Q1 2022 Orion Engineered Carbons SA Earnings Call
Greetings and welcome to Orion engineered carbons first quarter 2022 earnings conference call.
At this time all participants are in a listen only mode.
Question and answer session will follow a formal presentation if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the content. So what do you host.
Wendy Wilson head of Investor Relations, Thank you and what do you.
Thank you operator.
Good morning, everyone and welcome to Orion engineered Carbons conference call to discuss our first quarter 2022 financial results.
I'm Wendy Wilson head of Investor Relations with US today are Corning painter, Chief Executive Officer, and Jeff Gleick, Chief Financial Officer.
We issued our press release after the market closed yesterday, and we also posted a slide presentation to the Investor Relations portion of our website, we will be referencing this presentation during the call.
Before 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 and uncertainties as described in the company's filings with the SEC.
Our actual results may differ from those described during the call.
In addition, all forward looking statements are made as of today may 6th.
The company does not undertake to update any forward looking statements based on new circumstances or revised expectations.
All 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'll now turn the call over to Corning painter.
Thank you Wendy good morning, everyone and welcome to our earnings conference call before I get started I would like to recognize the great work, Bob Hrivnak as Don as our interim CFO and Chief Accounting officer, and provide our new CFO , Jeff like with a chance to introduce himself to you.
Bob stepped in to fill Jeff's position for the past few months and did a great job. In addition to covering his regular job as Chief Accounting Officer, Bob. Thank you for everything you did during the period I know it was a very busy time for you and the finance team and you manage the transition seamlessly.
The start of the search I was looking for a CFO , who could work with me as a partner as the company transitions into more of a growth mode. I'm very pleased that we recruited Jeff and I'm excited to welcome Jeff to Orion Jeff.
Jeff not only has 30 years of experience, leading corporate finance and accounting control functions for both public and private companies, but he also holds an M. B a as well as a chemistry and chemical engineering degrees. We are excited about the experience. He brings and look forward to him joining the right leadership team Jeff.
Thank you Corning.
Excited to be joining Orion, what I see as an inflection point for the business I look forward to partnering with you and the leadership team to implement and continue to refine the strategy that has been developed it's going to be an exciting time as we continue to invest in growth and expand our focus on sustainability projects.
Although I've only been at Orion for a few weeks I'm already very impressed with the capabilities focus and tenacity of our leadership team and the depth of knowledge and high level of integrity of the board of directors.
Finally, I would be remiss, if I did not thank Bob not only for the work. He has done in the interim CFO role, but also how helpful. He has been to me over the past few weeks.
During the short period of time that I've gotten to know Bob I'm confident that we will work together seamlessly to help of Ryan's growth and profitability goals.
Orion's growth and profitability goals, a reality Corning back to you.
Next I'd like to congratulate the team on delivering record results, while navigating these challenging times and at the same time progressing several valuable initiatives.
As you can see on slide three first quarter adjusted EBITDA was up it wasn't excuse me it was $83 $2 million up 17, 3% year over year and a record for both the entire company and for our rubber business.
In terms of these of the valid valuable initiatives that I mentioned last night, we announced that we are expanding our cap of conductive additives capacity by building a facility in the Houston area to capitalize on the growing demand for lithium ion battery and other connectivity applications one of the competitive moats around.
This business is simply the supply of large quantities of acetylene gas. So we are very happy to have concluded a significant sourcing agreement with Lyondellbasell. This is a huge milestone for us and we will discuss it more fully shortly.
We initiated commercial sales in the quarter on our new reactor in Ravenna, and it is already fully loaded with higher margin specialty and rubber grades we'd expect it to be about two thirds alluded this year, which would have been great. But this is a record for me we have earmarked. This line for our higher margin specialty business. However, we've.
Also accepted some rubber business are comparable margins to support our European tire customers, while the capacity on this new line is nowhere near the amounts imported from Russia.
We were able to support our European customers also from our facility in South Africa, I recently had the pleasure of attending a saw turning celebration related to an important port related improvements in South Africa, South Africa supply is a long term option for Europe , I'm very proud of the entire organization.
As everyone, who has worked tirelessly to support our customers. During this very difficult time in Europe .
I would also add that in response to the current humanitarian crisis in Ukraine. The Orion team has raised relief.
Effort funds that are being dispersed through several avenues to Ukraine relief organizations.
And additional news this quarter, Tony Davis was nominated to join our board of directors.
Tony who is the CEO of the inherent group will be a great addition, if elected as his investment firm is well known for its focus on investing in companies using environmental social and governance factors.
Tony has been a loyal Orion investor for the past several years and I have appreciated his counsel as we embarked on our sustainability journey I know he will be a great addition to our already strong board and he will bring much appreciated advice to the company.
This will be one of the many highlights that we will discuss during the upcoming Investor day, we were holding at the New York Stock Exchange on June 8th.
On slide four we've provided some highlights for of our conductive additives expansion project. The new facility will expand our production capacity by approximately 12 kilotons per year quadrupling, our current capacity for acetylene based material with capital expenditures in the range of one one.
Third and $20 million to $140 million commissioning is scheduled for 2024, and we expect sustainable EBITDA levels of $40 million to $45 million.
As a reminder, we are one of only a handful of global producers, who use high purity gases acetylene to make conductive additives are conductive additive products are in high demand not only for their purity, but for their performance. We view this specialty material expansion as timely strategic in our growth.
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At approximately $15 million to $20 million EBITDA generated from our conductors business in 2020, one we could grow our earnings capacity to over $70 million range. When this project is completed.
This new project is an addition to R Y Bay Greenfield project, China, producing 65 to 70 kilo tons per year and the high performance carbon black starting in 2023.
And our Ravenna expansion those two projects lay the foundation for substantial increase in our long term earnings power of the company by contributing roughly up to $40 million and adjusted EBITDA at steady state levels.
In addition to our other news, we recently mapped out our aspiration to achieve net zero carbon emissions as you can see on slide five we know this is ambitious but we wanted to make sure. It was meaningful before we shared it publicly importantly, we're determined to work hard to find.
Payable solutions with collaboration innovation and the right regulatory environment.
50 is a long way away. So we also wanted to save some near term goals, which are at least as important from my perspective.
Our near and long term aspirations are to launch a broad range of products using recycled materials by 2025 and during the same time period to quadruple the output or production of conductive materials used in lithium ion batteries for electric vehicles and other applications critical to the.
Electrification of the economy.
To generate 30% of our adjusted EBITDA through sustainable solutions by 2030.
And to grow our sustainable solutions share of adjusted EBITDA to 50% by 2035.
As I've shared in the past investing sustainability is core to our growth strategy and a key to our success as a corporation. We will update you on our progress towards these goals.
In the future and look forward to doing our part to operate responsibly and we're sustainably for all the stakeholders, we serve including our shareholders.
Turning to our first quarter financial results in greater detail on slide six this was a record quarter for us with adjusted EBITDA, increasing to $83 $2 million year over year, primarily driven by price realization in both of our businesses and progress towards higher quality.
All of the business and mix in specialty.
These are record results for the full company.
As well as for our rubber business and as you'll see on later slides. We also reported record gross profit per ton in both businesses.
We've entered a period of demand is outstripping global supply we have been working since early this year to find solutions. During this unprecedented period to support our customers given tight capacity balancing this with achieving a fair price for our products given the investments that we've made in our facilities.
That concludes my opening remarks for the remainder of todays call, Jeff and I will cover the first quarter results in greater detail and our outlook for 2022.
After our prepared remarks, we'll be happy to take your questions Jeff.
Thanks, Scott Corning as noted in our press release yesterday, we plan to file our 10-Q next week were finishing up our final review.
With that if you could move to slide seven revenue increased to $484 $5 million up 34, 5% year over year, primarily reflecting the impact of passing through higher feed cost stock feed stock costs strong price realization and favorable mix sequential revenue increased 23.
4% from the fourth quarter of 2021, this was driven by volume growth as well as the factors I've mentioned, which which drove the year over year improvement.
Contribution margin per ton increased 14, 1% year over year, primarily from strong price realization in both businesses and improved mix in the specialty business with similar drivers supporting the sequential increase.
Adjusted EBITDA increased to $83 $2 million up 17, 3% year over year, and 59, 1% sequentially, reflecting price realization and improved mixed as Corning mentioned earlier. This is a record EBITDA level for us.
Yeah.
On slide eight you will see several useful bridges that provide greater financial detail supporting the comments I just shared on our quarterly results.
Clearly the price and mix were the strongest contributors to the profit improvement.
Onto slide nine which details our first quarter cash generation and use.
While adjusted EBITDA was strong this was offset by the dramatic increase in net working capital mainly due to higher oil prices.
As a reminder, when oil prices rise or working capital increases roughly $30 million for every $10 increase per barrel of oil.
The rapid rise in oil prices across the quarter was a strong headwind.
At the end of the first quarter, our net leverage stood at 2.8 times slightly above our targeted steady state net leverage range of 2.0 to two five times, we expect that to improve.
Falling well into our target over the second half of 2022.
As we look forward, a strong financial standing and capital structure positions us very well to it.
To execute the remaining EPA investments as rapidly and safely as possible, while also advancing growth initiatives to bolster our earnings capacity.
We expect to be approximately 90% complete with the EPA capital by the end of 2020 two.
Was that mostly behind us, we anticipate strong discretionary cash flow beginning in 'twenty two 'twenty three to fund growth investments such as the acetylene black plant as well as return cash to shareholders.
Moving to slide 10.
Specialty revenues increased to $177.6 million up 23, 2% year over year, and 23% sequentially, reflecting the pass through of higher oil prices and improved mix.
On a year over year basis volumes were slightly lower.
This was due to the very strong comparable in Q1, 2021 which was driven by pent up demand from Covid slowdowns in 2020.
The gross profit per ton chart, you can see the specialty profitability is at high levels in fact ones not seen since 2016, driven by extremely favorable mix, including the positive impact of newer products improved pricing higher loading and the associated leverage.
The next slide breaks out the major year of your major year over year drivers of adjusted EBITDA for the specialty business in greater detail. The most significant of which were improved price and mix, partially offset by lower volumes and the effect of FX translation.
Moving to slide 12, rubber revenue increased to $306 $9 million up 42, 1% year over year and 25, 2% sequentially.
Driven by passing through higher feedstock costs and higher pricing.
Furthermore, compared with Q4 2021 volume was up nearly 15%.
Gross profit per ton.
Grew to $321 $4 million up 19, 5% year over year, and 47% sequentially, reflecting higher price realization, which is intended to help us return to earn a return on our emission controls and reliability investments.
We also benefited from higher cogeneration.
Notably gross profit per ton this quarter is a record.
Slide 13 breaks out major year over year drivers of adjusted EBITA for the rubber business in greater detail.
Yeah.
Higher base.
Illustrated the benefit of higher base price and mix specific to the other category higher energy prices are a positive for US. However, we had increased costs associated with air emission controls and we are working to reduce those costs going forward.
With that I will turn the call back according to discuss capital expenditure plans and our updated increased guidance for 2022.
Thanks, Jeff, we certainly gotten off to an excellent start for 2022, our pricing has kept up with significant inflation and we've taken a step to upgrade the quality of our specialty business.
With great agility, the team pivoted to find solutions for our European customers and beyond the conflict in Europe , we experienced increased demand globally, and we realize the benefits from our contracting pricing cycle for 2022.
We are increasing full year, adjusted EBITDA guidance to $310 million to $340 million with the midpoint of 325. We're also increasing adjusted EPS guidance for 2022 within the range of $2 per share to $2 35.
The factors driving these increases include pricing realization.
Increased customer demand for our products, including new products, they accelerated ramp up of our new line in Ravenna improved plant on streams and the higher oil price benefit.
Note that we have taken into consideration the uncertain times that we live in today, when we increased our guidance range. The risks of achieving our guidance include any escalation of the conflict in Europe that could affect our materials suppliers <unk> natural gas supplies and escalation of Covid cases, particularly in China.
And continued supply chain issues amongst other things.
We manufacture essential materials, and we Cogenerate energy supporting our local grids. So we believe there's a strong case, we should be protected in the event of natural gas curtailments.
You can see on slide 14 that the capital spending for this year has been increased to the range of $240 million to $260 million slide 15 lays out how that money will be spent and what the near term benefit is expected to be.
Drivers for the increase include that our acetylene project, it's actually a bit larger than what we had anticipated earlier in the year and increasing maintenance project activity to enhance reliability. During this time of high demand and critical supply issues.
With approximately $80 million of the U S Air emission control spending remaining.
And approximately $55 million of that remaining to be spent in 2022.
As far as compliance related capital expenditures are concerned.
2022 represents an important inflection point for us as this spending will be dramatically reduced in 2023, allowing us to focus on value creating activities.
In closing I'd like to leave you with a few thoughts first we're increasing our EBITDA midpoint guidance to $325 million up 21% from last year set.
Second we see significant growth opportunities for our conductive additives products.
With the strategic sourcing agreement and our new Greenfield facility in the Houston area, we will could drupal or capacity within three years and I expect to increase our earnings capacity by about $40 million.
That's one of only a handful of producers capable of using acetylene gas as a raw material, we will grow that the supply of these materials that are important conductive additives in modern lithium ion batteries and other high growth conductive applications.
And third.
We have the majority of the projected air emission control spending behind us at this time with only about $80 million to go our projects remain on budget and schedule with our demonstrated the earnings power, we expect to have significant discretionary cash flow in 2023.
With that operator, please open the line for questions.
Yeah.
Thank you.
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One moment, please while we poll for questions.
The first question comes from the line of Josh Spector with UBS. Please go ahead.
Yeah, Hi, Thanks for taking my question first congratulations on a really strong quarter.
Thanks.
So yeah.
So you mentioned a pickup in demand in Europe late in the quarter and rubber and then you kind of alluded it's been on the call but is it fair to assume that most of that was directly due to back filling for Russian supply.
To various customers in the region.
And I guess on your last call. You said you wouldn't really help out customers that they've got the exact words you used unless there was a longer term angle two area that I'd talk about longer term supply. So curious if you could just comment on how all that evolves and what type of maybe longer term conversations that are occurring to fill that gap assuming it persists longer.
Term.
Great and you're absolutely right and I said that and we've been able to achieve it and it's really only fair.
Because we had a specialty customer lined up who is prepared to do a multi year agreement for a significant chunk of the capacity for example from that new line in Ravenna, and so to ask for similar sort of terms from our tire customers I think it was only fair and reasonable and we've had success in that so I do think.
We can look forward to higher loading in Europe going forward I think also.
You know who knows how things are going to play out in Ukraine, and let's all just remember.
The main thing here is it's a it's a human tragedy, what's going on but I I don't think I think it's gonna be reluctance about relying on Russia, or Belarus, as a supplier of long term.
From a number of different perspectives. So.
I think it's a win win for both us and the customers to have a longer term solutions put in place.
Yeah.
Okay, Thanks for that and just.
Couple of quick ones, just the new acetylene Black plant that you guys are investing again, so first I mean looking at the face value of Capex per ton seems pretty high $10000 per ton versus maybe lessen too for the average carbon black plant.
So I'm wondering first is that a fair comparison or are there other costs, there that you're adding like utilities and footprint to support further expansion and time and second when you gave the EBITDA.
Expectations, that's kind of.
Maybe forex or youre getting in specialty carbon today is that pricing and returns something you're getting on that acetylene black in Europe , now or is that an expectation that pricing expands to achieve that.
Excellent question. So first of all I'd say, it's consistent in terms of capital per ton of capacity to the facility. We bought in France years ago, and we've often use that as a comparison, although we were never putting out specific numbers before for what we thought this project would instill it.
Very different manufacturing process.
There is for example, no fuel added to it for example, it's a very exothermic process to make this material. That's part of the reason why it's such a good conductive material at the end of the day. So it's different it costs more capital to do it and it also is more.
You know obviously with the higher investment, it's got a greater EBITDA per ton component that comes out of it.
And knowing what we're looking at here is just similarly, similar to what we've achieved and the other facility does that answer your questions.
Yep Yep. Thank you.
Great.
Thank you. The next question comes from the line of Laurence Alexander with Jefferies. Please go ahead.
So good morning, two questions one is can.
Can you contrast, how your price mix is evolving in the current environment, whereas what happened a few years ago, when China had that soft patch and there was all the sort of issues around the European product.
Exporting to China, and the negative mix effect that you saw at that time can you just.
Characterize some of the differences that you're seeing that are helping the price mix be more resilient. This time.
And secondly, how.
How are you thinking about customer interest in formulations as opposed to just yes.
Specific carbon black compounds are there adjacencies, where you can bring other materials in house.
Two develop formulated.
For the battery materials for the battery applications.
Alright, Laurence. Thank you are two good questions. There so on price mix I think one thing that's on right now is there's pretty robust demand globally now, we'll see how things play out with Covid in Asia, and you know I think a lot of people expect there'll be a couple of months here, but we will see a slowdown in China before that picks back.
But the other thing in the mix as you know, it's not just feel like you're a passive player in this.
And is there more coatings or master batch volume and that can move here and makes around obviously that that's a component to us and that goes to underlying market demand, but there's also the ability just to upgrade the mix the value youre doing the EBITDA per hour that you are able to produce in your various reactors and just simply by optimizing that.
In terms of new products in and paying attention.
Tension to those opportunities I think it's also allowed us to improve our.
Quality of our specialty business significantly and so I think you see that as well. It's just the fact that there's strong demand generally right now.
As to the questions of formulations, so theres a lot of different companies, who make batteries, who make electrode paste for batteries and so forth I think that most of the higher end companies there.
They are very proprietary around their mix and including their cathode and anode material mix.
And for most of those people, they're not going to want an integrated solution theyre going to want to be able to slice and dice and by each one separately that doesn't mean, there won't be some who do but I think theres going to be a very substantial proportion that's really more interested in the separate ones and although we're focused on are settling right now because we.
Think of it as advantage for a number of reasons amongst them is just competitive moats about other people getting into it it doesn't preclude that at some point, we wouldn't look at other conductive materials, just like you said.
We do it as a blend or just use our know how to make further headway with that material than perhaps the current owner can do with it.
That remains an option for us as well.
Thank you.
Thank you.
The next question comes from the line of John Denman, Tim with CGS Securities. Please go ahead.
Hey, good morning, guys.
Does that Karen congrats on the strong quarter and the outlook and I also appreciate the discussion of the Tiger two study.
My first question is what kind of agreements you have in place or anticipate to have in place for the new acetylene facility.
In terms of supply and offtake.
Are those in place.
Furthermore, what kind of contracts are they are they return on capital base take or pay.
Are they short term in nature.
If you haven't done that yet, but what would you expect.
Get closer to this.
Great two important questions. There yeah. So offtake is a long term commitment to offtake and again I think it's one of the moats for this business because they are not going to sign up someone who has a settling and there arent that many players they want to be sure you're going to be able to use. It. So you really need a point to hey, I have an existing facility.
This is a valuable business, we will be a reliable offtake for you.
L. Lyondellbasell supplies is currently in France. So you know the relationship and the proof was very comfortable for both sides there.
We actually do at this point have our first long term take or pay agreement revolving around acetylene, that's where the confidential customer.
That's a modest volume right now just because in part we're solely reliant on our current facility in France, we can do more of that as we move forward. The only trade off though is as I've talked about for example, how we just upgraded our business profile of our specialty business were at very high levels of loading so that does mean.
And cutting back on some things to be able to take on new business and make more advanced products would that reactor. So if you tie yourself up too much with long term agreements you do cut back your your flexibility at the same time you know there is a certain comfort in long term agreements and I'd say.
My time running the semiconductor supply business for air products I had a lot of experience with striking that balance between what would be long term and what would be more short term, where there's more flexibility for both parties.
Thanks, Corning that that's the color I was also wondering if you could give us a range for expected capex in 'twenty three 'twenty four.
Given what you're what you're expecting to invest in.
And maybe that we can come up with a free cash flow range as well.
Yeah. So it won't surprise you that we're not going to go to our capital forecast for next year, but you know you would can we've given you a sense of what the total amount is for this new plant.
We would have why bay complete we'd have that expansion project. That's shown on that slide complete we'd be continuing to invest obviously in maintenance and we'd probably step that up a little bit given the levels of loading and so forth. We see right now, but we're very focused on those specific projects.
So I think that gives you a sense of where capital could be for next year, but we're not going into a specific forecast at this time.
Okay Fair enough and then my last one I was wondering if you could discuss the specific risks.
In Q2, both with the China, Lockdowns, it maybe a little bit or not.
Maybe Q2, specifically, but the.
At the risk of supply, yes hydrocarbons in Europe , just given the conflict in the Escalations we've seen.
Right. So if we speak to China first so we have a number of people there are the our team in Shanghai right in the office space, they've been locked down for a long period of time.
With our construction site and our plant we've been able to operate really without incident at this point I think if you think about the amount of locked down activity. There I will be surprised if this doesn't slow things down in China, and I'd say separate from that the high oil prices has probably slowed down a little bit areas like fiber, where some of their other.
Raw materials are really quite linked to that.
But at the same time, you know there's going to be a big party meeting in October I think this is a big year for China, I think there's going to be a lot of emphasis on supporting the economy. I think things are going to start improving from where they are now in Shanghai. For example, so while I think there will be perhaps some pressure on China I think.
The Chinese economy will recover later this year and talking to colleagues both inside and outside of Orion I think that's a pretty common view, if we shift over and when we think about Europe as I've said earlier, we've really done a great job of passing through cost inflation, whether it's natural gas or oil.
And I I think just you know the fundamentals are there it's high demand it's fair everybody knows it's happening.
She knows where oil prices are going to go from here. They could go back down and you know we'd be giving some of that back. So that's that's the way the system works and we'll have to see what happens from here.
Understood Okay. Thanks, Tony.
Youre welcome.
Thank you.
The next question comes from the line of Barry Hymes with Sage asset management. Please go ahead.
Hi, Thanks, so much and congrats on the good quarter.
I had two questions one is the.
The Russian.
Carbon black material.
That Europeans want to no longer take is that.
We came into the market somewhere else. So for example, you know when oil India has.
It's combined Russian oil.
Or is that production just down and not getting out at all so any any any sense of what's going on with the retro material it would be helpful.
Then secondly.
Given that you think.
This issue with Russian may persist for a while are there any things you can do in the traditional carbon black business too.
Expand existing capacity.
Whereas there's a relatively low capital cost to get extra capacity out thanks very much.
Yeah, Thanks to get really key questions. So I believe Russian carbon black is still flowing into Europe .
And I think it's unlikely that that material is going to go to India or China as output markets at this point in.
In part because it's a pretty robust carbon black industry in China anyway.
We'll have to see how that plays out from here I'd say when this all first got started the customers went through sort of a panic zone and people, where we're very very concerned.
That's sort of settled down and in part because Russian material is still flowing at this time.
Where that's going to go from here, we'll have to see them. There are modest things that players can do to increase capacity to debottleneck various facilities and so forth, but Europe was reliant for lets say, 35% to 40% of their carbon black between Russia, Belarus, and Ukraine and theirs.
There's there's no debottlenecking that amount of capacity in Europe , we can be sure that the customers are looking at supply from for example ourselves, though I mentioned South Africa, but also from China is probably the place where there is the largest amount of swing capacity, that's not going to be easy that's going to see that.
Carbon black probably degraded in quality and shipping that's gonna be far from ideal but.
I think that's their realistic near term option.
That helps.
One one quick follow up.
The second part of the question on capacity.
I was interested in you guys, specifically you know or are there. Some things that you can do to flex up capacity within your own network.
So within our network we have.
Given the tire to support the tire industry, we've dedicated more of that new line in Ravenna to them an unreasonable terms.
We have the capacity some excess capacity in South Africa, that's an option for them.
One reactor in the U S. We're going to switch it from soft to hard like we have some flexibility in what we do with that that's about what we can do we were heavily loaded going into it we had a very successful 'twenty, one 'twenty two pricing and volume cycle.
So there's there's a limit to what that supply can be.
Great. Thanks very much.
Yeah.
Thank you.
The next question comes from the line of Krish <unk> with loop capital. Please go ahead.
Hey, good morning.
Your publicly traded domestic competitor indicated that customers are coming to them.
What sounds like to me as early as ever with respect.
Wanting to talk about supply agreements for.
Rubber Blackbird next year, just wondering if you could confirm.
Confirm that that something youre seeing and is it skewed towards Europe or is it.
Really a global phenomenon and you know what are some of the drivers.
Characteristics of those conversations.
I can confirm that customers are interested earlier than ever to secure supply for next year, they're interested in doing that not just in Europe I think it's clear that for the things I just talked about right carbon Black's gonna have to be shipped around the world to support things. So I would say pretty much in most.
<unk> people are looking to to secure that and they're interested in locking that up earlier than usual.
Right and is it.
Yeah, obviously, it sounds like that would be supportive of pricing, but but.
The.
I guess security of supply is the bottom line.
With this backdrop.
Yeah, So if you're a purchasing manager right you're a hero right. If you can save some money and do a good deal and all that but if you shut down a factory.
Oster right I mean, so like the number one job of these groups is to keep their supply their their their facilities running we air freighted multiple aircraft and the entire aircraft booked for supply from South Africa into Europe , that's not inexpensive carbon black right, but that was to keep a.
The running and I support the South African team, who hurdle hustled and got the Jets and all this other stuff to make that happen for us.
That's the level of kind of commitment that I think goes into this.
What's most important to them, obviously, you know the supply and demand is a factor for pricing and I'd say, it's a very favorable.
A favorable environment in that regard I would just add for all my customers who are listening I think it's also only fair. We're all investing a lot of capital and keeping these facilities operational and keeping these facilities up to the latest specifications. We've seen what happens with Underinvested plants and you know I think it's a it's just.
The natural and logical consequences of many years of activity and here we are.
Accordingly, you commented on upgrading the quality of your specialty business I wanted to ask about that.
The profitability metric yet.
I think I was the gross profit, 878% I think that's as high as it's ever been since Youre, a public Orion was a public company and I'm just wondering it sounds as though.
It's more mixed driven but I'm, assuming there's also some pricing that helped offset some cost inflation I'm. Just wondering you know the what you feel about the trajectory.
And the sustainability, what what's the right band to think of in terms of the dispersion of profitability within your specialty portfolio going forward.
Well, it's a very dynamic time, right and energy prices are moving around quite a bit. So if I were going to give you a range for this year, it's a wide range, but I would expect that number to bounce around lets say between eight and $900 per ton in terms of GP per tonne.
And some of that is right just having fundamentally upgraded the quality of the business. It's also a high loading and other factors right now.
Thanks for that and then if.
Squeeze in one quick one on the on the investment Saddling, Yeah, I, followed the lithium space the integrated.
Value chain, there so have a.
Have a land and one thing one theme that is clearly emerged as the desire for a regional regionalize supply chain. So I'm. Just curious if you are building. This north America. If the idea is to and then the visibility in terms of your perspective customers to fill that plant.
Plant and they get a return on that investment.
It's more likely skewed towards.
The factories that are in the pipeline to be built in North America or do you anticipate supplying from that factory.
Established battery.
Folks over in Asia.
Excellent question, Chris So obviously positions us very well for anybody doing things in North America, but no we would see that as a world scale World class facility and if someone else mentioned right. The the actual K T. It's not huge right the volumes aren't huge but it's very valuable material. So all of them.
That lends itself to we can manage the shipping around it if you think about our current facility in France, I mean very little of that is consumed today in France for example, and we ship it mainly into Asia and initially I think this will be largely similar but you can see theres giga factories coming to North America coming to Europe , and I think theyre, all amenable markets to us.
Yeah.
Thank you.
Thank you.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
The next question comes from the line of Josh Spector with UBS. Please go ahead.
Yeah, Hi, Thanks for letting me circle back just a couple of quick ones and then one longer term one.
So just on the rubber black price mix up 11 million year on year.
Is it fair to assume that most of that is annual contract gains or is there anything you would call out that would be.
Either temporary or do you have more spot pricing dynamics.
Sorry for the pause there I thought you were given to them at all but it's better this way no that's mainly contract that you're seeing there.
Okay, and then on the so Ravenna youre supplying some rubber black out of that facility are you doing any more of that on the specialty side any other facility used to perhaps load up those plants and does that get reported in specialty or does that get reported in rubber.
That gets reported in rubber is that's where the end market is we have a number of reactors that can cut either way, but we've got really pretty high demand right now in in our specialty so an unbalance I theres not much shifting from specialty to two rubber at this point.
Okay. Thanks, and just one more longer term one is just generally kind of thinking about capital allocation over the medium term and you've been pretty clear that you want to invest more in growth you've been doing that as acetylene plant is now another step in doing that I guess your stock valuation here isn't really reflecting a growth stock.
Overall and.
To the extent that that doesn't change over the next six to 18 months whatever it may be would you consider shifting your priorities and either slowing the investment acetylene and putting more cash towards buybacks or doing anything different in terms of how you're thinking about that allocation.
Yeah excellent question and really a central one for us. So first of all to be clear, we really take capital allocation seriously we discuss it at pretty much every board meeting we had a guest speaker for an investor at our last board meeting and you can imagine this was something we talked about in that area, we do see.
[noise] ourselves is undervalued in the current situation and we might look at things differently, even right now even with the current capital spending if not for working capital and kind of uncertainty in the marketplace and so forth.
In terms of next year, if you think about what we have this year I want to emphasize why bay is going to be done.
That expansion projects got to be done.
So we're putting really are the vast majority of our growth eggs, so to speak or where we're going to invest next year into this project and I think we will show discretionary cash flow at the same time right. We've made a substantial step up in the earnings power of this company next year, we're going to have.
A full year of Ravenna, right, not just 10 months sooner.
Nine or 10 months of Ravenna, We're gonna have also why bay coming on next year. So these are all going to be positive for us as well as that Debottlenecking project. That's on the sheet all that's going to raise our enter our EBITDA.
Capacity for next year and again, we're just really putting our eggs into one big growth project, but one that we think is really strategic and powerful for us in the long haul. So I I think we can get to a position where we can satisfy those different perspectives.
Okay. Thank you for Corning.
Thank you.
Ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
Yeah.
Okay.
Yeah.
Again, if you would like to ask a question. Please press star one on your telephone keypad.
Operator, I think we should assume that we've drain the tank on questions for right now. So let me just say to all of our participants really appreciate the questions I think they're really excellent quality and raised some issues that I think we're on many different investors minds. Thank you for that thank you for making the time to be with us when we look forward to seeing.
You at our first ever Investor Day on June 8th at the New York Stock Exchange and as a reminder of the event will have a virtual option, if you're not able to attend in person.
But I hope to see you there whether live or virtually have a good rest of your day I'm looking forward to that day bye for now.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.
Yeah.
Yes.
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Okay.
Okay.