Peter Vanacker: Yes, let me go first, and then I hand over to Michael. Of course, I mean, we continue to be very pleased with our VEP program, the acceptance in the organization, the value that we have been able to create last year that we continue to see being created this year. We are very well on track, I said, to reach or exceed our targets on the VEP for this year. I give you an example, I mean, because last year, mid-cycle margin value creation at the end of the year was slightly above $400 million. Bottom line, with effective margins and effective products being sold, for the year was around, I mean, $300 million. Well, a part of that $300 million, that’s how the three pillars work, have been reinvested in building up the second pillar, and that is the business unit Circular and Low-Carbon Solutions.
Not to complete amounts we have invested, but a substantial amount of that $300 million has been reinvested to build up that pillar and as such [indiscernible]. That, of course, also leads, remember, we have bought out joint venture partners, we have done a number of bolt-on acquisitions. So, of course, with that, of course, you get higher SG&A on your balance sheet. But all that is where it works together, I mean, the pillars in our strategy.
Michael McMurray: Yes, Josh, and maybe just a few more comments in regards to cost. I think we have a pretty good reputation for operating lean, which we think actually gives us an advantage versus others. When times are good, we actually continue to be disciplined. Quite frankly, in 2023, I think underlying cost control was strong. SG&A as a percent of sales totaled 3.8%, despite revenue and cost headwinds. We also made investments in our footprint when we started up PO/TBA in circularity, as you noted, and VEP, and some capability building across the enterprise. And clearly, inflation was a significant headwind last year. And as we’ve moved into 2024, we continue to make some targeted investments, for example, in our CLCS business and our VEP program, where we will invest about $270 million this year.
A fourth of that is OpEx, three quarters of that is CapEx. But again, we’re managing well, and driving actions this year both in CapEx and in OpEx. And so I’d say, overall, cost control is strong, and we are making targeted investments, and you can continue to expect us to manage costs well going forward.
Peter Vanacker: And our portfolio management, of course, helps with that. I mean, as you know, we’re almost, I mean, at the point of closing the divestiture of ethylene oxide and derivatives. And we’re almost closed at closing our NATPET joint venture, and that triggers then, of course, also soon after that, a final investment decision to expand with an additional line with newer technology. So, these things all work together, is what I wanted to highlight.
Operator: Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.
Hassan Ahmed: Morning Peter. Peter, you obviously mentioned a couple of the joint ventures and you recently did, obviously, the NATPET sort of venture out in Saudi Arabia as well. Would love to hear your latest and greatest about where you guys stand in terms of potentially maybe consolidating the Sasol joint venture?
Peter Vanacker: Thank you, Hassan. Good question. As you alluded to, I mean, in Saudi Arabia, we have lots of activities ongoing, not just with the existing joint ventures, but then, of course, also with the NATPET joint venture and then the next steps with the investment. We are happy, and actually, that deal was done before my time, so I’m even super happy, with the fact that we have entered in that joint venture with Sasol. I would say, generally spoken, operation is running well in that joint venture. We’re pleased, I mean, with our position that we have in there. And of course, we continue, as we have said multiple times, to always look at opportunities in the marketplace where we can grow and upgrade the core. So, we are not focusing now on just one thing, but we are continuing to look at growing and upgrading the core. Having said that, we have multiple times outlined that we will be extremely disciplined in our M&A activities. Michael?
Michael McMurray: Yes. And maybe, Hassan, I’d say a couple more things. I think clearly, just looking back upon the last two years we’ve been much more active from a portfolio management perspective, both on bringing things in, but also jettising things where there are better owners. But I don’t think it’s appropriate for us to comment on a specific transaction?
Operator: Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.
Kevin McCarthy: Yes, thank you and good morning. Peter, last March, or March of 2023 I should say, you unveiled some financial goals around your CLCS initiatives, $0.5 billion in EBITDA by 2027 en route to $1 billion in 2030. I was wondering if you could speak to your level of confidence in the March toward the first piece of that in 2027. And part of the reason I ask is it sounds like you may not take a final investment decision on MoReTec in Houston until next year. I’m not sure exactly how long that might take to build out. But maybe you could kind of speak to the timing and ramp of tonnage extending on what you show on Slide 6. How does that 123 kilotons maybe ramp over the next two or three years towards your medium- and long-term goals?
Peter Vanacker: Thank you, Kevin, for your very good question. Generally spoken, we continue to be very confident that we can reach what we have said a bit more than one year ago on C&LCS, but also on the overall targets that we had put out there, 0.5 billion on C&LCS 2027, and additional profitability. We are making very good progress, I mean, with the entire family. You saw that one particular slide, I mean, doubling the volumes, very good margins that we are generating for the entire family. We, as you know, Kevin, some of the parts go faster than other parts. So, it’s clear that the renew, Circulen and renew family goes faster because we have been in the market since a couple of years with the biowaste based polyolefins.
The network that we have built up and continue to build up on the mechanical recycles, remember all the deals, and it’s also on the slide that we did in Europe, and then also starting in the United States, is ramping up very fast as we had planned. And the advanced recycling parts, yes, of course, we have the first investment decision taken for the capacity in the Cologne hub. It’s on track. Work is underway. The team is on the ground. We look positively on the time line that we have there, I mean, to reach what we had said starting up by the end of 2025. And we are now looking at, of course, the concepts, as we have alluded to and is in the slides, to double that capacity, bring it, I mean, to Houston at the refinery sites, do the necessary work on the upgrading, looking at that from a technical point of view by leveraging upon our hydro treaters that we have in the refining.
So that one, I would say, you’re right. I mean final investment decision not this year, but next year, and then it takes time to build. But in the meantime, what we are also doing is we are working up — as, remember, we always said we will be technology agnostic. So, we work together with different partners on the advanced recycling side. So, as an off-taker of plastic oil, that we can either upgrade or move directly into our steam crackers. So, from that perspective, it gives us the possibility to continue to grow with the advanced recycling polyolefins in the marketplace. So, I have no indications that we would not be able to reach our targets. We continue to be very confident.
Operator: Thank you. Ladies and gentlemen, our final question this morning comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.
Vincent Andrews: Thanks and good morning everyone. Can I just ask on the cash flow going forward, are we done with the working capital build? Or is there probably a little bit more of that to come in the second quarter?
Michael McMurray: Hey Vincent, it’s Michael. Yes. Well, I’d probably answer the question in two ways. I think for the second quarter, it should be relatively stable. But I hope things actually get better in the second half when we consume a bit. But that said, I don’t expect us to consume anything that’s material?
Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session. I’ll turn the floor back to Mr. Vanacker for any final comments.
Peter Vanacker: Yes. Thank you, everybody. Very good questions. But of course, I was missing a little bit questions around our Propylene Oxide business, our Oxyfuels business, and our APS business. Now, let me highlight that the team is doing a fantastic work in all of these businesses. We’re making very good progress, and we’re moving, I mean, to driving season, which, as you know, is always good for an oxyfuels, I mean, from an oxyfuels point of view. We continue to see early indications that durable goods demand is going up, which is, of course, also good for our leadership position that we have in low-cost and low-carbon footprint propylene oxides. And I’m also very pleased, as I said in the prepared remarks, by seeing how we are on track in the transformation of our APS business.
Our win rates or service level, these are things that we are looking at. And Circulen has seemed or making fantastic progress. So, also very pleased with that, despite, of course, certain markets on a global basis, especially in durable goods, not being at the top level yet. So, it is very promising when those markets also continue back, I mean, to sustainable growth. So, thank you all for the thoughtful questions. And of course, we look forward to sharing updates over the coming months as we continue to make progress on our long-term strategy. We hope you all have a great weekend. Stay well and stay safe. Thank you.
Operator: Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.
