Kraton Corp (KRA) Q4 2020 Earnings Call Transcript

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Kraton Corp (KRA)
Q4 2020 Earnings Call
Feb 25, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Kraton Corporation's Fourth Quarter 2020 Earnings Conference Call. My name is Dale, and I will be your conference facilitator. [Operator Instructions].

I will now turn the meeting over to Mr. Gene Shiels, Director of Investor Relations. Sir, you may now begin.

H. Gene Shiels -- Director of Investor Relations

Thank you, Dale. Good morning, and welcome to the Kraton Corporation Fourth Quarter 2020 Earnings Call. With me on the call this morning are Kevin Fogarty, Kraton's President and Chief Executive Officer; and Atanas Atanasov, Kraton's Executive Vice President and Chief Financial Officer. A copy of the fourth quarter 2020 news release with the related presentation material, we will review this morning, is available in the Investor Relations section of our website.

And before we review the results for the fourth quarter, I'd like to draw your attention to the disclaimers on forward-looking information and the use of non-GAAP measures included in our presentation and in yesterday's earnings press release. During the call, we may make certain comments that are not statements of historical fact and thus constitute forward-looking statements.

Investors are cautioned there are risks, uncertainties and other factors that may cause Kraton's actual performance to be significantly different from the expectations stated or implied by any forward-looking statements we make today. Our forward-looking statements speak only as of the date they're made, and we have no obligation to update such statements in the future. Our business outlook is subject to a number of risk factors. As the format of this morning's presentation does not permit a full discussion of these risk factors, please refer to our forms 10-K, 10-Q and other regulatory filings available in the Investor Relations section of our website.

Regarding the use of non-GAAP financial measures, a reconciliation of each non-GAAP financial measure we used to its most comparable GAAP financial measure was provided in yesterday's earnings press release as well as the presentation material this morning. Following our prepared comments, we'll open the line for your questions.

I'll now turn the call over to Kevin Fogarty. Kevin?

Kevin M. Fogarty -- President and Chief Executive Officer

Thanks, Gene, and good morning, everyone. I hope you're all being safe and staying healthy. As you well know, 2020 was a year like no other, given the unprecedented challenges posed by the global COVID-19 pandemic, especially the adverse impact on demand in many end markets and geographies. We are extremely pleased, not only with our financial results for the fourth quarter and the year overall, but in terms of how our entire organization responded to an altered operating environment.

With the safety of our employees, our customers, suppliers and the communities in which we operate, our top priority in 2020, we responded quickly early in the year with enhanced safety protocols in our operating locations, and we successfully transitioned to a remote work environment for a significant number of our employees around the globe.

I'm proud of the way our organization has continued to work almost seamlessly to preserve business continuity and the efficiency of our supply chains, so that we are able to continue to serve the needs of our customers. This past year was also a good year to prove the resiliency of our business model and the benefits of our broad end market and portfolio diversification.

While COVID-19 had an adverse impact on global demand in the first half of 2020 in particular, as evidenced by weakness in end markets such as automotive, oilfield and consumer durables, we saw favorable demand trends that translated into growth in other areas such as adhesive businesses, in medical and personal care applications, and in paving and roofing markets.

As a result, despite demand disruption associated with COVID-19, in 2020 Kraton delivered growth and sales volume for both our Polymer and our Chemical segments. As a further measure of the resilient performance of our core business, excluding the results for the Cariflex business, which we sold in the first quarter of 2020, adjusted EBITDA for 2020 would have been down approximately 5% compared to 2019 despite a challenging market environment associated with COVID-19, particularly in the second quarter of 2020.

Of critical importance, while we are focused on navigating the near-term challenges of 2020, we continue to position Kraton for the long term. Over the past year, we successfully advanced our sustainability objectives, which are broad-based and include initiatives such as responsible procurement and supply chain improvements, enhanced operational efficiency, advancements in diversity and inclusion, as well as bio-based certification and commercialization of products that address the world's growing need for sustainable alternatives.

The key examples of these products are our REvolution family of low color Rosin Esters and our CirKular plus polymer technology, they can facilitate expansion of the CirKular economy via processing more post-consumer plastic waste streams. And with our ongoing commitment R&D, we have now achieved commercialization of our IMSS technology in automotive with the blue -- excuse me, with Buick GL6 launch in China, and we look forward to further translation of this technology into other automobile or automotive applications.

And I'll speak more about our forward vision and how we are framing our strategy on sustainability in just a few minutes. On a more tactical front, in a year like 2020, cost management and strengthening of our capital structure were paramount. During the year, we took action to deliver approximately $20 million of run rate cost savings, and we expect to deliver additional cost efficiencies this year.

The sale of our Cariflex business in the first quarter of last year unlocked significant value accretion for our shareholders, and it contributed to a significant delevering of the Kraton balance sheet, improving our overall leverage profile. We maintained a healthy liquidity position throughout the year, and we're able to refinance our ABL facility through December 2025 while reducing pricing. In addition, we successfully refinanced our 7% senior unsecured notes, reducing the coupon to 4.25%. Going forward, this will provide for meaningful cash interest savings.

I'll now happily turn the call over to our Executive Vice President and Chief Financial Officer, Atanas Atanasov, who will provide more specifics on our financial results for the fourth quarter and the full year in 2020.

Atanas?

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer And Treasurer

Thanks, Kevin, and good morning, everyone. As we turn to Slide 5, I'll review the financial highlights of the fourth quarter of 2020. As Kevin pointed out, we're very pleased with our results for 2020 and more specifically to this discussion, our fourth quarter results. As in the third quarter of 2020, we continue to see sequential recovery in demand from the low levels in the first half of 2020 associated with the adverse impact of COVID-19.

The improved demand fundamentals continued in the fourth quarter, providing for solid financial results as we closed out the year. In terms of specific financial highlights, fourth quarter 2020 revenue was close to flat, down $1.8 million versus 4Q '19. This was largely a function of the disposition of our Cariflex business early in the year, which would have contributed approximately $45 million of revenue. Therefore, excluding Cariflex, sales grew approximately 12% over the same period in 2019.

The relative stability in margins and higher sales volume in both our Polymer and Chemical segments contributed to fourth quarter 2020 adjusted EBITDA of $54.4 million, which was up $5.4 million or nearly 11% compared to the fourth quarter of 2019. Excluding the Cariflex' EBITDA contribution in the fourth quarter of 2019, adjusted EBITDA associated with the Polymer and Chemical businesses was up approximately $21 million versus the year ago quarter.

From a segment perspective, we delivered solid fourth quarter results in both our Polymer and Chemical segments. Polymer segment adjusted EBITDA for the fourth quarter of 2020 of $30.6 million was up 3.5% versus the year ago quarter. And excluding Cariflex would have also been up $17 million compared to the fourth quarter of 2019, while adjusted EBITDA for the Chemical segment was up 22.3% compared to the fourth quarter of 2019.

As Kevin just indicated, during the fourth quarter, we continued to focus on strengthening our balance sheet through debt reduction and improving our capital structure. During the quarter, we reduced consolidated net debt, excluding the effect of foreign currency by $41.5 million. During the quarter, we also took proactive steps to enhance our financial flexibility.

We refinanced our ABL facility, extending the maturity to December of 2025 and reducing the cost of borrowing. In addition, we completed a highly successful senior unsecured bond offering, effectively replacing our former of 7% senior unsecured notes with 4.25% senior unsecured notes due December of 2025. This refinancing will result in annual interest savings of over $11 million.

We, therefore, ended the year with significant financial flexibility and strong liquidity position as evidenced by cash on hand of approximately $86 million and availability under our ABL facility of approximately $191 million. I'll now move to Slide six for a review of our Polymer segment results. The Polymer segment booked solid financial results in the fourth quarter.

While revenue was down $17.7 million versus Q4 of '19, the decrease is mostly the result of the sale of the Cariflex business in Q1 of '20. Adjusted for Cariflex, revenues would have been up approximately $28 million versus the same period last year. As I just noted, Polymer segment adjusted EBITDA for the fourth quarter of 2020 was up 3.5% even without the contribution of Cariflex to our fourth quarter 2020 results. Excluding the Cariflex contribution in the fourth quarter of 2019, Polymer segment adjusted EBITDA would have been up $17 million.

The improved results are primarily driven by higher sales volumes, which were up 6% compared to Q4 of '19, which included results from the Cariflex business. Specialty Polymer sales volume was up 15.6% compared to fourth quarter of 2019 with demand recovery in all regions and recover in key end markets such as consumer durables and automotive applications.

Our Performance Products business also saw fourth quarter 2020 sales volume growth of 7.4%, principally driven by stronger sales into paving and roofing and adhesive applications. Adjusted gross profit for the Polymers segment was $767 per ton in the fourth quarter, and this compares to $801 per ton in the fourth quarter of 2019, a quarter which included results for Cariflex. We also saw 150 basis point improvement in Polymer segment's adjusted EBITDA margin at 14.2% compared to 12.7% in the year ago quarter.

Looking at full year results for the Polymer segment. For the full year 2020, Polymer revenue was $857.6 million, a decrease of $195.4 million compared to 2019. The revenue decrease, however, was largely driven by the sale of the Cariflex business as well as lower average selling prices associated with lower average raw material costs, partially offset by higher sales volume and core business -- in our core business.

Although reported sales volume was down 1.4% versus the prior year, this reflects the disposition of Cariflex. Excluding Cariflex, sales volume would have been up 5.5%. Specialty Polymer sales volume was up 5.2% compared to 2019. Whereas demand trends in China and broader Asia weakened significantly in the second half of 2019, we saw improving demand as 2020 progressed. As a result, the increase in Specialty Polymer volume is largely associated with demand recovery in Asia.

For Performance Products, 2020 sales volume was up 2.2% compared to 2019, driven by higher sales into paving and roofing, and adhesive applications. Polymer segment's adjusted EBITDA for the full year 2020 was $167.5 million, although down $20.7 million versus full year 2019, the sale of Cariflex has a net impact of approximately $44 million on a period-to-period decrease. Excluding Cariflex, adjusted EBITDA would have been up 18% or $23.6 million compared to 2019, evidence of the strong performance of our core business in 2020, including the benefits of cost discipline.

As we have discussed throughout 2020, we have seen notable margin stability in our Polymer segment. For full year 2020, the segment adjusted EBITDA margin was 19.5%, an increase of 160 basis points compared to the 17.9% in 2019, which included a full year of contribution from the Cariflex business. Lastly, adjusted gross profit in 2020 was $903 per ton and this compares to $969 per ton in 2019, which included the contribution of Cariflex.

The impact of the sale of Cariflex on adjusted gross profit is approximately $100 per ton. Now turning to Slide seven for a look at the Chemical segment results. Chemicals segment revenue for the fourth quarter of 2020 was $192 million, up $15.9 million versus Q4 of '19. Sales volume was up 20.3% compared to the year ago quarter, including higher opportunistic sales of raw materials, albeit with different pricing.

Sales volume for adhesive was up 9% compared to the fourth quarter of '19 on higher sales of Rosin Esters, reflecting strong adhesive demand reflective -- relative to recent market needs. While Performance Chemicals sales volume was up 25.6%, reflecting high opportunistic sales of raw materials, sales volume in tires was up 27.2% versus Q4 of '19, with healthy demand driven by growth in innovation applications.

Fourth quarter 2020 adjusted EBITDA for the Chemicals segment was $23.9 million with an associated margin of 12.4%, and this was up $4.4 million compared to the $19.5 million in the fourth quarter of 2019, in which the associated margin was 11.1%. On a full year basis, Chemicals segment revenue was $705.6 million down $45.9 million compared to 2019.

The decrease was driven by lower pricing in the CST chain and lower average selling prices for Rosin Esters, related to the oversupply of low-cost hydrocarbon tackifiers in Asia. The decrease also reflects lower pricing for TOFA upgrades, primarily due to the COVID-19 pandemic, partially offset by the revenue contribution associated with higher opportunistic sales of raw materials. Compared to 2019, Chemicals segment sales volume increased 6.8%.

Sales volume for Performance Chemicals was up 9.2% with opportunistic sales of raw materials, partially offset by lower sales of TOFA and TOFA derivatives that was largely due to market fundamentals, including the adverse impact of COVID-19, particularly in the second quarter. Sales volume for adhesives increased 2.7%, and this was a function of robust Rosin Ester demand.

The sales volume for tires was essentially flat for the year as solid growth in sales volume in the first, third, and fourth quarters of 2020 was offset by a severe contraction in the second quarter demand, as COVID-19 had a widespread impact on tire production and therefore, demand for our products. For 2020 as a whole, the Chemicals segment reported adjusted EBITDA of $94.6 million, down $37.8 million compared to $132.4 million in 2019.

Factors in the decline include lower average selling prices in the CST chain relative to the record levels of 2018 and the first half of 2019, lower pricing for Rosin Ester products as well as the lower sales of TOFA and TOFA derivatives, resulting from market conditions, including the impact of COVID-19 and this was partially offset by higher sales of raw materials. Slide eight provides a summary of our consolidated results for the fourth quarter and full year 2020.

For 2020 as a whole, consolidated adjusted EBITDA was $262.1 million, and this compares to $320.6 million in 2019, a decrease of $58.5 million. However, more than 75% of the decrease or $44 million relates to the sale of the Cariflex business, with the balance largely associated with the lower pricing in the CST and TOR chains, partially offset by lower raw material costs and higher sales volume in both segments.

The consolidated adjusted EBITDA margin for 2020 was 16.8%, and this compares to 17.8% in 2019, which included Cariflex and high average pricing in the CST and TOR chains for the Chemicals segment. For the fourth quarter of 2020, adjusted diluted earnings were $0.23 per share, and this compares to adjusted diluted earnings loss of $0.06 per share in the fourth quarter of '19. For the 12 months ended December 31, 2020, we reported adjusted diluted earnings of $1.29 per share and this compares to $2.94 per share for the 12 months ended December 31, '19.

The adjusted EPS decline is principally associated with the sale of the Cariflex business and the decline in the CST and Rosin prices. Now turning to Slide 9. During the fourth quarter of 2020, we reduced consolidated net debt, excluding the effect of foreign currency by $41.5 million. On a full year basis, during 2020, we reduced consolidated net debt by $541.4 million, excluding the effect of foreign currency. As we expect further debt reduction in 2020, we expect to achieve our leverage -- target leverage ratio of approximately three turns this year, 2021.

I will now turn the call back to Kevin for his closing comments. Kevin?

Kevin M. Fogarty -- President and Chief Executive Officer

Thank you, Atanas. As we have noted, demand trends in both our Polymer and Chemical segments improved in the second half of 2020. And while we remain mindful of the disruptive potential of COVID-19, thus far in 2021, market trends are encouraging, and we expect our diverse end market exposure to continue to benefit us in 2021. Therefore, we currently expect to grow our core business of 5% to 7% this year.

On Slide 10, we provide an update for our near-term outlook by key end use. In terms of major geographic exposures, in the Americas, we anticipate strong demand fundamentals with continued recovery in consumer and industrial applications. While in European markets, we currently see demand trends continuing to improve. Over the course of 2020, we saw demand trends in China and broader Asia also continuing to improve. Thus far, in 2021, economic activity levels have been very encouraging.

As China and broader Asia are key markets for our Specialty Polymers business, we enter 2021 well positioned to address opportunities in these important growth markets. In terms of end markets for 2021, we anticipate a continuation of solid demand for key applications that prove critical in 2020 in addressing unique market needs. As highlighted in prior quarters, we have seen favorable trends in adhesive markets over the past year, driven by packaging demand and growth in e-commerce, as well as other applications such as masks and gowns in healthcare markets.

In addition, we have also satisfied new market needs relative to COVID-19, an innovative HSBC grade manufactured at our facility in Mailao, Taiwan plant is being used in face mass to improve wearer comfort. In addition, with the development of vaccines to address COVID-19, our hydrogenated product grades are being used in insulation gels that are critical in temperature-controlled distribution of vaccines.

Now in our more traditional businesses, while still early in the year, we look forward to a favorable paving and roofing season, and further growth in automotive and consumer durable markets associated with further market adoption of innovation grades. In our Chemical segment, we are currently seeing favorable trends in all three of our major product categories of TOFA, TOR and our CST chain.

In addition, for quite some time, Kraton has been active and a participant in the growing global market for biofuels and renewable diesel, and we see opportunities to expand our role in these applications in 2021, while remaining committed to our existing customers. As demand for biofuel grows, Kraton is well positioned with two refineries in the U.S. and two refineries in Europe, as this footprint enables us to participate as a global supplier.

Moreover, we have proven expertise with all necessary certification requirements already in place. We have a strong and diverse CTO supply position, and we have well-established and proven supply chain capabilities with the ability to ship CTO and CTO derivatives as well as pitch from the U.S. into the European market. Turning now to Slide 11.

Our participation in the growing biofuel market is but one example of how Kraton is working to address the growing global demand and need for bio-based renewable and sustainable alternatives. Kraton has long believed that our future success is dependent upon sustainable business practices and meeting society's needs for sustainable products.

We are committed to making a positive difference for all our stakeholders through safe, compliant, socially and environmentally sound operations, because we fundamentally believe that sustainable business practices are a prerequisite for meeting the expectations of all our shareholders and stakeholders alike today and into the future. Our commitment to sustainability is not just founded in words, but intangible evidence of our progress in driving sustainable business practices across our entire enterprise.

This commitment is demonstrated through our membership in the American Chemistry Council, the European Chemical Industry Council and our participation in Responsible Care, a chemical industry's world-class standard for HS and ES Management and Performance Excellence. If you have not had an opportunity to review our sustainability report, which is available on our website, I encourage you to do so. I'm proud of the progress that we have made to date in advancing our sustainability objectives.

Turning now to Slide 12. From our perspective, the global focus on sustainability intensified in 2020. The world's needs are evolving, and Kraton and society as a whole must rise to the challenge. Our goal is to be an admired sustainable supplier of innovation-based solutions, whether it is through our Chemical segment or our Polymer segment. We believe that sustainable business practices create value for our customers and all our stakeholders.

We embrace sustainability as a value driver, and it shapes our strategy as we move forward. Of course, our commitment to sustainability is not a final destination of a journey. And so we expect to continue to define long-term objectives to safeguard our future. As part of this process, we will also continue to identify short-term tactics and initiatives at every level of our organization that are critical to delivering our longer-term vision.

Turning now to Slide 13. Through the groundwork we have already established, we are well on our way in driving sustainable business practices throughout our organization. As a member of Together For Sustainability, we remain committed to responsible practices and continual improvement in procurement. In 2020, we are awarded a Gold rating by Ecovadis in recognition of our progress in implementing systems to ensure responsible procurement.

In addition, we have adopted management systems that include policies and procedures relative to compliance, labor practices, and enhanced performance as it relates to HS&E. With safety as our first core value specifically, we continually work to ensure the safety of our employees, the communities in which we work, and all our stakeholders.

We have long embraced diversity, as evidenced by the composition of our Board of Directors, and in 2020, we adopted specific policies around the broader topic of diversity and inclusion, ensuring equal opportunities for all our employees. On an operational level, we are well on our way to meet our greenhouse gas intensity reduction target of 25% by 2030, and we will continue our work to reduce carbon emissions and energy intensity throughout our manufacturing organization.

As we look downstream, we will continue to leverage the bio-based nature of our Chemical segment and our R&D capability as we develop and commercialize products that address our customers' needs for sustainable solutions. In this regard, during 2020, we made solid progress in commercialization of key platforms. On Slide 14, one of these platforms that has garnered significant interest from our adhesive customers is our REvolution Rosin Ester technology, which we believe has established the industry standard in terms of color and stability.

As a bio-based offering and given its performance and product attributes, REvolution is a compelling alternative to hydrocarbon-based tackifiers for our adhesive customers. Customer response has exceeded our initial expectations, and given our positive expectations for global adhesive demand and our customers' evolving needs for sustainable inputs, we think REvolution is positioned for continued share growth.

Turning to Slide 15. As you all well know, the societal sentiment with respect to hydrocarbon-based materials and single-use plastics continues to evolve. And while it is true that our Polymer segment utilizes hydrocarbon derived raw materials, through the versatility and recyclability of our SBC chemistry, we are able to address growing market needs for sustainable solutions.

One example is our CirKular Plus technology, which is providing the industry with technology to facilitate growth in the CirKular economy by enabling more efficient recyclability of post-consumer plastics waste streams. As an additive in the processing of waste streams, CirKular is effective as a compatibilizer, allowing increased use of multi-resin waste streams providing broader use and end functionality as well as productivity.

And now on Slide 16, our most recently commercialized innovation are injected molded, Soskin or IMSS technology. We are extremely excited at this development as we've been working for some time to commercialize this technology that provides significant system-level cost savings in large injection molded automotive parts such as dash and door panels compared to slush molding processes.

Other notable features of IMSS technology allow for lighter weight, recyclability, improved haptics and look and feel, and improved aging performance with reduced VOC emissions in order. This technology has been commercialized in the Buick GL6 in the fast-growing Chinese market. We look forward to translation into other vehicle platforms in the future. Lastly, given our continued enthusiasm for its potential in the fight against COVID-19 and other applications, I would remiss in not acknowledging that we remain in the regulatory approval process for BIAXIM.

While I don't have any specific update to provide at this time, I can assure you that we have remained focused on both the opportunities under Section 18 referred often to as the EPA's emergency exemption and the broader Section three approval. We look forward to providing specific updates as soon as they become available. In closing, we enter 2021 energized by the solid performance we delivered in 2020 despite challenging market conditions.

The positive momentum as we closed the year has continued into early 2021. And as I said, we currently expect our base business this year to grow 5% to 7%. We are positioned to benefit from further upside in our various end markets, and if the opportunity for further growth exists, you know we will pursue it.

With those comments, we're happy to open the call up for your questions.

H. Gene Shiels -- Director of Investor Relations

Dale, can we move to the Q&A session, please?

Questions and Answers:

Operator

[Operator Instructions] Speakers, our first question comes from Chris Kapsch of Loop Capital Markets. Sir, your line is now open.

Chris Kapsch -- Loop Capital Markets -- Analyst

Yes. Hi, good morning. I was juggling multiple earnings conference calls this morning, so if this has been addressed, I apologize. But one thing I'm curious about is in the Pine chemicals business, you came into 2021 with some price increases targeted at TOFA on the table. And then most recently, you introduced an across-the-board price initiative.

So I'm curious if -- about the visibility regarding the traction of these price increases and the magnitude of the traction. Is the effort here really just to offset some higher raw material costs or is there the opportunity to also capture extra margins, given what seems to be sort of a healthier end market demand scenario vis-a-vis probably supported by some alternative materials? So just some color around that would be helpful.

Kevin M. Fogarty -- President and Chief Executive Officer

Sure, Chris. Thank you. Well, first of all, indeed, we have announced two price initiatives. And I would certainly say that those initiatives encapsulate both the need to make sure that we're covering any cost inflation that we may feel, but as well, the backdrop of our businesses, as I used -- as I said in my commentary, about all three product grades have positivity, reflects the fact that we're addressing that through our price initiative.

And we've often said in our Chemical business, a lot of the pricing is a combination of both competitive factors within the Pine chemical space as well as a very real price setting mechanisms and competitive factors in the inter-material space. We're seeing, certainly, in the case of the inter-material, certainly inflationary pressure in that regard as well. So our price increase initiatives certainly benefit from that backdrop.

Chris Kapsch -- Loop Capital Markets -- Analyst

Yes, Kevin, and I think you're referring to maybe there's an updraft clearly in gum Rosin also hydrocarbon. So the fact that -- and those are products that compete with TOR. So for the first time, we've at least in a while, visible evidence of trying to introduce pricing in TOR.

So I'm just wondering if that also underscores strengthening in demand for TOR, is it really just the competitive set in terms of the pricing, the market pricing dynamic? I'm just curious because, obviously, it would be helpful for the overall economics of your refiners to be able to produce more TOR if there's demand for it.

Kevin M. Fogarty -- President and Chief Executive Officer

In our view, absolutely, it reflects increased demand trends for the TOR molecule, including the derivative Rosin Esters and so yes, that provides that positive impetus. But at the same time, I'll also remind you that vegetable oil markets -- the underlying vegetable oil markets are certainly relevant when it comes to the pricing mechanisms that our TOFA chain competes, and that's also provided for that positive backdrop I spoke of. Just a reminder.

Chris Kapsch -- Loop Capital Markets -- Analyst

Okay. And then I did have also one focused on BIAXIM. And the twofold really. One to, appreciate your suggesting that you're obviously focused on the Section 3, Section 18 approvals. I guess, I think it's public knowledge that they're in the Federal register. There's an application by Delta Airlines for the emergency use authorization. It looks like for their hubs in Salt Lake City and Minneapolis for the use of this product.

And there was an open comment period that concluded, I think, last night. So I'm just curious with that open comment period having concluded for that emergency use request, if you're -- if you have any color on how that process might play out from here in terms of timeline? And if in fact, that gets traction?

Kevin M. Fogarty -- President and Chief Executive Officer

Sure, Chris. And might I just say that don't mean to correct you, but the applications for emergency exemption actually come from the States. And obviously, Delta being the relevant partner with the States, but the state -- the applications are actually filed by the States themselves. And you referenced two of the States, I would also add that the all-important State of Georgia, where the hub of Atlanta resides, is also now a subsequent filer to that Section 18 application.

But with respect to the process, I think I've said all along that we have had very positive discussions with the EPA in the case of our desire to receive full Section three authorization for our new active ingredient BIAXIM. And this is any Section 18, which we think is helpful, obviously, because of the urgency in the marketplace to fight COVID-19 is a good step forward toward that ultimate objective, which is the Section three blanket approval for the active ingredient. But I would say that, clearly, the fact that it's one of those stories where the bad news is we have a new active ingredient.

So from an EPA perspective, they need to understand about it, because the performance is certainly worth noting. But on the same time, too, the fact that it is a new active ingredient in a polymer form, that's what makes it truly novel and unique, and we think is going to allow us, obviously, to take advantage of this superb technology, not just now to fight COVID-19, but in the future as well, because we're thinking beyond just this one-time in our worlds, obviously, pandemic led priorities.

We think it also has applications in the healthcare field and also in building construction, beyond the public transportation reference in this Section 18 filing. So it's a very robust process we're undergoing, and we're quite grateful for the level of cooperation that we received from the EPA. Because they are certainly -- in regards to their desire to see new compelling technologies coming to market, they've certainly done all they can through their own obviously work processes.

Chris Kapsch -- Loop Capital Markets -- Analyst

The one follow-up on that. So with this request from -- I understand it's from the States, but probably on the urging from from Delta in this case. And if this were to go through, even under an emergency authorization, it seems like a strong testimonial for the relevance of this product and the intended use in this particular application.

But like is it safe to say that this would serve as a testimonial maybe catalyze the -- a greater likelihood of a Section three approval? And yes, is there -- do you think that if, in fact, the adoption for addressing COVID becomes a reality, if it helps the likelihood of this being a relevant product in some of those other non-COVID opportunities that you address? Thank you.

Kevin M. Fogarty -- President and Chief Executive Officer

Well, Chris, I mean it goes without saying that we wouldn't be pursuing Section 18 without a line of sight toward Section 3. Because Section 18, as we said, is very specific to a specific application. And our vision for where BIAXIM, we think, can be very beneficial to society goes well beyond that. Now do I also believe that a Section 18 is a good indicator of a Section 3?

Well, presumably, yes, it's not -- the reverse would be a negative indicator, I'm sure. So yes, I feel like it's a good step toward validation of the technology in the eyes of the EPA. But again, they have their process they need to work through. And I'm just here to say that from my perspective, it's been a priority of them to find a way to make this new active ingredient BIAXIM, a reality to fight COVID-19, that has certainly been a priority of the EPA.

Chris Kapsch -- Loop Capital Markets -- Analyst

Thank you.

Operator

Thank you so much. Our next question comes from the line of Vincent Anderson from Stifel. Sir, your line is now open. You may proceed.

Vincent Anderson -- Stifel -- Analyst

Yes. Good morning and congratulations on the new HSBC application in automotive. I know it's been a long time coming. I wanted to start on Pine Chemicals. If my memory serves, you historically had been pretty luke warm on the prospect of a CTO as a preferred feedstock under RED II. So I was just curious, what has changed in the market that has maybe shifted your view there? How you're participating right now, whether it's selling TOFA or selling excess CTO to other Bio refiners?

Kevin M. Fogarty -- President and Chief Executive Officer

Well, we've been following this, obviously, for quite some time, and it's just not as simple as just diverting certain volumes of TOFA to a new customer base. There's also a qualification process we need to go through. And -- so we view it as an extension of the TOFA platform in every sense of the word. I mean, the nice thing about our TOFA platform, as we talked about, has got already a very diversified set of market alternatives that we serve, and this just adds to that diversification.

So we think that's a very positive direction for the business. And we've said for some time that, that's been one of the challenges in our TOR chain, clearly, which is just the opposite, which is it's been a very singular, for the most part, diversification in terms of where TOR molecule ultimately ends up. So this is a positive trend in the industry, obviously, but we've got alternatives.

And I guess the point I just want to make is Kraton is well situated to serve this in growing biofuel market. And I think we all have to agree that given the world that we're in and the desire for sustainability and renewability in the marketplace, despite the fact this is a, if you will, an EU directive that's driving this growth, and we believe it's here to stay. I mean, we don't see this thing going backwards at all. So clearly, we need to adapt our ability to serve this growing market.

Vincent Anderson -- Stifel -- Analyst

Understood. Thank you. So in the context of some of these bio refiners in Europe processing CTO for direct biofuel production. I completely respect that you're not willing to discuss specifics of your feedstock supply arrangements, but how firm are your CTO commitments in Europe for those assets? Are they similar to your U.S. contracts? Or worst case, do you have excess offtake under your U.S. contracts, and supplier European assets if CTO were to become tight over there?

Kevin M. Fogarty -- President and Chief Executive Officer

One thing we've always prided ourselves on, Vincent, is our relationship with our CTO suppliers. Long-standing, strong relationships. We've always had a vision that, given the nature of our pine chemical business, it's in our best interest to be very, if you will, engaged in CTO relationships on a broad-based levels.

So that at the end of the day, depending on market circumstances, we're in a position to process more CTO or if we need to, we can sell CTO from time to time in an opportunistic way. This is all kind of a part of our business makeup. It's a real strategic advantage for Kraton. And certainly an advantage when we have this new outlet in the form of biodiesel.

Vincent Anderson -- Stifel -- Analyst

Okay. Perfect. No, I appreciate that. If I could ask one more. I just -- I wanted to try to dig into price versus raws and Polymers for a minute. So in the fourth quarter, price/mix looked like it was implied to be down year-over-year. I know we had some pretty drastic feedstock price increases off the lows late in the quarter, and those are typically passed through.

And then you announced a price increase in HSBCs around the start of the year. So can you just maybe refresh us on that price over raws dynamic? And was that HSBC price increase adequate to cover feedstock cost inflation in those contracts that are non-raw material linked?

Kevin M. Fogarty -- President and Chief Executive Officer

Well, anytime -- I can say this unequivocally because we've been doing this a long time in our Polymer business. Our price rate strategy is real clear when it comes to raw material pressure we see. We're going to get in front of this.

We're going to move the price up to reflect at least that raw material increase that we know of and perhaps even raw material prices that we're anticipating in our price moves. From time to time, that could result in some margin lift in our business. Of course, that's all part of a price rise strategy in itself, because it goes -- typically goes both ways.

Vincent Anderson -- Stifel -- Analyst

Alright. Thank you. [Indecipherable].

Operator

Thank you so much. The next question comes from the line of John Robertson from UBS. Sir, your line is now open. You may proceed.

John Robertson -- UBS -- Analyst

Thank you. Since IMSS was launched in China, is that made in Taiwan, and is that something that Sinochem and LCY can do as well? Do you think the competition is going to be primarily other materials?

Kevin M. Fogarty -- President and Chief Executive Officer

So ultimately, the part is a compound, and we work with our partners to make the compound. But obviously, the compound is founded on Kraton Polymer. I'm not going to say whether or not it's specifically a polymer that is made at only one location, but I will tell you, in the case of this material, yes, it was made in Taiwan.

John Robertson -- UBS -- Analyst

Okay. And then on the biodiesel opportunity, if the industry continues to grow and -- do these guys become competitors for CTO eventually against you rather than just the opportunity for yourself in materials?

Kevin M. Fogarty -- President and Chief Executive Officer

Well, there's kind of two channels to get to the biofuel. There's a CTO direct channel with some, and then there's a hydrogenation of the fatty acid channel. So I guess, at the end of the day, it's one of those questions that depends. And I think like everything Chemical, whether you're biodiesel or a bio refiner do, you always look for the most efficient way to satisfy the market need.

And our view is without knowing where this industry is going to evolve to, the hydrogenation of the fatty acid looks to be a very attractive way for people to satisfy the RED II requirements, while at the same time, being truly optimal in the value chain in the supply chain.

John Robertson -- UBS -- Analyst

Thank you.

Operator

Thank you so much. The next question comes from the line of Chris Kapsch from Loop Capital Markets. Sir, your line is now open. You may proceed.

Chris Kapsch -- Loop Capital Markets -- Analyst

Yes. So my question -- my follow-up question was about the guidance -- initial guidance for 2021. You have a number of price increases on the table in the Chemicals business, a stronger demand environment in your own -- in the Stop Light chart on page 10, it looks like you've sort of improved the market outlook for sectors that comprise maybe almost half of sales.

So I'm wondering if that's what's translating into this base business of up 5% to 7%. It just seems like given the easy comparisons associated with COVID, given some of the momentum and some of the traction on some of these new commercial innovations that maybe that could be upside. So just wondering how you thought about providing that guidance?

If you go back a year ago, you guys' initial guidance pre-COVID for 2020 was, I think, $210 million and you ended up doing $262 million. So are you just -- are you trying to take a posture similar to what you did a year ago, presumably? Any color on that process would be helpful. Thanks.

Kevin M. Fogarty -- President and Chief Executive Officer

Well, there's a lot of things we do around here, Chris, as part of our business model, but forecasting the next 12 months is one of the most difficult things to do, as you well know. So we have a very robust process where we decide how we're going to look at the number of variables, the risks, the opportunities to come up with the requisite guidance that we try to provide.

And so what's unique, of course, about the way in which we approach 2021 is there's a couple of things that need to be factored in. One was, of course, the Cariflex stub period, which need to be removed from last year's performance and looking at this year's full year performance. And the second thing is this pretty extraordinary turnaround we do every six years in.

And so we want to call that out for investors to understand that. But beyond that, yes, I mean, we're feeling like, at the very least, we ought to be able to deliver 5% to 7% business growth. Now I'll just say it, of course, if the positive trends that we're all feeling right now, in our business will remain intact over the course of the year, I think there's an opportunity to improve on that yet more. But we're not ready to say that yet. It's still February.

Chris Kapsch -- Loop Capital Markets -- Analyst

Okay. And then the other question I had was, and we've asked you this in meetings with investors. So -- but the world is evolving to want to get a current view. But in terms of your innovation platforms, which of the -- and there's seemingly needle-moving kind of opportunities that you're starting to get traction on. Just wondering if you could sort of rank what the -- in order, what the ones you're most excited about?

Kevin M. Fogarty -- President and Chief Executive Officer

Well, I'm excited about them all, because I understand the implications to each of our businesses from the standpoint of driving our business growth objectives. But I mean, each one has their own story. Clearly, BIAXIM is potentially a platform in in itself. And that's the way we're viewing it. That's the way we're staffing it.

That's the way we're developing the potential for this BIAXIM polymer. In the case of the innovations in the business, look, I mean, we are in a world where sustainability is becoming absolutely critical to people's business models. And when you look at what REvolution is from the trees to begin with and then addressing the very shortfalls in the quality kind of challenges we've had in the past, having now closed that loop.

And closed the color gap and closed the stability gap. That's a very good thing for us. And I couldn't be more proud of our team for bringing that to market, and it continues to exceed our expectations in terms of customer adoption. And then the CirKular plus technology, I mean, if there's one thing we hear about, if you're participating in the plastics industry is single-use plastics.

And the problem that's caused in a societal sense. And here, we have a technology which not only can it advance the use of plastics for recycling, but it increases the productivity, and the people -- the very people that are trying to reuse plastics so that they don't have to separate otherwise unlike polymers. And we address that fundamentally with CirKular Plus.

So yes, I can't help but be very excited about the potential of these innovations. And then you referenced IMSS. We've been working on this for quite some time. I'm sure you've heard from other people that tried to innovate in the automobile sense. There's a long approval process. They're typically a very risk adverse, if you will, community. But at the same time, it goes both ways. Once we are settled in a technology that gives us some assurance that we're going to be able to build on it to grow further.

Chris Kapsch -- Loop Capital Markets -- Analyst

All right. That's helpful. And then this -- while not in innovation. I believe you have a polymer product that's used in telecom wire and cable. And so I'm wondering if some of my companies I follow are benefiting from the 5G -- this burgeoning 5G super cycle. And just wondering if you're similarly benefiting in your product sales into the wire and cable industry, and if you see that as a driver here over the next couple of years? Thanks.

Kevin M. Fogarty -- President and Chief Executive Officer

Yes. I mean, 5G conversions and the need for cable gels in installation, particularly in big subsea cables that's a very good business for us. We kind of put that, quite frankly, in our established business bucket, because we've been kind of leading in that space for many years.

Chris Kapsch -- Loop Capital Markets -- Analyst

Thank you.

Operator

At this time, speakers, we don't have any questions in queue. You may proceed.

H. Gene Shiels -- Director of Investor Relations

Thank you, Dale. Well, we want to thank everybody this morning for their time and their interest in Kraton and for question-and-answer session. Thanks for your thoughtful questions. There will be a replay of this call available later this morning, and you may access the replay by dialing (866) 358-4515. And this concludes our prepared comments this morning. Thank you.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

H. Gene Shiels -- Director of Investor Relations

Kevin M. Fogarty -- President and Chief Executive Officer

Atanas H. Atanasov -- Executive Vice President, Chief Financial Officer And Treasurer

Chris Kapsch -- Loop Capital Markets -- Analyst

Vincent Anderson -- Stifel -- Analyst

John Robertson -- UBS -- Analyst

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