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Orion Engineered Carbons S.A. (OEC) Q4 2022 Earnings Call Transcript

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Orion Engineered Carbons S.A. (NYSE:OEC) Q4 2022 Earnings Conference Call February 17, 2023 8:30 AM ET

Company Participants

Wendy Wilson - Head of IR

Corning Painter - CEO

Jeffrey Glajch - CFO

Conference Call Participants

Josh Spector - UBS

Laurence Alexander - Jefferies

Jon Tanwanteng - CJS Securities

Chris Kapsch - Loop Capital Markets

Operator

Greetings. Welcome to Orion Engineered Carbons Full Year and Fourth Quarter 2022 Earnings Conference Call. At this time, each participants are successful a listen-only mode. A question-and-answer convention will travel nan general presentation. [Operator Instructions] Please note, this convention is being recorded.

At this time, I will now move nan convention complete to Wendy Wilson, Head of Investor Relations. Wendy, you whitethorn begin.

Wendy Wilson

Thank you, Rob. Good morning, everyone, and invited to Orion Engineered Carbons convention telephone to talk our 4th fourth and afloat twelvemonth 2022 financial results. I'm Wendy Wilson, Head of Investor Relations. With maine coming are Corning Painter, Chief Executive Officer; and Jeff Glajch, Chief Financial Officer.

We issued our property merchandise aft nan marketplace posted yesterday, and we besides posted a descent position to nan Investor Relations information of our Web site. We will beryllium referencing this position during nan call.

Before we begin, I'd for illustration to punctual you that immoderate of nan comments made connected today's telephone are forward-looking statements. These statements are taxable to nan risks and uncertainties described successful nan company's filings pinch nan SEC, and our existent results whitethorn disagree from those described during nan call.

In addition, each forward-looking statements are made arsenic of today, February 17. The institution is not obligated to update immoderate forward-looking statements based connected caller circumstances aliases revised expectations. All non-GAAP financial measures discussed during this telephone are reconciled to nan astir straight comparable GAAP measures successful nan array attached to our press release. Additionally, erstwhile we remark coming connected EBITDA we will beryllium referring to adjusted EBITDA.

I'll now move nan telephone complete to Cory Painter.

Corning Painter

Thank you, Wendy. Good morning, everyone, and invited to our net convention call. We had a awesome twelvemonth successful 2022. Many acknowledgment spell retired to the tremendous Orion squad for advancing our sustainability, maturation and financial schedule successful nan look of aggregate challenges passim nan year, challenges that we treated arsenic opportunities.

We delivered 4th fourth adjusted EBITDA of astir $65 million, a 25% summation pinch specialty outperforming our expectations owed to nan spot of our premium products contempt immoderate customer destocking. Moreover, nan squad delivered grounds afloat twelvemonth adjusted EBITDA of $312 million, our first clip breaking nan $300 cardinal level.

Let maine commencement retired by highlighting 4 cardinal accomplishments. First, arsenic we mentioned, connected our 3rd 4th call, we made important advancement successful nan 2023 to 2024 rubber speech rhythm for price, measurement and terms. I opportunity 2023 to 2024 because taking Asia wherever contracts are system otherwise retired of nan equation, complete 50% of our tyre measurement will beryllium connected multiyear contracts.

Our advancement reflects nan customer's value, our dependability and quality, and that nan world proviso request dynamics proceed to activity successful our favor. For example, successful North America, underlying request is expanding owed to connected shoring of tyre production. Couple that pinch nan request for sustainable returns connected invested capital, including sustainability capital, we spot c achromatic capacity remaining tight. I'll show you much connected this a spot later. Based connected pricing alone, we expect rubber gross profit per tonne to summation $80 to $100 successful 2023.

Second, we achieved a number of sustainability related milestones. We kept our 3rd information U.S aerial emissions task connected track, having precocious announced its completion. The task execution situation improved successful 2022, but still our people, contractors and suppliers worked astir galore challenges. We were upgraded by CDP, 1 of nan astir superior and respected platforms for biology reporting to beryllium which is nan 2nd highest level.

This past week we received our scoring by EcoVadis, 1 of nan world's astir broad standing tools. Our people improved 5 points to 77 earning america a golden badge and putting america successful nan 99th percentile, a immense betterment from our people 52 successful 2018. We besides achieved ISCC certification for our bio-circular grades from 3 plants.

Third, our squad accrued our dual substance elasticity successful Europe. As of today, we tin trim earthy state usage by astir 35% to 40%. The earthy state situation successful Europe whitethorn person passed for now, but this provides america pinch awesome elasticity arsenic we move forward.

Fourth, I americium proud to opportunity that nan squad kept nan caller works successful China connected way contempt galore challenges. In nan 4th quarter, earlier nan COVID zero argumentation was lifted, COVID yet came to Huaibei, our tract was locked out. But pinch forethought and speedy action, we were capable to big nan building unit astatine our plant, meaning they were surviving astatine our site. We made judge that workers are good taken attraction of bully food, intermezo and comfortable surviving accommodations to guarantee that worker wellness and information were not compromised. Then, aft COVID zero was lifted, we had to activity done a immense activity of COVID infections. Thanks to their punctual action and dedication, we stay connected schedule and fund and are presently commissioning nan facility.

With these and respective different cardinal items, for illustration our announced description of acetylene-based [indiscernible] conducted capacity, higher net powerfulness and accrued rate flow. We are connected way to a mid rhythm adjusted EBITDA capacity of $500 cardinal and are assured successful this.

With that, I'll move nan telephone complete to Jeff.

Jeffrey Glajch

Thank you, Corning. I person rather a fewer slides pinch elaborate charts and graphs. I will touch connected each briefly, but promote you to walk much clip reviewing them.

On Slide 4, consolidated afloat twelvemonth results were beardown pinch afloat twelvemonth revenue, gross profit per tonne and adjusted EBITDA each grounds highs. Revenue was up 31% to complete $2 cardinal and adjusted EPS grew to $1.96 from $1.73 successful 2021. This descent provides immoderate cardinal afloat twelvemonth metrics for our rubber and specialty businesses. I will talk successful extent astir each business shortly.

On Slide 5, you tin spot nan consolidated cardinal factors for nan afloat twelvemonth 2022. The guidelines value improvements and operation gains crossed some businesses acold outweigh nan little measurement which occurred successful specialty only. In fact, rubber measurement was up 3% successful nan year. We person a beardown FX headwind successful 2022, arsenic nan mean euro to dollar speech complaint went from 118 to 105. The afloat twelvemonth EBITDA summation of $44 cardinal occurred contempt this $26 cardinal FX headwinds.

On Slide 6, looking astatine Q4, contempt a mini diminution successful volume, our continued beardown GP per tonne helped america execute a 25% EBITDA summation and an adjusted EPS summation of complete 40%. Slide 7 provides immoderate further penetration of nan drivers for Q4 adjusted EBITDA. We proceed to spot nan use of guidelines pricing and operation successful some businesses and precocious cogeneration profitability.

On Slide 8, looking astatine specialty and Q4, volumes decreased arsenic we expected, reflecting weaker world and marketplace request and customer destocking. However, gross was level owed to improved value realization and operation offset by nan aforementioned little volume. Adjusted EBITDA decreased 18%. Note that gross profit per tonne continues to beryllium strong, some successful nan 4th and nan trailing 12 months.

You whitethorn callback that astatine our Investor Day, Corning shared that nan net powerfulness of our highest value, astir differentiated specialty products had an EBITDA capacity supra $80 cardinal astatine 40% EBITDA margins. This portion of our portfolio delivered arsenic expected successful 2022, and this on pinch value realization and nan affirmative effect of caller products helped to amended our per tonne margins by complete 20% compared pinch Q4 past year.

Slide 9 shows nan cardinal factors affecting adjusted EBITDA for nan specialty business compared to past year. As noted earlier, measurement simplification was significant, peculiarly successful debased worth products. The measurement alteration was astir offset by improved pricing and operation arsenic good arsenic higher cogeneration benefits.

Slide 10 looks astatine nan rubber business successful Q4 pinch improvements to each metrics connected a year-over-year basis. Volume accrued successful nan Americas and APAC, specifically successful China and Korea arsenic we judge customer customers weighted our reliability and quality. We besides proceed to use from beardown pricing.

Gross profit per tonne was $350 successful nan quarter. We proceed to spot a bully upward inclination successful our trailing 12-month gross profit per tonne now astatine 336, up sharply complete nan past 2 years. This reflects nan 2021 pricing cycle, which was driven by our request to statesman to execute an acceptable return connected our aerial emissions value -- our aerial emissions power related superior and operating costs. As Corning noted, we expect different important measurement up successful 2023, pinch value unsocial expected to move our GP per tonne good supra $400.

Slide 11 shows nan cardinal factors affecting adjusted EBITDA for nan rubber business. Strong guidelines pricing and operation were each favorable arsenic was cogeneration income. Before I walk nan telephone backmost to Corning, I'd for illustration to supply an update connected our banal buyback programme that we announced successful November. Today, we person repurchased complete 800,000 shares, which is approx -- which was astir 1.4% of nan shares outstanding. We person spent astir $16 cardinal aliases astir one-third of nan approved $50 cardinal authorization. As I noted connected nan telephone successful November, we expect this buyback to beryllium completed successful a mates much quarters apt sometime later this summer.

I will move nan telephone complete to Corning to talk our 2023 guidance, superior expenditures and rate travel expectations and remark connected our multiyear maturation path.

Corning Painter

Thanks, Jeff. Turning to Slide 12. Despite nan uncertainties successful nan world economy, we are assured successful our business and our establishing guidance for 2023 of $350 cardinal to $380 million, up 17% astatine nan midpoint. We supply a divided of our guidance for our 2 business segments. This is not thing we would usually provide, but we judge it is peculiarly adjuvant for 2023.

Note that we person bracketed our 2023 rubber EBITDA fig from what we shared past quarter. This reflects a softening successful our projection of miles driven. If European powerfulness rates moved up aliases down by astir 20%, nan effect connected our P&L of each nan gives and takes would beryllium astir $10 million. Our adjusted EPS guidance scope is $2.30 to $2.60 a share, up 25% astatine nan midpoint. We scheme to put astir $235 cardinal successful superior spending. Let's move to Slide 13, and I'll supply immoderate further colour connected that.

With our 3rd works now online, we only expect to person astir $25 cardinal of U.S aerial emanation controls spending little for our last project. This will astir apt beryllium nan past clip we speak astir U.S aerial emanation power spending arsenic it will nary longer beryllium peculiarly significant. And arsenic that spending tapers off, we expect to person nan bandwidth and rate travel to return connected immoderate of our backlog of smaller, precocious worth projects. The descent shows nan components of 2023 spending, we've besides fixed you immoderate colour commentary for modeling purposes.

As shown connected Slide 14, we expect important discretionary rate travel of $200 cardinal to $240 cardinal and free rate travel bracketed astir $100 million. As our rate travel increases, we will equilibrium our superior allocation decisions betwixt investing successful precocious worth projects, lowering indebtedness and returning rate to shareholders.

Looking astatine Slide 15, we judge that nan intrinsic worth of nan institution and our projected rate flows greatly exceeds our stock price. With our worth creation mindset earned pricing and dependable advancement connected our projects, we are assured that we person nan building blocks successful spot to make a measurement alteration successful our rate travel and adjusted EBITDA to scope our 2025 goals.

Now earlier I wrap things up, I want to constituent you to Slide 16. As I mentioned earlier successful nan call, we firmly judge that our rubber business gains are [indiscernible] baseline from which we tin grow. The truth remains that request continues to outstrip proviso for rubber c achromatic successful galore of our cardinal markets. You tin spot intelligibly that North America, nan proviso request equilibrium has shifted complete time, and we expect it to proceed to beryllium tight for years to come.

Underlying request successful North America is expanding owed to works connected shoring of tyre production, while precocious c achromatic finance costs to unafraid a important caller c achromatic capacity. In Europe, nan business is analyzable by nan warfare and its effect connected Russian proviso to Europe. Significant amounts of Russian c achromatic proceed to travel into Europe and stay successful immoderate customers proviso concatenation moreover astatine immoderate of it now flows to China. For this reason, coupled pinch an summation successful European tyre capacity, we judge nan European c achromatic marketplace will tighten further.

In closing, I would inquire you to see a fewer thoughts. First, 2022 was a grounds twelvemonth for america and I judge 2023 is going to beryllium moreover better. Second, since becoming a nationalist company, we person grown done periods of debased lipid prices arsenic good arsenic precocious lipid prices, and we person demonstrated done those periods really resilient nan business is. We are a specialty chemic institution and we are wished to execute a specialty valuation.

Third, owed to continued proviso request imbalances for rubber c black, we judge our rubber statement pricing and position are nan caller baseline. Fourth, our squad has proven their dedication and agility during challenging times. We person momentum successful sustainability, successful our markets, successful our caller products and pinch our customers. The Iranian squad is well-positioned not only for 2023, but for years to come.

Finally, considering each these factors, we are good connected our measurement to importantly summation net and free rate travel successful statement pinch our 2025 mid-cycle net and rate travel capacity goals. The instauration that we person laid complete nan past fewer years is now evident successful our financial results and outlook.

Thank you. Operator, please unfastened nan statement for questions now.

Question-and-Answer Session

Operator

[Operator Instructions] Thank you. And our first mobility comes from nan statement of Josh Spector pinch UBS. Please proceed pinch your questions.

Josh Spector

Yes, hi. Thanks for taking my question. And firstly, I guess, congrats to you and nan squad connected a beautiful coagulated extremity to 2023 here, a batch of large accomplishments.

Corning Painter

Thank you, Josh.

Josh Spector

My first mobility -- yes, you’re welcome. So first question, Jeff, successful specialty, your guideline is benignant of adjacent to annualizing 4th quarter. And I mean, clearly, that's a 4th beautiful challenging volumes down 20% positive year-over-year. Most companies are saying don't annualized 4th quarter, it's not nan correct tally rate. When I look astatine immoderate of nan things you guys person caller capacity coming online, you person possibly immoderate earthy worldly costs coming down. So I'm conscionable wondering, what's your span to fundamentally level to somewhat up successful specialty adjacent twelvemonth from wherever we are today?

Jeffrey Glajch

Well, first of all, I'd opportunity our forecast is much for illustration 2nd half repeating going into this year. I deliberation nan markets successful China are still beautiful challenging, moreover though COVID zero argumentation is still down us. So that's benignant of really we spot it correct now and erstwhile we talk to our customers.

Josh Spector

Okay. I conjecture possibly I excavation successful a spot much location is what should we beryllium assuming for Huaibei? And what position of erstwhile that comes online and nan publication there? Any changes from your anterior comments?

Corning Painter

So I deliberation Huaibei and successful specialty, successful particular, there's going to beryllium a qualification play associated pinch that. So I deliberation we'd spot much of that publication successful nan 2nd half. We are successful startup correct now. So you could opportunity location would beryllium qualification volumes going retired into nan 2nd almanac quarter, and you commencement to spot much of that loading successful nan 2nd half.

Josh Spector

Okay. And past if I could conscionable inquire on, I mean, I deliberation Slide 16 was beautiful absorbing connected nan proviso demand. I don't cognize if we've really seen a sustained nether supply. So what happened, [indiscernible] hap successful North America? Are prices still not astatine a constituent wherever you'd spot incremental finance closing that spread to prices move up? Is location request destruction? What's nan script you spot playing out?

Corning Painter

Well, if you look astatine our curve, we do spot immoderate incremental finance going on, right. The business pinch [indiscernible] is good understood, very -- a batch of superior going into that further capacity that is there. I deliberation that creates a spot of an overhang from anyone wanting to make further investments arsenic good arsenic conscionable an appraisal there's immoderate different very charismatic areas, for example, successful conductive carbons. So I deliberation nan U.S marketplace is going to stay tart -- tight. I deliberation what we achieved this twelvemonth is, arsenic I said successful nan call, for illustration nan caller foundation, nan caller base, I do deliberation there's upside front.

Josh Spector

Okay, convey you.

Operator

The adjacent mobility comes from nan statement of Laurence Alexander pinch Jefferies. Please proceed pinch your questions.

Laurence Alexander

Good morning. So I conjecture conscionable a mates of travel connected to that. So first, erstwhile we look astatine nan specialty business, nan gross profit per tonne improved by astir $120 million, $130 cardinal year-over-year, successful a beautiful soft situation successful China and Europe. What do you deliberation gross profit per tonne will do successful a synchronized world betterment aliases acceleration period?

Corning Painter

So 1 constituent of that, conscionable support successful mind -- conscionable correct me, [indiscernible] it was 1 up astir $130 per tonne, I deliberation this is nan constituent that you request to make, aliases that you attended to make there. So a large element, and our GP per tonne is ever going to beryllium mixed. And truthful what you spot present is nan awesome spot successful for illustration our astir differentiated products. When we spot measurement coming backmost successful areas for illustration masterbatch and truthful forth, will person an advantage successful position of greater loading and absorption of fixed costs. But we besides spot a small spot of nan dilutive effect of it. So I deliberation if we were going to opportunity successful nan $800, $900 scope for GP per tonne is astir apt a good number successful position of modeling. Jeff, do you want to adhd thing to that?

Jeffrey Glajch

I deliberation that makes sense. I deliberation if you look astatine nan weighted mean of arsenic we spot measurement coming backmost in, we could spot nan GP per tonne successful 2023 really little than 2022 conscionable because of nan debased extremity volume, arsenic you noted.

Laurence Alexander

Right. And past secondly, fixed you person already person statement -- value contracts extending into '24, tin you springiness a consciousness for really overmuch nett tailwind you already person baked successful '24, conscionable successful nan contracts you've already signed?

Corning Painter

I spot that it's somewhat commercially delicate what we person successful them. We do person upside going into '24.

Laurence Alexander

Okay. And past lastly, $450 cardinal of free rate travel connected your mid rhythm estimates complete nan adjacent 3 years, tin you springiness a consciousness for benignant of superior allocation, anticipation of adding nan bolt-on M&A aliases adjacencies, aliases benignant of really you're reasoning astir what that elasticity implies for what you tin do next?

Corning Painter

So we look astatine this and aspire to ever person a scope of options unfastened for america wherever we've done nan activity to create alleged existent option, buying that settling works years ago, it took years of activity to get it up to lithium ion artillery standards, but we're there. And past that creates nan action to do thing for illustration what we're doing successful [indiscernible] correct now. So erstwhile we look astatine that, we will make a determination balancing retired betwixt returning much rate to shareholders, betwixt continuing to put successful description s, let's say, debottlenecking that benignant of an description successful our halfway business arsenic good arsenic opportunities for different growth, which could beryllium thing that's a very, very adjacent adjustment. It could beryllium doing much simply successful nan connectivity abstraction wherever we are correct now. I deliberation there's really a assortment of options unfastened to us, Laurence, for growth. And astatine this point, we're enjoying having those options. We're going to beryllium very observant stewards of this capital, walk it well, it's nan shareholders money, not ours, and conscionable time off ourselves those options for correct now.

Jeffrey Glajch

Yes, Laurence, 1 further point we could besides look arsenic we will to immoderate grade successful 2023 is reducing our indebtedness a small spot too.

Laurence Alexander

Yes, excellent.

Corning Painter

That -- if thing other that allows you that barren powder successful nan early also.

Laurence Alexander

Okay, great. Okay. Thank you.

Corning Painter

Thank you.

Operator

Thank you. Our adjacent mobility is coming from nan statement of Jon Tanwanteng pinch CJS Securities. Please proceed pinch your questions.

Jon Tanwanteng

Hi. Thanks for taking my questions and really bully 4th and outlook here. My first 1 is what really changed successful nan SCB marketplace compared to erstwhile you past reported, I deliberation nan outlook? When you gave that -- erstwhile you do study nan Q3, it was reasonably uncertain aliases moreover dire maybe. So what came successful that wasn't expected? And past arsenic you look forward, is that a continuation of nan aforesaid strength? Or is it different contracts that you're looking at? Or possibly conscionable an upgrade successful nan macro outlook that you're thinking? Help america understand nan delta there?

Corning Painter

Sure. I'd opportunity really 2 things. Number one, specialty volume, peculiarly nan premium measurement held up good and amended than we expected. Number two, nan full EU powerfulness costs versus earthy state costs, that equilibrium was amended than we expected. And from our perspective, we look now into nan coming year, I do not deliberation we're going to person a repetition of past year, I deliberation nan earthy state prices were benignant of artificially pumped up by nan almost mechanical buying immoderate of these nations to build their retention facilities. So we spot nan power markets being a spot much unchangeable successful Europe going guardant for nan coming year. But it was really those 2 things came successful a spot much favorable than we had anticipated.

Jon Tanwanteng

Okay, great. Thank you. And past conscionable looking astatine nan rate travel for adjacent year, it looks for illustration you're getting a adjacent chunk from moving superior releases, which is really bully to see. I was conscionable wondering really overmuch of that is conscionable nan earthy swings and movements successful travel and power prices versus immoderate benignant of imperishable simplification successful moving superior needs, your caller contracts aliases immoderate different point that's going on? What should we expect going forward?

Corning Painter

Sure, Jon. I deliberation nan numbers for 2023 are chiefly a imperishable simplification successful astir nan position peculiarly our rubber contracts. We talked astir that a small spot past 4th that on pinch pricing we were capable to discuss amended terms. And that's really wherever that simplification is coming in, you will spot if you look, successful nan 4th quarter, we saw a simplification successful moving superior successful nan quarter, a beautiful beardown 1 and that was related to lipid prices coming down successful nan 4th quarter. But 2023 it's really focused connected nan imperishable simplification successful -- from our customers -- our customer contracts.

Jeffrey Glajch

And I deliberation 1 point that's notable successful that is we've moved up nan pricing significantly, which would usually summation your moving superior successful this consciousness successful position of nan AR, and it conscionable shows nan value of improving these statement terms.

Jon Tanwanteng

Got it. Thank you. And past finally, conscionable possibly conscionable to rehash nan superior allocation question, I mean, $100 cardinal successful free rate travel moreover aft investing successful each nan maturation you want to do. You person a repurchase plan, which won't screen each of it. Are location immoderate different precocious return options that you're looking at, specifically successful position of either repurchases aliases integrated projects that, that whitethorn beryllium starting to look absorbing to conscionable thief america understand what that whitethorn yet beryllium utilized for, moreover if you don't walk it this twelvemonth '24, '25 and beyond?

Jeffrey Glajch

Well, Jon, I'd for illustration to convey a consciousness of being a bully steward of this cash. So we're not acting for illustration it's burning a spread successful our pocket. The easiest result for each this and a bully result for america would beryllium what conscionable added to that past remark would conscionable beryllium reducing our indebtedness ratio. And that's a good measurement to return immoderate of that. We will later successful this year, arsenic we travel towards nan conclusion of our first stock purchase, determine if we want to do much connected that, we mightiness greenish ray immoderate different projects, we person different precocious return projects, ample and small. We'll benignant of spot astatine that time. And I deliberation deferring that to spot what our business conditions, what's astir charismatic astatine nan clip is, is simply a affirmative for us. But astatine nan worst, we simply trim our indebtedness ratio, which for Orion would beryllium a good point to do correct now. So we really don't person for illustration a pressing need, we person to move that 1 measurement aliases nan different correct now. Let's beryllium careful.

Jon Tanwanteng

Fair enough. Thank you for that. Actually, if I could compression successful 1 more, I was conscionable wondering really overmuch room is location for pricing increases successful '24, conscionable fixed nan standard of proviso request imbalance you're expecting? Is it going to beryllium to nan aforesaid grade arsenic this year, is that possible? Or is it going to beryllium much muted conscionable fixed you already locked up, I deliberation for illustration half of your clients successful a longer word contracts already?

Corning Painter

Yes. So we've locked up a important magnitude for adjacent year, much than half of our volume, not overmuch more, but a small spot much than half for adjacent year. So I don't expect nan aforesaid benignant of a measurement up peculiarly successful North America. As I said, I deliberation nan business successful Europe is simply a spot much dicey, it was still a decent dependency connected Russian c black. I deliberation that's nan marketplace that could spot overmuch much unit for adjacent year.

Jon Tanwanteng

Great. Thanks again.

Jeffrey Glajch

Thank you, Jon.

Corning Painter

Thanks, Jon.

Operator

Our adjacent mobility comes from nan statement of Jeff [indiscernible] pinch JPMorgan. Please proceed pinch your questions.

Unidentified Analyst

Thanks very much. Can you punctual maine erstwhile your Ravenna description came connected nan size successful Europe? And person you sold each those pumps?

Corning Painter

Yes, that came connected successful approved for commercialized sales, I want to opportunity nan extremity of February and by March that was sold out, extremity of March.

Unidentified Analyst

And what -- and do you -- those tonnes are allocated to specialty aliases to your rubber block?

Corning Painter

So we person already committed a definite magnitude of that measurement earlier nan penetration of Ukraine. And aft that invasion, location was past abruptly awesome liking for rubber c achromatic made successful Europe. So a information of it had already been committed a batch of that into nan specialty market. We were astir to do a multiyear statement connected nan specialty area erstwhile each this happened. And fixed that we past reallocated almost each nan remaining capacity complete to rubber. So it's a mix. Its much rubber than specialty, I'd opportunity astatine this point. And that's a small spot of a alteration successful our plans, but I deliberation it has been a win-win for america and our customers.

Unidentified Analyst

How -- So, did your European volumes turn successful nan quarter? And shouldn't they turn a lot, fixed nan caller capacity you've got?

Corning Painter

Well, truthful we person that successful our past year's results, 3 quarters of nan year. We did not spot a large measurement up successful our European contracted volumes, I deliberation possibly we person a different position of what nan due marketplace pricing successful that marketplace is and immoderate different group for that's referring now looking guardant to 2023.

Unidentified Analyst

Your specialty volumes turn sequentially successful nan first quarter, aliases they should beryllium down a batch year-over-year, is that right?

Jeffrey Glajch

Little bit.

Unidentified Analyst

Or for illustration possibly springiness america a small spot of an outlook for nan first quarter? Because your specialty volumes really came successful nan 4th quarter? Is location nan aforesaid benignant of weakness that you expect successful nan first quarter?

Corning Painter

I deliberation if we look successful wide astatine this coming year, I deliberation for illustration galore players, we would opportunity nan first 4th mightiness beryllium a small spot weaker than immoderate of nan later quarters. COVID zeros complete successful China, but I -- and nan user successful China is buying a batch of services. But I deliberation nan user successful China is slowed down successful position of, let's say, manufactured equipment and existent property location still remains a spot of a challenge. And you person nan Chinese New Year and each that. So I deliberation that Q1 for this twelvemonth will beryllium a small weaker seasonally than possibly normal and lag, surely Qs 2 and 3. Jeff, you want to adhd something?

Jeffrey Glajch

Sure. Jeff, I deliberation if your mobility possibly I'm complete reference into your mobility is astir our Q1 specialty measurement comparative to past year. Last year's Q1, if you look to past year's measurement by 4th successful specialty, it came down -- was beautiful precocious successful Qs, rather precocious successful Q1 came down successful Q2 and past came down successful nan 2nd half of nan twelvemonth versus some Q1 and Q2. And I deliberation arsenic we've talked astir before, a batch of that was connected nan little extremity of nan measurement standpoint. If we're looking astatine measurement going into 2023, I deliberation starting nan twelvemonth disconnected person to nan 2nd half of nan year. So recognizing that debased extremity measurement is still not travel backmost yet. I deliberation it's astir apt an due measurement to look astatine it.

Corning Painter

Yes.

Unidentified Analyst

What were your cogen credits for nan 4th and nan twelvemonth and wherever do you book them?

Jeffrey Glajch

So we don't springiness specifications connected our cogen, but they divided betwixt some of our businesses comparatively equally. And we talked about, 1 of nan reasons our Q4 was possibly a small amended than our expectation, peculiarly successful nan specialty broadside was that we expected nan cogen numbers to travel down a small further successful Q4 than they really did. There was a batch of angst successful nan European market. And location was a batch of interest astir that. And it didn't travel down arsenic acold successful Q4 arsenic we expected erstwhile we had our telephone successful November. As we look astatine 2023, arsenic Corning noted, we deliberation nan market, nan utmost volatility of nan market, possibly has mitigated and will beryllium overmuch calmer successful 2023.

Unidentified Analyst

I deliberation your competitors disclose that benignant of information. Maybe arsenic nan past question, what's your guidelines lawsuit for measurement maturation successful 2 segments? Are you expecting, I don't cognize 2% aliases 3% maturation successful some segments, successful measurement terms?

Corning Painter

Let maine conscionable first speak to nan disclosure. I deliberation each successful all, our level of disclosure is beautiful good. We spot immoderate commercialized sensitivity connected that one. And we gave immoderate guidance successful our prepared comments astir what a 20% move successful powerfulness rates mightiness look and really scary aliases really not scary that would beryllium for us. Other volumes, looking astatine 2023 pinch November telephone noted, that we expected rubber volumes year-over-year to summation astir 30 kt, I deliberation that's still a adjacent number to usage astatine this constituent successful time. With respect to specialty volumes, again, we had a very precocious comparative to nan 2nd half nan year, overmuch higher first half of nan year, measurement level past year. I deliberation going into 2023 would astir apt beryllium reasonable to commencement nan twelvemonth astatine nan 2020 -- astatine nan 2nd half of 2022 volumes. And past arsenic we spell done nan year, possibly you'll spot a small spot of betterment connected nan measurement broadside of specialty. I deliberation year-over-year, fixed nan high, debased worth volumes we saw nan first half of nan year, I wouldn't expect nan year-over-year betterment successful volumes. In fact, I was expecting year-over-year alteration successful volumes, again, to beryllium much successful statement pinch what we saw successful nan 2nd half of nan twelvemonth pinch possibly an betterment successful nan 2nd half of 2023. But not to retrieve what we mislaid successful nan first half of 2022.

Operator

[Operator Instructions] Our adjacent mobility is from nan statement of Chris Kapsch pinch Loop Capital Markets. Please proceed pinch your questions.

Chris Kapsch

Hey, bully morning.

Corning Painter

Good morning, Chris.

Chris Kapsch

My first 1 is astir -- yes, bully morning. First 1 is simply a follow-up connected nan remark astir arsenic overmuch arsenic half of your tonnage and nan rubber achromatic broadside being, I guess, multi twelvemonth now. I conscionable -- I americium assuming that's meaningfully greater than possibly historical norms. Curious astir fixed nan move of benignant of nan desire to slice Russian supplies successful Europe, and past nan structural tightness successful North America, is nan propensity of nan customers to want to do multiyear deals, is it greater successful 1 of those regions versus nan other? Or is it benignant of balanced? I'm conscionable trying to understand really motivated they are to do that, aliases is it really a communal benignant of commitment?

Corning Painter

Look, definitely, it's a communal commitment, right, backmost and forth. First of all, Chris, you're perfectly right. It is an summation from humanities levels, which was astir apt much successful nan 25 to one-third, 25% to 33% of our volumes were connected multi year. Typically location will -- a customer cutting crossed aggregate geographies. So successful that sense, it really does extremity up being balanced. None of that prevents america getting together adjacent twelvemonth and saying, well, I'd for illustration more, right. That's each imaginable arsenic well. So I deliberation each those stay options.

Chris Kapsch

And I understand nan commercialized sensitivity, but conscionable to make judge I understood what you said about, erstwhile you said you person upside successful '24, that's pricing upside arsenic opposed to measurement upside pinch those customers successful nan lanes. And are you saying nan magnitude of nan pricing upside you're conscionable not going to talk about? Is it sounds for illustration it's a small spot much pronounced successful Europe than North America there?

Corning Painter

Yes, truthful we’ve a mates of things. First of all, bully clarification, Chris. And let's spell moreover 1 further. Price, of course, has each these multipliers for lipid and input costs. So let's talk margin. I mean, separator enhancement. However, nan improvements for adjacent twelvemonth successful those contracts are not successful nan aforesaid magnitude of what we achieved this year, conscionable to beryllium clear connected that. We took nan measurement alteration of this twelvemonth beforehand extremity loaded that, location is immoderate constituent of betterment for adjacent year, but I wouldn't want group to beryllium assuming for illustration it's different measurement change, for illustration what we conscionable achieved for this year. And I wouldn't opportunity there's a large quality successful those aliases really those activity from 1 surface science to another. My individual belief -- our belief is we're rather confident. And this is nan Russian c achromatic still going into Europe. And that remains a vulnerability for nan European market. And we mightiness spot galore able sometime betwixt now and statement season, nan desire for non-Russian c achromatic to travel backmost into nan market, and that would push up pricing for adjacent year, not wherever we person a statement necessarily, but for those who aren't served nether statement correct now. I deliberation we'd besides spot accrued request for measurement successful Europe.

Chris Kapsch

Okay, admit that. And past looking astatine that floor plan pinch nan structural tightness benignant of skewed North America, I guess. You've benignant of winding down your EPA investments. I'm conscionable funny to what grade you tin attraction connected benignant of, for deficiency of amended word operational excellence to amended your process exertion that eke retired other aliases incremental tonnage to reside nan underlying maturation associated pinch nan extremity marketplace and nan connected shoring, and truthful forth. Is that an opportunity for you and really would that manifest successful position of portion margins complete time?

Corning Painter

Yes, Chris, you understand this well. I deliberation that benignant of an finance is what could make consciousness successful North America aliases further successful Europe, alternatively than a caller reactor statement aliases a greenish field. I deliberation nan superior costs for those benignant of projects could beryllium very -- successful my opinion, not beryllium very attractive. I deliberation things for illustration nan debottlenecking would be. That's why erstwhile you look astatine our slide, wherever we laic retired our superior spending for adjacent year, we put successful astir $40 cardinal of debottleneck, mini description s, improvements successful plants, up to expanding output uptime, those sorts of things. We could person alternatively taken that arsenic much free rate flow. We thought that was a bully usage of our cash, debased consequence projects for us. We cognize nan demands there, we're assured successful that. So I deliberation that benignant of a task you could see. I don't think, however, ourselves and possibly competitors doing that, I deliberation moreover pinch that successful North America, it's going to stay very, very tight.

Chris Kapsch

Right, sewage it. And past conscionable 1 follow-up connected nan specialty. I conjecture that successful nan operation move you're talking about, for illustration masterbatch has been benignant of astir apt emotion nan brunt of this benignant of destocking move successful nan polymers industry. And that being little margin, ways to enhances pinch nan quality of operation correct now. But nan different area wherever there's been absence of spot is automotive [indiscernible], which varied immoderate of your highest separator application. So I'm wondering, arsenic automotive builds are higher successful '23 and immoderate would argue, could beryllium higher for a mates of years arsenic nan spot shortage abates. How does that provender into this gross profit per tonne that you're talking astir successful specialties erstwhile it each comes retired of nan watch?

Corning Painter

Yes, truthful that evidently is, Chris, a affirmative for us, arsenic is immoderate of nan bottlenecking we've done successful that area. So that's successful our factors erstwhile we came guardant pinch our guidance. But yes, that's a nett affirmative for [indiscernible] and I deliberation we'll beryllium for respective years, you person to come. The full rumor of masterbatch, we cognize that 1 of our commanders besides makes masterbatch, they brought backmost connected their European line. And I think, for our customers who compete pinch them, that besides astir apt [indiscernible] successful a small spot into immoderate of nan destocking we've seen this arsenic they've travel backmost successful and oftentimes group reenter markets pinch price.

Chris Kapsch

Thanks for nan color.

Corning Painter

All right. Thank you, Chris.

Operator

Thank you. At this time, I'll move nan level backmost to Corning Painter for closing remarks.

Corning Painter

Thank you, everyone, for joining america today. I'd for illustration to time off you pinch this thought. Rubber Carbon Black is not nan commodity truthful we look to deliberation it is. Yes, astir of its sold to world ASTM standards, but is nan differentiated chemical. Its mostly a location business rewarding section capacity, and it requires aerial emanation permits, earthy materials, successful summation to a works tin of making exacting grades. I would propose that you look astatine this business based connected nan dynamics we've laid retired connected this call. Thank you very overmuch for your clip and person a bully day.

Operator

This will reason today's conference. You whitethorn disconnect your lines astatine this time. Thank you for your participation.

Editor: Naga



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