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Orion Engineered Carbons to Announce Fourth Quarter and Full Year 2019 Financial Results

Orion Engineered Carbons S.A. (NYSE: OEC), a global supplier of specialty and high-performance carbon black, today announced its fourth quarter and full year 2019 financial results.

Full Year 2019 Highlights

  • Net sales of $1,476.4 million compared to $1,578.2 million in fiscal year 2018
  • Net Income of $86.9 million and basic EPS of $1.45 compared to $121.3 million and $2.04 in 2018
  • Adjusted EBITDA1 of $267.3 million – within the range of full year guidance – compared to $294.1 million in 2018

2019 Full Year

  • Adjusted EPS1 of $1.87 compared to $2.21 in 2018
  • Year-end leverage ratio of 2.3x LTM Adjusted EBITDA compared to 2.2x at year-end 2018
  • Cash flow from operations of $231.5 million compared to $122.0 million in 2018

Fourth Quarter 2019 Highlights

  • Net sales of $322.4 million compared to $386.0 million in the fourth quarter of 2018
  • Net Income of $19.0 million and basic EPS of $0.32 compared to $15.7 million and $0.27 in the fourth quarter of 2018
  • Adjusted EBITDA1of $63.2 million compared to $64.4 million in the fourth quarter of 2018
  • Adjusted EPS1 of $0.42 compared to $0.42 in the fourth quarter of 2018
  • Net cash provided by operating activities increased by $88.8 million during the fourth quarter of 2019 to $231.5 million for the full year of 2019 compared to $122.0 million for the full year of 2018

1 See below for a reconciliation of non-GAAP financial measures to the most directly comparable U.S. GAAP measures

“Orion executed well in the fourth quarter, delivering Adjusted EBITDA within our forecasted guidance range and continuing to implement key initiatives to better position the company in this challenging macro environment. The continuation of weak auto OEM dynamics and evidence of tire customers conservatively approaching year end contributed to the volume declines in the fourth quarter, however, favorable trends in price and product mix helped to offset some of the weakness. Furthermore, our operating performance drove strong cash generation and a substantial reduction in net debt,” said Mr. Corning Painter, Chief Executive Officer.

Mr. Painter continued, “Over the past year, the Orion team accomplished a number of value-enhancing strategic initiatives including reducing costs and achieving higher pricing, while demonstrating agile capital management. Notably, in 2019 we adopted a leaner management structure, renewed our revolver at more attractive rates and achieved price increases in our Rubber Carbon Black segment. We also continued our sustainability journey by establishing long-range targets and advancing our pollution control technology in an U.S. EPA-compliant manner at our North American manufacturing facilities, consistent with our core values of advancing sustainable operations and growth.

Looking to the year ahead, by proactively engaging in pricing negotiations for 2020, we achieved meaningful Rubber price increases, taking another positive step towards improving returns. Specialty pricing also increased, albeit at a lower level compared to Rubber. Additionally, during the quarter we successfully installed surcharge mechanisms to better recover raw material costs across the majority of our 2020 Rubber contracted volumes, effectively further de-risking our business by reducing earnings volatility in the years ahead. We remain focused on driving strong operational and financial performance in the business, while continuing to position our company for future success,” concluded Mr. Painter.

Fourth Quarter 2019 Overview

ORION ENGINEERED CARBONS

Q4 2019

Q4 2018

Y/Y Change in %

(in USD million, unless stated otherwise)

Volume (kmt)

233.5

256.2

(8.9)%

Net sales

322.4

386.0

(16.5)%

Contribution Margin

125.6

129.4

(2.9)%

Contribution Margin per metric ton in USD

538.0

505.1

6.5%

Income from Operations (EBIT)

32.6

26.7

22.2%

Net Income

19.0

15.7

21.1%

Adjusted EBITDA

63.2

64.4

(2.0)%

Basic EPS (1)

0.32

0.27

0.05

Adjusted EPS (2)

0.42

0.42

Notes:

(1)

Basic EPS calculated using Net Income and weighted number of shares outstanding in the respective quarter.

(2)

Adjusted EPS calculated using Net Income for the respective quarter adjusted for amortization of acquired intangible assets, amortization of transaction costs and foreign currency effects impacting financial results and other adjustment items and restructuring expenses (all adjustments on a net of tax basis assuming group tax rate) and weighted number of shares outstanding in the respective quarter.

Overall volumes decreased by 8.9%, or 22.7 kmt, to 233.5 kmt compared to the same quarter in the prior year. The decline was principally attributable to broad economic weakness driving lower volume in the automobile and polymer end markets, especially impacting our Specialties segment and MRG business, while weak tire business volumes reflected lower tire production and acute seasonal de-stocking.

Net sales decreased by $63.5 million, or 16.5%, to $322.4 million versus the same quarter in the prior year primarily as a result of lower feedstock costs to customers, lower volumes and negative foreign exchange rate translation effects, partially offset by positive base price increases and a favorable product mix impact.

Net Income increased by 21.1%, or $3.3 million, from $15.7 million in the fourth quarter of 2018 to $19.0 million in the fourth quarter of 2019 mainly as a result of increased income from operations.

Contribution Margin decreased by $3.8 million, or 2.9%, to $125.6 million compared to the same quarter in the prior year driven by lower volumes, negative feedstock differentials and foreign exchange rate translation effects partially offset by favorable base price increases in the Rubber segment in particular and a favorable product mix impact in the Specialty segment in particular.

Income from operations increased by $5.9 million, or 22.2% to $32.6 million from $26.7 million in the same quarter in the prior year reflecting lower depreciation charges, the absence of restructuring expenses and lower incentive accruals partially offset by lower contribution margins. Adjusted EBITDA decreased by $1.3 million, or 2.0%, to $63.2 million compared to the same quarter in the prior year, reflecting lower contribution margins and higher selling and administrative expenses partially offset by lower fixed costs.

Quarterly Business Segment Results

SPECIALTY CARBON BLACK

Q4 2019

Q4 2018

Y/Y Change in %

(in USD million, unless stated otherwise)

Volume (kmt)

56.8

60.8

(6.5)

Net sales

114.8

126.9

(9.6)

Gross Profit

43.2

39.1

10.5

Gross Profit/metric ton in USD

760.7

643.6

18.2

Adjusted EBITDA

31.8

29.0

9.5

Adjusted EBITDA/metric ton in USD

559.0

477.5

17.1

Adjusted EBITDA Margin (%)

27.7

22.9

480bps

Volumes for the Specialty Carbon Black business decreased by 6.5% in the fourth quarter of 2019 from 60.8 kmt in the fourth quarter of 2018 to 56.8 kmt, mainly as a result of weaker automotive and polymer market demand and broad economic weakness in all major regions.

Net sales decreased by $12.1 million, or 9.6% to $114.8 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018, mainly due to the pass through of lower feedstock costs with customers that are on indexed agreements, lower volumes and negative foreign exchange rate translation effects, partially offset by favorable product mix and base price increases.

Gross Profit increased by $4.1 million, or 10.5% to $43.2 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018 primarily due to a favorable mix impact, favorable feedstock cost development, lower deprecation and base price increases partially offset by lower sales volumes and foreign exchange rate translation effects.

Specialty Adjusted EBITDA increased by $2.8 million, or 9.5%, to $31.8 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018 primarily driven by favorable product mix impacts, feedstock price effects and base price increases partially offset by lower volumes and foreign exchange rate translation effects. Adjusted EBITDA margin increased 480 basis points to 27.7% compared to 22.9% in the fourth quarter of 2018.

RUBBER CARBON BLACK

Q4 2019

Q4 2018

Y/Y Change in %

(in USD million, unless stated otherwise)

Volume (kmt)

176.7

195.4

(9.6)

Net sales

207.7

259.1

(19.8)

Gross Profit

45.8

56.5

(19.1)

Gross Profit/metric ton in USD

259.0

289.2

(10.5)

Adjusted EBITDA

31.4

35.4

(11.3)

Adjusted EBITDA/metric ton in USD

177.8

181.3

(1.9)

Adjusted EBITDA Margin (%)

15.1

13.7

140bps

Rubber Carbon Black volumes decreased by 18.7 kmt or 9.6% from the fourth quarter of 2018 to the fourth quarter of 2019 primarily due to lower demand in South Korea, China and Europe and continued mechanical rubber goods demand weakness broadly.

Net sales decreased by $51.4 million, or 19.8% to $207.7 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018, primarily due to the pass through of lower feedstock costs to customers and lower volumes partially offset by base price increases.

Gross profit decreased by $10.8 million, or 19.1% to $45.8 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018 as a result of lower volumes, negative index factors in customer contracts and negative impacts from feedstock price differentials, offset in part by base price increases and changes in overhead absorption due to inventory build.

Rubber Adjusted EBITDA decreased by $4.0 million, or 11.3%, to $31.4 million in the fourth quarter of 2019 as compared to the fourth quarter of 2018, reflecting the development of gross profit offset by reduced selling, general and administrative expenses in part due to lower annual performance incentive expenses. Adjusted EBITDA margin was 15.1% in the fourth quarter of 2019 compared to 13.7% in the fourth quarter of 2018.

Balance Sheet and Cash Flows

As of December 31, 2019, the Company had cash and cash equivalents of $63.7 million, an increase of $6.7 million from December 31, 2018. Net debt declined from $635.5 million as of December 31, 2018 to $609.1 million as of December 31, 2019 reflecting strong cash generation in the fourth quarter of 2019. This represents a LTM Adjusted EBITDA multiple of 2.28 times, compared to 2.16 times at the end of the prior year.

The following table shows our current net debt position as of December 31, 2019 compared to December 31, 2018.

December 31, 2019

December 31, 2018

(In millions)

Term loans

$

635.0

$

650.0

Capitalized transaction costs (long-term)

(4.7

)

(6.3

)

Long-term financial debt, net

$

630.3

$

643.7

Term loans (current)

$

8.1

$

8.2

Capitalized transaction costs (current)

(1.4

)

(1.5

)

Short term local bank loans

29.8

28.6

Other short term financial liabilities

0.0

5.7

Short-term financial debt, net

$

36.4

$

41.0

Cash and cash equivalents

$

63.7

$

57.0

add-back capitalized transaction costs (long-term and current)

$

(6.1

)

$

(7.8

)

Net Debt 1)

$

609.1

$

635.5

1) Long-term financial debt, net plus short-term financial debt, net less cash and cash equivalents and add back of capitalized transaction costs. Capitalized transaction costs as well as non-current debt from financial derivatives and other non-current liabilities are disregarded in computing net indebtedness under our lending agreements.

Cash inflows from operating activities in the fourth quarter of 2019 amounted to $88.8 million, principally consisting of a consolidated profit for the period of $19.0 million, adjusted for depreciation and amortization of $25.2 million and a reduction of net working capital of $49.8 million primarily driven by lower feedstock prices. Net working capital totaled $221.1 million as of December 31, 2019, compared to $270.9 million as of September 30, 2019.

Cash outflows from investing activities in the fourth quarter of 2019 amounted to $60.5 million primarily reflecting a combination of maintenance capital expenditures, the Specialty expansion in Ravenna, Italy and investments to comply with the settlement agreement with the U.S. EPA, which are subject to an indemnity claim against Evonik.

Cash outflows for financing activities in 2019 amounted to $22.3 million and included a combination of $12.0 million in dividends and $10.3 million in short and long-term debt repayments.

2020 Outlook

Mr. Painter concluded, “We have positioned ourselves well for 2020. Consistent with this outlook, we expect full year Adjusted EBITDA for 2020 to be in the range of $250 million to $280 million, with an expectation of delivering flat to modest growth in Adjusted EBITDA on a year over year basis while continuing to generate strong cash from operations.”

This outlook is based on current GDP expectations and assumes that carbon black feedstock prices, exchange rates and feedstock impacts will be at levels experienced late in the fourth quarter of 2019. Other guidance metrics for 2020 include shares outstanding of 60.6 million before vesting of awards under the Group’s Long Term Incentive Program, an underlying tax rate in the range of 29% to 30% on pre-tax income, and capital expenditures in the range of $130 million and $150 million of which non-EPA related spending is expected to comprise approximately 45% to 50%, prior to any reimbursement from Evonik AG, with maintenance capital comprising around 45%, and growth-oriented capital comprising the balance. Depreciation and Amortization for 2020 is estimated to be in the range of $95 to $100 million.

Conference Call

As previously announced, Orion will hold a conference call tomorrow, Friday, February 21st 2020, at 8:30 a.m. (EST). The dial-in details for the live conference call are as follow:

U.S. Toll Free:

1-877-407-4018

International:

1-201-689-8471

U.K. Toll Free:

0 800 756 3429

Germany Toll Free:

0 800 182 0040

Luxembourg Toll Free:

800 28 522

Luxembourg Local:

352 2786 0689

A replay of the conference call may be accessed by phone at the following numbers through February 27th, 2020:

U.S. Toll Free:

1-844-512-2921

International:

1-412-317-6671

Conference ID:

13698433

Additionally, an archived webcast of the conference call will be available on the Investor Relations section of the Company’s website at: www.orioncarbons.com.

To learn more about Orion, visit the Company’s website at www.orioncarbons.com. Orion uses its website as a channel of distribution for material Company information. Financial and other material information regarding Orion is routinely posted on the Company’s website and is readily accessible.

Source: Orion Engineered Carbons S.A. 

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