, we saw strong margins in styrenic polymers and polycarbonate. Now let’s turn to Slide 11 for a discussion on cash and liquidity. Free cash flow for the quarter was $68 million. This included $30 million in dividends from Americas Styrenics, $27 million of capital expenditures and $30 million of cash interest payments.

At the end of the quarter, we had record liquidity of $904 million, which included $465 million of cash, inclusive of the $37 million cash outlay for the repurchase of 800,000 shares.

As expected, our net leverage ratio continued to decrease due to higher EBITDA and cash generation and our net leverage ratio was 1.3x at the end of the quarter compared to 2.8x at the end of the second quarter of 2015.

Now I will turn the call back over to Chris, who will discuss performance expectations for the third quarter and the rest of the year..

Thanks Barry. Please turn to Slide 12 for a discussion on styrene monomer. These are the same charts we have shown in the past with Western Europe styrene margin data in the top chart and Asia data in the bottom chart.

You can see that June styrene margins increased in Western Europe from earlier in the quarter and were above our prior expectations as some spring turnarounds extended longer than expected and there were operational disruptions at Total in France.

Looking into the third quarter, we expect Western Europe styrene profitability will be more in line with the first quarter as we are in between the spring and fall turnaround seasons and demand is lower due to the summer vacation period.

In Asia, we expect styrene margins to be about $70 per ton lower than Q1 and slightly lower than margins in Q2 as the peak of the Asia full turnaround season is not expected before mid-September. Inventory revaluation for the third quarter at this point is expected to be minimal as we expect more stability in our key feedstocks.

So with that backdrop for styrene margins and inventory revaluation, let’s move to Slide 13 to discuss our view of the third quarter of 2016. We expect the Performance Materials division to continue at strong performance in the third quarter with adjusted EBITDA slightly above the previous quarter of $75 million.

Latex adjusted EBITDA is expected to be approximately $25 million as we do not expect a repeat of the second quarter unfavorable price lag. Synthetic Rubber is expected to be roughly flat to the second quarter, excluding inventory revaluation at about $25 million.

We believe Performance Plastics will also be about $25 million, sequentially lower due mainly to seasonally lower automotive volumes. Now moving to Basic Plastics & Feedstocks, we believe the third quarter will be between $85 million and $95 million of adjusted EBITDA, excluding inventory revaluation.

This guidance is slightly lower than the $101 million that this segment achieved in the first quarter and that is due to lower styrene margins in Asia, seasonally lower polymer volume and about $3 million of turnaround impacts. Corporate expense should continue to be about $22 million for the quarter, in line with previous expectations.

Therefore, in total, we expect to have another strong quarter delivering between $140 million and $150 million of adjusted EBITDA, excluding inventory revaluation. This translates into an adjusted EPS range of $1.55 to $1.70 per share.

At this guidance level, Trinseo continues to show the strength of our improving Performance Materials division and a healthy Basic Plastics & Feedstocks division even in a quarter of limited styrene outages. Let’s look at Slide 14 for our guidance on the full year.

We are raising our full year 2016 guidance to $605 million to $615 million of adjusted EBITDA and $6.95 to $7.10 of adjusted earnings per diluted share. This assumes minimal inventory revaluation impact. Adjusted EBITDA, excluding inventory revaluation was $322 million for the first half of the year.

The midpoint of our full year guidance implies a second half EBITDA of slightly below $300 million. This strong second half includes somewhat lower expected styrene margins with fewer plant turnarounds in the first half of the year as well as some seasonally lower volume.

For Performance Materials, we are reaffirming our 2016 growth in adjusted EBITDA, excluding inventory revaluation, of at least 5% and we believe we’ll achieve between $300 million and $310 million of EBITDA this year. We also expect to continue to generate significant free cash flow using the midpoint of our 2016 guidance of $610 million.

This would yield about $320 million of free cash flow before working capital impacts. To summarize, Slide 15 bridges 2015 to our 2016 guidance. Recall that in 2015, we had $550 million of EBITDA, excluding inventory revaluation. This included about $60 million of tailwind from fly-up styrene margin. Excluding this, our EBITDA was $490 million.

The midpoint of our 2016 guidance of $610 million implies a $120 million increase over last year’s $490 million. This is comprised of approximately $20 million of Performance Materials improvement and approximately $100 million of Basic Plastics & Feedstocks improvement.

While styrene is the largest contributor to this increase in Basic Plastics & Feedstocks, we have also seen an increase in our EBITDA on the polymer side of Basic Plastics & Feedstocks.

Now, I’d like to give you some perspective of our scale in the styrene exchange, so that you can better understand how Basic Plastics & Feedstocks EBITDA could go up $100 million in 1 year. Trinseo has approximately 950 kt of styrenic polymer production. That’s polystyrene, ABS and SAN.

If we include our 50% ownership of Americas Styrenics polymer production, we have margin exposure to about 1.3 million tons of styrenic polymers. Add that to the 1.4 million tons of exposure we have to styrene and we have about 2.7 million tons of exposure to the styrenics chain, that’s about £6 billion.

With that kind of leverage to the styrenics chain, modest upticks in margin, either in styrene or in styrenic polymers can have a meaningful impact to our overall EBITDA. Our view is that the trend of higher margins will continue over the next several years as global operating rates generally rise due to increasing demand and the limited new supply.

Also as we have discussed previously, the styrenics market is no longer only large producers with integrated chain economics, the creation of Trinseo and others like us has created a high level of focus on the profitability of just the styrenics chain, without integrated ethylene and benzene economics.

Looking ahead to 2017, our view is that the global economy will be similar to 2016. Therefore, we expect the Performance Materials division to once again produce single-digit EBITDA growth.

In Basic Plastics & Feedstocks, we expect the continued rise in operating rates across styrene monomer, polystyrene and polycarbonate as a result of some demand growth and no or limited supply growth. How much Basic Plastics & Feedstocks will improve in 2017 will be largely a function of operating rates.

And you have the analysis for 2016 versus 2015 using our end of year midpoint 2016 guidance. We have had a strong first half of the year and look forward to continuing to build in this momentum and deliver another record year for Trinseo. And now, Tamara, you may open the lines for questions..

Thank you. [Operator Instructions] And our first question comes from the line of David Begleiter with Deutsche Bank. Your line is now open..

Thanks. Good morning. Chris, nice quarter.

Just on styrene, can you update us on the global operating rates for styrene as well as on a regional basis?.

They really haven’t changed. The operating rates continue to be globally about 84%, 85%. The North American rates are higher than that into the high 80s. Europe is at about that rate and of course, the rates in Asia continue to be lower than that. So, no real change to where we have been on those operating rates, David..

Very good.

And any update on looking at some tech grub, but any update on potentially increasing capacity in Asia going forward?.

Well, we said that in our Performance Materials division, we have committed 5% year-over-year growth, at least 5%, ‘16 versus ‘15. And you heard me comment that in ‘17, we would expect a similar mid-digit growth rate.

We also have been quite focused on trying to grow our Synthetic Rubber business as you mentioned, in Asia particularly, but we have no update on working that area at this time, David, other than to say, of course, it’s one of our key priorities now.

We have others, in order to raise the growth rate capability of Performance Materials, that includes adding technology capability in Latex, which of course we are working on growing our Performance Plastics business faster either organically or through bolt-on acquisitions, all of which we are working diligently on, but no specific updates other than the general 5% growth at this time, David..

Great.

And lastly, Chris, how should we think about share buybacks in the second half – I mean, the back half of the year?.

David, this is Barry. I think, as Chris mentioned on his call that in the first half of the year, we had purchased 2.4 million shares about 5%. With the authorization from the board, one of the things we see is our stock is still undervalued and so we have the authorization that we received from the board about $100 million..

Thank you very much..

Thank you. And our next question comes from the line of Bob Koort with Goldman Sachs. Your line is now open..

Thank you. Good morning..

Hey, Bob.

How are you doing?.

Chris, I think you have talked in the past about pots and plants and maybe there has been some pullback in operating rates there.

Does it ever get to a point where styrene makes enough money that they can have PO byproduct and produce just to get the styrene margin? Is that ever a risk or is it got to be really much higher margins for that to happen?.

I think that is not likely just in terms of the way they operate, Bob. And as you know, POSM generally is a technology that’s not being invested in today. The last one to start was 2005. Now, Shell has indicated that with Sinok they are going to start a POSM plant in China, perhaps late ‘18 into the middle of the ‘19.

But generally, that technology is not favored for today’s investment. But specific to your question, I think it would be hard for them to run that way. And with PO on demand, I think the question might come into play is, as new PO on-demand assets come in, what will happen to some of the older POSM assets.

I think that might be an interesting dynamic over the next several years..

How about the margin? Obviously, in the basics has gotten substantially better.

I know you guys have been pretty assertive that you won’t add a new ton of capacity, but is there the potential you could find somebody in the industry that might start to think about that where the margin structure is today and given the outlook you guys have for operating rates?.

Sure. Just to be kind of clear, we talked at our last quarter about the number of months where we have had investment, great economics, if you will. And they are not that many, especially in Europe and none in Asia really. North America, the number is maybe 8 of the last 30 months we have had margins that would support investment.

Clearly, we know the investments over the next 3 or so years, they are the ones that we have outlined and they are minimal. And my view is that, no, I don’t think people are rushing to look at styrene monomer in that light. I don’t think the returns are really that high.

They are just better than they have been, Bob, better than some very poor history as you know and so I just don’t see that as mad rush to capacity. And more fundamentally, we have a very good view of that over the next 3 plus years.

So, somebody would have to go to their board and be convinced that they can go spend $400 million to $600 or more million on a business that is just starting to look like it’s okay, let on good, so hard to say, but not high odds in my view..

Got it. And let me sneak one last one in.

It doesn’t sound like you are going to have that many capital commitments outside of, obviously not in the Basic Plastics, but even in your rubber and specialty polymers and you are going to have a growing mountain of cash with these styrene operating rates and the polycarbonate margin improvement continues, should we just expect you to consistently shrink the capital base here and return all that cash to shareholders or is there the potential that you might go explore some other avenues to use that mounting cash flow?.

Well, I think we have been, again pretty consistent about that, at least in the medium term. As Barry outlined, we are getting started. We have started on I think a pretty strong share repurchase plan, the 2.4 million shares in the first half, $100 million authorized at the moment for the company.

We do have from our shareholders to our Board authorization for up to 4.5 million shares to be purchased over following 2 years. So we clearly are moving in that direction. We have declared our first cash distributions/dividend at a 2.5% yield.

Our CapEx requirements in Performance Materials are not that great and they are only maintenance and otherwise in Basics. So it leaves room for the idea of acquisitions, which I think is the fundamental part of your question.

But again, bolt-ons and Performance Materials, we do not believe, given the multiple of the company today which is quite low, given what we believe to be sustainable and growing EBITDAs, we believe the pathway to higher equity value for the company is to continue to deliver quarter-over-quarter, generate cash, be diligent about our share buybacks and our use of cash, but not to explore large strategic or other acquisitions at this time.

We just don’t think that’s the right thing to do because we have a pretty good hand and we would like to play it out. So I think the short answer is perhaps bolt-ons, but we are not exploring or interested in major changes in the company’s portfolio..

Great. Thank you for the help..

Thank you. And our next question comes from the line of Frank Mitsch with Wells Fargo. Your line is now open..

Hey, good morning Chris and great Q2.

I just want to come back to Slide 15, the bridge to 2016 guidance, just to clarify, obviously you are looking at a negative $60 million from the 2015 fly up in styrene margin, but $100 million positive on the BP&F structural improvement and I guess my understanding, as you outlined, Q2 benefited from material improvement in styrenics as well as polycarbonate, how do you delineate between that sort of discussion and the fly up in styrene margin and obviously, structural improvement implies the ability to – for that to repeat year after year after year, a little more explanation might be helpful for me?.

Sure. Yes, good question. So first of all, we took the $60 million out because we wanted to put ‘15 and ‘16 midpoint guide on the same basis. So our midpoint guide for ‘16 of $610 million does not really include any large amount or any substantial amount of fly-up styrene.

So therefore, the $490 million and the $610 million are, in our view the same basis. And so its $120 million of which $20 million is Performance Materials.

And your question of course is tell us more about how the $100 million is kind of composed, what we can tell you is that of that $100 million change year-over-year in Basic Plastics & Feedstocks, about three quarters of it is in styrene margins or in styrene. And about one quarter of it Frank, is in polymer.

So remember that conversation about all of our polymer volume. So we are seeing and did see some rise in polymer margins year-over-year in that analysis that we gave you. But three quarters of it is styrene and one quarter roughly is polymer, that’s the first one.

Now of the styrene, of the three quarters of the $100 that’s styrene, about one-fourth of that three quarters is utilities, better utility costs than the year before. That’s the function of our own efficiency efforts in utilities and generally lower utility costs in Europe year-over-year.

So if you kind of strip all that out, you will end up with about a quarter of that $100 million as polymer change and roughly two thirds or 60% of the rest of it has styrene margin change – structural change. And I think that gives you Frank, a composition if you will of that $100 million.

And then to your point about going forward, it depends as I said, on the operating rates in ‘17. So if we see continued rise of operating rates, we might see those kinds of continued up list polymer styrene and we might see more, we might see less, depends on how the operating rates move forward in the forward period.

So we purposefully put that in to give you guys a sense of exactly your question, I hope that gives you a little more granularity going forward..

That is very helpful for that and for what it’s worth, we have heard from a couple of other companies involved in the Styrenics business earlier this quarter that were speaking more positively about the future operating rates there. So it looks like that could be very much sustainable.

Just a follow-up on the Synthetic Rubber piece, you did mention it is an area of focus, you did report the second highest volume quarter there, how should we think about future growth there, is it more volume dependent, is it mix uplift, what would be your guidance there?.

Well, the short-term vectors we have for improving EBITDA in Rubber are really three. And this is separate from this. In fact, we put new assets in the ground Frank, wherever we are doing. We have the potential for mix uplift from just better SSBR volumes and by that I mean, better higher margin SSBR.

We have our neodymium activities, which we are just really kicking off in market, the conversion nickel neodymium. And we have the potential for the ESBR business, which is a generally commoditized rubber business for tires. We are not very big in it, but we are in it.

We have the potential for that business to just become a better business over the next 18 months, 24 months through rising operating rates of that commodity rubber.

Those are the three things that can impact our rubber EBITDA over the immediate period, separate from anything we might be able to do on the asset side and doing something on the asset side is an 18-month-plus exercise that you can appreciate..

Alright. Thank you so much..

Thanks Frank..

Thank you. And our next question comes from the line of Laurence Alexander with Jefferies. Your line is now open..

Hi, good morning. This is Dan Rizzo on for Laurence.

In terms of Performance Plastics in order exposure, what kind of trends are you seeing there and are there any areas where products were sold out?.

Well, in automotive for us and in Performance Plastics, the concept of sold out really is not that relevant for a couple of reasons. One, our business in Performance Plastics is a compounding business. So number one, we have a certain amount of extrusion – extruder capacity available.

But we can also add capacity in that business very easily, either through toll compounding or by buying and putting in new extruders. So the ability to ramp up volume to markets there is not like a chemical business, where you have to go build a 2-year project to build a Latex plant or something like that.

So you shouldn’t think about that as having constraints on volume from an asset point of view. The automotive market, obviously has been very strong. Our automotive sales are about a third in North America and the balance in the rest of the year – rest of the world with most of that in Europe. Now the U.S.

automotive builds have been quite high and have generally been viewed to be at peak volume. On the other hand, this average fleet age in the U.S. is still about 11.5 years, which is very high and the interest rates are very low.

And in Europe and in Asia, where we have roughly two-thirds are automotive sales, those auto builds do not seem to be slowing down at least at the moment.

And furthermore in general in automotive, we have the substitution of lightweight plastics for metal and other heavier materials, which is driving growth from substitution independent of OEM build rates.

So, when you pull all that together, our view going forward on automotive continues to be for growth in that segment from a plastics point of view to Trinseo when you think about the geographies and the mix and everything else that I just described..

Thank you. That’s very helpful.

And then just in terms of the SB Latex business, it seems that – there has been a lot of supply and demand is there anything you guys can do to improve mix or change end market exposure?.

Well, the operating rates in the U.S., you are right, Dan, have come up. There have been asset reductions, ours and others and the operating rates have come up. There is some additional price being increases that we have announced for July on our certain segments of our Latex business in North America.

And you have seen the results so far from our cost reductions and some price increase. Our Latex business is generally improving at the EBITDA line, which of course we like. But as we have said many times, our real focus in Latex for significant improvement is to diversify into better segments and we are doing that. We are in board. We are in carpet.

We are in specialty Latex applications like construction and adhesives. And we are trying very hard and continue to push for new technology to grow those markets, so that we can continue to offset the decline in coated paper market that’s occurring, of course, in Europe and North America.

Now, our Latex volumes have been very flat over the last 7, 8 quarters at about £300 million a quarter, this year was £310 million, we call that flat, that’s about the same. So, we have been able to hold our volume.

And now with cost reduction and some price improvement, it looks like we are going to be able to get our EBITDA back into the roughly $100 million a year range, independent of any step change improvement in new markets..

And then just one follow-up on that, you said the carpet – you are moving the carpet, is that rebounding? I have heard kind of mix there that it shows signs of life and then it kind of pulls back.

I was just wondering what you are seeing?.

Well, we have always been in carpet. It’s been a significant part of our mix. And yes, we have seen – generally, the carpet market is quite good. There are two drivers, of course, to the carpet market, well there are several. One is, of course, housing in general, construction in general, which in the U.S. still looks pretty good.

The other is remodeling and that also looks pretty good, but the third factor is the consumer’s preference, if you will, for carpeted surfaces versus other. And that does ebb and flow a bit and in the current mode we are in, generally people are using carpet and you can look at Shell and Mohawk and others who have reported on this.

And I think they are generally still pretty positive about the market in carpet..

Alright, thank you very much..

Thanks, Dan..

Thank you. And our next question comes from the line of Hassan Ahmed with Alembic Global Advisors. Your line is now open..

Good morning, Chris..

Hey, Hassan..

Chris, you have talked earlier about obviously not much capacity being on the horizon as far as styrene goes.

Just wanted to get a little more specific around that? Could you talk a bit about where you currently see styrene margins? What those look like relative to, call it, on $1 per ton basis reinvestment economics or what sort of greenfield replacement value looks like currently again on $1 per ton basis? Just trying to sort of calibrate where margins are today, how they compare to replacement value and the like?.

Okay. Well, let’s look at Slide 12 again, Hassan, which is kind of the styrene margin chart that we show. And I think what we would say about that is the following. Well, first of all, you know that it costs $500 million to $700 million to build a styrene plant. It could be more if you are not on infrastructure.

But when you look at the Western Europe margins at the top, you would really only see reinvestment in styrene at grey bar levels that look like, perhaps November, December ‘14, maybe April, June, September of ‘15, that’s really it.

Those are the months where the margins have been high enough to support a reinvestment thesis in styrene at least from our point of view and we quoted an 18% IRR in that calculation.

Now, if you go below and you look at Asia, clearly, there are really no months there, maybe with the exception of the May where we have the unplanned outage dynamic of the world, May 15, where that’s it. Now in North America, because of relatively healthier operating rates, there are a few more gray bars, if you will, that would breach that limit.

So, it just doesn’t look like there is a lot of incentive to go there with styrene. And we have said that in order to have investment economics, you have to have margins per ton of well over $500 a ton or in that range sustainable to support an investment thesis in styrene..

Very fair. Now, just moving on to the share buyback side of things, year-to-date, obviously, 5% of the shares outstanding have been bought back and obviously the share price is going up a bit, but when you guys got the authorization, it was at that sort of share price was for around 9.5% of shares outstanding, obviously may have come down a dire bit.

Just want to get a sense of how you are thinking about the balance between buying back shares, maintaining a certain degree of liquidity in sort of your shares out there.

How do you strike that balance?.

Well, on share liquidity and that’s I think what you asked, not our liquidity – share liquidity. We have plenty of liquidity in the market. We have 28.5 million shares in the market. Our dollar volume liquidity – our volume and dollar volume liquidity for the stock is quite high on a daily basis.

So, as it relates to share buybacks and pacing, which is your question, we would not as a company be focused on liquidity of shares as an issue. It’s going to be, as Barry said earlier, on value. And we believe the shares are undervalued.

So, deciding when to buy shares, how many shares under the authorization that we have, do we go back for an additional authorization if and when we move through the $100 million, those questions revolve primarily around value, not around trying to guess, control, manage liquidity of the stock that is not in our thinking..

Super. Thanks so much, Chris..

Thank you. And our next question comes from the line of PJ Juvekar with Citi. Your line is now open..

Hey, good morning, Chris. Eric Petrie on for PJ..

Hey, Eric.

How you are doing?.

Good. So, styrenic polymer volumes are down.

So, just wanted to get your outlook there and if that trend continues, do you see pressure on styrene prices?.

The styrenic polymer volumes are slightly down in polystyrene, they are actually up in ABS. And no, we don’t see pressure on styrene margins. The operating rates for polystyrene are still quite high. In fact, let me give you some instant data that might be helpful. Today, the settlement for styrene was completed in Europe.

The settlement for benzene and ethylene was completed last week in Europe. And the net of all of that is the styrene margins will come down in Europe by about €45 per ton. Styrene rolled over, okay. The contract price for styrene settled today in a rollover.

We announced or will announce today a €30 per ton increase in polystyrene in Europe, not in polystyrene, in all styrenic polymers. That announcement will go out or has gone out as we speak today. So, this is another example where in a rollover styrene in Europe, we are announcing an increase in styrenic polymer price.

And if that price increase goes through, you would see an accretion of styrenic polymer margin, while we see that decline that I described in styrene. So, that speaks to at least our view of the operating rate of polystyrene, ABS, SAN and the ability to move price up in a rollover styrene world.

So we still see operating rates pretty healthy and we are going to drive for chain margin wherever we can..

Okay, that’s helpful.

And then secondly, just higher level question, your Basic Plastics & Feedstocks margins are in the low to mid-20s, where do you see normalized versus peak in that segment?.

This is a question that comes up all the time. And I always tell you guys, first of all, the revenue of this company, okay, so I want you to be careful about these margin calculations. Our margins are going up, but remember our revenue is coming down – has come down as a function of declining oil and feedstocks.

So if just by a miracle, which I don’t expect, if instantaneously oil was back to $90 a barrel from today, if that were to happen, our revenue would go back to about $5 billion. So we would have the appearance in that scenario, of margin compression just by the math. So number one, I want you to of course, understand that dynamic, which I know you do.

But number two, on your fundamental question of peak, trough, etcetera, what we are trying to say is, that we believe that margins in styrene, polystyrene, ABS have reached through high operating rates, reconstructed companies, etcetera, a sustainable level and have the potential to grow as operating rates go up.

For the last seven quarters, this company’s EBITDA has averaged $145 million the last seven, excluding inventory we have. The last three, we have averaged over $150 million. Our guide for the third quarter, with no real turnarounds in styrene is $145 million.

So that to us is evidence of this generally rising operating rate scenario where we have been able to maintain and sustain these rates. So we don’t like to talk about mid-cycle, peak a cycle, bottom a cycle.

It’s contaminated by that revenue and we think more fundamental discussions should be about sustainability going forward given operating rates, given supply, given demand..

Great. Thanks Chris..

Thank you. And our next question comes from the line of Mike Sison with KeyBanc Capital Markets. Your line is now open..

Hey Mike, how are you doing?.

Sorry. Nice quarter.

In terms of Latex, it does seem that North American operating rates for most of the players are pretty tight, I think Europe is getting better, when you think about that business, a couple of years down the road, where do you think profitability can go?.

Well, we have been clear about our view for us. Because of our global footprint, because of our mix, carpet, paper coating, board, performance Latex, as we call it Mike, because of all of that, we have taken a view that we are going to drive to keep that EBITDA for us relatively flat in an environment where paper coating continues to decline.

And our avenue to do that, as you saw this quarter included cost reduction, asset closures, price from higher operating rates and continuing to drive mix. But the headwind of lower volume in coated paper, in Latex, SB Latex is there. And again, we are driving to hold our EBITDA where it is in that environment through what I just described.

The upside case for us continues to be, can we grow, can we grow our non-paper coating business at a higher rate than is otherwise in the numbers I have described.

And in order to do that, we likely need some additional technologies, so that we can penetrate some markets that we are not in, in order to grow those segments at a faster rate than we currently can. So that’s our prognosis for our business. And we think it speaks to our strengths.

Offsetting a 4% to 5% decline in coated paper – demand decline is no easy feat. So I think our Latex guys are doing a heck of a job in a very tough market..

Right.

And then as a quick follow-up, your earnings to EBITDA growth in Synthetic Rubber and Performance Plastics continues to be pretty impressive, any thoughts on opportunities to do more bolt-on acquisitions given your balance sheet is in pretty good shape?.

Well, we said that’s the focus for us. Obviously, we haven’t done one or agreed to do one and that’s probably all we can say about it. It’s an area of focus. It’s not easy. These are generally smaller companies that have their own issues, if you will. So we continue to work pretty hard on it.

We would like to do it because we think we are going to expand our technology in Latex that way and we could expand our technology in Performance Plastics as well, both of which might pursue growth of those businesses.

We have also been clear that in Rubber, it’s asset expansion on our own or in Asia with a partner is our general theme to grow that business, not acquisitions..

Great. Thank you..

Thank you. And this does conclude our question-and-answer session. Ladies and gentlemen, thank you for participating in today’s conference. Everyone, have a great day..