Embed Size (px)
Citation preview
October 29, 2015
Q3 2015 Earnings Call
2
Disclaimer
This presentation contains certain forward-looking statements with respect to our financial condition, results of operations and business. Forward-looking statements are statements of future expectations that are based on management's current expectations and assumptions and involve known and unknown risks and uncertainties that could cause actual results, performance or events to differ materially from those expressed or implied in these statements. Forward-looking statements include, among others, statements concerning the potential exposure to market risks, statements expressing management's expectations, beliefs, estimates, forecasts, projections and assumptions and statements that are not limited to statements of historical or present facts or conditions.Forward-looking statements are typically identified by words such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “objectives,” “outlook,” “probably,” “project,” “will,” “seek,” “target” and other words of similar meaning. All these forward-looking statements are based on estimates and assumptions that, although believed to be reasonable, are inherently uncertain. There are important factors that could cause actual results to differ materially from those contemplated by such forward-looking statements. These factors include, among others: (a) negative or uncertain worldwide economic conditions; (b) volatility and cyclicality in the industries in which we operate; (c) operational risks inherent in chemicals manufacturing; (d) our dependence on major customers; (e) our ability to compete in the industries in which we operate and the availability of substitutes for carbon black; (f) volatility in the costs and availability of raw materials and energy; (g) our relationships with our workforce; (h) environmental, health and safety regulations and the related costs of maintaining compliance and addressing liabilities; (i) current and potentially future investigations and enforcement actions by the EPA; (See Note 11 to our unaudited interim condensed consolidated financial statements as at June 30, 2015 regarding contingent liabilities, including litigation (j) litigation or legal proceedings; (k) our ability to protect our intellectual property rights; (l) our ability to generate the funds required to service our debt and finance our operations; and (m) potential conflicts of interests with our principal shareholders.
In light of these risks, our results could differ materially from the forward-looking statements contained herein. You should not place undue reliance on forward-looking statements.
We present certain financial measures that are not recognized by International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”). These non-IFRS measures are Contribution Margin, Contribution Margin per Metric Ton, Adjusted EBITDA, Adjusted EPS, Net Working Capital and Capital Expenditures
Adjusted EBITDA, Adjusted EPS, Contribution Margins and Net Working Capital are not measures of performance under IFRS and should not be considered in isolation or construed as substitutes for revenue, consolidated profit (loss) for the period, operating result (EBIT), gross profit and other IFRS measures as an indicator of our operations in accordance with IFRS. For a reconciliation of these non-IFRS financial measures to the most directly comparable IFRS measures, see Appendix.
3
Q3 2015 Highlights
� Adjusted EBITDA of €48.0 million and Adjusted EPS of €0.32
� Cash totaled €105.9 million after dividend payments year to date of €30.0 million, which represents a build of €65.3 million (up 93%) in cash during 2015 prior to dividend payments
� Volumes increased to 258.3 kmt, or 4.8%, compared to 246.4 kmt in the third quarter of 2014 with both segments
contributing to this increase
� Contribution Margin decreased by €2.6 million, or 2.4%, compared to the third quarter of 2014 as a result of oil price impacts on the Rubber Black Segment
� Revenue decreased by €51.1 million to €278.7 million compared to the third quarter of 2014 as lower feedstock costs were passed along to customers mainly via indexed pricing agreements in the form of reduced sales prices
� Specialty Carbon Black Adjusted EBITDA margin increased 270 basis points to 29.3% compared to the third quarter of 2014 as a result of volume growth and stronger margins resulting from declining feedstock prices on revenue as well as foreign exchange effects
� Rubber Carbon Black Adjusted EBITDA margin decreased 60 basis points to 10.9% compared to the third quarter of 2014 as a result of negative feedstock effects
� Net Working Capital of 64 days remained at same level as at the end of second quarter 2015
� Profit (Net Income) of €12.1 million in the third quarter of 2015 equal to EPS of €0.20
4
Record volume growth leading to strong performance
Specialty Carbon Black Business Results
� Strong volume growth reflecting increased demand and sales penetration
� Gross Profit increase driven by volume growth, a reduction in depreciation and
favorable foreign exchange translation effects
� Adjusted EBITDA increased 4.2% consistent with Gross Profit development,
offset by unfavorable foreign exchange effects associated with below margin
fixed costs.
� Increase of Adjusted EBITDA Margin reflects improved profitability partly
driven by the effect of the decline in feedstock costs on revenues
Key Highlights
Q3 2015 Performance
Q3 2015 Q3 2014 Y-o-Y Comparison
Volume (kmt) 55.6 51.0 9.1%
Revenue €95.6m €101.0m -5.4%
Gross Profit €36.9m €34.1m 8.2%
Gross Profit / ton €662.9 €668.2 -0.8%
Adjusted EBITDA €28.0m €26.9m 4.2%
Adjusted EBITDA / ton 504.2 527.8 -4.5%
Adjusted EBITDA Margin 29.3% 26.6% +270bps
5
Continued efficiency improvements and volume growth not able to offset feedstock impacts
Rubber Carbon Black Business Results
� Volume improved due to increased demand in Europe, North America
and Asia Pacific
� Gross Profit decreased primarily due to negative feedstock cost
development offset by favorable foreign exchange translation
impacts, efficiency gains and a reduction in depreciation
� Adjusted EBITDA decreased 24.1% primarily due to decline in Gross
Profit and negative FX translation impacts on below margin fixed costs
and exclusion of depreciation benefit
� Adjusted EBITDA Margin decreased to 10.9%
Key Highlights
Q3 2015 Performance
Q3 2015 Q3 2014 Y-o-Y Comparison
Volume (kmt) 202.7 195.4 3.7%
Revenue €183.1m €228.8m -20.0%
Gross Profit €37.3m €43.3m -13.9%
Gross Profit / ton €184.0 €221.5 -16.9%
Adjusted EBITDA €20.0m €26.3m -24.1%
Adjusted EBITDA / ton €98.6 €134.8 -26.9%
Adjusted EBITDA Margin 10.9% 11.5% -60bps
6
Q3 2015 Consolidated Operating Results
Increased volumes in both segments, positive trends in Specialty offset by feedstock cost challenges in Rubber
Q3 2015 Volume by Segment
(258.3 kmt)
Specialty Carbon
Black
22%
Rubber
Carbon
Black
78%
Rubber
Carbon
Black
42%
Specialty
Carbon
Black
58%
(29.3% Margin)(10.9% Margin)
Q3 2015 Adj. EBITDA by Segment
(€48.0m)
Europe: 36%
North America: 33%
Asia: 19%
Brazil: 7%
Africa: 4%Other: 1%
Q3 2015 Volume by Destination
(258.3 kmt)
Q3 2015 Performance
Q3 2015 Q3 2014 Y-o-Y Comparison
Volume (kmt) 258.3 246.4 4.8%
Revenue €278.7m €329.8m -15.5%
Contribution Margin €103.5m €106.1m -2.4%
Contribution Margin / ton €400.8 €430.6 -6.9%
Adjusted EBITDA €48.0m €53.2m -9.8%
Adjusted EBITDA / ton €185.9 €216.1 -14.0%
Adjusted EBITDA Margin 17.2% 16.1% +110bps
EPS €0.20 (€0.75)
Adjusted EPS €0.32 (€0.62)
7
Nine Month 2015 Consolidated Operating Results
Increased volumes in both segments, positive trends in Specialty offset by feedstock cost challenges in Rubber
YTD 2015 Volume by Segment
(771.7 kmt)
Specialty Carbon
Black
21%
Rubber
Carbon
Black
79%
Rubber
Carbon
Black
45%
Specialty
Carbon
Black
55%
(29.9% Margin)(12.7% Margin)
YTD 2015 Adj. EBITDA by Segment
(€157.9m)
Europe: 36%
North America: 32%
Asia: 19%
Brazil: 7%
Africa: 5%Other: 1%
YTD 2015 Volume by Destination
(771.7 kmt)
Nine Month 2015 Performance
9Month 2015 9Month 2014 Y-o-Y Comparison
Volume (kmt) 771.7 751.6 2.7%
Revenue €851.4m €1,001.6m -15.0%
Contribution Margin €328.5m €316.2m 3.9%
Contribution Margin / ton €425.7 €420.7 1.2%
Adjusted EBITDA €157.9m €159.2m -0.8%
Adjusted EBITDA / ton €204.6 €211.8 -3.4%
Adjusted EBITDA Margin 18.5% 15.9% +260bps
EPS €0.69 (€1.01)
Adjusted EPS €0.97 (€0.55)
8
Solid free cash flow generation
Balance Sheet & Cash Flow Update
� Cash inflows from operations of €30.1 million
� Cash capital expenditures at €9.5 million for improvements
and maintenance projects comfortably covered by cash flow
� Cash & Cash Equivalents of €105.9 million
� Net Debt of €605.6 million
� Net Debt / LTM September 30, 2015 Adjusted EBITDA: 2.9
times
� Net Working Capital €188.8 million equivalent to 64 days
In € million3 months ended
September 30, 2015
Net Income 12.1
Plus: Depreciation and Amortization 17.6
Less Change in Net Working Capital (5.4)
Plus: Exclusion of Finance Cost, Net 13.9
Less: Other Items (8.1)
Net Cash from Operations 30.1
Cash from Investing (Cap Ex) (9.5)
Cash from Financing excluding Dividend
Payments totaling €10M(15.3)
9
Capital Allocation
� Expect to continue to generate strong free cash flows, which should result in significant further growth in cash to
December 31, 2015. Year to date cash increase of 92% before dividend payments of €30.0 million
� Improved overall inventory and cash management initiatives will continue and are evident in key performance
indices such as DSO
� Gain in cash has occurred while marginally increasing capital expenditures to address additional opportunities to
improve production network
� Positive development in cash has prompted a comprehensive review of our capital allocation policy with
reassessment of:
• our mid-term pipeline of investment opportunities
• fast-payback self-help investments
• potential other bolt-on acquisitions;
• the current and expected impact on the group of our recently announced purchase of 67% of shares of the
QECC Joint Venture in Qingdao, China, and the possibility of acquiring the remaining shares
• our leverage levels; and
• different options for capital return such as our dividend policy or potential share buybacks at the
appropriate time
10Source: OEC
OEC has acquired the majority share in Qingdao Carbon
Black joint venture
Acquisition Summary
� QECC was a joint venture established by Evonik, DEG and Jiaozhou Finance Investment Center (JFIC) in 1994 based in Qingdao (Shandong Province), China
� Two step acquisition:
� Initial acquisition of 67% Evonik / DEG shares; expected closure in Q4/15
� Acquisition of remaining JFIC shares in advanced stage; targeted date end of 2015/early 2016
• Purchase price will be about 5X EBITDA for 100% or between €28 - 30 million with minimal debt assumption
• Entity will be renamed Orion Engineered Carbons Qingdao (OECQ)
• Production capacity of ~75kt with 3 production lines utilizing Orion technology
• Manufacturing focus on high-end Carbon Black products
• Plant will enable OEC to serve global key account base with locally produced grades in China
11
Europe
Real 2015 GDP growth expectation by region - IMF
North America
Asia PacificBrazil
+ 2.4%
�Solid North American economic growth is
expected for 2015
+ 1.8%
�Recovery in the EU is expected to continue
with slightly higher growth in 2015
-3.0%
�Brazil is expected to experience recession in
2015; further decrease of economic outlook
+ 6.5%
�Overall Asian economic growth for 2015 is
expected to be on 2014 level
Source: IMF World Economic Outlook database October 2015
GDP growth in 2015 is expected to be driven by North
America and Asia with some recovery in Europe
12
Europe
2015/Q3: Data on Tire Demand and Auto Build - 2015 Outlook
North America
Asia PacificSouth America
Passenger / LT TireAutomotive
+ 4.3% + 4% +1%
OEM Replacement
� NAFTA automotive
sales growth
remains healthy /
near peak levels
� Similar growth in OEM tire
segment, low growth in
replacement tire
Passenger / LT TireAutomotive
+ 6.3% + 6% +3%
OEM Replacement
� Acceleration of
European growth
� Overall positive market
development in both tire
segments
Passenger / LT TireAutomotive
-15.7% - 17% +3%
OEM Replacement
� Further decline of
automotive industry
� Continued negative development
driven by OEM; replacement with
some growth
Passenger / LT TireAutomotive
+ 1.9% + 1% + 8%
OEM Replacement
� Major reduction of
growth expectations
caused by Chinese
market development
� Impact of lower OEM demand, but
replacement demand continues to
be driven by growing car fleet
Source: ScotiaBank Global Auto Report October 2015; Michelin Market Trends September 2015
North America Automotive very strong and good recovery
in Europe, but reduction of growth in APAC
13
2015 Full Year Outlook
• Expect 2015 Full Year Adjusted EBITDA to be in the range of €203 million to €210 million
• Key Assumptions:
• Volume growth in line with current GDP expectations
• Reasonable stability in oil prices and exchange rates based on current levels
• Strong Year-End cash balance
• Capital expenditures of about €50-52 million
• Payment of dividends totaling €40 million, paid on a quarterly basis at €10 million per quarter
• Tax rate of about 33% on pretax income (underlying 35%)
• Full year 2015 depreciation of about €48-50 million and amortization of €18-20 million (includes
amortization of acquired intangibles of €13 million)
Appendix
15
OEC Frequently Asked Questions
� Q: What was the overall impact on Adjusted EBITDA of foreign exchange impacts, feedstock windfall changes
and negative feedstock cost developments in Q3 2015?
A: Favorable foreign exchange impacts in the third quarter of 2015 compared to the quarter a year earlier
primarily associated with a stronger US Dollar of approximately €2.1m were offset by unfavorable feedstock
cost developments of €7.5m.
� Q: What impact do oil price changes have on Net Working Capital (NWC) levels?
A: $10 movement in Brent Crude leads to a NWC impact over an ~3 month period of about €16m - €19m.
� Q: What impact do currency movements have on NWC levels?
A: 5% change in the same direction of all currencies relevant to Orion (primarily US Dollar, Korean Won,
Brazilian Real and South African Rand) against the Euro would result in an impact on NWC of about €6 - 7m.
� Q: What impact do currency movements have on EBITDA reported in Euros?
A: 5% change in all currencies against the Euro in the same direction will increase or decrease reported
EBITDA in Euros over a year by about €6 - 7m. Thus if the Euro weakens by about 5% we expect our reported
EBITDA in Euros to improve by about €6 - 7m (with more than half of this effect associated with US earnings).
16
OEC Frequently Asked Questions
� Q: Can you give an update of the latest development in the EPA 114 proceedings based on certain alleged
Clean Air Act violations at the U.S. at the four US facilities currently operated by Orion?
A: The nature of the claims made by the EPA as well as the current status of the negotiations with the EPA and
a description of our contractual indemnity received from Evonik is given in the respective footnote to our
quarterly earnings release . In particular, we are in settlement discussions with the EPA and at this time do not
know the outcome of these discussions or to what degree Evonik will cooperate in the process. If Evonik does
not cooperate or if it denies its indemnity obligations, we are prepared to enforce our indemnity claims and
respective rights vigorously.
17
Historical Non-IFRS Metrics Reconciliation
Historical Non-IFRS Metrics Reconciliation (€million unless otherwise stated)
Three Months Ended September 30,
2014 2015
Revenue 330 279
Variable costs (1) -224 -175
Contribution Margin 106 104
Sales volume (in kmt) 246 258
Contribution Margin per Metric Ton 431 401
Profit or loss for the period -41 12
Income taxes 1 1
Profit or loss before income taxes -40 13
Finance costs, net (2) 67 14
Operating result (EBIT) 27 27
Depreciation and amortization 19 18
EBITDA 47 45
Restructuring expenses (3) 1 0.0
Consulting fees related to group strategy (4) 2 0
Other non-operating (5) 4 3
Adjusted EBITDA 53 48
Thereof Adjusted EBITDA Specialty Carbon Black 27 28
Thereof Adjusted EBITDA Rubber Carbon Black 26 20
1 Includes costs such as raw materials, packaging, utilities and distribution
2 Finance costs, net consists of Finance income and Finance costs
3 Restructuring expenses include personnel-related costs
4 Consulting fees related to the Group strategy include external consulting fees from establishing and implementing our operating, tax and organizational strategies
5 Other non-operating expenses in 2015 primarily relates to costs in association with our EPA enforcement action. Other non-operating expenses in 2014 included in particular IPO related costs
18
Historical Non-IFRS Metrics Reconciliation
Historical Non-IFRS Metrics Reconciliation (€million unless otherwise stated)
Nine Months Ended September 30,
2014 2015
Revenue 1,002 851
Variable costs (1) -685 -523
Contribution Margin 316 329
Sales volume (in kmt) 752 772
Contribution Margin per Metric Ton 421 426
Profit or loss for the period -48 41
Income taxes 11 17
Profit or loss before income taxes -37 58
Finance costs, net (2) 120 41
Operating result (EBIT) 83 99
Depreciation and amortization 57 52
EBITDA 140 151
Restructuring expenses (3) 3 0
Consulting fees related to group strategy (4) 4 0
Other non-operating (5) 12 6
Adjusted EBITDA 159 158
Thereof Adjusted EBITDA Specialty Carbon Black 79 87
Thereof Adjusted EBITDA Rubber Carbon Black 80 71
1 Includes costs such as raw materials, packaging, utilities and distribution
2 Finance costs, net consists of Finance income and Finance costs
3 Restructuring expenses include personnel-related costs
4 Consulting fees related to the Group strategy include external consulting fees from establishing and implementing our operating, tax and organizational strategies
5 Other non-operating expenses in 2015 primarily relates to costs in association with our EPA enforcement action. Other non-operating expenses in 2014 included in particular IPO related costs
