Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Trinseo (NYSE:TSE)
Q1 2019 Earnings Call
May. 03, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, ladies and gentlemen, and welcome to the Trinseo first-quarter 2019 financial results conference call. We welcome the Trinseo management team, Frank Bozich, president and CEO; Barry Niziolek, executive vice president and CFO; and David Stasse, vice president of treasury and investor relations. Today's conference call will include brief remarks by the management team, followed by a question-and-answer session. The company distributed its press release along with its presentation slides at close of market yesterday.

These documents are posted on the company's Investor Relations website and by means of a Form 8-K filing with the Securities and Exchange Commission. [Operator instructions] I will now hand the call over to David Stasse.

David Stasse -- Executive Vice president and chief financial officer

Thank you, Julie, and good morning, everyone. [Operator instructions] 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 those discussed, 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. A reconciliation of these measurements is provided in our earnings release and in the appendix of our investor presentation. 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 3, 2020. Now I would like to hand the call over to Frank Bozich.

Frank Bozich -- President and Chief Executive Officer

Thanks, Dave, and welcome to Trinseo's first-quarter 2019 financial results conference call, my first as president and CEO. I'm excited to speak with you this morning, not only to communicate our first-quarter results, but also to share my first impressions of Trinseo since joining the company about two months ago. This is an exciting time to join Trinseo. I was honored to accept the position of CEO because I saw the opportunity to be part of a team that has created a successful company with talented people that is well-positioned both strategically and financially for the next phase of growth.

Under Chris Pappas' leadership since the carve-out from Dow Chemical in 2010, Trinseo has developed into a company with a strong financial profile diverse in high-quality assets, a commitment to world-class EHS performance and a leadership position in multiple attractive markets. Environmental health and safety is an integral part of Trinseo's culture. Last year, 75% of our production plants operated without an injury, spill or process safety incident. Our recordable injury rate is in the top 10% of peer companies.

This achievement is a direct result of our employees' diligence, their commitment to following safety practices and the quality of our safe leadership. I want to thank Chris Pappas for his accomplishments and all the hard work he's done at Trinseo to build an excellent foundation upon which further growth is possible. Together, we traveled to the company's offices, labs and plants in Horgen, Switzerland; Terneuzen in the Netherlands; Schkopau in Germany; and Midland, Michigan. I'm grateful for his support and for the insights he shared with me during this transition period.

I am also grateful that he has agreed to remain on the Trinseo Board of Directors. I thoroughly enjoyed getting the opportunity to meet many of our exceptional employees around the world and listen to their thoughts on the company. It's clear to me that our employees' passion is at the core of Trinseo's success. It's my job to channel this passion and to leverage the strong foundation that I've inherited, along with Trinseo's strong balance sheet, to position the company for further growth.

Over the last two months, I've been conducting reviews of each of our business segments. As an outcome of these evaluations, we've taken some initial steps to better position the company for the future. First, we are evaluating strategic alternatives for our polycarbonate manufacturing facility in Stade, Germany. This site, which is our only polycarbonate manufacturing facility, represents about 12% of the European polycarbonate capacity and 3% of global capacity.

As you may know, we consume about 40% of this facility's output in our compounding business, and the remaining 60% is sold into the merchant market. Polycarbonate margins have been challenged over the last three quarters due to lower demand and new capacity in China, and global operating rates appear to be headed lower as more supply in China comes on screen. Given this outlook and our relatively small position in the merchant market, we've commenced to study to evaluate the strategic alternatives that would allow us to lessen our earnings exposure to the merchant polycarbonate market. Second, yesterday, we announced that we've signed a definitive agreement with the Dow Chemical Company to acquire its latex production assets in Rheinmunster, Germany, thereby expanding Trinseo's capabilities to develop applications based on alternative latex chemistries.

Since 2010, we've been producing primarily styrene butadiene latex at this facility under an operating services agreement with Dow. This acquisition is expected to provide us with full ownership and operational control of both latex production units providing more flexible production capabilities for both acrylic and styrene butadiene chemistries. These additional assets will enhance our ability to further penetrate the adhesive and construction market, which we've identified as core growth market for Latex Binders. We expect to close this transaction before the end of the year.

We expect that this will be immediately accretive to earnings, with first-year EBITDA contribution of approximately $6 million. We expect this should ramp up due to growth in productivity opportunities in the future. The service costs with the assumed pension liabilities will be less than $1 million per year during the first 10 years and less than $2 million per year during its next 15 years. Finally, we are implementing a framework for business and functional excellence aimed at reducing costs, as well as improving our commercial processes and results.

The aim of this is to build a structured program that becomes part of the fabric of the company to accelerate cost and productivity initiatives with the goal being continually offsetting inflation. Now let's move on to our business results and outlook. The challenging business environment we saw in the fourth quarter improved somewhat in Q1, but we saw weaker-than-normal demand across most end markets in China and the continuation of slower tire and automotive markets globally. However, despite a $17 million headwind from styrene outages and fixed cost under absorption related to inventory drawdowns, our results in the first quarter showed marked improvement over Q4.

We remain cautiously optimistic about improved market conditions in the second half of 2019. Our data indicates that the fourth quarter of 2018 was the bottom in the number of our markets. Excluding net timing impacts, margins and volumes in ABS, polystyrene and Synthetic Rubber were higher in the first quarter than in Q3 and Q4 2018. Also, styrene inventories in China have fallen for seven consecutive weeks from unplanned outages and derivative market recovery.

We are updating our full-year 2019 guidance to a net income range of $237 million to $290 million and an adjusted EBITDA range of $500 million to $560 million. Therefore, the midpoint of our guidance is $530 million. The low end of the guidance range assumes limited economic recovery in China, along with continued weak automotive and tire markets. The high end of the range requires material economic improvements in China beginning in the second quarter with sustained improvement through the remainder of the year.

Similar to last quarter, we've included on Slide 12 some key indicators we believe you should follow to assess the pace of recovery in our markets and, therefore, gauge how we're doing relative to our guidance range. So before we take your questions, I'd like to take a moment to recognize Barry Niziolek. This will be his last earnings call before a well-deserved retirement begins in the -- at the end of June to spend more time with his wife and family. We want to thank him for his leadership and strengthening the company's financial performance, compliance programs and operational discipline during his tenure.

Barry, you have our utmost respect and appreciation, and thank you for being a great partner to me as I've transitioned into the company. During the last few months, with the assistance of an executive search firm, we've completed a comprehensive evaluation of Internal and external candidates for the CEO role at Trinseo. I want to congratulate Dave Stasse on his appointment as Chief Financial Officer effective July 1. His deep knowledge of our business, markets, organization and previous experience within global -- complex global organizations make him ideally suited to take on this role.

Since joining Trinseo in 2013, Dave has demonstrated strategic and financial leadership as we transitioned to a public company while building our Investor Relations function and leading our treasury organization. Dave and Barry have worked very closely over the past three years and will continue to do so, enabling a smooth transition. And Barry, I'd like to invite you to make a few comments.

Barry Niziolek -- Executive Vice President and Chief Financial Officer

Frank, thank you for your kind words. The very reason that Frank articulated for joining the company at the beginning of this call are the very same reasons that brought me out of my first retirement to join Trinseo. I, too, believe the company is well-positioned for growth with a talented organization, strong balance sheet and an energetic and operationally focused new CEO. My wife, Susan, and I are excited about spending more time with our family, and the next year is quickly booking up with new adventures.

It's been my honor to be part of the Trinseo leadership team, and I will watch with great interest the future successes of the company. So with that, Julie, you may open the phone line for questions.

Questions & Answers:


Operator

[Operator instructions] Your first question comes from David Begleiter from Deutsche Bank. Please go ahead. Your line is open.

David Begleiter -- Deutsche Bank -- Analyst

Thank you. Good morning. Frank, as you've gone through the portfolio, you've identified polycarbonate as a business to be sold. Are there any other businesses or assets that could be viewed in that same category or perhaps non-core or to be disposed of going forward?

Frank Bozich -- President and Chief Executive Officer

First, I want to clarify a couple of points. The -- we are -- we have a number of strategic options for polycarbonate assets, and the goal of that would -- that we're evaluating, and the goal of those would be really to minimize the earnings volatility that we have to the merchant polycarbonate market while we ensure the supply of high-quality polycarbonate toward downstream compounding business. So there's a number of different options that we're considering. But I would say, in general, we will continually look at ways to reduce the cyclicality of our portfolio and improve the quality of our earnings.

So this is something we're going to do as a matter of practice.

David Begleiter -- Deutsche Bank -- Analyst

Very good. And just curious of your impression of the overall styrene market and the styrene cycle, given potential new capacity coming on in Asia over the next couple of years.

Frank Bozich -- President and Chief Executive Officer

Well, at this moment, we see operating rates at fairly high levels. We see margins improving, and so for the near term, we see a very favorable outlook. Obviously, if all those announced plans come on stream, that will put pressure on operating rates. But in the near term, we see it as a favorable environment.

Maybe I just want to add one last point, and that's specific around China. And as -- I think we've all heard about some of the recent environmental issues and tightening environmental regulation in China, and we have to keep in mind that 30% of the Chinese styrene capacity are nonintegrated local manufacturing facilities that will be -- we would anticipate being the target of some of these are impacted by tighter regulatory environments. So we think that that -- we haven't seen this effect in our value chains yet, but it has certainly the potentially to do that.

Barry Niziolek -- Executive Vice President and Chief Financial Officer

And maybe one other thing that -- going back to the monomer point. Recall, David, about 30% of the assets in China are nonintegrated. And so you know, as one of the things I've said since joining the company that's kind of interesting is -- also is if the capacity comes on stream, because at least for the past three years, it seemingly has always been a move-out because of potential delays or issues that have been raised with the Chinese capacity coming online.

Operator

Frank Mitsch from Fermium Research. Please go ahead. Your line is open.

Aziza Gazieva -- Fermium Research -- Analyst

Hi. Good morning, guys. It's Aziza on for Frank. First and foremost, congratulations to all three of you.

Frank Bozich -- President and Chief Executive Officer

Thank you.

Aziza Gazieva -- Fermium Research -- Analyst

My first question was, could you possibly walk us through the various regions and discuss the pace of the business through the quarter and maybe what you've seen in April thus far across the segment?

Frank Bozich -- President and Chief Executive Officer

So I guess what I would say is that, in general, it's a segment-by-segment story in Q1. And when we look broadly at -- maybe take you through the segments. But I would say, in general, it's a China story. And when you think about the impact that China has on our portfolio or on the value chains that we're in, they represent a significant global demand for most of those commodities.

And so -- and I'll give you some statistics. China represents 60% of the global demand for ABS, 55% of the polycarbonate demand, 35% of styrene demand and 30% of E-SBR and obviously the world's largest auto market. So when things weaken in China, it has a global effect and changes trade flows. Now with that said, if you look at our segments at -- relatively speaking, marked volumes held up globally, and latex was up from a volumes standpoint versus prior-year quarter, but the driver was really that we won a large new piece of business in Europe that offset market weakness and customer slowdowns in China, but margins were compressed by lower market demand.

Rubber volumes were down mainly in China due to OEM tires and replacement tires, and we had unfavorable net timing of $7 million and $3 million of under absorption from inventory management. But margins here in that segment were stable. In Performance Plastics, volumes were up, year over year due to our new ABS plant in China that had not fully ramped up in Q1 2018. However, polycarbonate and ABS margins were under pressure due to weaker demand in Q1 and prior year, and that was largely due to China.

Polystyrene volumes were up due to restocking after customers destocked in Q4 because of the drop in feedstock prices. So that's sort of the overview I would give you.

Barry Niziolek -- Executive Vice President and Chief Financial Officer

Maybe I would just add if I'd say if you take it to broader regions. In North America, probably holding up is good. For Europe, we say, as Frank just reiterated, we have the overwash from China, and we have a weak automotive market there.

Aziza Gazieva -- Fermium Research -- Analyst

Perfect. That is very helpful. Thanks, guys. Just curious if that latex deal, if that slows down buybacks at all? And if you guys have a preference with repurchase shares over bolt-ons? Or how do you guys think about that?

Frank Bozich -- President and Chief Executive Officer

Could you please repeat the question?

Aziza Gazieva -- Fermium Research -- Analyst

Sure. I was just curious if that latex deal slowed down buybacks and how the shares have been trading if there is a preference over to execute buybacks rather than bolt-ons at this level.

Frank Bozich -- President and Chief Executive Officer

So yeah. So let me make an important point. The acquisition of the Rheinmunster plant required no cash as consideration, so it was the assumption of the pension liabilities of the employees who will be joining us. And so as I said in the call, this is accretive to earnings immediately, and we expect that to grow as we drive productivity through -- over time and also use those asset -- put those assets to use in our portfolio.

And the service costs, if you will, of that assumed liability for the first decade will be less than $1 million a year. So it has virtually -- it only has a positive impact on our cash flows and earnings.

Aziza Gazieva -- Fermium Research -- Analyst

Thank you very much.

Operator

Laurence Alexander from Jefferies. Please go ahead. Your line is open.

Laurence Alexander -- Jefferies -- Analyst

Good morning. So I guess a couple of questions. First, can you maybe give us a feel for where you see either a low-hanging fruit or good opportunities to infect the growth of quality of the business? I mean like, where do you see things that were sort of waiting to be done, so to speak, I mean, apart from the polycarbonate action that you've already flagged? And secondly, can you talk a little bit about the AmSty JV, the Regenyx? Just thinking back on the envelope, can that recycle existing polystyrene back into feedstock grade material at about $50, $60 in oil? Or can you do it cheaper than that?

Frank Bozich -- President and Chief Executive Officer

Thanks for the two good questions. I'll take the first one, and I'll ask Dave, who sits on AmSty's board, to talk about the second one. Where I see a lot of opportunity and for us in the near term is to drive business excellence across our portfolio. And frankly, this wasn't waiting to be done, but the timing is perfect because now we're rolling out the T2020 Program to separate our systems from Dow Chemical.

So -- at its core, it's about us redesigning our business processes. So when I look at our work processes, I think that there's significant opportunity for us in four dimensions: in our plants' operations, in our supply chain and in our functions and commercially. Commercially, I think our program in commercial excellence is focused on addressing under leveraged pricing power that we have in our portfolio, and I believe we have that. So as we roll this out, we will gain momentum, and again, this is a journey that we'll be on to bring productivity across our different functions in those dimensions and, again, to drive our commercial processes with -- in a more -- I'd use the word excellence -- drive more excellence in commercial operations.

But Dave, you might --

David Stasse -- Executive Vice president and chief financial officer

Laurence, it's Dave. And I'll comment to -- just to give the other listeners the background. So our joint venture Americas Styrenics in North America formed a JV recently, and the -- and it's called Regenyx. And the purpose of that JV is to recycle polystyrene into virgin grade styrene monomer that can be -- back through the facility.

And the recyclability of polystyrene is a polymer. And the announcement was made, I think, last week. And they've actually already received their first shipment, Americas Styrenics has -- of styrene monomer, has run it through its system. So the technology is proven.

It's obviously in its nascent form and only working really right now with one recycling facility in one jurisdiction, and the idea that would be to grow that obviously and improve on the technology and the scale of the technology. I think is too early to comment now probably, Laurence, on operating efficiency relative to different price levels of oil. But I would just say that at this kind of early stage of the program, the technology is proven, yet on a relatively small scale. AmSty has received its first shipment of styrene monomer from the joint venture and has run it back through its system.

And I think that's a very positive outcome for, not just Trinseo and Americas Styrenics, but for the whole polystyrene industry on improving the outlook for the sustainability of it as a polymer.

Laurence Alexander -- Jefferies -- Analyst

Thank you.

Operator

Duffy Fischer from Barclays. Please go ahead. Your line is open.

Mike Leithead -- Barclays -- Analyst

It's Mike Leithead on for Duffy this morning, and congrats again to all three of you on your new roles and transitions. I guess, first, if we look at Slide 12, the China styrene inventory's graph in particular, if we were to stretch that back, say, five, 10 years, how anomalous is the current high level of inventories we're seeing? And with all that pressure in Asia, can you talk about any bleed-over impacts you're seeing in Europe as well?

David Stasse -- Executive Vice president and chief financial officer

Yeah. Hi, Mike. It's Dave again. I would say if you were to stretch that graph back five years, there is probably at least two other periods over that time frame when styrene inventories have reached that level.

That's just off the top of my head. There may be more. So I wouldn't say -- and that's over a five-year period, so I wouldn't say it's that anomalous. We talked about in our last call, we kind of predicted that the inventory would start to bleed off as we got into the turnaround season, which it has, and it looks we have a trend now developing, as Frank mentioned, with derivative operating rates, ABS expanded polystyrene operating rates improving in China.

So it looks to us that that is going to continue as we head into the second quarter. As you know Mike, styrene is a global commodity. So -- and China is a huge importer of styrene. So that inventory overhang, if you will, does have an impact on global styrene margins not just in China but other parts of the world also.

As we head into Q2, I think -- we had a contract settlement recent. We're already seeing styrene margins improving in the second quarter versus the first quarter, which gives us optimism. But I think the reduction of inventory levels in China is part of the reason for that increase.

Mike Leithead -- Barclays -- Analyst

Got it. And then I would just want to follow up on a strategic review of the polycarbonate unit. I think if I heard you correctly earlier in the call, Frank, you said 40% of the production is consumed internally. So if you do choose to sell that unit, would you need some sort of offtake agreement with the buyer to supply you back that polycarbonate? Or would you be OK with being sure with that supply in what hopefully is a weak price environment?

Frank Bozich -- President and Chief Executive Officer

Yeah. Our goal as an outcome of this effort will be to secure, by whatever means, a long-term supply at best economics of high-quality polycarbonate for that downstream business. So we have a number of options to accomplish that goal.

Barry Niziolek -- Executive Vice President and Chief Financial Officer

This is Barry. Again, I think Frank reiterated it a couple of times, but the questions of sale, there are multiple options we're exploring, and all options are on the table. So I just want to make sure that that's a message that's heard.

Frank Bozich -- President and Chief Executive Officer

And I just want to emphasize one point. We will approach this with a sense of urgency while -- we're running to ground a number of alternatives. We're committed to urgently resolve this and reduce uncertainty for the site, too.

Mike Leithead -- Barclays -- Analyst

Got it. Thank you, guys.

Operator

Eric Petrie from Citi. Please go ahead. Your line is open.

Eric Petrie -- Citi -- Analyst

Hi. Good morning, Frank. 

Frank Bozich -- President and Chief Executive Officer

Good morning. 

Eric Petrie -- Citi -- Analyst

What is your view on a high level of Chinese stimulants coming into the market this year? I believe the NDRC had an internal draft policy to promote consumption of home appliances, consumer electronics and autos, which I think would be positive for you. But any thoughts there?

Frank Bozich -- President and Chief Executive Officer

Yeah. So actually, we have seen some encouraging signs so far in China. In Q1, there was a strong industrial output or improving industrial output in retail sales in March. The Chinese appliance production turned positive in Q1, which is good for our ABS and our HIPS -- polymer -- high-impact polystyrene.

Performance Plastics volumes increased steadily through Q1. And then as we talked about, styrene inventories dropping. I'd also point out that despite the weakness in the general -- internal combustion or passenger car market, there was a very bright spot underlying that for electric vehicles. So while it might not be super impactful in the short term, the 120% year-over-year growth in EV sales in China is a great long-term trend for our Performance Plastics business and our Synthetic Rubber business because EVs require a high-performing tire.

So in general, it feels like there's momentum building, and the stimulus is gaining some traction. We haven't seen it blow all the way through over markets to date.

Barry Niziolek -- Executive Vice President and Chief Financial Officer

And I think it's a good reminder, is just while momentum is building. Typically, with any economic stimulus, there is somewhat of a time line. My opinion, it'd probably be about 90- to 120-day type of time line that you'll start seeing this more fully into the economy.

Eric Petrie -- Citi -- Analyst

OK. Thanks for that insight. Secondly, feedstocks are a bit better than I thought, and you absorbed the $17 million incremental cost. So how much did you benefit from purchasing styrene because prices were lower year over year?

Frank Bozich -- President and Chief Executive Officer

Well, I'm going to make a comment, and then Dave and Barry can add color, correct me if I'm wrong. But we had a negative impact from styrene purchases in Q1 of $5 million because of outages. So the net impact on styrene purchases was negative, and it was part of that $17 million.

David Stasse -- Executive Vice president and chief financial officer

Right, and the other part of that $17 million was -- impacted AmSty also. AmSty had a planned outage in January and February, which was $5 million as well.

Frank Bozich -- President and Chief Executive Officer

Yeah. And then the other $7 million of that $17 million was related to under absorption due to the intentional drawdown of working capital and finished good inventories in our operations delivering cash.

Operator

Robert Koort from Goldman Sachs. Please go ahead. Your line is open.

Dylan Campbell -- Goldman Sachs -- Analyst

This is Dylan Campbell on for Bob. So if I take the low end of your $500 million EBITDA guidance for 2019 and assume that is generated equally throughout the last three quarters, it implies about $130 million of EBITDA per quarter, compared to $102 million for the first quarter. I'm just curious, which segments drive that sequential improvement across the quarters?

Frank Bozich -- President and Chief Executive Officer

What I would say is, in general, if you look at our underlying performance in Q1, it was $119 million, as we pointed out due to those two factors. There's a -- the other thing that we have gaining traction that would lead to the low end of the guidance is very well-defined productivity and cost initiatives that the company has been driving that we'll see hit the P&L in the second half of the year. And then the low end of the guidance would contemplate at the improving styrene margins that we have due to the planned outages and the lower inventory levels that we're seeing in the beginning that Q2 play themselves out. So that's sort of the scenario that gets it to the low end of the guidance with minimal uplift in China and some of our downstream markets.

How would those -- to get higher into our guidance range would require additional tailwind in various markets and different segments.

Dylan Campbell -- Goldman Sachs -- Analyst

Got it. Thanks. And then on free cash flow, you guys generated a pretty strong free cash flow for the first quarter. What is your expectations for the full-year 2019?

Barry Niziolek -- Executive Vice President and Chief Financial Officer

For the full year, there's really no update to the cash assumptions that we put out on the slides, but essentially, unchanged from last quarter. But one thing to reiterate, working capital is -- the feedstocks' prices are very hard to predict, and so hence, has an impact on our working capital. I think and you'll note, we started out the year really strong with feedstock prices unchanged, and we were aggressively managing inventories down to the extent that we had a release of working capital of about $100 million. So we're committed to continually and aggressively managing our inventories and borrowing a spike in feedstock prices.

I think you can see there's a potential upside in our cash flow numbers.

Dylan Campbell -- Goldman Sachs -- Analyst

Got it. Thank you.

David Stasse -- Executive Vice president and chief financial officer

Just to clarify, I mean the upside I think that Barry is referring to is that you just take the midpoint of the guidance minus the capex, interest tax assumptions, which are all unchanged from the prior guidance and are listed in our slide deck.

Dylan Campbell -- Goldman Sachs -- Analyst

Thank you.

Operator

Hassan Ahmed from Alembic Global. Please go ahead. Your line is open.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Good morning, Frank, Dave. Just wanted to sort of start where you guys left off on the working capital/feedstock pricing side of things. Now it's been -- it is a strange sort of start of the year, where we saw a fairly major rally in crude oil prices. And just sounds that major feedstock that you guys procure, be it ethylene, be it methanol, be it propylene, they haven't -- historically, obviously the correlation in prudent feedstock was quite high.

And these products really haven't moved up that much. So my question is, what is your expectation as you think about your full-year guidance about the back half of the year in terms of this feedstock price? Are you baking in a move-up in the prices of these products along with crude? Or are you sort of just factoring in an environment similar to right now?

Frank Bozich -- President and Chief Executive Officer

I guess I'd make a couple of comments. The -- only a portion of our products have direct correlation to crude oil and then heavy cracking -- or naphtha cracking in oil refineries. A big percentage of our portfolio comes from NGL derivatives in natural gas. So again, there is not a complete or a direct correlation to all of our feedstocks in all of our segments to crude oil and naphtha cracking.

The second thing is that we have, in many of parts of our business, contract pricing, where we protect our margin via an adder, and those contracts are established at the beginning of the year and depend -- and mutes any significant volatility that we would have in underlying raw materials as we can pass that on. And where we don't have those contracts, we would leverage our commercial activities to more than recover any impact.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Understood, understood. Very helpful. And as a follow-up, in terms of usage of cash, Frank, as you started your new role and the like, how are you thinking about the balance between buybacks, dividends, debt paydown and the like?

Barry Niziolek -- Executive Vice President and Chief Financial Officer

This is Barry. I'll take it. Going Forward, I think, we're -- as you see, we're going to continue to see growth investments while we return cash to our shareholders.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Got it. So no real change relative to what we've seen over the last couple of months and quarters?

Barry Niziolek -- Executive Vice President and Chief Financial Officer

I'd say if you look at our first quarter, we bought back about $37 million. I think the important point, Hassan, is focusing on the kinds of growth investments we're looking at, like Rheinmunster. It's a good use of cash generating, what we will call, organic growth. And one thing I would add is like -- particularly when you look at -- I emphasized our strong balance sheet, there'd be no plan for any kind of debt paydown.

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Understood, understood. Very helpful, guys.

Operator

Vincent Andrews from Morgan Stanley. Please go ahead. Your line is open.

Angel Castillo -- Morgan Stanley -- Analyst

Good morning. Thank you for taking my question. This is actually Angel Castillo on for Vincent. Just very quick question around just stalling up on the raw materials.

There was a report this morning about ACN and how prices there have been rising quite a bit at least in Asia. I'm just curious, as I think about that in comparison to your comment about being encouraged on ABS margin levels, just curious if you can reconcile the two and just what that means for you guys, I guess, in the next quarter or so.

David Stasse -- Executive Vice president and chief financial officer

I can take than, Angel. I mean I think we -- acrylonitrile is what you brought up and obviously our -- one of our large exposure to acrylonitrile is in our ABS business. As Frank mentioned in his prepared remarks, we have seen a nice pickup in ABS margins and volumes going into Q2 -- or in the first quarter versus Q4, and we see that going into early Q2 also. So I don't think we're seeing any impact.

We're able to pass that acrylonitrile through an ABS pricing. And again, I think that's part -- that's due to the increase in operating rates that we're seeing in some of these polymers, specifically in Asia.

Angel Castillo -- Morgan Stanley -- Analyst

Got it. That's very helpful. Thank you. And then just on SSBR, just curious -- and you've actually talked about the ramp-up of the capacity that you had there.

And just so as I think about China and the comments that you made about the regulatory, perhaps excluding you because of the exposures that have taken place there, I think you had mentioned in the past also about permits that you were working through to -- that were perhaps holding back a little bit of that ramp-up or ability to grow volumes there. So just curious if you could, one, give us an update on the SSBR ramp-up; and just, two, how that -- the China regulatory process may be impacting your permitting and just the timing around on that.

Barry Niziolek -- Executive Vice President and Chief Financial Officer

Maybe just to clarify because there's a couple of things in your question. The reference to permitting what we saw was relative to our Zhangjiagang site, which is really for an ABS facility, OK? And that was -- and recall, we started that up about a year ago.

Frank Bozich -- President and Chief Executive Officer

That was ramping up in Q1 of 2018, so that's completed. If you look -- but if you go back to SSBR, SSBR is primarily targeting a high-performing tire market. And the high-performing tire market has actually held up very well, where we've seen in this downturn the consumer sentiment or consumer buying patterns changes around the commodity tires, which is largely in E-SBR or lower-performing rubber. So our mix -- actually, SSBR is good.

We've had seen good -- relatively good demand. But where the big pressure we've had is on our E-SBR, and that goes in -- is destined for lower-performing tires.

Angel Castillo -- Morgan Stanley -- Analyst

Got it. That's very helpful. Thank you.

Operator

Matthew Blair from Tudor, Pickering, Holt. Please go ahead. Your line is open.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Hey. Good morning, everyone. Not sure if I missed this, but could you provide an update on the operations at your styrene plant in Germany? There were some reports that your benzene supply was disrupted in March and April. And then are you still planning a fairly large turnaround at that plant in May and June?

David Stasse -- Executive Vice president and chief financial officer

Matthew, it's Dave. The question was about our Böhlen, Germany styrene manufacturing facility. And you're correct, there were some disturbances with getting upstream supply that caused an unplanned outage in the first quarter. We did have a planned outage in the second quarter that's actually already started.

So we've kind of entered that planned outage right now. We pulled it forward a little bit and then started that planned outage now. So our hope is that we would be up kind of mid to late Q2 with that site after the planned out -- planned maintenance events are over.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Sounds good. And then just in regards to your Q2 guidance, you talked about a modest quarterly sequential improvement. I just wanted to clarify, what do you consider to be the starting point? Would it be the $119 million on EBITDA? Or would it be the $102 million?

Frank Bozich -- President and Chief Executive Officer

No, the starting point is $119 million.

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Great. Thank you.

Operator

Roger Spitz from Bank of America Merrill Lynch. Please go ahead. Your line is open.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Thank you, and good morning. 

Frank Bozich -- President and Chief Executive Officer

Good morning. 

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Can you -- good morning. Can you speak about JRS' Hungary SSBR JV plant? What the status is there and the impact on the market?

David Stasse -- Executive Vice president and chief financial officer

Yeah. Good morning, Roger. I think you're referring to JSR, which is a -- JSR is a Japanese manufacturer of SSBR and other grades of rubber that has formed -- was announced several years ago that they would be entering to a JV with an SSBR manufacturing facility in Hungary with an Eastern European company. I believe this site is up and running now, going through qualifications with customers for SSBR.

That's really the only update I can give. I haven't heard anything beyond them being in production and going through qualifications and sampling. I'm not sure if it's fully commercial -- I'm fairly sure it's not fully commercialized running in capacity, but that's really the only update I can give you right now, Roger.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Thank you. I was a little tongue-tied on that.

David Stasse -- Executive Vice president and chief financial officer

JSR.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Yeah. On American Styrenics, as you reevaluate your assets and want to reduce cyclicality where it doesn't necessarily help you, does Americas Styrenics help the rest of your wholly owned business? I mean the EBITDA peaked obviously for a very long time in 2018. And parenthetically, I assume there are ROFR or ROFO should you wish to exit that JV?

Frank Bozich -- President and Chief Executive Officer

Well, we think of Americas Styrenics as part of our overall portfolio. And as we have just evaluate our -- continue the strategic review of our portfolio, we would include that as parcel for our overall styrene position globally. But we're -- we like the performance of Americas Styrenics and it's performed well year to date.

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

Got it. And lastly, when you acquired Dow Chemical's Rheinmunster, Germany facility, you already had control, I guess, of the SB latex. I guess they were producing on your behalf. Do you get additional capacity? Maybe that you refer to it two lines here.

Is there a second line that you didn't have access to or they were making acrylics there? Or is this additional capacity you're getting?

Frank Bozich -- President and Chief Executive Officer

So we get additional capacity but more depend. Also importantly, we get a different type of asset than we have in our portfolio that lends itself to the manufacturer of products that go into other higher-value and higher-growth markets. So that's what's exciting about it. We can leverage those new assets, not only to expand the capacity, but expand the capabilities that we have to serve some additional growing markets.

David Stasse -- Executive Vice president and chief financial officer

And those assets are alternative chemistries, Roger, beyond styrene butadiene latex.

Operator

[Operator signoff] 

Duration: 49 minutes

Call participants:

David Stasse -- Executive Vice president and chief financial officer

Frank Bozich -- President and Chief Executive Officer

Barry Niziolek -- Executive Vice President and Chief Financial Officer

David Begleiter -- Deutsche Bank -- Analyst

Aziza Gazieva -- Fermium Research -- Analyst

Laurence Alexander -- Jefferies -- Analyst

Mike Leithead -- Barclays -- Analyst

Eric Petrie -- Citi -- Analyst

Dylan Campbell -- Goldman Sachs -- Analyst

Hassan Ahmed -- Alembic Global Advisors -- Analyst

Angel Castillo -- Morgan Stanley -- Analyst

Matthew Blair -- Tudor, Pickering, Holt -- Analyst

Roger Spitz -- Bank of America Merrill Lynch -- Analyst

More TSE analysis

All earnings call transcripts