Q4 2023 Orion SA Earnings Call
Greetings and welcome. Orion SA Full U.
Greetings and welcome to Orion S. A full year 'twenty 'twenty financial results conference call.
Company Representative: Financial. This time, all participants are. A question and answer session will follow, for a star zero on a tele... Company. Norma pleasure. When. Thank you, Raju. Good morning, everyone.
All participants are in a listen only mode. A brief question and answer session to follow the 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 it is not my pleasure.
Do you see a host Wendy Wilson head of Investor Relations. Thank you Mr. Burton you may begin.
Wendy Wilson: Thank you Rajeev.
Wendy Wilson: Good morning, everyone and welcome to Orion Conference call to discuss our 2023 financial results.
Wendy Wilson: And welcome to Orion's conference call to discuss our 2023 financial results. I'm Wendy Wilson, Head of Investor Relations. With me today are Corning Painter, Chief Executive Officer, and Jeff Gleit, 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, and our actual results may differ from those described during the call. In addition, all forward-looking statements are made as of today, February 15, 2024. The company is not obligated 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 your press release. I'll now turn the call over to Corning Painter. Thank you, Wendy.
Wendy Wilson: I'm wondering Wilson head of Investor Relations.
Speaker Change: With me today are Corning painter, Chief Executive Officer, and Jeff quite cheap natural officer.
Speaker Change: 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.
Speaker Change: We will be well, what I'm, saying is present.
Speaker Change: Hum.
Speaker Change: Before we begin I'd like to remind you that.
Speaker Change: Comments made on today's call are forward looking statements.
Speaker Change: These statements are subject to the risks and uncertainties described in the company's filings with the SEC and our actual results may differ from those described during the call.
In addition, all forward looking statements are made as of today February 15 2024.
Speaker Change: The company is not obligated to update any forward looking statements based on new circumstances or revised expectations.
Speaker Change: All non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to your press release.
Quantification: I'll now turn the call over to quantification.
Quantification: Thank you Wendy good morning, everyone and thank you for joining our call today.
Corning F. Painter: Good morning, everyone, and thank you for joining our call today. In 2023, we delivered another year of record-adjusted EBITDA, our third consecutive year of growth. As good as that is, we are not savvy. If demand had not pulled off over the year, our results could have been in line with, or even beaten, our initial guidance. When Jeff takes you through the Yibidaw Waterfall on slide nine, you'll see just how impactful the 2023 contract round was and how the slowing underlying markets affected it. The good news is, as we predicted, we achieved our goals for the 2024 rubber pricing cycle despite relatively weak demand in our key markets. I believe this sets us up well for the 2025 cycle, which will be negotiated later this year. However, our customers remain cautious about 2024 volume, and our guidance reflects that. I'll explain more about that later on in the call.
Quantification: In 'twenty two 'twenty three we delivered another year of record adjusted EBITDA, our third year of growth.
Quantification: As good as that is we are not satisfied if demand had not cooled off over the year. Our results could have been in line with or even beat our initial guidance with Jack takes you through to the EBITDA waterfall on slide nine you will see just how impactful to 2023 contract round was and how the slowing.
Quantification: Underlying markets impact.
Quantification: The good news is as we predicted we achieved our goals for the 2024, Robert pricing cycle, despite relatively weak demand in our key markets.
Quantification: I believe this sets us up well for the 2025 cycle, which will be negotiated later this year.
Quantification: Our customers remain cautious about 2020 for volume and our guidance reflects that.
Quantification: More about that later on the call.
Corning F. Painter: Focusing on 2023 and consistent with our pre-release commentary from our January 22nd press release, full year adjusted EBITDA was $332 million, and adjusted diluted EPS came in at $1.92. We also delivered strong operating cash flow and strengthened our balance, returning $1.10. We also lowered our debt by $1.30 per share, or $78 million.
Quantification: Focusing on 2023 and consistent with our pre release commentary from our January 22nd press release full year, adjusted EBITDA was $332 million and adjusted diluted EPS came in at $1 92.
Quantification: We also delivered strong operating cash flow and strengthened our balance sheet, we returned $1.10 per share to shareholders by repurchasing stock. We also lowered our debt by $1 30 per share or $78 million.
Corning F. Painter: This reduced our net leverage to 2.35 times EBITDA, down from 3 times EBITDA just 18 months ago. On the operations front, we completed our final air emission upgrade project in the U.S. It is hard to express how big this is for Orion. Thank you, to our engineering and operations teams. Well done.
Quantification: This reduced our net leverage to three five times EBITDA down from three times EBITDA, just 18 months ago.
Quantification: On the operations front, we completed our final air emission upgrade project in the U S. It is hard to express how big this is for Orion.
Quantification: Huge thanks to our engineering operations team well done.
Corning F. Painter: This now allows us to focus our capital allocation on growth, debt reduction, and returning value to our shareholders. I see capital allocation as my top responsibility after... Beyond the implications for capital allocation, completing the air emissions work means we can just shift more of our effort to reliability, productivity, and quality. As you'll see later in our presentation... We are also confirming our 2025 mid-cycle earnings capacity goal. Why we'll need something more like the pre-COVID market conditions to more fully load that. We believe the path is clear and achievable. Jeff will review this later in the...
Quantification: This now allows us to focus our capital allocation to growth debt reduction and returning value to our shareholders I see capital allocation is my top responsibility after C. B.
Quantification: Beyond the implications for capital allocation completing the air emissions work means we can just shift more of our effort to reliability productivity and quality.
Quantification: As you'll see later in our presentation. We are also confirming our 2025 mid cycle earnings capacity goal, while we'll need something more like the pre COVID-19 market conditions to more fully load that capacity we.
Quantification: We believe the path is clear and achievable Jeff will review. This later in the call.
Jeff: There are so many more highlights to 2023 beyond those we featured in our slides today.
Corning F. Painter: There are so many more highlights to 2023 beyond those we featured in our slides today. For example, we've completed a number of steps in our journey to advance our sustainability goal. We achieved our 2022 emissions target in the U.S. and received a 10 basis points rate reduction in our interest payments on our sustainability-linked term loan. If you recall, Orion agreed to the seven-year $650 million term loan in 2021.
Jeff: Example, we've completed a number of steps in our journey to advance our sustainability goals.
Jeff: Our 2022 emissions targets in the U S and received a 10 basis points rate reduction in our interest payments on our sustainability linked to turmoil.
Jeff: If you recall Orion agreed to the seven year $650 million term loan due 2021, and we were one of the first companies to linked alone to environmental goal.
Corning F. Painter: And we were one of the first companies to link the loan to environmental goals. If we meet our targets for all four years, we can reduce our financing costs by a total of $2.6 million. We introduce Kappa 10, a new conductive carbon aimed at batteries with more of a cost-based value.
We meet our targets for all four years, we can reduce our financing costs by a total of $2 $6 million.
Jeff: We introduced cap attack, a new conductive carbon aimed at batteries with more of a cost base value proposition. We believe this product is well positioned for that portion of the market.
Corning F. Painter: We believe this product is well positioned for that portion. We were also selected for a 6.4 million euro grant from the German government and the European Union to further develop and demonstrate a climate-neutral process for producing carbon black from alternative carbon sources. We've already shown that we can make a wide range of carbon black rays with biocircular raw materials.
Jeff: We were also selected for a $6 4 million Euro grant from the German government and the European Union to further develop and demonstrate a climate neutral process for producing carbon black from alternative carbon sources. We've already shown that we can make a wide range of carbon black grades with bio circular.
Jeff: Raw materials and stop that.
Corning F. Painter: The challenge is now to improve efficiency, to make them more cost competitive. That's what this funding will help. We believe there will be strong demand for these materials as we make them more cost effective. Also, in 2023, we secured International Sustainability and Carbon Certification for our flagship specialty plant in Cologne. It's not just tire customers who want to build a circular economy, and this will help us to support specialty customers with sustainable and traceable carbon black.
Jeff: The challenge is now to improve efficiency to make these more cost competitive.
Jeff: That's what this funding will help.
Jeff: We believe there is strong demand for these materials as we make them more cost effective.
Also in 2023, we secured international sustainability and carbon certification for our flagship specialty plant and close.
Jeff: It's not just the tire customers, who want to build a circular economy and this will help us to support specialty customers with sustainable and traceable carbon black.
Corning F. Painter: It also means we now lead the industry with a number of certified carbon black products. All of these achievements advance sustainability as a business model. Looking at our two business units, specialty demand, reflecting weak broader market conditions, continues to be subdued. We are using this as an opportunity to push new customer qualifications, upgrade our plants, and introduce new products like Kappa 10 to the market. We've achieved a number of recent wins in the battery, wiring cable, and coatings market. We've also achieved several technical milestones related to the ongoing development of our high-performance surface-treated grids, in addition to the financial benefits. These successes allow us to better support our customers' growth plans and allow them to build us into new formulations with confidence. In the rubber business, we successfully completed our negotiations for 2024 ProPlan.
Jeff: It also means we now lead the industry with the number of certified carbon black production sites.
Jeff: All of these achievements advance sustainability as a business model.
Jeff: Looking at our two business units specialty demand, reflecting weak broader market conditions continues to be subdued we are using this as an opportunity to push new customer qualifications upgrade our plants and introduce new products like half a turn to the market we.
Jeff: We have achieved a number of recent wins in the battery wire and cable and coatings markets.
Jeff: We've also achieved several technical milestones related to the ongoing debottlenecking of our high performance surface treated right.
Jeff: In addition to the financial benefits of this these successes allow us to better support our customers growth plans and allows them to build us into new formulations with topics.
Jeff: In the rubber business, we successfully completed our negotiations for 2024 per plan.
Corning F. Painter: That we gained volumes in Europe should not surprise anyone with the coming ban on Russian Carbon Black. Importantly, we raised prices on top of last year's step year step change. We did this in the face of relatively weak demand and outlook from our customers and at a time of some painful actions in the tire industry. We've succeeded for several reasons. First, the industry is restructured. Tire capacity has grown in our key markets, and carbon black capacity has not. In North America, debottlenecking has been offset by plant closures, and in the European Union, the investment in tire capacity, beyond the investment in tire capacity, has increased. There's the Russian band coming this. The changes that we are seeing in long-term trade patterns are amplifying the importance of local production.
Jeff: We gained volumes in Europe should be no surprise at all with the coming band on Russian carbon Black importantly, we raised prices on top of last year's step your step change. We did this in the face of relatively weak demand outlook from our customers and at the time of some painful actions in the tire.
Her industry, we succeeded for several reasons first the industry is restructured tire capacity has grown in our key markets and carbon black capacity is not in North America Debottlenecking has been offset by a plant closure and the European Union investment entire capacity.
Jeff: Beyond the investment entire capacity, there's some Russian ban how many this June.
Jeff: The changes that we're seeing in the long term trade patterns are amplifying the importance of local production.
Corning F. Painter: There have been some recent announcements of capacity additions in other markets, but not in North America, or in Europe, or in other countries where we manufacture. Second, we naturally need to earn a return on investment on our compliance investments but also on our investments to renew our plan. Stepping up our maintenance and replacing end-of-life equipment, we improve our plant uptime and add effective capacity that our customers need for their continued growth. And that investment warrants a return as well.
Jeff: There had been some recent announcements of capacity additions in other markets not in North America or in Europe, or other countries, where we manufacture.
Jeff: Second we naturally need to earn a return on investment on our compliance investments, but also on our investments to renew our plants stepping up our maintenance and replacing end of life equipment, we improve our plant uptime and add affected capacity that our customers need for their continued right.
Jeff: That investment warrants a return as well.
Corning F. Painter: Third, the industry wants sustainable offerings. The investments we make in people, R&D, and the supply chain to make this happen demand a return. All that is only fair to Orion, the people who work on our plans, and to you, our investors.
Jeff: Third the industry wants sustainable off the investments, we make people R&D and supply chain to make this happen to demand.
Jeff: All of that is the only fair to Orion the people who work in our plants and to you our investors.
Corning F. Painter: Slide four is a good visual representation of our growing profitability. This is our third consecutive year of adjusted EBITDA growth, and based on our current guidance for 2024, this trend should continue. This also reflects how special our markets are.
Jeff: Slide four is a good visual representation of our growing profitability.
Jeff: This is our third consecutive year of adjusted EBITDA growth and based on our current guidance for 2024. This trend should continue.
Jeff: This also reflects how special our market space.
Corning F. Painter: There are not many chemical or materials companies who had a record 2023, and we expect to set a new record this year. We're in a niche space with very attractive industry restructuring. The completion of the U.S. Air Missions work, which was a burden, is another structural positive for us going forward. Despite those Air Missions projects, our ROCE has stabilized at a level well above our standards. Capital. It is great to have us.
Jeff: There are not many chemical or materials companies, who had a record of 2023 and we expect to set a new record this year.
Jeff: We're in a niche space with very attractive industry restructuring.
Jeff: The completion of the U S Air emissions work, which was a burden is another structural positive for us going forward.
Jeff: Despite this U S air emission projects R. R. O C. D has stabilized at a level well above our cost of capital is great to have that spend.
Jeff Zekauskas: With that, I would ask Jeff to provide additional insights into our financial results and long-term goals. Thank you, Corning. On slide five, you can see the consolidated results for the fourth quarter. Beyond this slide, I will focus more on the full year, but the detailed quarterly financial and EBITDA walks for both businesses are in the appendix. For Q4, volume was up mainly due to the specialty polymers market and from our new facility in China. However, this was partly offset by lower volume in the Americas. Revenue was essentially flat due to higher contractual pricing in our rubber business, offset by lower oil prices in the quarter. Gross profit and gross profit per ton were down due to the cogeneration effects from lower European electricity prices and an unfavorable product and geographic mix in both segments.
With that I would ask Jeff to provide additional insights into our financial results and long term goals.
Jeff: Thank you Corey.
Jeff: Slide five you can see the consolidated results for the fourth quarter beyond this slide I will focus more on the full year, but the detailed quarterly financial EBIT walk for both businesses are in the appendix.
Jeff: For Q4 volume was up mainly from the specialty polymers market. It's one of our new facility in China.
Jeff: This was partly offset by lower volume in the Americas.
Jeff: Revenue was essentially flat due to.
Jeff: Two higher contractual pricing in our rubber business offset by lower oil pricing in the quarter.
Gross profit and gross profit per ton were down due to the cogeneration effects from the lower European electricity prices and unfavorable product and geographic mix in both segments.
Jeff Zekauskas: In addition, higher maintenance turnaround activity, including Y-bay, the final DPA startup cost, and other timing items affected the quarter. Gross profit per ton was up slightly in rubber versus Q4 last year, but down sequentially at $357. Robert Gross Prophet's email was leaked due to several reasons.
Jeff: In addition, higher maintenance turnaround activity, including library, its final startup costs and other timing items affected the quarter.
Jeff: Gross profit per ton was up slightly and rubber versus Q4 last year, but down sequentially at $357 wherever it gross profit was leased first due to.
Speaker Change: Several reasons first.
Jeff Zekauskas: First... Volume was slightly up, but we had more volume in China and less in the Americas. This geographical swing adversely impacts gross profit. Second, the expected impact on cogeneration from lower electricity prices in Europe. And finally, continued start-up costs at Hwaii Bay and the final EPA project, which hurt rubber gross profit at the gross profit level. Specialty gross profit per ton was down very sharply versus prior year and sequentially at $4
Speaker Change: Volume was slightly up but we had more volume in China and less in the Americas, there's geographical slate adversely impacts gross profit.
Speaker Change: Second the expected impact on cogeneration lower electricity prices in Europe.
Speaker Change: And finally continued start up costs, that's why big and the final P. P project, which hurt rubber gross profit gross profit level.
Speaker Change: Especially on the gross profit per ton was down very sharply versus the prior year and sequentially at $492. While we have higher volume. It was primarily from our lower margin polymer market why.
Jeff Zekauskas: While we had higher volume, it was primarily from the lower margin polymer market and Y-bay. This resulted in a less profitable product mix in the quarter. Specialty was impacted by the lower electricity prices in Europe, similar to rubber. However, European co-gen effects are more impactful than specialty on a per ton basis since global rubber volumes are three to four times that of specialty. Finally, costs were up due to higher maintenance, startup, and timing-related items. We'll talk more about how we expect specialty recovery to recover in both the near and longer term in subsequent slides. One final item in the quarter; our tax rate was extremely high. This was due to a few items which impacted the full year tax rate, specifically a provision for a German tax audit going back to 2017, a prior year tax adjustment, and a full year write-down of our LTIP tax charges. The full-year tax rate was 37 percent.
Speaker Change: As a result of the less profitable product mix in the quarter.
Specialty was impacted by the lower electricity prices in Europe, So little rubber.
Speaker Change: Europeans co Gen effects.
Speaker Change: More impactful and specialty on a per ton basis as well.
Speaker Change: Global rubber volumes are three to four times that especially.
Speaker Change: Finally costs were up due to higher maintenance startup and timing related items.
Speaker Change: We'll talk more about how we expect specialty recovered to recover in both the near and longer term in subsequent slides.
Speaker Change: One final item in the quarter, our tax rate was extremely high this was due to a few items, which impacted the full year tax rate specifically a provision for a German tax out it goes back to 2017.
Speaker Change: Prior year taxes, adjusted our full.
Speaker Change: Full year true up of our tax charges, our full year tax rate was 37%, we expect to be back near 30% for 2024.
Jeff Zekauskas: We expect to be back near 30 percent for 2024. On slide six, for the full year, the success of our rubber price negotiations for 2023 helped us achieve a record adjusted EBITDA despite numerous headwinds in both businesses. Customer demand weakened as the year progressed, and ultimately, volume was down across all regions except China. Electricity prices in Europe were dramatically lower from their elevated level in 2022.
Speaker Change: On this slide six for the full year the success of our rubber prices in 2020 three rubber pricing negotiations helped us achieve a record adjusted EBITDA despite numerous headwinds.
Speaker Change: Both businesses.
Speaker Change: Customer ban weakened as the year progressed, ultimately volume was down across all regions, except China.
Speaker Change: Electricity prices in Europe were dramatically lower from their elevated level in 2022.
Jeff Zekauskas: This alone has a $30 million impact on 2023 results. Without this impact, gross profit per ton would have been up $50 instead of $18, and mix deteriorated due to the relative performance of our specialty and market. With the exception of the printing market, we expect those markets to improve over time. Slide seven provides a unique energy driver. Strong pricing and rubber was offset by weaker volume across both businesses and less benefit from cogeneration. Last year's very high European electricity prices make for a difficult comparison.
Speaker Change: This alone had a 30 million impact in 'twenty two 'twenty three results.
Speaker Change: Without this impact gross profit per ton would have been up $50 instead of E T.
Speaker Change: Mix deteriorated due to the relative performance of our specialty end markets with the exception of a crazy market, we expect those markets to improve overtime.
Speaker Change: Slide seven.
Speaker Change: About a year to date EBITDA drivers strong pricing in rubber was offset by weaker volume across both businesses and less benefit from cogeneration.
Speaker Change: She was very high European electricity prices makes for a difficult comparable.
Speaker Change: We also had a Blackberry E T startup costs related to startup costs.
Jeff Zekauskas: We also have YBA and EPA startup costs, and related startup costs. On slide 8, our rubber volume decrease was impacted by lower demand in the Americas and EMEA and a lack of recovery in tire production in those markets. We experienced a higher gross profit per ton driven by the contractual price increases, but this was partially offset by the lower cogeneration pricing. It's important to note that our 2023 gross profit per ton was up 22% compared with 2022. As Corning noted, we had a successful 2024 pricing negotiation and expect next year's gross profit per ton to be in line with the full year 2023 level. Slide 9 shows in a waterfall chart the effects of rubber as discussed on the previous slide. On to slide 10. Volume was relatively flat, especially for the year, with weakness across most geographies and the printing market, offset by gains in China and the polymer market. All other financial methods were down,
Speaker Change: On slide eight our rubber volume decrease was impacted by lower demand in the Americas and EMEA.
Speaker Change: And lack of recovery tire production in those markets.
Speaker Change: We experienced the higher gross profit per ton driven by the contractual price increases, but this was partially offset by the lower cogeneration pricing sites.
Speaker Change: It is important to note that our 2023 gross profit per ton was up only 2% compared with 2022.
Speaker Change: Accordingly, we had a successful 'twenty 'twenty four pricing negotiation and expect next year's gross profit per ton to be in line with the full year 2023 levels.
Speaker Change: Slide nine shows in a waterfall chart the effects of rubber as discussed on previous slides.
Speaker Change: Onto slide 10.
Speaker Change: Volume was relatively flat and especially for the year with weakness across most geographies is a crazy market offset by gains in China and the polymer market.
Speaker Change: All other financial metrics were down.
Jeff Zekauskas: The change in mix, as well as the reduction of cogeneration effects due to lower European power prices, contributed to the weaker results. As we look forward, we believe the following will move in a positive direction for special... Volumes will improve as we move toward mid-cycle conditions. As volumes improve, we believe we will have more pricing power.
Speaker Change: The change in mix as well as the reduction of cogeneration effects due to the lower European power pricing contributed to the weaker results.
Speaker Change: As we look forward, we believe the following will move in a positive direction for specialty.
Speaker Change: Volumes will improve as we move toward mid cycle conditions.
Speaker Change: As volumes improve we believe we will have more pricing power.
Speaker Change: Great.
Jeff Zekauskas: Mix should improve with business conditions and as a result of our de-bottlenecking of our premium products. It's early, but we're starting to see some promising signs for the EPA and why the startup costs are mainly behind us. And five, the battery market remains a significant upside for us. On to slide 11, which shows, in a waterfall chart, those categories affecting specialty, as discussed on the previous slide. Gross profit per ton decreased due to both geographic mix, which you see in volume, and Market Mix of Sales, which you see in mix, as well as lower code generation effects, which you see in cost. Importantly, for the specific mix of products that we sold in the quarter. Our pricing has remained stable.
Speaker Change: Mix should improve with business conditions and as a result of our debottlenecking of our premium products. It's early but we're starting to see some promising signs.
Speaker Change: For the E P. A M Y the startup costs are mainly behind us.
Speaker Change: And five the battery market remains a significant upside for us.
Speaker Change: Onto slide 11, which shows the waterfall chart those categories effective specialty as discussed on previous slides.
Speaker Change: Gross profit per ton decrease.
Speaker Change: Due to both geographic mix, which you see in volume.
Speaker Change: Market mix of sales would you see a mix as well as lower cogeneration effects, which you see in costs.
Speaker Change: Importantly through the specific mix of products that we sold in the quarter.
Speaker Change: Our pricing has remained stable.
Jeff Zekauskas: Slide 12 looks at cash flow for the year. Our improved cash flow allowed us to both repurchase $66 million worth of shares and reduce our debt by $78 million. Our death to even ratio now stands at 2.35, down from nearly three times just 18 months ago. As Corning mentioned earlier on the call, we spent $1.10 per share to repurchase Fox and $1.30 per share to reduce our debt. Our goal is to reduce our total debt, improve our debt to EBITDA ratio, and continue to strengthen our balance sheet. We've made substantial progress in all of these areas over the past year. On slide 13, we have transitioned to a dramatic increase in our discretionary cash flow conversion as we have stepped up our profitability and, at the same time, completed our EPA project. Note that our 2023 conversion rate included $89 million in working capital improvement from changes in our customer agreements. We expect to maintain this benefit in 2020.
Speaker Change: Slide 12 looks at cash flow for the year, our improved cash flow allowed us to both repurchased $66 million worth of shares and reduced our debt by $78 million.
Speaker Change: Our debt to EBITDA ratio now stands at $2 35.
Speaker Change: Down from nearly three times, just 18 months ago.
As Corey mentioned earlier on the call. We spent $1 10 per share to repurchase stock and $1 30 per share to reduce our debt.
Speaker Change: Our goal is to reduce our total debt improve our net debt to EBITDA ratio and continue to strengthen our balance sheet.
Speaker Change: We've made substantial progress in all of these areas over the past year.
Speaker Change: On slide 13, we have transitioned to a dramatic increase in our discretionary cash flow conversion as we have stepped up our profitability.
Speaker Change: Same time, completing our MTA projects.
Speaker Change: Note that our 2023.
Speaker Change: Conversion rate included $89 million and working capital improvement from changes in our customer agreements, we expect to maintain this benefit in 2024.
Jeff Zekauskas: Let's look at capital spending on slide 14. Up through 2023, we had a significant capex related to our EPA program. This spending reduced in 2023 and is now behind. With our increased EBITDA and no future EPA capital spending, we expect to focus on growth investments and high return projects, as well as a sustained higher level of maintenance projects, which will improve reliability.
Speaker Change: Yeah.
Speaker Change: Let's look at capital spending on slide 20 on slide 14 up through 2023, we had a significant capex related to our EPA spend.
Speaker Change: Spending reduced in 2023 is now behind us.
Speaker Change: Our increased EBITDA and no future DTA capital spending we expect to focus on growth investments and high return projects as well as a sustained higher level of maintenance projects, which will improve reliability.
Jeff Zekauskas: For 2024-2025, the majority of our growth CapEx will be for our conductors plant in LaPorte, Texas. We will also complete some high-return debottlenecking projects in our specialty business. Other than the port, the growth investments shown in 2025 carry us beyond our 2025 mid-cycle goals, even the capacity goals. We will prioritize those accordingly as we develop our 2025 capital plan later this year. The Hatch Slides for 2025 are a placeholder for those potential growth and productivity opportunities. Projects are not committed to at this point, and again, we will prioritize them as part of our capital allocation process. Perhaps another way to look at this is that between maintenance and Laporte, we expect to spend approximately $140 to $150 million on CapEx in 2025. The remaining $50 to $60 million would be fully discretionary, currently just a placeholder. On to slide 15. Before we discuss our 2024 guidance, we want to provide an update on our progress toward our mid-cycle capacity goal of $500 million. I'll beat this up.
For 'twenty 'twenty four 'twenty 'twenty five the majority of our growth Capex will be for our conductus plant in La Porte, Texas.
Speaker Change: We will also complete some high return Debottleneck debottlenecking projects and our specialty business.
Speaker Change: Other than the port.
Speaker Change: Both investments shown in 2025 carry us beyond our 2025 mid cycle EBITDA capacity goals.
Speaker Change: We'll prioritize those accordingly, as we did all of our 2025 capital plan later this year.
Speaker Change: <unk> for 2025, as a placeholder for those potential growth and productivity opportunities.
These projects are not committed to at this point and again, we will prioritize them as part of our capital allocation process.
Speaker Change: Perhaps another way to look at this is between maintenance and look forward, we expect to spend approximately $140 million to $150 million of Capex in 2025, the remaining $50 million to $60 million.
Speaker Change: The fully discretionary currently just a placeholder.
Speaker Change: On this slide 15.
Speaker Change: Before we discuss our 2024 guidance, we wanted to provide an update on our progress toward our mid cycle capacity goal of $500 million of EBITDA.
Jeff Zekauskas: We believe in this cycle, we would expect global economies and demand for our product to be at pre-COVID levels. We would not expect extraordinary pricing for carbon black, but rather pricing that would increase sufficiently to offset cost inflation. The volume level, which is the correspondence of plant utilization in the upper 80% range, will generate a rubber volume of 840 to 860 kT and 260 to 280 kT for special.
Speaker Change: We believe that mid cycle, we would expect global economies and demand for our pilot to be pre COVID-19 levels.
Speaker Change: We would not expect extraordinary pricing for carbon black rabbit pricing that would increase sufficiently to offset cost inflation.
Speaker Change: The volume level, which would correspond with plant utilization upper 80% range, we generated rubber volume of 840 to 860 T T and 260 to 200 B E T C for specialty.
Jeff Zekauskas: Specialty Volume Exclusive Incremental 12KT from Laporte. For us to meet these volume levels, we do not require significant growth investment except for the Laporte project. We have achieved these volumes before, and we are confident we can do it again, on slide 16. Corning will discuss 2024 guidance shortly, and it will have a midpoint of $350 million in EBIT. To move from $350 million to $500 million, there are three major components. First off, the CAFA conducted business should have about $50 million. Most of that, 80 to 90%, comes from the LaPorte plant, which we expect to be on stream in mid-2025. The remaining $100 million gain is split $70 million in volume and $30 million in margin.
Speaker Change: The specialty volume exclusive Incrementals falls T T from La Porte for.
Speaker Change: For us to meet these volume levels do not require significant growth investment, except the Laporte project.
Speaker Change: We have achieved these all of these as before but we are confident we can do it again.
Speaker Change: On slide 16.
Speaker Change: Corning will discuss the 'twenty 'twenty four guidance shortly.
Speaker Change: It will have a midpoint of $350 million of EBITDA.
Speaker Change: To move from 350 million to 500, there are three major components first on the Catholic conductors business should add about $50 million.
Speaker Change: Most of that 80% to 90% comes from our reported plant, which we expect to be Onstream mid 2025.
Speaker Change: The remaining $100 million being.
Speaker Change: The split of $70 million and volume of $30 million and margin.
Jeff Zekauskas: Performers primarily recovered in our end markets to mid-cycle levels. This includes approximately 80 to 100 kT rubber and 20 to 40 kT, especially compared with our estimates for 2024. Most of this capacity is already in place to achieve this volume level, but there's a portion, especially volume growth, that requires completing the bottlenecking projects for some high-end products. But again, most of the volume gains needed are for market improvement, not capacity increases. Using the midpoints, the 90 kT of rubber volume would be at an incremental EBITDA per ton of approximately $400, very much in line with our current GP per ton, and with minimal added cost, this math makes sense. For specialty chemicals, the incremental volume of 30 kT is closer to $100 per ton.
Speaker Change: The former is primarily a recovery in our end markets.
Speaker Change: Through mid cycle level.
Speaker Change: This includes approximately 80 to 100 K T. Robert and 20 to 40 T T, especially compared with our estimates for 2024.
Speaker Change: Most of this capacity is already in place.
Speaker Change: To achieve these volleyball's.
Speaker Change: There was a portion of the specialty volume growth that requires completing the debottlenecking projects for some high end products, but again most of the volume gains needed.
Speaker Change: From market improvement not capacity increases.
Speaker Change: Using the midpoint 90 kt of rubber volume would be in an incremental EBITDA per ton of approximately $400 very much in line with our current GP per ton and with minimal added cost this math makes sense.
Speaker Change: Specialty the incremental volumes 30, Kt is closer to $100 per ton.
Jeff Zekauskas: This volume is partly due to the recovery of our current market mix, which has a lower, excuse me, has a lower incremental profit plus volume gains in our higher-end products, including the debilelecting projects that we have discussed in the past. This is not simply a math exercise; we have specific products in high-end markets that achieve these margin levels today. Finally, the $30 million of margin gains is a pricing event, and the $500 million target is split roughly 60-40 between rubber and specialty. The details for each business are also in the appendix.
Speaker Change: This volume is partly due to the recovery in our current market mix.
Speaker Change: Which has a lower excuse me has a lower incremental profit plus volume gains in our higher end products, including the debottlenecking projects that we have discussed in the past.
Speaker Change: This is not simply a math exercise we have specific products in high end markets, but achieve these margin levels today.
Speaker Change: Finally, the $30 million of margin gains are in pricing and mix.
Speaker Change: The $500 million towards its split roughly 60 40 between rubber and specialty the details for each business are also in the appendix slides.
Jeff Zekauskas: With that, I will turn the call back over to Corning to discuss our 2024 guide. Thanks, Jeff. And just one clarification: it's $1,000 per ton on the specialty.
Speaker Change: With that I will turn the call back over to according to discuss our 2024 guidance. Thanks, Jeff and just one clarification, it's a $1000 per ton on the specialty and we think that makes sense for all the reasons, Jeff just outlined.
Corning F. Painter: And we think that makes sense for all the reasons Jeff just outlined. Based on our discussions with customers, and given the slow recovery in our markets that we've observed, we're projecting mid-single digit adjusted EBITDA percentage growth in 2024. Many chemical firms saw their profits shrink in 2023 and are bouncing back from a lower face.
Speaker Change: Based on our discussions with customers and given the slow recovery in our markets that we've observed we're projecting mid single digit adjusted EBITDA percentage growth through 2024.
Speaker Change: Many chemical firms saw their profit shrinking in 2023 and are bouncing back from a lower base with projections of a soft landing in the U S and the expected weakness in the E U and Chinese economies, we expect our EBITDA growth for 2024 to be similar to what we achieved in 2020.
Corning F. Painter: With projections of a soft landing in the U.S. and the expected weakness in the EU and Chinese economies, we expect our EBITDA growth for 2024 to be similar to what we achieved in 2020. That said, we believe we are well positioned for whatever 2024 brings, and it will be another year of record growth for Orion. We are confident in our business, and we are setting our adjusted EBITDA guidance range to $340 to $360 million today. This EBITDA guidance is up over 5% at the midpoint and supports our adjusted EPS guidance range of $2.05 to $2.20 per share, which is an increase of 11% at the midpoint. I'll close with six points.
Speaker Change: Three.
Speaker Change: That said, we believe we are well positioned for whatever 2024, it brings and it'll be another year of record growth for Orion.
Speaker Change: We are confident in our business and are setting out our we are setting our adjusted EBITDA guidance range to $340 million to $360 million today.
Speaker Change: This EBITDA guidance is up over 5% at the midpoint and supports our adjusted EPS guidance range of $2 five to $2 20 per share, which is an increase of 11% at the midpoint.
Speaker Change: I'll close with six points first we built on last year's rubber pricing gains.
Corning F. Painter: First, we built last year's rubber pricing game and Offset. Second, we're beginning to see a rebound in specialty mix in cube one. Third, 2023 was our third straight year of EBITDA growth, and our expectation is that 2024 will be our fourth. Fourth, the U.S. Air Mission projects are complete.
Speaker Change: And upset.
Speaker Change: We're beginning to see a rebound in specialty mix in Q1.
Speaker Change: Third 2023 was our third straight year of EBITDA growth and our expectation is that 2024, it will be our fourth.
Fourth the U S air emission projects are complete.
Speaker Change: This is huge for us.
Corning F. Painter: This is huge for us. Fifth, we don't have the one-time working capital reduction from improved customer terms like we did last. Nonetheless, underlying distributionary cash continues to improve. 6. This year.
Speaker Change: We don't have the one time working capital reduction from improved customer terms like we did last year, Nonetheless underlying discretionary cash continues to improve.
Speaker Change: Six this year.
Company Representative: Our growth investments are focused on our new acetylene-based plant in LaPorte, Texas and some de-bottlenecking of our high-value products that customers will. With that, I give you, please open up the lines for questions. Thanks. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on the telephone. Transformation Tool.
Speaker Change: Our growth investments are focused on our new acetylene based plant in La Porte, Texas, and some debottlenecking of our high value products that customers want.
Speaker Change: With that rent you. Please open up the lines for questions.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: We'll now be conducting a question and answer session.
Speaker Change: If you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: We will indicate your line is in the question queue.
Company Representative: Line. Scott. I would like to remove your question, may be nec- As a reminder, restrict yourself to one question and one solution. One moment, please, while we poll for questions. The first question comes from the line of Josh Spector. Yeah, hi. Good morning.
Speaker Change: Stan.
Speaker Change: I would like to remove your questions from the queue.
Speaker Change: All participants using speaker equipment.
Speaker Change: Mississippi to pick up your handset before pressing the star keys.
Speaker Change: Please restrict yourself to one question and one follow up.
Speaker Change: One moment please poll for questions.
Speaker Change: Our first question comes from the line of Josh Spector with UBS. Please go ahead.
Speaker Change: Okay.
Josh Spector: Yeah, Hi, good morning, So alright, Josh asked a few things.
Josh Spector: So I wanted to ask a few things. I wanted to ask about CapEx, and I think, Jeff, in your comments, you maybe clarified a bit, but so 2025, really, what should we be expecting as a base case? So is 150 million-ish the base case, and then you would invest more in de-bottlenecking if need be? And I ask that in the context of showing what capacity you have in specialty.
Josh Spector: I wanted to ask around Capex, and I think Kevin to comment can you maybe clarify it a bit but so 2025.
Really what what should we be expecting as a base case. So it's 150 million ish. The base case, and then you would invest more in debottlenecking if need be.
Josh Spector: And I ask that in the context of <unk>.
Josh Spector: Shell capacity you have in specialty.
Jeff Zekauskas: You have a pretty muted outlook on volume this year. It would seem you could kind of grow into your capacity over the next few years and maybe shift to cash return versus growth. And I'm just wondering how you're thinking about that different dynamic. Yeah, so I think you're correct, right?
Josh Spector: A pretty muted outlook on volume this year. It would seem you could kind of grow into your capacity over the next few years and maybe shift to cash return versus growth and I'm, just wondering how youre thinking about that different dynamics.
Speaker Change: Yeah. So I think you're correct right you should think about 150 is a number that we're on track of for next year and then we'll look at the additional cash we have and we will consider strategic options. So maybe there's something around batteries that we want to continue to invest in and see an important element there it might be that.
Jeff Zekauskas: You should think about 150 as a number that we're on track for next year. And then we'll look at the additional cash we have, and we'll consider strategic options. So maybe there's something around batteries that we want to continue to invest in and see an important element there. It might be that we see, no, really, the best thing here is simply to return the capital via Share Purchase or other mechanisms for it.
Speaker Change: We see no really the best thing here is simply to returns of capital.
Speaker Change: Share repurchase or other mechanisms for it it.
Jeff Zekauskas: It might be that we decide to greenlight some, let's say, lower-risk productivity projects. But I'd say 150 is what we're on track for, and we're really just trying to show that we have growth opportunities, we have opportunities to enhance our profitability that are discretionary. Jeff, anything you'd like to add? No, I think that's pretty clear.
Speaker Change: It might be that we decide to greenlight, some let's say lower risk productivity projects, but I would say $1 50 is what were on track for and we're really just trying to show that we have growth opportunities we have opportunities to.
Speaker Change: To enhance our profitability.
Speaker Change: Discretionary for us.
Speaker Change: Jeff anything like that.
Jeff: I think that that's a pretty clear.
Jeff Zekauskas: You know, we will decide this as we get later this calendar year; we're looking into 2025, our capital allocation, and what's the right approach for us. I think importantly, though, if we do spend in 2025 on growth or productivity capex, it's not likely to have a significant impact on 2025 profitability levels, but more beyond that. Yeah, thanks. And I guess, I mean, what do you say to investors that might look at slide 14 and say, you spent a couple hundred million on growth investments, and you're not seeing it in specialty? I guess, obviously, that's probably not fair in the context of where volumes are today.
Jeff: We will decide this as we get later in this calendar year and we're looking into 2025 of our capital allocation. What's the right approach for US I think importantly, though if we do spend in 2025 gross or productivity capex, it's not likely to have a significant impact on the 2025 profitability levels more beyond that.
Speaker Change: Yeah. Thanks, So I guess I mean, what do you say investors that might look at that slide 14, and say you spent a couple of hundred million on growth investments.
Speaker Change: And youre not seeing it in specialty.
Speaker Change: I guess, obviously, that's probably not fair in the context of where volumes are today, but.
Corning F. Painter: But what's the embedded view there about your success on those investments and returns? Right. So look, the one big investment we have in specialty is the acetylene facility in La Porte, and it's not on stream yet. So no one should expect to see anything from that yet.
Speaker Change: What's the embedded view there about your success on those investments and returns.
Speaker Change: Right. So look the one big investment we have in specialty is the acetylene facility in La Porte and it's not on stream yet so no one should expect to see something from that yet people should look at this I think I'd say yeah. They are on track for $150 million next year.
Corning F. Painter: People should look at this, I think, and say, yeah, they're on track for $150 million next year. But it's a company that has growth prospects. So, you know, there's another concern out there. What's your next act?
Speaker Change: But it's a company that has growth prospects. So theres another concern out there. What's your next act and I would just say we have choices on it but their choices and clearly if we don't think the market is ready we don't think the Timing's right. If we don't think the environment is clear then we wouldn't do it.
Corning F. Painter: And I would just say we have choices on it, but they're choices. And clearly, if we don't think the market's ready, we don't think the timing's right, if we don't think the environment is clear, then we wouldn't do it. Yes, sir. I guess I was asking more about the historical spend. I mean, obviously, Laporte isn't in there.
Speaker Change: Yeah, sorry, I guess I was asking about more of the historical spend I mean, obviously la Porte isn't in there but over the last five years, you've spent a couple of hundred million on growth investments specialty is still underperforming versus 2019, I guess, how would you think about the returns on those investments that those met your expectations is it just we're not see.
Josh Spector: But over the last five years, you've spent a couple hundred million on growth investments. Specialty is still underperforming versus 2019. I guess, how do you think about the returns on those investments? Have they met your expectations? Is it just that we're not seeing them?
Corning F. Painter: Any comments there? Thank you. Well, so I would say the investment in Ravenna has worked out very, very well for us. It was sold very quickly.
Speaker Change: Any comments there thanks.
Speaker Change: So I would say the investment in Ravenna, that's worked out very very well for us. It was loaded very quickly I'd say the investment in bear was quite strategic for US has opened up this opportunity for us and a steadily yeah, China is a more difficult market for.
Corning F. Painter: I'd say the investment in Bayer was quite strategic for us. It's opened up this opportunity for us in a steadily becoming a more difficult market. For what it's worth of the business in China, I'd say the specialty is doing relatively well. It's a much more challenging environment there right now on the rubber. Okay, thank you. Does that help, Josh? Yeah, that helps. I'll turn it over.
Speaker Change: For what it's worth of the business in China, I'd say, the specialties doing relatively well, it's much more challenging environment there right now on the rubber side.
Speaker Change: Okay. Thank you that help Josh.
Josh Spector: Yeah that helps I'll turn it over.
Josh Spector: Yeah.
Josh Spector: Thank you. The next question comes from the line of Lawrence Alexander with Jeffrey's. Please go ahead. Good morning, it's Dan Rizzo on for Lawrence.
Speaker Change: Thank you.
Our next question comes from the line of Alexander with Jefferies. Please go ahead.
Alexander: Good morning, it's Dan Rizzo on for Laurence. Thank you for taking my questions. When you look at your assumptions for 2025.
Dan Rizzo: Thank you for taking my questions. When you look at your assumptions for 2025, do you assume, I mean, I know you assume better volumes, but are you assuming an improvement in the overall macro environment in Europe, America, and China? Yeah, and that that would drive us to the kind of demand profile that would fill up those plants and take us back to those levels that we achieved before. Thank you.
Alexander: Assume I mean, I know you've assumed better volumes, but are you assuming improvement in the overall macro environment in Europe America and China.
Speaker Change: Yeah, and then that would drive us to the kind of demand profile that would fill up those take us back to those levels that we achieved before.
Corning F. Painter: Thank you. We would think that is more mid-cycle than the current environment, which from our demand profile is quite weak in all three markets in North America, Europe, and China. So, if we think about 20, you know, 2024 to 2025, then I guess that would assume that 2024, the outlook is kind of back and back half loaded. I was wondering about the cadence as we go into and try to get to the mid cycle.
Speaker Change: Although we did decide we would think that is more mid cycle that in the current environment, which we would say from our demand profile is quite weak really in all three markets in North America, Europe and China.
Speaker Change: So when you think about 'twenty 'twenty 'twenty four to 'twenty 'twenty, five and I guess that would.
Speaker Change: Assuming that the 'twenty 'twenty four the outlook is kind of back end back half loaded I was wondering what the cadence as we go into it and trying to get to a mid cycle.
Corning F. Painter: I would start at the beginning and then say the sequential improvements is, I guess, the way we should think about it. No, no, I wouldn't say that. I think, look, our sense of 2024 is not as strong as I guess some people's are. I was in China in Q4, and it didn't strike me as an economy that was about to accelerate. I think things are challenging in Europe, and North America will have an interesting election cycle.
So off the beginning and then.
Speaker Change: Sequential improvements because I guess the way, we should think about it.
Speaker Change: No no I wouldn't say that I think look our sense of 'twenty 'twenty four is not as strong as I guess, some people's aren't I was in China in Q4 didn't strike me as a economy that was about to accelerate I think things are challenging in Europe, and North America will have an interesting election cycle.
Corning F. Painter: And in case anybody's noticed, the global order is a little bit stressed right now. So I think it's wise to just listen to our customers who are cautious for the year. For 2025, I think we have a good shot at being in a better place from a global economic point of view just as the national cycle of the economy plays out. But again, we're talking about capacity in 2025. Yeah, Dan, just to be clear, we're not assuming that's our 2025 number by any means. That's a mid-cycle capacity number for us, which is how we've been presenting it. But, I mean, with the return of the environment, I think 2025 could be a really good year for us. Okay, we won't have Laporte loaded in 2025, right?
Speaker Change: And it tastes nobody's noticed like the global water is a little bit stretched right now so I think.
Speaker Change: It's wise to just listen to our customers who are cautious for the year.
Speaker Change: For 2025, I think we have a good shot of being in a better place from a global economy, just as the natural cycle of the economy plays out, but again, we're talking about a capacity in 2025.
Speaker Change: Okay, and then just to be clear, we're not we're not assuming that sort of 2025 number by any means that's a mid cycle capacity number for us.
Speaker Change: Which is how we've been representing it but I mean with with a return of the environment I think 2025 could be a really good year for US. Okay. We won't have laporte loaded in 2025 right. That's that's clear, but I think we could see a pretty dramatic swing in volumes.
Corning F. Painter: That's clear. But I think we could see a pretty dramatic swing in volumes in our base specialty and rubber business. It's going to depend upon the economic outlook in 2025, or as you say, as this year plays out. Thank you very much.
Speaker Change: In our base specialty and rubber business is going to depend upon the economic outlook in 2025 or as as you say as this year plays out.
Speaker Change: Alright, Thank you very much.
Speaker Change: Yes.
Dan Rizzo: Thanks. The next question comes from the line of John Tan, Bantam. ES3.
Speaker Change: Thank you.
Speaker Change: Next question comes from the line of John Todd Bunting.
Speaker Change: Please go ahead.
Speaker Change: Yeah.
John Roberts: Hi, good morning, guys. Thank you for taking my questions. I was wondering if you'd go through a little bit what you're seeing in Q1 so far, both in both segments from an underlying volume and NGP per ton perspective. And I think you mentioned, especially, rebound.
Speaker Change: Hi, Good morning, guys. Thank you for taking my questions I was wondering if you'd go through a little bit on.
Speaker Change: What you see in Q1, so far.
Speaker Change: In both segments from an underlying volume and then she'd be per ton.
Speaker Change: Respective and I think you mentioned, especially rebound maybe you could give a little more color on that where that's coming from and to as my follow on just at what are you seeing in end demand.
Corning F. Painter: Maybe you could give a little more color on that, where that's coming from, and two, as my follow-on question, just what are you seeing in end demand and versus de-stocking inventory? Yeah, so interestingly, we've seen some strength in areas, some of which are more, less differentiated. Let's say film and pipe have been stronger areas, to a certain degree wire and cable.
Speaker Change: First is the destocking of inventory trends. Thank you.
Speaker Change: So interestingly, we've seen some strength in areas some of which are more or less differentiated, let's say film and pipe have been stronger areas.
Speaker Change: Certain degree wire and cable on the other hand, I'd say some things related to automotive.
Corning F. Painter: On the other hand, I'd say something related to the automotive and manufacturers who supply that train, so adhesives, engineered plastics, some areas like that, a bit weaker. MRG, certainly weaker for us in China. Regionally, I think we're really going to have to wait until March and April to see how China comes out of the Chinese New Year. I don't see the big hockey stick flying out there, but we'd be very happy if we were wrong on that.
Speaker Change: <unk>.
Speaker Change: Manufacturing.
Speaker Change: <unk>, who supply that that train so adhesives engineered plastics, some areas like that a bit weaker <unk> certainly weaker for us in China.
Speaker Change: Regionally I think we're really going to have to wait until March and April to see how China comes out of Chinese new year, I don't see a big hockey stick flying out there, but we'd be very happy if we prove wrong on that.
Corning F. Painter: And I think we see slight improvement in North America and not much in Europe right now. Okay, and just on end demand versus inventories and beef stocks and trends, especially overall, Yeah. So, I mean, anecdotally, we hear from some players, let's say, like distributors, who didn't place very large orders last year. One of our largest ones, when the whole thing began, I asked one of the owners, like, how do you think this is going to play out? And he compared it to previous recessions and how people overbought and then realized, wow, I have a year's supply in my warehouse. And two or three years ago, he predicted that for us.
Speaker Change: And I think we see slight improvement in North America and not much in Europe right now is the sentiment.
Speaker Change: Okay, and then just on the end demand versus inventory than in Destocking trends, especially in times.
Speaker Change: Yeah. So I mean, clearly anecdotally, we hear from some players, let's say like distributors, who didn't placed very large orders last year one of our largest wanted when the whole thing began I asked him about one of the owners like how do you think is going to play out and he comparative to previous recessions and how people overbought overhaul and then realized wow.
Speaker Change: Got a year's supply in my warehouse and two or three years ago. He predicted that to us what we're seeing now is some of those players.
Corning F. Painter: What we're seeing now is some of those players are beginning to place orders. So, I think there's some indication that destocking, at least in that space, seems to be improving for us at this point. But, you know, this is very much a customer-by-customer situation, and it's going to depend over the course of the year on how they see customer demand. Okay, great. I'll jump back to you.
Speaker Change: I have placed are beginning to place orders. So I say there is some indication that destocking at least in that space seems to be improving for us at this point, but you know this is very much a customer by customer situation and it's going to depend over the course of the year, how do they see customer demand playing out.
Speaker Change: Okay great.
Speaker Change: Jump back in queue. Thank you.
John Roberts: Thank you. All right. Thank you. The next question comes from the line of Jeff Zekauskas. Hi, this is Lydia Huang on behalf of Jeff.
Speaker Change: Right.
Speaker Change: Yeah.
Speaker Change: Yeah.
Thank you next question comes from the line of Jeff Zekauskas with Jpmorgan. Please go ahead.
Speaker Change: Hi, This is lidia Hong on for Jeff can you talk about what to expect in 2024 in terms of pricing in the specialty segment.
Lydia Huang: Can you talk about what to expect in 2024 in terms of pricing in the specialty segment? Um, So, I think the strength in pricing we have, as we said, we've been holding our price for the specific products that we're in. I think that we'll be able to continue to do that as the year plays out. If we see a dramatic tightening in this market, obviously, supply and demand, that would favor it. But I think that's maybe not going to be the biggest part of the story this year.
Speaker Change:
Speaker Change: So I think the strength in pricing and we haven't had as we said we've been holding our price for the specific products that we're in I think that.
Speaker Change: We'll be able to continue to do that as the year plays out if we see a dramatic tightening in this market, obviously supply and demand that would favor it.
Speaker Change: But I think I think that's maybe not going to be the biggest part of the story for this year. When you look at our Orion, specifically, though I would always say keep in mind mix is very important for us so certain segments, we add more values and we were able to share in more value when we sell that so the mixes where.
Corning F. Painter: When you look at Orion specifically, though, I would always say, keep in mind, mix is very important for us. So, you know, certain end segments, we add more value, so we're able to share in more value when we sell that. So the mix is where I think you're much more likely to see it than in, let's say, raw end customer pricing. And in terms of price and mix.
Speaker Change: I think you're much more likely to see is that in lets say raw and customer pricing changes.
Speaker Change: Yeah.
Speaker Change: And in terms of price and mix do you see it trending down sequentially and quarter to date in relation to fourth quarter levels.
Corning F. Painter: Do you see it trending down sequentially quarter-to-date in relation to fourth quarter levels? No, no, no, we do not. Okay, thank you. The next question comes from John Tang. Hi, I was wondering if you could give us a little more color on the competitive environment.
Speaker Change: No no that would do that.
Speaker Change: Okay. Thank you.
Speaker Change: Yeah.
Speaker Change: Thank you next.
Speaker Change: Our next question comes from John Van <unk> with CJS Securities. Please go ahead.
Hi, I was wondering if you could give us a little more color on the competitive environment. You mentioned, obviously that you finished your opinion investments.
John Roberts: You mentioned, obviously, that you finished your EP investment. And, you know, some of your peers have not done so, and I'm wondering what that means to you, how that's incorporated your guidance, and if you're actually seeing. So I think that'll play out for us when competitors bring on their plans. And oftentimes, that's a challenging item. Most of these plants are not very young plants, so to speak.
John Roberts: And you know some of your peers have not done so and I'm wondering what benefit that accrues to you. How that's incorporated your guidance and if you are actually seeing that in the market.
John Roberts: So I think that'll play out for us when competitors bring on their plants and oftentimes that's a challenging item. Most of these plants are not very young plant so to speak and so that that startup of the new equipment can be challenging and was certainly challenging for us as.
Corning F. Painter: And so the startup of new equipment can be challenging. It was certainly challenging for us as we did the work on our final plant. So I'd expect to see that impact if it plays out that way in Q2 or possibly Q3. Thank you. Jeff, I think you mentioned, or maybe it was your Corning, that you expect the GP per ton to be relatively flat this year. Did I mishear that, or was that referring to a specific segment? And if so, kind of help me understand what the drivers are for that with prices going up and what you expect volumes and prices to be.
John Roberts: As we did that work out of our final plan. So I'd expect to see that impact if it plays out that way in Q2 or possibly Q3 for us.
John Roberts: Okay.
Speaker Change: Got it thank you.
Speaker Change: Jeff I think you mentioned or maybe with your Korean debt do you expect the GP per ton to be relatively flat. This year did did I mishear that or was that referring.
Speaker Change: I'm, referring to a specific segment and if so kind of help me understand what the drivers are to that with prices going up and if you expect volumes and prices.
Speaker Change: Sure sure.
Jeff Zekauskas: Sure, sure, John. I actually think I was referencing, Robert, that we expected rubber GP per ton, which was just over $400 a ton this past year. In 2023, we would expect it to be very similar in 2024. So we have price increases, as Corning talked about. We also had some cost increases, inflationary cost increases. And we have the, if you recall, we talked about a little bit of a headwind we have on cogeneration for some of the forward items that we bought last year. We bought power forward last year, which helped us. So we expect GP per ton, and that was really targeted toward Robert. Got it. Can you quantify the impact of your use of Cogen, if possible?
Jeff: I actually think I was you record I was referencing a rubber that we expected rubber GP per ton, which was just over $400 a ton this past year.
Jeff: 2023, and we would expect to be very similar to 2024, so that certainly had price increases as quintin talked about and we also had some cost increases.
Jeff: Inflationary cost increases and we have the if you recall, we've talked about it a little bit of a headwind we have on the co generation for some of the forward.
Jeff: Items that we bought last we bought POS power forward last year, which helped us. So we expect GP per ton and that was really targeted toward that toward rubber.
Speaker Change: Got it can you quantify the impact of our year over year on back of a co gen if possible.
Jeff Zekauskas: So the cogen, we do have the $10 million impact on cogen, and perhaps it ends up being a little bit more than that. But talking 23 to 24, 22 to 23, I'm sorry. If you could get both, that'd be great, but I was looking more for 2023.
Speaker Change: So the cogent, we do have the $10 million impact on co Gen and perhaps it ends up being even a little bit more than that.
Speaker Change: But if you're talking 'twenty three 'twenty four 'twenty two 'twenty three I'm sorry.
Speaker Change: If you could give a bit both that'd be great, but I was looking more towards.
Jeff Zekauskas: 22 to 23, I think we mentioned $30 million. That was primarily due to the price impact of power in Europe in 2022. 2023 to 2024, we probably have, we should have a $10 million headwind that we have from the...
Speaker Change: Got it that's about 22 to 'twenty three we I think we mentioned was $30 million of.
Speaker Change: But that was that was primarily due to the price impact.
Speaker Change: Of power in Europe in 2022 2023 to 2024.
Speaker Change: Probably have or should they have a 10 million dollar headwind.
Speaker Change: But we have from the.
Jeff Zekauskas: The forward contract that we bought. We also have some additional, if you look at the price, most of it, most of the impact was in 2023, but we will see additional impact in 2024. Perhaps another five to ten million dollars beyond that.
Speaker Change: The forward contracts. We bought we also have some additional if you look at price most of it.
Speaker Change: Most of the impact was in 2023, but we will see additional impact in 2020 for perhaps another $5 million to $10 million beyond that.
Jeff Zekauskas: Understandable. Thank you, guys. Thank you. Thank you. A reminder to all the participants that you may press star 1 to ask a question. There are no further questions. At this time, I would now like to turn the floor over to my partner.
Speaker Change: Understood. Thank you guys.
Speaker Change: Right.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: A reminder to all the participants that Dubai Press Star one to ask a question.
Speaker Change: There are no further questions at this time I would now like to turn the floor over to Colin.
Company Representative: Close. Okay. Thank you for that. So one thing I'd add, Josh, just in my response to you on the whole issue of volumes, also keep in mind that Ravenna was initially going to be aimed at specialty. That plant came on as the invasion took place, and so that has really shifted that capacity over to the rubber area. Just one other area for your modeling thoughts as you think about that.
Speaker Change: Okay.
Colin: Okay. Thank you for that so one thing I would add Josh just in my response to you on the whole issue of volumes also keep in mind that we're gonna was initially going to be aimed at specialty that plant came on as the invasion took place and so that has really shifted back capacity over.
Speaker Change: In the rubber area just one other area for your modeling thoughts as you think about that but look I just want to thank everyone for taking time out of your day to be with US. We appreciate your time is valuable and just one last time and it's just hard to describe not just the capital of the distraction in the effort to have the EPA work behind us is really tremendous for Orion.
Corning F. Painter: But look, I just want to thank everyone for taking time out of your day to be with us. We appreciate it. Your time is valuable. And just one last time, and it's just hard to describe, not just the capital, but the distraction, the effort to have the EPA work behind us is really tremendous for Orion.
Company Representative: So with that, I hope you all have a good rest of your day. Thanks. This concludes today's teleconference.
Speaker Change: So with that I hope you all have a good rest of your day. Thank you.
Speaker Change: Thank you.
Speaker Change: Todays teleconference. You may disconnect your lines at this time, thank you for your participation.
Company Representative: Thank you. Thank you. Thank you. BF-WATCH TV 2021, www.larryweaver.com, Boom. Boom. Boom. Boom. Thank you. Thank you. Thank you, www.corningengineeredcarbons.com www.larryweaver.com
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