Orion Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 15, 2024

There are 7 speakers on the call.

Operator

Greetings and welcome to Orion S. A. Full Year 2023 Financial Results Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.

Operator

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Wendy Wilson, Head of Investor Relations. Thank you, Ms. You may begin.

Speaker 1

Thank you, Ranju. Good morning, everyone, 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 Glite, 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.

Speaker 1

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 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 any circumstances or revised expectations.

Speaker 1

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 St. John.

Speaker 2

Thank you, Wendy. Good morning, everyone, and thank you for joining our call today. In 2023, we delivered another year of record adjusted EBITDA, our 3rd year of growth. As good as that is, we are not satisfied. If demand had not pulled off over the year, our results could have been in line with or even beaten our initial guidance.

Speaker 2

When Jeff takes you through the EBITDA waterfall on Slide 9, you'll see just how impactful the 2023 contract round was and how the slowing underlying markets impacted us. 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. Our customers remain cautious about 2024 volume and our guidance reflects that. I'll explain more about that later on the call.

Speaker 2

Focusing on 2023 and consistent with our pre release commentary from our January 22 press release, Full year adjusted EBITDA was $332,000,000 and adjusted diluted EPS came in at $1.92 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 $78,000,000 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.

Speaker 2

It is hard to express how big this is for Orion, a huge thank you to our engineering and operations teams, well done. This now allows us to focus our capital allocation to growth, debt reduction and returning value to our shareholders. I see capital allocation as my top responsibility after safety. 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.

Speaker 2

While we'll need something more like the pre COVID market conditions to more fully load that capacity, we believe the path is clear and achievable. Jeff will review this later in the call. 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 goals. We achieved our 2022 emissions target in the U.

Speaker 2

S. Received a 10 basis points rate reduction in our interest payments on our sustainability linked term loan. If you recall, Orion agreed to the 7 year $650,000,000 term loan in 2021 and we were one of the first companies to link the loan to environmental goals. If we meet our targets for all 4 years, we could reduce our financing costs by a total of $2,600,000 We introduced Capiten, a new conductive carbon aimed at batteries with more of a cost based value proposition. We believe this product is well positioned for that portion of the market.

Speaker 2

We are also selected for a €6,400,000 brand 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 have already shown that we can make a wide range of carbon black grades with biocircular raw materials. That's done. The challenge is now to improve efficiency to make these more cost competitive. That's what this funding will help.

Speaker 2

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 in Cologne. 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. It also means we now lead the industry with a number of certified carbon black production sites. All of these achievements advance sustainability as a business model.

Speaker 2

Looking at our 2 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 Capa10 to the market. We have achieved a number of recent wins in the battery, wiring cable and coatings markets. We've also achieved several technical milestones related to the ongoing debottlenecking of our high performance surface treated braids. 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 confidence.

Speaker 2

In the rubber business, completed our negotiations for 2024 per plan. That we gained volumes in Europe should be no surprise at all with the coming ban on Russian carbon black. Importantly, we raised prices on top of last year's 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 succeeded for several reasons.

Speaker 2

1st, the industry has restructured. Tire capacity has grown in our key markets Carbon Black capacity has not. In North America, debottlenecking has been offset by a plant closure and in the European Union, The investment in entire capacity beyond the investment in entire capacity, there's the Russian ban coming this June. The changes that we are seeing in the long term trade patterns are amplifying the importance of local production. There have been some recent announcement of additions in other markets, but not in North America or in Europe or in other countries where we manufacture.

Speaker 2

2nd, 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 effective capacity that our customers need for their continued growth. That investment warrants a return as well. 3rd, the industry wants sustainable offerings. The investments we make, people, R and D and supply chain that make this happen demand a return.

Speaker 2

All that is only fair to Orion, the people who work in our plants and to you, our investors. Slide 4 is a good visual representation of our growing profitability. This is our 3rd consecutive year of adjusted EBITDA growth. And based on our current guidance for 2024, this trend should continue. This also reflects how special our market space is.

Speaker 2

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 emissions work, which was a burden, is another structural positive for us going forward.

Speaker 2

Despite those U. S. Air emission projects, our ROCE has stabilized at a level well above our cost of capital, it is great to have that spending behind us. With that, I would ask Jeff to provide additional insights into our financial results and long term goals.

Speaker 3

Thank you, Courtney. On Slide 5, you can see the consolidated results for the 4th 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 from the specialty polymers market and from our new facility in China. This was partly offset by lower volume in the Americas.

Speaker 3

Revenue was essentially flat due to 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 pricing and unfavorable product and geographic mix in both segments. In addition, higher maintenance turnaround activity including Live Aid, the final EPA startup costs and other timing items affected the quarter. Gross profit per ton was up slightly in rubber versus Q4 last year, but down sequentially at $3.57 Rubber gross profit was weak due to several reasons. 1st, volume was slightly up, we had more volume in China and less in the Americas.

Speaker 3

This geographical swing adversely impacts gross profit. 2nd, the expected impact on cogeneration from lower electricity prices in Europe and finally, continued stardom costs at Waipay 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 $4.92 While we had higher volume, it was primarily from the lower margin polymer market and Wybank. This resulted in a less profitable product mix in the quarter. Specialty was impacted by the lower electricity prices in Europe similar to rubber.

Speaker 3

European cogen effects are more impactful in specialty on a per ton basis since global rubber volumes are 3 to 4x Finally, costs were up due to higher maintenance, start up and timing related items. We'll talk more about how we expect specialty recover to recover in both the near and longer term and 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 full year true up of our LTIP tax charges. The full year tax rate was 37%.

Speaker 3

We expect to be back near 30% for 2024. On the Slide 6, for the full year, The success of our rubber price 2023 rubber pricing negotiations helped us achieve a record adjusted EBITDA despite numerous headwinds in both businesses. Customer demand weakened as the year progressed. Ultimately, volume was down across all regions except China. Electricity prices in Europe were dramatically lower from their elevated level in 2022.

Speaker 3

This alone had a $30,000,000 impact on 2023 results. Without this impact, gross profit per ton would have been up $50 instead of $18 Mix deteriorated due to the relative performance of our specialty end markets. With the exception of the printing market, we expect those markets to improve over time. Slide 7 provides a year to date EBITDA drivers. Strong pricing in rubber was offset by weaker volume across both businesses and less benefit from cogeneration.

Speaker 3

Last year's very high European electricity prices made for a difficult comparable. We also have Fly Bay and EPA Start up costs related start up costs. On Slide 8, our rubber volume decrease was impacted by lower demand in the Americas and EMEA and lack of recovery in tire production in those markets. We experienced the higher gross profit per tonne driven by the contractual price increases, but this was partially offset by the lower cogeneration pricing effects. It's important to note that our 2023 gross profit per ton was up 22% compared with 2022.

Speaker 3

As Courtney 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 levels. 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 metrics were down.

Speaker 3

The change in mix as well as the reduction of cogeneration effects due to the lower European power pricing contributed to the weaker results. As we look forward, we believe the following will move in a positive direction for specialty. Volumes will improve as we move toward mid cycle conditions. 2, as volumes improve, we believe we'll have more pricing power. 3, mix should improve with business conditions and as a result of our debottlenecking of our premium products.

Speaker 3

It's early, but we're starting to see some promising signs. 4, the EPA and Huawei startup costs are mainly behind us. And 5, the battery market remains a significant upside for us. On the Slide 11, which shows in the 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, market mix of sales, which you see in mix as well as lower code generation effects, which you see in cost.

Speaker 3

Importantly, for the specific mix of products that we sold in the quarter, our pricing has remained stable. Slide 12 looks at cash flow for the year. Our improved cash flow allowed us to both We purchased $66,000,000 worth of shares and reduced our debt by $78,000,000 Our debt to EBITDA ratio now stands at 2.35, down from nearly 3 times just 18 months ago. As Corning mentioned earlier on the call, we spent $1.10 per share to repurchase stock and $1.30 per share to reduce our debt. Our goal is to reduce our total debt, improve our net debt to EBITDA ratio and continue to strengthen our balance sheet.

Speaker 3

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, completing our ETA projects. Note that our 2023 Conversion rate included $89,000,000 in working capital improvement from changes in our customer agreements. We expect to maintain this benefit in 2024. Let's look at capital spending on Slide 14.

Speaker 3

Up through 2023, we had a significant CapEx related to our EPA report. The spending reduced in 2023 and is now behind us. 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. For 2024 2025, the majority of our growth CapEx will be for our conductors plant in La Porte, Texas. We will also complete some high return debottlenecking projects in our specialty business.

Speaker 3

Other than the report, the growth investments shown in 2025 carry us beyond our 2025 mid cycle EBITDA capacity goals. We will prioritize those as we develop our 2025 capital plan later this year. The hash lines for 2025 is 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 3

Perhaps another way to look at this is between maintenance and the port, we expect to spend approximately $140,000,000 to 150 $1,000,000 of CapEx in 2025. The remaining $50,000,000 to $60,000,000 would be fully discretionary currently just a placeholder. On the Slide 15, before we discuss our 2024 guidance, We want to provide an update on our progress toward our mid cycle capacity goal of $500,000,000 of EBITDA. We believe at mid 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.

Speaker 3

The volume level, which is correspondent on plant utilization in the upper 80% range, We generate rubber volume of 840 kt to 8 60 kt and 260 kt to 280 kt for specialty. The specialty volume excludes the incremental 12 kt from La Porte. For us to meet these volume levels, we do not require significant growth investment except the La Porte 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, We'll have a midpoint of $350,000,000 of EBITDA.

Speaker 3

To move from $350,000,000 to $500,000,000 there are 3 major components. First off, the Capa Conductors business should have about $50,000,000 Most of that, 80% to 90% comes from the La Porte plant, which we to be on stream in mid-twenty 25. The remaining $100,000,000 gain is split $70,000,000 in volume and $30,000,000 in margin. The former is primarily recovering in our end markets to mid cycle level. This includes Approximately 80 to 100 KT in rubber and 20 to 40 KT in specialty compared with our estimates for 2024.

Speaker 3

Most of this capacity is already in place to achieve these volume wells. There's a portion of specialty volume growth that requires completing debottlenecking 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, the incremental volume of 30 kt is closer to $100 per ton.

Speaker 3

This volume is partly due to the recovery in our current market mix, which has a lower incremental profit plus volume gains in our higher end products, including the debottlenecking 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 $30,000,000 of margin gains are pricing a mix. The $500,000,000 target split roughly sixty-forty between Rubber and Specialty.

Speaker 3

The details for each business are also in the appendix slides. With that, I will turn the call back over to Cory to discuss our 2024 guidance.

Speaker 2

Thanks, Jeff. And just one clarification, it's $1,000 on the specialty 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 shrinking in 2023 and are bouncing back from a lower base. With projections of a soft landing in the U.

Speaker 2

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 2023. 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 are setting out we are setting our adjusted EBITDA guidance range to $340,000,000 to $360,000,000 today. This EBITDA guidance is up over 5% at the midpoint and supports our adjusted EPS guidance range $2.05 to $2.20 per share, which is an increase of 11% at the midpoint.

Speaker 2

I'll close with 6 points. First, we built on last year's rubber pricing gains,

Speaker 3

an offset. 2nd, we're beginning to

Speaker 2

see a rebound in specialty mix in Q1. 3rd, 2023 was our 3rd straight year of EBITDA growth and our expectation is that 2024 will be our 4th. 4th, the U. S. Air emissions projects are complete.

Speaker 2

This is huge for us. 5th, 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. 6th, this year, 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. With that, Renju, please open up the lines for questions.

Operator

Thank you. We will now be conducting a question and answer The first question comes from the line of Josh Spector with UBS. Please go ahead.

Speaker 4

Yes. Hi. Good morning.

Operator

Hi, John. So I

Speaker 2

wanted to ask

Speaker 4

a few things. So I wanted to ask around CapEx. And I think Jeff, in the comments, you may have clarified a bit. But so 2025, really what should we be expecting as a base case? So is $150,000,000 ish the base case and then you would invest more in debottlenecking if need be?

Speaker 4

And I asked that in the context of you show what capacity you have in specialty. 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?

Speaker 2

Yes. 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'll consider strategic options. So maybe there's something around batteries that we want to continue to invest in and see important element there.

Speaker 2

It might be that we see no really the best here is simply to return the capital via share purchase or other mechanisms for it. It might be that we decide to green light 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 for us. Jeff, anything you'd like to add?

Speaker 3

No, I think that's pretty clear. We will decide this as we get later this calendar year, we're looking into 2025 at our capital allocation, what's the right approach for us. I think importantly though, if we do spend in 2025 growth or productivity CapEx, it's not likely to have a significant impact on the 2025 profitability levels more beyond that.

Speaker 4

Yes, thanks. I guess, I mean, what do you say investors that might look at that Slide 14 and Say you spent a couple of $100,000,000 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. But what's the embedded view there about your success on those investments and returns?

Speaker 2

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, and say, yes, they're on track for $150,000,000 next year. But it's a company that has growth prospects.

Speaker 2

So there's another concern out there, what's your next act? And I would just say we have choices on it, But they're choices. And clearly, if we don't think the market is ready, we don't think the timing is right, if we don't think the environment is clear, then we wouldn't do it.

Speaker 4

Yes. Sorry, I guess I was asking about more the historical spend. I mean, obviously, La Porte isn't in there. But over the last 5 years, you Those met your expectations. Is it just we're not seeing it?

Speaker 4

Any comments there? Thanks.

Speaker 2

Yes. Well, 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 Bayer was quite strategic for us. It's opened up this opportunity for us In a steadily, China is a more difficult market, for what it's worth of the business in China.

Speaker 2

I'd say the specialty is doing relatively well. It's a much more challenging environment there right now on the Rubber side.

Speaker 4

Okay. Thank you.

Speaker 3

Does that help, Josh?

Speaker 4

Yes, that helps. I'll turn it over. Thanks.

Operator

Thank you. Next question comes from the line of Laurence Alexander with Jefferies. Please go ahead.

Speaker 5

Good morning. It's Dan Rizzo on Laurence, thank you for taking my questions. When you look at your assumptions for 2025, do you assume I mean, I know you assume volumes, but are you assuming improvement in the overall macro environment in Europe, America and in China?

Speaker 2

Yes. And 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. We would decide we would think that is more mid cycle than the current environment, which we would say from our demand profile is quite weak really in all three markets, North America, Europe and China.

Speaker 5

So if we think about 2024 to 2025 then, I guess that would assume that 2024, the outlook is kind of back half loaded. I was wondering about the cadence as we go into and try to get to them in cycle, it would soft in the beginning and then to say sequential improvements is I guess the way we should think about it?

Speaker 2

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, 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. And in case nobody has noticed like the global auditors are a little bit stressed right now.

Speaker 2

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 Being in a better place from a global economy just as the national cycle of the economy plays out. But again, we're talking about capacity in 2025. Okay.

Speaker 3

Yes, 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 representing it.

Speaker 2

But I mean, with the return of the environment, I think 2025 could be a really good year Okay, we won't have La Porte loaded in 2025, right? 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.

Operator

All right.

Speaker 5

Thank you very much.

Operator

Thank you. Next question comes from the line of Jon Tanwanteng with CJS Securities. Please go ahead.

Speaker 6

Hi, good morning guys. Thank you for taking my questions. I was wondering if you go through a

Speaker 3

little bit, what you see

Speaker 6

in Q1 so far both In both segments from an underlying volume and in GB per tonne perspective, and I think you mentioned especially rebound, you could give a little more color on that where that's coming from? And 2, as my follow on, just what are you seeing in end demand First is destocking inventory trends. Thank you.

Speaker 2

Yes. 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, Certain degree wire and cable, on the other hand, I'd say some things related to automotive and Manufacturers who supply that 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 April see how China comes out of Chinese New Year. I don't see the big hockey stick flying out there, but we'll we would be very happy if we proved wrong on that.

Speaker 2

And I think we see slight improvement in North America and not much in Europe right now as a sentiment.

Speaker 6

Okay. And just on the end demand versus inventories and destocking trends, especially in tires?

Speaker 2

Yes. So I mean, clearly, 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 him, 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 got a year's supply in my warehouse. And 2 or 3 years ago, he predicted that to us.

Speaker 2

What we're seeing now is some of those players I've placed or beginning to place orders. So I'd say there's some indication that destocking at least in that space seems to be improving for us at this point. But this is very much a customer by customer situation and it's going to depend over the course of the year how they see customer demand playing out.

Speaker 6

Okay, great. I'll jump back in queue. Thank you. All right.

Operator

Thank you. Next question comes from the line of Jeff Jekauskas with JPMorgan. Please go ahead.

Speaker 1

Hi, this is Lydia Huang on for Jeff. Can you talk about what to Back in 2024 in terms of pricing in the specialty segment?

Speaker 2

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 for this year. When you look at Orion specifically though, I would always say keep in mind, mix is very important for us.

Speaker 2

So certain end segments, we add more value, so we were 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 changes.

Speaker 1

And in terms of price and mix, do you see it trending down sequentially quarter to date in relation to 4th quarter levels?

Speaker 2

No. No, we do not.

Speaker 1

Okay. Thank you.

Operator

Thank you. Next question comes from Jon Tanwanteng with CJS Securities. Please go ahead.

Speaker 6

Hi. I was wondering if you could give us a little more color on the competitive environment. You mentioned obviously that you finished your EP investment. And some of your peers have not done so. And I'm wondering what benefits that accrues to you and how that's incorporated into your guidance and if you're actually seeing that in the market?

Speaker 2

So I think that will 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 plants, so to speak. And so that start up of the new equipment can be challenging and certainly challenging for us as we did the work on our final plan. So I'd expect to see that impact if it plays out that way in Q2 or possibly Q3 for us.

Speaker 6

Got it. Thank you. Jeff, I think you mentioned or maybe with your corning that you expect the GP per tonne to be relatively flat this year. Did I mishear that? Or was that referring to a specific segment, and just so kind of help me what the understand what the drivers are to that with prices going up and if you expect volumes and prices.

Speaker 3

Sure, John. I actually think I was referencing rubber that we expected rubber GB per ton, which was just over $400 a ton this past year. In 2023, we would expect to be very similar in 2024. So So we have price increases as Courtney 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 we bought power forward last year, which helped us.

Speaker 3

So we expect GP per tonne that was really targeted toward rubber.

Speaker 6

Got it. Can you quantify the impact of year over year impact of cogen, if possible?

Speaker 3

So the cogen, we do have the $10,000,000 impact on cogen and perhaps it ends up being even a little bit more than that. You're talking 23 to 2024 or 2022 to 2023, I'm sorry.

Speaker 6

If you could get both, that would be great. I was looking more for 2023, 2020.

Speaker 3

Got it. No problem. 2022 to 2023, I think we mentioned was $30,000,000 but that was primarily due to the price impact of power in Europe in 2022. 2023 to 2024, we probably have We should have a $10,000,000 headwind that we have from the forward contract that we bought. We also have some additional, If you look at price, most of it most of the impact was in 2023, but we will see additional impact in 2024, Perhaps another $5,000,000 to $10,000,000 beyond that.

Speaker 6

Understood. Thank you, guys.

Speaker 3

Sure.

Operator

There are no further questions At this time, I would now like to turn the floor over to Courtney Painter for closing comments.

Speaker 2

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 2

But look, I just want to thank The distraction, the effort and to have the EPA work behind us is really tremendous for Orion. So with that, I hope you all have a good rest of your day. Thank you.

Operator

Thank you. This concludes today's teleconference. You may disconnect your lines at this time.

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Earnings Conference Call
Orion Q4 2023
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