Q4 2020 Orion Engineered Carbons SA Earnings Call
Greetings and.
The true Orion engineered carbons fourth quarter 2020 earnings conference call at this time, all participants on a listen only mode.
On answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as.
Welcome to this conference is being recorded I would now like to turn this conference over to your host Ms. Wendy Wilson head of Investor Relations and corporate communications. Thank you you may begin.
Thank you operator, good morning, everyone and welcome to Orion engineered Carbons conference call to discuss our fourth quarter.
The main one 'twenty financial results.
I'm, Wendy Wilson head of Investor Relations and corporate communications with US today are Corning painter, Chief Executive Officer, and Lorin Crenshaw, Chief Financial Officer.
We issued our press release after the market closed yesterday and of.
The slide presentation to the Investor relations portion of our website.
We will be referencing this presentation during the call.
Before we.
We begin I'd like to remind you that some of the comments made on today's call are forward looking statements.
These statements are subject to the risks.
Post certainties as described in the company's filings with the S E C.
Actual results may differ materially.
From those described during the call.
In addition, all forward looking statements are made as of today February 19th and the company does not undertake to update.
And on any forward looking statements based on new circumstances for revised expectation.
Also the.
Non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release.
I will now turn the call.
All over the Corning painter.
Thank you Wendy good morning, everyone and welcome to our fourth quarter earnings Conference call.
'twenty 'twenty tests of just about every company's ability to be nimble and responsive on.
I'm pleased to say the Orion team passed the test with flying colors the ensured.
At our customers' needs were met both during the depths of the resection and through the demands are the implemented many improvements to our clients and the work processes. Most importantly, their exceptional discipline and adhering to our COVID-19 safety protocols resulted in our having zero workplace.
The transmission of the disease in 2020 of truly extraordinary accomplishment I congratulate them again on their dedication.
2020 was our first major recession as a standalone entity and so by getting through it well proves something about resilience. The it's hard to convey the just words.
On the call I'm quite pleased with the speed of heart recovery and the strength of our financial position through the end ultimately we borrowed of modest net $27 million to fund operations for the year and experienced a one turn increase in our leverage at year end.
From a capital.
Capital allocation perspective in March we suspended our dividend to provide financial flexibility to weather the impact and the economic storm.
Going forward, we will emerge stronger as we establish of capital allocation policy that maximizes shareholder value through first ensuring our financial standing.
Of course, the severe economic downturn like 2020.
And second by ensuring that we have adequate capital to fund the value enhancing growth initiatives that is projects with economic returns significantly in excess of or the cost of capital and third by establishing a mechanism. The guide the size and frequency of.
Capital return to shareholders over time.
We also significantly enhanced our board independence and diversity in 2020 further demonstrating our commitment to effective transparent and accountable corporate governance practices.
From a financial perspective in the fourth quarter, we reported.
Adjusted EBITDA of $66 million up 44% year over year, reflecting the substantial operating leverage we expected the business to deliver as the economy recover.
Our companywide adjusted EBITDA margin was 29% and the specialty carbon black margins with.
The 35 per cent. These strong results were primarily attributable to our specialty carbon black business unit, which saw volumes rise low double digits sequentially.
We also experienced slightly less seasonality than anticipated in our rubber carbon black business, where volumes declined mid single digits.
Sequentially.
I believe the strong tone also reflected a mix of restocking in some markets and of fundamental increase in underlying demand.
Finally, we continue to make progress with our sustainability efforts, we published our latest sustainability report during the quarter it highlights.
The rest of across multiple ESG dimensions, including our governance.
Emissions reductions of strategic collaborations employee engagement culture and community support.
We're working diligently to ensure the sustainability is an opportunity for us and to make it an integral part of our strategy.
From a product perspective, our emphasis reflects a threefold focus on recycling carbon blacks such as those made from oil recovered from end of life tires Green carbon blacks derived from renewable feedstocks, and enabling carbon blacks, which refers to grades that enable lower fuel consumption or extend.
Send useful lives.
The report also details how we're partnering with leading companies across the value chain to drive a circular economy and sustainable solutions via the black cyclic consortium.
I invite our stakeholders to discover more about the path, we're charting towards the more sustainable future by downloading.
Loading the report from our website.
On today's call Lauren and I will cover the fourth quarter results comment on 2021 rubber pricing negotiations discuss two growth initiatives and finally share perspective on our outlook for the year. After our prepared remarks, we'll be happy.
Two questions.
We began providing slide for early in the crisis and it remains the illustrative today.
The other business by end market and provides a sense of how each market behaves either as leading coincident or lagging the recovery.
Now all of the recovery.
Has commenced we've updated slightly to reflect how things have played out over the past six months.
Overall, we are encouraged by both the degree and speed of the improvement in our business results.
Starting with rubber carbon black replacement tire, which makes up roughly 60% of that business has led throughout.
To take the recovery as expected.
We saw a sharp bounce off the bottom driven by a combination of rising passenger car mobility earlier on the recovery and relatively high commercial truck driven demand.
Despite the mobility restrictions in certain parts of the world Global rubber volumes during the fourth quarter.
For me for the last quite strong at 98 per cent of 2019 levels. This exceeded our expectations for this stage of the recovery given the so few people have been vaccinated and that the infection rates remain high in many countries.
With this backdrop, we negotiated 2021 rubber carbon black pricing.
For most of our markets outside of Asia, Although the conditions were not ideal, particularly in North America, we achieved pricing and share broadly consistent with 2020 levels. We are determined to continue the march towards higher pricing in 2022.
Shifting gears to the original equipment side, which.
It makes up approximately 40% of our rubber volumes and 15% of our specialty volumes. This market has picked up sharply in recent months and also beat expectations.
Global light vehicle sales showed a classic of V shaped rebound through December 2020, According to LNC automotive.
The recovery shape.
<unk>, but some did not anticipate but that we have been pleased to see.
The automotive chip shortage is the new challenge for the industry and we expect this to dampen OEM demand slightly during 2021.
Most of the 85 per cent of our specialty business that does not go into automotive we characterize as coincident.
Rent or lagging in nature.
Certain markets such as printing from traditional publications continue to lag. However in the fourth quarter quite of few proved to be what I'd call fast followers with many remarkably exceeding 2019 level.
Examples in this category include general plastics.
On a wire and cables industrial coatings and batteries.
Few segments did particularly well through the recession, including food packaging and those linked to the consumer DIY like architectural paint and mulch.
Now turning to our fourth quarter results in greater detail as you can.
The slide five adjusted EBITDA increased to $66 million year over year the.
We achieved higher volumes driven by a combination of higher baseline demand across nearly all of our specialty end markets restarting restocking and new specialty business. In addition, we benefited from higher.
See on price, primarily in rubber and favorable specialty mix.
These drivers and less than expected rubber seasonality were partially offset by the margin impact of lower oil prices and higher fixed costs.
We remain very confident in the long run growth outlook for carbon black.
The other base, which we expect to continue to grow in line with the GDP over time, the certain geographies such as Asia growing faster than the others. Our strategy continues to emphasize positioning of Orion to capture a disproportionate share of growth in specialty and technical grade carbon black you can see this in our business mix.
The name of approximately 25 per cent of her volume being specialty and fully 75 per cent of our adjusted EBITDA is driven by specialty and technical grades.
This strategy guidance or capital allocation prioritizing growth capital towards specialty and technical grade markets.
In that vein slide six details two strategic initiatives that will expand our capacity to meet increased demand and higher margin market segments and higher growth geographies.
The first initiative highlighted a 25 K T expansion of our Ravenna, Italy facility, primarily dedicated to specialty.
LT grades was originally announced in 2018. This expansion is now expected to be mechanically complete by end of year and to begin ramping up in 2022, providing much needed additional capacity for our polymer and coatings customers in particular.
We're also pleased to announce the projects constructed.
In the field facility in China to serve the robust demand for our specialty and technically the rubber grades there are plant and Huawei on way Province will make 65 to 70, K t's crossed about $60 million to $70 million and begin production in 2023 the plant design.
On allows for further expansion.
Given where we are on the economic cycle of common question, we get from long term investors is what's the Orion is long range earnings capacity slide seven starts with our 'twenty 'twenty volumes and then adds in our approximate leverage to our existing capacity and then layers on the.
The two projects I just discussed.
At this time I'll turn the call over to Laura.
Thanks for Corning.
Turning to slide eight while revenue was down two 1% year over year, it rose roughly 12% sequentially, reflecting the continuation of the strong recovery trends we have observed.
For the past two quarters now contribution.
The margin increase of 11, 1% year over year, mainly due to higher specialty volume and realized pricing gains primarily in rubber.
The sequential increase in contribution margin of 18, 1% was driven by higher volumes in specialty and strong.
Long product mix.
Adjusted EBITDA rose four 4% year over year to $66 million and 19, 9% sequentially, reflecting the rise in contribution margin, partially offset by higher fixed costs.
The increase in fixed costs reflected timing of effects as the year ago quarter.
Observed benefited from lower incentive comp accruals and higher fixed cost capitalization levels, one off effects that wash out on a trailing 12 month basis.
Finally, we reported adjusted net income for the quarter of $24 million down year over year as higher adjusted EBITDA.
Quarter was primarily offset by the impact of of net roughly $3 million in realized losses related to adjusting our FX risk management strategy by unwinding to cross currency swaps.
As a result of this action our exposures have been reduced and going forward, we expect transactional related.
FX volatility impacting our P&L should be lower.
Turning to slide nine, notably total company volumes rose roughly 2% year over year, the contribution margin rose 11%.
Reflecting strong operating leverage favorable rubber price and specialty mix.
Related adjusted EBITDA rose, 4% year over year with higher contribution margins, partially offset by higher fixed costs.
Finally, net income decline by approximately $10 million year over year, primarily due to the impact of increasing our reserve by roughly $6 million for post closure.
Costs related to the site of our former rubber manufacturing facility and on best France, higher pension costs and the impact of unwinding of the cross currency swap that I mentioned earlier also contributed to the decline.
Slide 10 details of our year to date sources and uses of cash on a full year basis.
Closure of the key takeaway is that in a year when economic conditions in the pandemic resulted in adjusted EBITDA of only $200 million. We nevertheless required only a net $27 million of borrowing operationally, while continuing to successfully advance our EPA safety sustaining and growth capital investment.
<unk> overall as the economic crisis of twenties, when they began to unfold last spring our leadership team embraced the challenge to make 2020 of proof point of the financial wherewithal of our business, which has weathered numerous downturns over the past century that we've been in operations, but none before 2020 as a public company.
Although the economic storm has not completely pass we are pleased to have come through the first phase of it and a relatively strong financial position for this stage in the economic cycle.
Slide 11 summarizes our leverage and liquidity profile at year end <unk>.
Liquidity available at any leverage level was 342 million.
At quarter end.
As a reminder, as a result of converting a significant portion of our revolver to ancillary capacity earlier in the year. We are now able to borrow 100 per cent of the $250 million euro commitment under our revolver at any adjusted EBITDA level without our leveraged covenant being in place.
At this stage of the economic cycle at three four times, we were about one turn of leverage higher than our steady state target of two to two and a half times all in all of that's a comfortable place for us to be at this stage in the cycle and we would expect to return towards target levels as economic conditions in the earnings.
Normalized overall, the strong state of our liquidity and the absence of any significant debt maturities until 2020 for give us confidence in our ability to continue to successfully navigating this period of suppressed economic activity, while funding our sustainability of investments in the U S and advancing growth.
<unk>.
That will position us to emerge stronger and with greater earnings capacity as we exit this period.
Moving to slide 12 specialty volumes increased 15% year over year, and rose 11, 3% sequentially.
Volumes were up year over year across most.
Initiatives with Asia Pacific and EMEA, performing somewhat better than the Americas from.
From a profitability perspective gross profit per tonne declined for 2%, but increased 15, 4% sequentially.
Adjusted EBITDA increased 22, 4% year over year and rose 40.
And more like 9% sequentially, reflecting strong operating leverage.
The next slide breaks out the major year over year drivers of adjusted EBITDA. The most significant of which was higher volume driven by broad based surge in demand across essentially all in markets with polymers, particularly strong in the EMEA and APAC.
The six region outpacing North America on a relative basis.
Turning to slide 14 rubber volumes were down two 4% year on year and down three 3% sequentially representing stronger levels than anticipated in our original fourth quarter guidance as Corning mentioned earlier.
The packaging volumes were down in our tire business across all regions, particularly in North America, and Asia, while NRG volumes rose in China and were slightly down in most of other regions from a profitability perspective.
Most profit per tonne declined seven 3% year over year.
Slide 15.
<unk> of the development of adjusted EBITDA for the rubber carbon black business, which was mainly driven by lower volumes related to a combination of a commercial negotiation strategy in 2019 that emphasize price over volume and weaker global economic conditions.
Higher price reflects 2020 contractual base price.
The <unk> spaces, partially offset by mix with that I will turn the call back over to point.
Thanks, Lauren moving to slide 16, given the degree of uncertainty with the pandemic, we will not be providing adjusted EBITDA guidance for 2021 at this time.
And for your information, we have established a base case planning scenario, assuming the pandemic does not functionally and until 2022.
As we get a clearer view of the situation will considered reinstating that portion of our guidance from a volume perspective, our 2021 full year of planning scenario.
Whose volumes resemble the second half of 2020 annualized run rate. However, I remind you that I put a higher value on the agility and forecasting.
January volumes were very encouraging continuing the momentum from Q4 with rubber volumes tracking around 98% of year ago levels.
And specialty volumes tracking about 120% of year ago levels.
From an SG&A perspective, as a reminder, in 2020, we target of $15 million in cost reductions of which roughly $3 million or permanent we ended up significantly exceeding our target driven mainly.
Really by temporary cost reductions these temporary cost reductions should reverse in 2020 with the rebound in volumes, resulting in a roughly $20 million increase year over year, excluding the impact of fluctuations in distribution costs, which are also included in our SG&A as reported.
We expect capital spending to be approximately of $170 million the safety and continuity spending in the range of 60 and $65 million EPA related spending to be in the range of $55 and $60 million and growth investments in the range of 40.
<unk>.
$45 million depreciation is projected to be in the range of $95 million to $100 million debt surface in the range of $27 million to $29 million, our effective tax rate around 30% and shares outstanding on the order of $60 6 million.
Slide 17, restate some key takeaways from the quarter.
They reflect that our team rose to the challenges we faced in 2020 and positioned us for further successes as the economies recover.
They're focused in the education, where tremendous I'd also like to recognize our customers suppliers communities.
Munity shareholders and other key stakeholders, who worked with US through this period of time, we look forward to your continued support.
We profitably and responsibly grow Orion for many years to come.
With that operator, please open up the line for questions.
Yes.
At this time.
We will be conducting a question and answer the question because he would like to ask the question. Please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and maybe not the staff.
At the pick up your handset before pressing the Starkey one moment, while we poll for questions.
Our first question comes from the line of Josh Spector with UBS. You May proceed with your question.
Yeah, Hey, guys. Thanks for taking my question.
And congrats on a solid 2020.
On.
Just maybe to start on the volume side I mean, the specialty volume you call out for January is quite impressive and I know disaggregated demand and inventory effects of this kind of challenging but I don't know if you could provide any color of what you've seen over the past few.
Few weeks, if theres any subsiding, there or is the strength from a demand perspective is continuing and kind of maybe how you think about the sequential.
On volume move in that segment for the whole quarter at this point in time.
Hey, Josh So first of all thanks for your comments.
Yeah.
In terms.
<unk> the listed the order we see at this point is primarily <unk>.
End customer demand.
However, some portion of restocking and in our case some portion of some some new business in that the <unk>.
Thing about the restocking always brings up the question of when is that kind of be behind us and I think that some of our customers of intent.
We'll do that for a while in Asia for example to restock before.
The Chinese new year disruption to shipping and that kind of thing, but I think what people have seen is just demand has continued to grow and what was going to be perhaps an intended restock. His is really ended up serving underlying demand.
So.
We'll have to see how Asia in particular reacts coming out of Chinese new year, but I think that January.
January is going to be indicative of a strong first quarter.
Okay. Thanks, that's helpful. I guess, maybe just on the specialty pricing dynamics on a couple of things to ask around there I guess.
The EBITDA per ton was probably the highest level that we've seen in some time I assume some of that was pretty strong volume leverage on it.
And I'm wondering how you see that progressing kind of through the year and then as demand remains strong is our pricing dynamics in specialty different kind of in this cycle are you able to.
Pricing faster, which maybe mitigate the effect of rising raw materials quicker than what you would expect it in.
Of weaker demand cycle.
The excellent question wondering if you can imagine that is a key priority for us. So we're in a situation with increasing input costs of the same time very high level of demand.
Man and that's the situation that lends itself to the pricing appropriately for the situation, which in this case means moving those prices up with the underlying cost inflation and that's something we're gonna be working very hard on.
And Josh I would just also add that in terms of G. P.
Time, we ended the year in the 640 level as you can see on slide 12, and we should see some favorability in the new year.
Probably in the 680 to 90 sort of range and on rubber we also expect.
That GP per ton to be higher.
You're probably on the $2 50 plus range.
Alright, Thanks, I'll I'll take the other.
Our next question comes from the line of Mike Glimpses of Barclays. You May proceed with your question.
Great. Thanks, guys, good morning, and nice.
P per year and it seems like volumes of carrying over of at least into the beginning of the first quarter here.
I guess it seems like there's a fair amount of moving pieces. Obviously demand is good but oil prices are coming back up you talked about some of the temporary cost coming back into the business. So maybe just give us a sense of where earnings are trending so far.
And for the first quarter.
So early on.
I'll take a first set of comments on the Lauren allows you to make some further comments. So I think first of all of the situation is set for one where.
And so we would see a positive for earnings right. So the oil price, we've given the metric before on how changing oil prices can affect our P&L and Theres No reason why that isn't going to play back in exactly the same way as oil prices come up on.
It is sometimes the challenge in the specialty environment of what's very fortunate right.
Where instead of the specialty volumes of very strong at the same time.
So all of that lends itself to a sort of favorable situation from a profitability perspective.
And I would add debt from a volume perspective.
Our planning scenario.
Assume if you do the math of.
Now 90% of 2019 levels.
And that the current crisis doesn't end until 2022.
I know that that isn't the guidance in terms of EBITDA guidance that we've given in the past but.
If you wanted.
About <unk>.
95, or 100% of 2019 levels. We've also given perspective in terms of incremental margins that would be helpful. In terms of getting there and the 30 to 35 per cent for rubber we think it's still a reasonable proxy and the 45 plus for specialties.
As well.
A rising oil price environment on balance over the course of the year.
It should be a net benefit to us if you think about Brent last year, averaging about $43.
For example, if it averaged $10 more per barrel, we would expect the positive impact on.
On our EBITDA between seven and $10 million on average over the course of the year and so we won't give quarter to quarter.
Estimates on oil price dynamics, but on balance of rising price environment is a positive for us.
Got it and I apologize just because there's so many moving pieces I just want to make sure I understand.
You talk about oil being a positive and it sounds like orders of continuing positive should earnings trend higher sequentially or lower.
I guess without the guidance at the Theres a lot of moving pieces and I just want to make sure of at the right expectations here.
Well, what we have.
<unk> provided guidance, but what we have given the volumes, which are definitely of move forward. So I think one can use some of those ratios that Lori just said and I think doing that math you'd come out with the a favorable picture.
Lauren did you want to add something.
No that's right.
Okay. Thanks.
Our next question comes from the line of Kevin Hocevar with Northcoast Research you May proceed with your question.
Hey, good morning, everybody, a nice end of the year there.
I'm curious on the so on the on the new capacity front. So.
So the 25000 tons.
The next year and another 75.
The $5 70000 tons of the year after that.
How much.
Is it <unk>.
Adding to your specialty capacity I think you sold 230000 tons.
This year, so how much of this at adding overall acuity.
The specialty how much of it adding to the mechanical rubber goods and are you aware of other it seems like youre not targeting the the.
Higher grade rubber, but more of the specialty and technical rubber are you aware of other capacity additions coming in specialty and technical rubber.
For the next couple of years as well I'm, just trying to get a sense for what.
Being out of Pasadena being added over the next couple of years here.
Right. So the 25 tons in Ravenna, VAT reactor makes specialty it can also make some of the higher end rubber grades of typical scenario is that you would start up doing qualification volumes on the specialty but maybe.
What type of current year sell a fair amount of rubber and then that would transition over time.
On a time like this where demand is really quite strong in specialty you could more aggressively get a very large portion of that over the specialty quickly.
In the case of China, we.
When we say technical rubber grades.
<unk> in the fleet in the M. Archie there as you know some of those technical rubber grades that we'd be making here could go into tires as well, we do have a number of global tire accounts, who do have the facilities in China. So that's and also on option for us there.
And what I would add Kevin.
We're heavily on both of these expansions if you look at our EBITDA per ton just as a total company.
$2 30, or so both of these expansions are well in excess of that and so they are accretive margin wise and mix wise to the total company.
Okay Gotcha.
And then you guys.
As they have a couple of facilities in Texas I believe of come.
Some of your competitors do too and obviously one of them.
With winter.
The storm impacts going on there. So I'm curious if you've had any issues with your facilities, there or if you're aware of any issues in the industry, where suppliers or anything.
Like that that could affect.
Your facilities or industry facilities or your suppliers.
Down there.
Right. So first of all thank you for that question because it gives me a chance to just <unk>.
Recognize our employees and our investors as well and in Texas, Louisiana and other areas that are just.
Quite impacted by the situation.
We have I really salute the employees, who have come to work.
We're working on our facilities getting us online keeping us online when maybe at home, there's some pretty significant hardships and in particular in Borger, Texas, where the team has kept the cogeneration.
Ben the unit going which of course is the important issue in Texas right now.
But we have been impacted we have been impacted by utilities.
Natural gas and power.
And we're in different situations of different plants in terms of in reactor lines in terms of the way.
The go ahead or where.
The ratio of restarting work for in full operation at this point.
Okay, Alright, thank you very much.
Our next question comes from the line of John on one time.
Right.
The Securities you May proceed with your question.
Hi, Good morning, gentlemen, thank you for taking my questions.
Nice quarter.
Current can you clarify did you say you achieved similar pricing for 2020 on an absolute level of similar pricing increases I'm not sure if I heard that the right thing there.
What we said is that our profitability.
Profitability levels and our share levels.
The essential.
Actually stable year over year in terms of pricing margin.
Got it so as you head into Q1, but the pricing hasn't changed too much.
Correct.
Okay got it and then can you just talk a little bit about the quarterly cadence that you're going to see this year I get the Q1 is going to be strong on the continuous.
Of the momentum that you're seeing in Q4, and an inventory of staying low but do you see a little bit of a hangover as we reach Q2 of Q3, and maybe because of that bounce back up.
As of the year of the vaccination in the world.
The rollout of the plan what are you thinking just in terms of versus historical seasonality and then how you see this year playing out.
So John on them.
Unfortunately get of disappoint you on this I mean, I think there's so many scenarios out there on how the disease is going to play out vaccines are going to play out of consumer confidence and then you can have to think about that for each of the various markets that we're in.
I think that.
He is a very dynamic situation and that's why we've chosen not to do guidance.
<unk>, just because I think guidance implies more certainty than the current environment allows for it and our focus on this is whichever way these things play out, but we're gonna be agile we're gonna be.
Acting to them, taking plants up down whatever we need to do the support our customers and run the business well.
I would really.
<unk>.
It would just be speculation in my opinion in terms of playing out how the year's going to go.
Okay Alright.
Sorry go on let me just add debt I want to be clear that the fact that we're not giving guidance simply reflects us being candid to say.
We don't feel.
But the that we can forecast vas.
Vaccinations and impact of variants et cetera, but at the end of the day I hope that you and others have what you need if you want to assume 90 9500 per cent of 2019, I think we've given the kind of perspective.
Cause you to do what we're doing which is looking at various scenarios and what those outcomes could be.
Okay.
Understood and thank you for that color I appreciate it Jack.
One last one for me.
With the $55 million to $60 million of Capex on EPS terms. This year do you have an update.
That'll.
Are you going to complete the interest on the smart left.
Arms of the costs in your latest talk with your with your contract for Us.
Well. So we would expect then in 'twenty two to do about $50 million have the balance in the order of for let's say about 15 to do in 'twenty three.
Does that answer your question.
Yes. It does thank you very much alright.
Our next question comes from the line of Chris Capps with loop capital markets. You May proceed with your question.
Yeah.
Yeah. So thanks for taking my question.
On the sort of.
Follow up on.
Lauren just said with respect to the sort of the volumes.
That might be expected in 'twenty, one needs or the 2019 and I guess looking at your slide seven if I look at.
That.
There was capacity that's available it looks like you're you're you know I'm, assuming that first bar there.
For the full year, which would imply about 82% utilized over the course of the year and if your general comments about 'twenty one volumes looking like second half of 'twenty volumes. It looks like you get to.
As you referenced just now Laurent Laura on.
Call. It 90 to 95 per cent utilization rate. So I'm just wondering.
Is that way the right way to think about it and then are those the improvement over.
'twenty 'twenty as it is the balanced across rubber black and specialty or is it.
Do you think it's going to be skewed more towards the specialty.
Yeah, I would say when we initially came up with the planning scenario, we did exactly what we're saying we looked at the second half volumes.
And we annualize those clearly you are seeing based on our January and February order books.
The specialty.
Perform year to date.
And you look at that incremental capacity two of economic recovery, we do publish our contribution margins for the total company, which are about five 530, and so yes specialties outperforming.
Through the date, but I think I.
Use the aggregate contribution margin rather than guess about mix at this point and that gives you a sense for what the upside could be.
Okay, and then just the follow up on the.
You're the the the incremental margins that you referenced 30 of 35 for rubber 45% plus is that just the function of the better overhead absorption or does that also factor in right now of more favorable energy scenario.
So over 2020, and the more favorable FX scenario or would those be sort of incremental to the incremental margins ex those those both would be incremental and so those incremental margins are oil price neutral to the extent that oil prices I'm just using the example of.
The area of $10 on average for 12 months, we would expect a favorable impact.
Impact on.
On top of that on the order of $7 million to $10 million to the extent that FX.
Is up year to year.
We provide guidance there that says for one.
<unk> change.
On average for the full year of $2 million EBITDA impact so those both would be.
Added to the core incremental margins.
Okay. Yeah. Thanks, and then so and then I get the.
The stable pricing over.
2020, not a bad outcome given the the grades of year that 'twenty 'twenty was.
Did you did have you given an order of magnitude of how much of that base pricing what's up.
For 'twenty.
2020 over 2019, I'm, just if I'm going to you know sort of the task.
The way of 'twenty two.
'twenty I think we'd all like to forget 2020, but compare 'twenty one to 2019, you're in addition to that of Incrementals, you'll have the better.
Better price better you know pricing. So just can you just remind us what the improvement was.
Well, let me, let me say on the rubber.
What we're saying is that the pricing will resume.
People last year sort of year over year. So if you look at revenue divided by the K T's, you'll get an average selling price for rubber and were saying.
We're pleased that the outcome resembles last year.
Yeah.
Okay fair enough.
Resume can do the solve the two.
The equations to announce from here. Thank you so much.
Thank you.
Our next question comes from the line of Josh Spector with UBS. You May proceed with your question.
Yeah, Hey, again, thanks for taking the follow up on just a quick one on the bridge.
Lauren.
The other line overall was on.
More significant negative than I would've expected and you guys talk out, though oil prices and higher fixed costs I guess of year on year and that was the bigger negative then three Q.
Not really sure how to interpret that what that means for first quarter.
For second quarter, if that gets better or worse or if there's anything unique within the quarter.
Sure.
For the first quarter.
You should expect that other from an oil price dynamic it could very well be flat to positive the because oil prices have had.
Have risen and so we've we've shared with you that on the way down it's a tailwind a headwind and on the way up it's a tailwind. So that was the end of 'twenty 'twenty and it was negative year over year as was the capitalization that we benefited from etc, but as we look into the new.
The year, it's a new year and it depends on the year over year oil price dynamic, which today is.
Tilting towards positive and.
And so I would say close to book on 'twenty, 'twenty and as we look to 'twenty 'twenty, one it'll just depend on oil price dynamics.
Which so far of our upward.
Okay, I guess, maybe for me to clarify that is that was it a bigger impact on for Q versus three Q because of the volumes being higher than it had a bigger impact because I guess I look at three key let's say oil price was lower year.
Year over year for the prior six months to that versus 2019, and the impact was less is that the need of either.
No. The main driver of it was that in the fourth quarter of last year.
We had lower bonus accruals.
And we had more capitalization at some of our plants of fixed.
Fixed costs these are idiosyncratic.
Dynamics that wash out and so that's why you saw a bigger other in the fourth quarter than the third and over a trailing 12 month basis. It's a it's a wash that's why.
Okay, Thanks, and just on <unk>.
Quick one on on sustainability.
I guess you saw the announcement from the large tire producer they are investing in some recycling capacity with what appears to be of recycling company and part of the outputs. There is carbon black from there a little bit surprised to see no carbon black for major carbon black producer involved in that project.
Is there anything we should be reading from that or is their involvement from from you guys and others in that arena.
So I'm not sure exactly which projects you're mentioning we are an active participant in the black cycle project and in that scenario, we would be taking the oil from the pyrolysis process and.
And then converting that into carbon black.
Maybe just a background on the so the program is you take end of life tires, you shred them you put them on a pyrolysis unit, which means you hear these things up high temperature and coming out of that you end up with some solvents that are mainly carbon black, but they also of ash because of the other materials.
In a tire and you've also got this pyrolysis oil or the tyre derived oil and so forth. So on approaches using that oil where in some programs are working on that as well as.
The other let's say renewable sources for carbon black oil the challenge with the recycled carbon black is just in terms.
Terms of applications the relative.
Impurities that are in it and the the overall condition of the carbon black that's something the.
We're certainly very interested in and we continue to follow.
Okay, I guess, yeah, I was specifically, referring to the initial and projects being done with it.
Zero is that something that you guys are involved in.
No we're not in the we're in a different value.
The project called the Black cycle Okay.
Okay alright, thank you.
Okay.
As a reminder, if you would like the I'll take question. Please press star one on your telephone keypad.
All of the poll for questions.
Yes.
Our next question comes from the line of Laurence Alexander with Jefferies. You May proceed with your question.
Good morning could you touch on a couple of things. One is the is the arrangement with the E. P. A.
Of certain done.
The number are there areas, where is the new EPA could come back and revisit of and if so could you discuss your expectations around that if any of.
And then I guess secondly, can you give some sense of how you're thinking about the ground rules for growth Capex once the EPA for our projects are done.
And then lastly, your thoughts around what conditions.
Or constraints might lead to delaying or deciding to reinstate the dividend.
Okay.
So let's start then and sequence for the EPA the consent.
Consent decrees that we.
Essentially all of the other carbon black manufacturers in the U S operated under were negotiated under the Obama administration. So we don't think there's going to be any further like air emissions issues associated with US I think they tend to go from industry the industry.
Andrey.
And I think we're all in the implementation mode. There I don't expect any changes to that.
In terms of growth I mean.
I would see this in the broader category of just capital allocation. So we would put up a emphasis on for amongst.
Interest things, making sure we have the financial wherewithal and we've got our.
Debt levels, and so forth in a position that we want we'll always be investing in continuity of safety capital for our core business and after that.
You would see highly accretive highly profitable growth I think that's always a.
Most of us of money, but at the same time, having of structure regular return of capital to shareholders and.
And maybe your final question then is so what would be the timing what would be the things that would go into that again I'd say you know the debt levels understanding the economy, both where it is and how stable it is true.
So, let's say macroeconomic situations as well as the specifics to Orion itself and then finally coming in with the dividend at a level that is sustainable for this company through a business cycle and the level of which investors have confidence.
Okay. Thank you.
Ladies and gentlemen, we have reached the end of today's question and answer session I would like to turn this call back over to Mr. Corning painter for closing remarks.
Well. Thank you all for your time and attention today and one more time I'm just a moment to recognize the severe hardships in much of Texas, Louisiana.
Louisiana other parts of the South and one more time the appreciation to our employees who are keeping the lights on so to speak in our facilities at a time when there's a lot of personal hardships as well. So thank you all for that and everyone have a nice day. Thank you very much.
This concludes today's conference you may disconnect your lines of.
Hi, Thank you for your participation and enjoy the rest of your day.
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