Q3 2022 Orion Engineered Carbons SA Earnings Call
Greetings and welcome to Orion engineered carbons third quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
<unk> and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. Please note. This conference is being recorded I will now turn the conference over to Wendy Wilson head of Investor Relations. Thank you you may begin.
Thank you operator.
Morning, everyone and welcome to Orion engineered Carbons conference call to discuss our third quarter twice.
And when the world instead of Investor Relations with me today are good morning.
Her chief Executive Officer.
What chief Financial Officer.
We issued our press release after market close yesterday.
There's a slide presentation.
Best of relations portion of our website.
We'll be referencing this presentation during the call.
Before we begin I'd like to remind you that comments made on today's call are forward looking statements.
These statements are subject to the risks and uncertainties.
Yes.
Yes.
And our actual results may differ.
During the call.
In addition, all forward looking statements are made as of today November four.
The company is not obligated to update any forward looking statements based on new circumstances or revised patient.
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 Whitney and good morning, everyone and welcome to our earnings Conference call.
First a big congratulations to the dedicated Orion T on our third consecutive quarter above $80 million of adjusted EBITDA.
If not for exchange rate shifts in the quarter. This will also be our third consecutive quarter record adjusted EBITDA.
Looking to the fourth quarter, we have lowered our full year guidance to $295 million to $310 million.
It was an increase of 13% over last year. It implies a roughly $55 million adjusted EBITDA for the fourth quarter.
This guidance reflects a combination of seasonality and a weaker economy.
A reasonable chance that customers will take longer holiday shutdowns this year.
Next let's pull back from the daily news in the fourth quarter and take stock of the broader situation.
First natural gas in Europe .
We are ahead of plan in terms of reducing natural gas usage last quarter, we laid out sensitivities, where there would be no financial impact below 15% natural gas curtailment.
With the progress the team has made we don't expect a financial impact gas panel.
As much as 25% to 30%.
Furthermore, if we had to perhaps 40% I'd say the impact with now only be about $2 billion per month, which is half the level, we shared last quarter.
To be clear however, we do not see that as a likely scenario as we cogenerate electricity at all our European natural gas consuming sites and we provide district heating at several locations.
Beyond all that we have further trials scheduled as we continue to progress.
And although we're very coy about gas Flack I will share that we do not see our gas black production.
Yes.
Second carbon black isn't essential material.
The majority of it goes into tires and tires warehouses during recessions too.
We think OEM production will improve slightly in 2023, what we're doing well with today's depressed volumes specialty volumes will not be immune to recession, but it's not like there's going to be some fundamental shift away from carbon black products in the world.
Third we made substantial progress in the 2023 24 rubber negotiation cycle in terms of price volume and payment terms.
<unk> 2023 to 24, because taking Asia.
Over 50% of our tire volume will be on multi year contracts.
Based on this we expect rubber gross profit per ton to increase 80 to $100 next year.
I don't think there are many companies in this kind of an upside for 2020, which brings me to my fourth.
Our strategy is working that pathway to mid cycle adjusted EBITDA capacity.
$500 million is as you can see very much in place.
The general economy may weaken in 2023, but we expect to significantly increase discretionary cash flow and reduce debt ratio, while we stay the course on our growth projects and execute on our share repurchase plan.
And when I say increased cash flow I'm, not hoping for lower oil prices I don't believe that whole business strategy, I'm, saying better cash flows based on profitability closer to what we deserve.
Meanwhile, we any slowdown in the specialty market to improve our offerings.
While in the automotive space that steady March of electric vehicle penetration will continue in 2023 and provide a tailwind to our conductive additives.
So under the quarterly results on slide four working together the Orion team delivered another solid quarter. Following record first half results. Despite the effects of foreign exchange rates adjusted EBITDA of $85 million was up 21, 2% year.
Over a year and gross profit per ton of $472 was up 12, 8% year over year.
Additionally, <unk>.
Adjusted earnings per share is up 12 cents over last year supported by an increase in pricing and improved mix year over year. All the metrics were approved with the exception of EBITA margin, which reflects the dilution related to higher oil prices and our ability to pass those costs.
With that I'll turn the call over to Jeff.
Thanks, Corning on slide five we show the walk for Q3 adjusted EBITDA.
The year over year volume increase the rubber business were partially offset by softer demand in the specialty business.
We had increases in the base price of both businesses and we saw an improvement in fixed in specialty.
However, the strong U S dollar was $11 million headwind in the quarter compared with last year.
On to slide six.
Looking at our specialty business volumes decreased year over year as well as sequentially.
However, revenue did increase to $169 $6 million up 12, 9% year over year, driven by price and improved mix.
Revenue decreased six 8% sequentially compared with our record second quarter.
Gross profit per ton continues to be strong both in the quarter and the trailing 12 months.
While there was a sequential reduction from the second quarter you may recall that we noted in August for the second quarter gross profit per ton was elevated due to strong mix and cogeneration projects.
We expected this would come back to a more normalized level in Q3.
The continued improvement in gross profit per ton has been driven by price realization and the positive impact of.
Newer products.
However, in the fourth quarter, we expect gross profit per ton declined significantly due to weaker volumes and lower cogeneration income.
Slide seven shows the year over year walk of adjusted EBITDA for the specialty business.
As noted earlier volume reduction was significant however, it is nearly offset by improved pricing and mix.
Higher fixed costs were offset by improved co generation profit in the quarter.
And finally as noted earlier the strong U S. Dollar was a significant headwind over $6 million.
Slide eight shows the key metrics for the rubber business year over year volume increased over 10%.
Plus strong pricing at a higher oil prices drove revenue of $373 5 million up 53, 8%.
Sequentially volume was flat and revenue increased 4%.
Gross profit per ton was $364 in the quarter of 33, 8% increase year over year and 18% increase sequentially.
We continue to see a nice upward trend in our trailing 12 months GP per ton to over $300.
This result, this reflects the results of a successful 2022 pricing cycle, partly offset by cost inflation and air emissions control related operating costs.
Co generation sales and profits were also strong in the quarter.
Slide nine shows the year over year walk of adjusted EBITDA for the rubber business higher volume based price and mix were all favorable as well as cogeneration profits. These were partly offset by a nearly 5 million dollar headwind due to the strong U S dollar.
On to slide 10.
Our consolidated year to date results have been strong with revenue up 35, 9% to $1 $6 billion on essentially flat volume.
And adjusted EBITDA up to $247 million from $216 million last year.
As we have noted a few times, we believe that we are entering this period of uncertainty.
A position of strength.
Spike near term challenges, we are well positioned to grow our business in 2020, three and beyond and to achieve our long term earnings and discretionary cash flow goals, which we laid out at our Investor day earlier this year.
We've seen a nice step up in EBITDA this year and expect positive cash flow to begin in the fourth quarter and to continue into 2023.
With that I will turn the call back according to discuss our guidance capital expenditure and outlook for 2023.
Thanks, Jeff turning to slide 11.
As I said earlier, our full year adjusted EBITDA guidance is now $295 million to $310 million range with a corresponding adjusted EPS guidance range of $1 75 per share to $1 90 per share.
I'm pleased to say I don't have anything exciting to share about capital expenditures.
Debate Debottlenecking project is complete.
Several other projects are nearing completion looking forward to 2020 three we only expect to have about $25 million of U S Air emission control spending less for our final project.
Next quarter will probably be the last time, we called out U S Air emission control spending as it is no longer particularly significant.
Activity tapers off we expect to have the bandwidth and cash flow to take on some of our backlog of smaller high value projects and execute on our share repurchase program.
Turning to slide 12.
Ive made these points already but it's powerful to see individually.
With our value creation mindset earned pricing and steady progress with our projects. We have the building blocks in place to reach our mid cycle adjusted EBITDA capacity goal of $500 million by 2025.
Spike the macro economic outlook, we are on track to increase discretionary cash flow significantly in 2023.
As our cash flow improves we will balance between investing in our strategic projects and returning cash to shareholders.
The board's approval of a $50 million share repurchase reflects confidence in our strategy and the near term prospects. We believe as I think many of you do.
The intrinsic value of the company and our projected cash flows greatly exceeds our share price.
In closing I'll leave you with a few thoughts.
First we are ahead of plan on reducing natural gas use and continue to work. This second we expect just $25 million of EPA project spending in 2023 as we wrap this up.
Third we made a step up in adjusted EBITDA in 2022, and we will step up again in 2023.
For this year's cycle for rubber contract negotiations are essentially complete and we expect 2023 rubber adjusted EBITDA to be on par with last year's total company adjusted EBITDA of $268 million.
Taking all of this into consideration, we expect to significantly increase discretionary cash flow in 2023.
ICF is well positioned today for the global slowdown.
Electrification will continue to drive demand for our conductive materials. The long term disconnect between tire and carbon black investments support sustained pricing at higher levels.
I've mentioned before the fundamentals are robust and I believe they will be for years to come.
That ends our prepared comments before we go into opening up the lines for questions. We again received some questions overnight and I think two of them in particular will sort of be level setting questions are broad interests. So let's start out with those Wendy.
Hey, good morning.
One of the questions we got overnight.
Yes.
For Q4 did you.
Kind of walk through.
Dynamics.
We think it's going to affect the quarter.
And why would that not persist into 2020 right got it.
The major factor for Us in Q4 is volume with also some weakness in power rates in Europe , where we sell electricity from our cogeneration unit and if we think about volume. If you look at the Q2 results and the Q3 results you can see theres been a weakening in specialty.
It's been somewhat offset by strength in rubber and that weakness for US was initially I'd say largely in Asia and China in particular, and then became Europe as well and what we've seen very recently is then that the North America follow that same trend. So October volumes were down.
For us a special team, we had one large customer who until now they've ordered for November but I think.
But December it could be very much in question in that comment about that we made in the script about shutdowns. So I think that's reflective of this.
If you look at the broader picture I'd say, China, we started to see some green shoots in certain areas in certain markets in terms of volume, but with zero Covid policy, apparently remaining and the growing number of shutdowns. There I think that's kind of at risk.
Europe was more or less stable at a at a depressed rate for us as we see it playing out and then North America down.
Robert It's been an area that has offset that but we think in Q4, we're going to see a slowdown in European Robert carbon black purchases, probably a mix of perhaps burning out some of their remaining Russia with carbon black that can also be reflecting inventory in their own systems.
If we then move forward to next year, we do think number next year will be a robust year in terms of rubber carbon black demand I'd say the weakness in Europe , maybe some of that continues on into Q1, a customer forecasts are very uncertain somewhat quite a few fab yards and then if we think about specialty well I think this is.
To follow the business cycle right. It goes into many different end markets.
Things like OEM will probably strengthen a little bit last year, but I think we'll see the broader economy go into a cycle and I would expect that to follow the broader economic trends.
Thanks Corning.
One other question that came in last night.
Related to that percentage.
Multiyear contract for rubber volume for next year.
Okay and that we said in the script it was a little bit over 50% I would think for People's modeling just 50% for next year.
One other question that came in for us, but I think we should address is just what is this mean for rubber carbon black last year, you gave some more indications in the script, but Jeff maybe you can just lay that out more clearly for everybody sure. So if you think of rubber.
The ability to date, our GP per ton has been about $340 I would if you could.
Probably use a similar number to get a full year GP per ton. If you recall, our GP per tonne in the fourth quarter of last year was pretty low so the the just over 300 dollar GP per ton.
Trailing 12 month basis, when we get to the end of this year should be closer to the kind of the $3 40 range that we're at right now.
And then what does that mean for 2023, well. According mentioned an increase of 80 to $100.
Per ton nominally its ease of use.
Think about it about 750000 tons per year that 80 to $100 per ton time, 750 gets you about an incremental $60 million to $75 million of profitability in 2023, and then on top of that we would think our volume will increase at least around 30000.
About 30 tons next year 2000 tons. So that's.
Bad times that a higher GP per tonne would be about another $15 million of profitability. So we're looking at around $75 million to $90 million of incremental profit on top of this year that gets you pretty close to according to the full.
Full year number of $2 68.
As mentioned earlier the scrip.
And just to those of US who like to think of 2019 is a good reference point pre COVID-19.
It would be also ahead of our total company 2019.
Okay. So we just wanted to get those two out as a kind of a level setting lets open up operator now the lines for questions from our investors. Thank.
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Our first question is from Josh Spector with UBS. Please proceed.
Yeah, Hi, Thanks for taking my question and just actually a follow up on one of the ones you talked about earlier.
Could be maybe more a bit more explicit on on volumes for fourth quarter, specifically with specialty I mean, given how <unk> you came in not sure how much of that is demand some deselecting from markets.
The range, you're looking at for fourth quarter for specialty and I guess, how do we think about that in the context of the early part of next year.
Well, so again I think that will be a.
Drop or both we will our forecast.
The significant drop we show in the run rate of EBITDA. Some of that's seasonality. Some of that is just the weakness in the market I would expect the weakness of the market portion of that continue into next year is going to really depend upon where we see the overall economy.
Majority of our drop in the fourth quarter is specialty volume.
Complicated a bit by the power rates, but it's mainly volume there there's some weakness in the rubber volume as well.
Jeff I don't know if you want to add anything more to that so I think I think if you looked at our volume in the <unk>.
Third quarter, which had dropped obviously sequentially as well as <unk>.
Year over year.
We would see a little softness beyond that level, yeah, really reflecting a slowdown at this point in the north American market as well.
Yeah.
Okay, Thanks, and I I mean, the commentary you gave on rubber for 'twenty 'twenty three helps contextualize a lot of that pretty clearly.
I I mean, I guess, if I, if I step back and do some simple math of annualize or maybe slightly less simple math with annualized in fourth quarter layering on some of that kind of seems like flat EBITDA year over year is a pretty negative scenario versus what you're putting out there.
If I look at kind of what you have out there maybe you're closer to mid teens in EBITDA 23 is that kind of what youre thinking in total is a reasonable base case and if the economy improves and you can do better or those kind of range or buckets way off versus your expectations here.
Well, so I think we've given an indication of what we think rubbers is gonna be right. So you've got the 268, let's say as a benchmark out there you've got the items that from Jeff and so that when we come to the specialty side of it.
You can look at the run rate. We've got now you can build in a weakening.
The Americas portion of that as well as power rates, which have recently moved down quite a bit in Europe and ticket.
Realization of that anything that gives you a sense of where that could be but we would expect that all to add up to.
Yeah.
A better year and improved cash flows from where we are right now.
Yeah.
Okay sabbatical.
Yeah, I'll turn it over thanks.
Our next question is from John Tim on Tang with CJS Securities. Please proceed.
Hi, Good morning, guys. Thanks for taking my questions and congrats on the rubber negotiations in the multiyear contracts that some really good work there.
My first question is just.
On the buyback I was wondering how quickly you expect to utilize that cause that just and an opportunistic thing maybe I'll sit dilution or is it more aggressive reducing share count as you think about that.
Sure on the buyback we are our intent would be to to get through the full buyback well first off it is absolutely opportunistic, but we do.
Put out that number not a.
Number that we're gonna get them at some point or maybe you could probably throw our intention would be to to fully execute that.
The timing of the speed of it will be contingent on a couple of things one of which will be continued.
Continued positivity out of our cash flows.
Pretty strong and then secondly.
Again, a lot by Opportunistically, but.
This is not a whole.
So long.
Window on that but we feel that.
We'll be sitting here 18 months without expecting not to have had we expected as much sooner than that.
Got it thank you for that and then.
Do you have a couple of facilities opening or expanding.
I was just wondering how what's the expectation for filling those windows will.
Contribute to earnings just given the market situation, obviously rubbers is good but specialties the demand may not be there or just how should we think about utilization and earnings contribution.
In the near term from them.
So in terms of Ravenna, bright, which is already up you sold it out very quickly we actually put more of that in rubber then in specialty because it was right. After the invasion of Ukraine, if you're supporting some of our tire customers with that so I think that remains in pretty good shape and I would just say normalize the run rate and say that's.
Going forward in our rubber business the big change for us is going to be the facility and why bad we had estimated that that would contribute about $12 billion of EBITDA for next year I'd say it was zero Covid. We would now say, maybe that's going to be high single digits to 12 million will have to see how that.
As out and maybe a little bit affected by the situation with rubber carbon black for Russia as well.
Okay, Great and just my last one where do you expect gross profit per ton and specialties to be roughly in Q4, and maybe entering Q1, just from what you see today.
Yeah, So we have avoided giving specific guidance.
We don't really want to at this point the guidance for next year, we kind of have done that for rubber. So I'd like to avoid doing that for specialty because it's kind of hand them out to the whole thing, but yeah I would say that look at the drop that we have for the fourth quarter and say that most of that is going to be in the specialty.
These space most means 70, 580% of it I would think he's going to be in the specialty space.
Okay, great if I could sneak one more in there what what was your expectation for for currency headwinds. When you gave guidance at the end of Q2, just trying to.
Set it against against you in your guidance, where there's a $25 million.
Sure well when we looked at Q2 I think we were looking at it if you looked at where exchange rates were at that point in time they were in.
What kind of across the month of July early August they were around one or two to 105 and obviously.
We're now sitting at pretty much at parity, but I mean, if you think about back to a year ago, Yes, right. When we gave guidance for the year I mean, it's been almost a 20 million dollar shift for us.
Yeah. If you look at if you look at the FX rates in 2022, and I believe I may be off by a penny or so I believe there are about a $1 18.
Yeah.
Euro to dollar and now this year year to date, we're sitting at about one O. One of those six if you take the current rate and extrapolate it to the end of the year, you're probably at about one O. Four so that's a pretty big drop it's about.
12%, 13% drop in the exchange rate year over year, and that's what's really driven the.
The year to date, and obviously, we will see an impact in the fourth quarter also.
Got it thank you guys.
Thank you. Thank you.
Our next question is from Laurence Alexander with Jefferies. Please proceed.
Hey, Good morning. This is Kevin on for Mike on for Laurence.
You may have actually you actually touched on a bit of what I'm about to ask but really just wanted to get a little bit more I guess more information on what you're seeing in terms of supply and demand and that makes me different pieces, there and I guess you can particularly.
Kicking of Europe , I'm, just curious to hear what what kind of things you're seeing there. Thanks.
Sure in Europe , I think it's so these cancers on specialty almost all segments are down okay. So that's that's pretty straightforward that's been the case in.
China until recently, we've seen a couple of them come back up we'll see what happens with the current Covid in Europe , they've all weekend and in North America. It probably started primarily in the polymer space I think we will see that be more broad for us.
If we think about the rubber demand in Europe . So it's been an interesting year when the invasion first and there was sort of I'd say, it's right.
People were very concerned because they were some companies very heavily reliant on brushing carbon black. So they went through that phase and if you look at some of the export data you can see be more sourcing some from China that dropped off after the course of let's say a quarter or two.
The Washington carbon black supply got re establish but everybody's uncomfortable with it from a security and from an ethics from all kinds of different perspectives on it. So I think people have worked very hard to.
That would get a range other supply arrangements thinking about 2023. So now when we think about the fourth quarter and if you listen to some of the comments that tire manufacturers have made seeing a slowdown in the European let's say passenger car market for that area, including replacement tires.
That I think we see a weakness in that.
Bold with potentially people using up or taking their last straw.
Some Russian carbon black.
That makes it a little bit hard to say and customers aren't totally open about what their position is on that but that that would be my read of what's playing out there. So our impact might be a little bit more of our industry's impact might be a little bit more than the general case from that point of view of using up Russian inventory or supply chain.
Bill.
Thank you.
Yeah.
Our next question is from Chris to patch with loop capital. Please proceed.
Alright, good morning, a couple.
Yeah.
Couple of questions. So.
Just curious within specialty.
Your grades that feed into automotive applications are tend to be higher you know across a pretty big dispersion of profitability within that product line and if you think about 'twenty three I. Most pundits are kind of expecting higher global auto builds notwithstanding obviously, some weakening whats going on in Europe , but I'm just wondering if if there is a.
Cushing to the you know to the runway run rate of EBITDA, We should think about for that segment from from mixed feeding into what could be at least flat, but maybe you know higher auto builds globally next year.
Yeah. So I think for the fourth quarter to be clear I think I think our GP per ton will move down in part on mix in part, though also just on lower volumes for modeling perspective, but when you talk about next year, you're absolutely right and LCM their forecast for Europe next year.
Gone up about 11%.
On the light vehicle manufacturing and.
Actually a very similar increase for North America, and we actually still are constrained in that space, sometimes when you're constrained people put in a few extra orders because they want to get what they really need we'll see how that plays out but I think that yeah that automotive could be an area of strength for us and.
Potentially there are some other things happening in terms of supply and demand and relative strength for us will be debottlenecking one of our key lines next year. So that will also have the benefit of.
Giving customers the confidence to design us into additional formulations right because they can be more confident they can get all the product that they want going forward.
Got it that's helpful and then.
Just following up on the narrative around no rubber for next year and I apologize if you've covered this in your remarks I missed some of them some of the comments, but I just want to understand so the contract negotiations and in the commentary about that formal commentary was for obviously the pricing, but also higher volumes and those contracts are.
Typically.
Then you know with western producers in the Americas, and Europe , and so I thought of.
Orion is being constrained in rubber volumes. So I'm wondering you talked about higher volumes in rubber. In addition to the pricing and so are you talking about in that context. The addition of capacity in China, but you're also talking about.
Higher contracted volumes that you're somehow Schwartz from Debottlenecking or you know operational excellence in your in your western factories. Thank you.
Hey, Chris excellent question. Thank you for that so yes, some of that will be why bay and some of that going into the to the rubber market, but very important for us will be two other factors, we foresaw the weakness in specialty, particularly in polymer some of those react.
<unk> can do either specialty or rubber and we made a decision early on and we would take that volume as rubber and we shifted around some of the commitment on it so that got us some additional rubber capacity. We also have.
Some elements in operational excellence and so forth that we have when we say we're totally sold out it's not necessarily every market every place I'd say in Europe , we had a little bit of room in North America, not a lot, but we did have a little bit of room with one couple of reactors in particular, where we're shifting them around to take advantage.
Some of the market shifts to the nature of North America. So all that combined we will see a benefit probably all in all a little bit more I'd say in North America.
China and Europe , it probably in that order for us.
Very helpful. Thank you.
As a reminder, this star one on your telephone keypad, if he would like to ask a question. We do have a follow up question from John Tam Lin Tang with C. D. S Securities. Please proceed.
Hi, Thanks for the follow up my question is just around the RCP number your floaters for next year that $268 million is that a minimum or a midpoint. Then you know you mentioned a lot of headwind there cogent down you know that the dollar is stronger Q1 demand could still be weak just help me understand the risk to that number and kind of what you're building in there.
Sure. So you know we have a thought about the risk factors on that when we gave you that number. So you should take that as a number we have reasonable confidence in recognizing we're just at the end of Q3 right now and it's a very dynamic world that we're in.
A lot of the cogeneration pressure is going to be felt in our specialty area.
Just because of the magnitude of that in Europe .
Visa B.
Bounce between specialty and rubber in Europe , but surely there'll be some of that is a risk factor for us in that but all in all that reflects our sense of what we're really going to see in terms of volume.
And the pricing I think is really pretty severe.
Okay, great as we head into 'twenty three I just wanted to jump back to specialties are you still improving pricing there and is the mix expected to be better compared to this year or maybe a little bit flatter.
I think mix is going to depend upon how the economy plays out and heavily like which market segments. How does the demand right. We manufacture some very valuable very distinctive almost product defining products. Obviously, if we add a lot more value to the customer get more.
Value for our product and so the mix factor of what part of the economies are going well and not as well.
It's really a dominant factor there I would say pricing in the more let's say polymer space in that master batch that sort of thing a lot of our customers complaining about a competitor being very aggressive in that space that goes with them under pressure.
And I think that just in general margins in that space are going to be more challenging including for us.
Okay, and just as a reminder, do you actually plan that match their best market or have you pulled back from that just given the poor economics there.
So these are customers who.
Compete with one of our competitors, we support them, we continue to work with them in that space.
That's good.
Yes, some of our capacity from lower end specialty to rubber just because of number one demand being more in rubber as well as <unk>.
Maximizing our own profit and return on investment.
Got it thank you guys.
Okay.
Yeah.
I think we have one more coming in.
Yes, we have our next question is from Ken <unk> with be ex credit. Please proceed.
Alright, guys just.
Generally my acquaintance.
Your name so apologies if some of these quite basic but just in Europe .
You.
Towns or are you just going to <unk>.
Don't have anything on the specialty side, I guess I'm just trying to understand.
I appreciate your comments on on being able to operate so I don't have it.
Yes.
Too much of a hence even at a 40% cost reduction.
Is there any sense. It says it does sound like there's anything around curtailments.
And just in terms of trade flows if you could talk to that a little bit in terms of you know if anything has just been seen yet.
That region.
Especially it would be helpful and then secondly.
On China.
Cheyenne remind myself profile I'm, assuming you find there sort of work capacity and loss.
Session capacity will be in that region and.
Major sourcing.
From that region, just thinking of China, becoming I Didnt know next price Gainesville, Oh, just increasing the I am.
And so just any sort of impact from it.
That's happening in that region would be that would be helpful.
Lastly, just then.
Just send you are just seeing here on the loans.
If you have any caps in place on those just.
Just switching that to think so and anything you can share.
Strikes would be would be helpful.
<unk>.
Sure. So let me start with your first one around natural gas.
We are not we do not see ourselves having to constrain anything related on natural gas, we shared with you our success in cutting back our natural gas is substituting it with other ways basically to drive the reaction or where we didnt get a high level of prioritization for.
German facility from our utility.
Generate we cogenerate electricity at all of these sites, we provide district heating which might not be a term everyone's familiar with but this is kind of like a collective eyes community hot water system. They send us cold water, we send them hot water for like building household E. D. So I think with all of those things.
Make very little sense to curtail someone like us and we've I think made that case effectively.
Sometimes we get questions is there a big cost savings associated with it I would say at least at this point look Theres also cost in making this change and some other impacts so not a big cost savings impact for us there.
There was a second part of that question I found a little hard to hear let me just move to the second topic and that was China, how do we see the China risk and so forth. So that the new plant that we're putting in is about 65 to 78 Atms capacity.
Specialty side is really aimed at making in China for China. We currently export into China from Europe from North America. So actually we would see having that kind of production in China and in this world of <unk>.
Higher international friction to be a good thing for us. So we see that as a positive step forward for US. It also allows us to make in for example, North America or North America specialty where we've made some gains.
Finally on the loans so we recently.
Expanded our Rcs, we said earlier in this call. We've made some progress on payment terms, our Seattle, Washington, I was actually oversubscribed I think we feel very comfortable that we got through 2020 really with.
No.
Having issues on that though.
No covenants wherever came into play that kind of thing. So I think all in all the loan situation is.
Yeah, I think quite comfortable for us, but Jeff anything you'd like to add to that sure Kevin as I heard your question. I think you were asking me about also whether or not we had.
Whether it was fixed it up we have hedged.
Our term.
Term loans and they are fixed out for different pieces for a number of years.
Our CF is a variable rate as Corey mentioned, we are utilizing a portion of that and we have a much bigger capability that we had.
Prior to the expansion of it I would expect our CF.
Usage as we go through 2023, barring a dramatic change in oil prices I would expect the rest of your of usage, perhaps will be flat to coming down some as we have a positive cash flow, obviously, we talked about the buyback and the intention of executing that buyback over the next few.
Quarters.
The aggregate, but I don't think that that's going to impact their RSV F going forward at all I think our improvement on the payment terms and other factors around to just reducing our accounts receivable.
<unk> largely fund that right.
Got it thanks.
So 100% of your Euro dollar hedge.
Whatever the interest effect from those sources.
Right.
Okay all.
Alright, okay.
Okay.
We have reached the end of our question and answer session I would like to turn the conference back over to Corning for closing comments.
Alright, Hey, I'd like to thank you all for joining us today, and giving US some of your valuable time I'd like to leave you with just this one thought.
I believe that we will be one of the few specialty chemical companies projecting higher earnings and improved cash flow next year I think that's a real positive and I leave you with that thank you very much and look forward to speaking with you.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.
Okay.
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