Orion Engineered Carbons S.A. Announces Fourth Quarter and Full Year 2017 Financial Results
LUXEMBOURG–(BUSINESS WIRE)–$OEC #chemicals–Orion Engineered Carbons S.A. (NYSE: OEC), a worldwide supplier of
Specialty and High-Performance Carbon Black, today announced fourth
quarter 2017 financial results.
Full Year 2017 Highlights
- Net Income of €66.8 million and basic EPS of €1.13
-
2017 Full Year Adjusted EPS1 €1.44 up from
€1.35 in 2016 -
Adjusted EBITDA1 of €227.7 million,
towards the higher end of guidance - Year end leverage ratio reduced to 2.29x LTM Adjusted EBITDA
Fourth Quarter 2017 Highlights
- Total Carbon Black volumes decreased 2.8% to 272.9 kmt
-
Revenue of €288.5 million increased by €12.2 million, or 4.4%,
compared to the fourth quarter of 2016 -
Net Income of €21.1 million, basic EPS of €0.36 and Adjusted EPS of
€0.38 -
Adjusted EBITDA1 increased 0.7% to €56.0
million, with Specialty Carbon Black Adjusted EBITDA of €27.6 million
and Rubber Carbon Black Adjusted EBITDA of €28.4 million -
Specialty Carbon Black Adjusted EBITDA margin of 28.2% and Rubber
Carbon Black Adjusted EBITDA margin of 14.9% - Cash flow from operations of €54.8 million
1) See below for a reconciliation of non-IFRS financial measures to the
most directly comparable IFRS measures
“I was pleased that we ended the year with strengthening demand which
helped us reach the higher end of our guidance for 2017. Global markets
are clearly recovering. This recovery is supporting a continued strong
growth in Specialty Blacks and further tightens the already high
utilization rates in our Rubber Black production network. This has
provided a more favorable pricing environment for the major rubber black
agreements which were closed during this past quarter. While our
Specialty business grew as expected, higher feedstock costs continued to
squeeze margins. We made some progress on recovering the rise in
feedstock costs, but not enough to catch up with the upward movement in
costs at year end. Nevertheless, substantial efforts are underway to
recover margins aided in part by the strength in demand throughout the
globe for Orion's products. We compensated this margin squeeze in
Specialty with a strong quarter from our Rubber business which benefited
from good demand and higher energy prices that boosted our income from
the sale of excess energy. Consistent with the past, we delivered
another quarter of strong cash generation. Cash flow from operations
totaled €54.8 million in the quarter, comfortably above our capex needs,
debt and working capital demands and dividend coverage.” said Jack Clem,
Chief Executive Office.
“Full-year Adjusted EBITDA reached the higher end of our guidance at
€227.7 million, our third consecutive period of year-over-year growth as
a public company. Over the course of the year, we continued to execute
on our key initiatives including a major conversion of Rubber Carbon
Black production lines to Specialty products in Korea, which as we have
said previously, will be financed by the sale of the land occupied by
our smaller plant in the suburbs of Seoul. Accordingly, we are pleased
to note that last week we reached an agreement to sell this land to a
local real estate developer. The terms and conditions are in line with
our expectations, including a closing at mid-year this year, at which
time the plant will cease operation. We made further gains in shifting
our rubber black portfolio to higher margin technical grades and through
various debottlenecking projects have managed to maintain capacity ahead
of the strongly developing demand for specialty products. After a
successful 2017 and in light of favorable industry dynamics, we look
forward to 2018 with confidence as we believe we are well positioned for
another year of profitable growth” added Mr. Clem.
| ORION ENGINEERED CARBONS | |||
| Q4 2017 | Q4 2016 | Y-o-Y Comparison in % | |
| Volume (kmt) | 272.9 | 280.6 | (2.8) |
| Revenue in EUR million | 288.5 | 276.3 | 4.4 |
| Contribution Margin in EUR million | 112.9 | 117.7 | (4.1) |
| Contribution Margin per metric ton in EUR | 413.7 | 419.4 | (1.4) |
| Operating Result (EBIT) in EUR million | 26.0 | 36.7 | (29.2) |
| Adjusted EBITDA in EUR million | 56.0 | 55.6 | 0.7 |
| Profit for the Period (Net Income) in EUR million | 21.1 | 18.6 | 13.6 |
| Basic EPS in EUR (1) | 0.36 | 0.31 | €0.05 |
| Adjusted EPS in EUR (2) | 0.38 | 0.39 | €(0.01) |
| Notes: | |
| (1) |
Basic EPS calculated using profit or (loss) for the period (Net Income) and weighted number of shares outstanding in the respective quarter. Net profit and basic EPS are favorably impacted by €7.4 million relating primarily to the release of deferred tax liabilities in the United States as a result of the recent tax reform. |
| (2) |
Adjusted EPS calculated using profit (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. |
Fourth Quarter 2017 Overview
Total volumes decreased by 7.7 kmt, resulting in sales of 272.9 kmt in
the fourth quarter of 2017 compared to 280.6 kmt in the fourth quarter
of 2016. This 2.8% decrease reflected stronger volumes in the Specialty
Carbon Black business, offset by lower Rubber Carbon Black volumes as a
result of the closure of Rubber standard grade production capacity in
France and the U.S. and the ongoing conversion of capacity in South
Korea.
Revenue increased by €12.2 million, or 4.4%, to €288.5 million in the
fourth quarter of 2017 from €276.3 million in the fourth quarter of
2016, reflecting the pass through of higher feedstock costs to customers
with agreements that link price to the cost of feedstock and price
increases in the segments, partially offset by negative foreign exchange
rate translation impacts as well as regional product mix effects in both
segments.
Contribution Margin decreased by €4.8 million, or 4.1%, to €112.9
million in the fourth quarter of 2017 from €117.7 million in the fourth
quarter of 2016, reflecting unfavorable product mix effects, pressure
from regional feedstock mix and the impact of foreign exchange
translation effects.
The operating result decreased by €10.7 million or 29.2%, to €26.0
million in the fourth quarter of 2017 from €36.7 million in the fourth
quarter of 2016 as a result of the decline in the Contribution Margin,
an increase in depreciation associated with the Rubber footprint
restructuring in Korea and the impact of hurricane Harvey, as well as
other Rubber footprint restructuring expenditures and various one-time
items, offset by fixed cost reductions and favorable foreign exchange
effects associated with our fixed cost base.
Adjusted EBITDA increased by €0.4 million, or 0.6% to €56.0 million in
the fourth quarter of 2017 from €55.6 million in the fourth quarter of
2016 reflecting mainly the exclusion of asset impairments and increased
depreciation charges, tight cost control and favorable foreign exchange
translation impacts on our below gross profit cost base offsetting the
underlying change in Gross Profit.
Net income for the fourth quarter of 2017 was €21.1 million compared to
€18.6 million in the fourth quarter of the prior year. This increase in
net income benefits from a €7.4 million one-time effect associated with
reducing deferred tax liabilities in the United States as a result of
the recent tax reform, offset by the effects of the restructuring in
Korea and other one time items included in operating income.
|
Quarterly Business Results |
|||
| SPECIALTY CARBON BLACK | |||
| Q4 2017 | Q4 2016 | Y-o-Y Comparison in % | |
| Volume (kmt) | 62.6 | 59.5 | 5.1 |
| Revenue in EUR million | 98.0 | 96.1 | 2.0 |
| Gross Profit in EUR million | 35.2 | 39.9 | -11.7 |
| Gross Profit/metric ton in EUR | 563.0 | 670.5 | -16.0 |
| Adjusted EBITDA in EUR million | 27.6 | 30.3 | -8.8 |
| Adjusted EBITDA/metric ton in EUR | 441.4 | 509 | -13.3 |
| Adjusted EBITDA Margin (%) | 28.2 | 31.5 | (330)bps |
Volumes for the Specialty Carbon Black business increased by 5.1% in the
fourth quarter of 2017 from 59.5 kmt in the fourth quarter of 2016,
mainly as a result of growth in North America and Korea as well as sales
from our facility in Qingdao, China. The Specialty business continues to
benefit from increased global demand and further penetration of markets,
with all regions showing strength.
Growth in volumes and base price increases contributed to increased
revenues of €1.9 million, or 2.0% to €98.0 million in the fourth quarter
of 2017 from €96.1 million in the fourth quarter 2016. The increase also
reflects the pass through of higher feedstock costs with customers that
are on indexed agreements, offset in part by negative foreign exchange
translation effects and regional product mix.
Specialty Gross Profit decreased by €4.7 million, or 11.7% to €35.2
million in the fourth quarter of 2017 from €39.9 million in the fourth
quarter of 2016, due to a lag in recovering higher feedstock costs,
regional mix effects, higher fixed costs, costs associated with the
restructuring in Korea and effects of hurricane Harvey which were offset
in part by an increase in volume and efficiency gains.
Specialty Adjusted EBITDA decreased by €2.7 million, or 8.8%, to €27.6
million in the fourth quarter 2017 from €30.3 million in the fourth
quarter of 2016, reflecting the decrease in Gross Profit partially
offset by savings of sales and general administrative expenses.
Accordingly, the Adjusted EBITDA margin decreased 330 basis points to
28.2% compared to 31.5% in the fourth quarter of 2016.
| RUBBER CARBON BLACK | |||
| Q4 2017 | Q4 2016 | Y-o-Y Comparison in % | |
| Volume (kmt) | 210.3 | 221.1 | (4.9) |
| Revenue in EUR million | 190.5 | 180.2 | 5.7 |
| Gross Profit in EUR million | 44.7 | 47.1 | -5.1 |
| Gross Profit/metric ton in EUR | 212.6 | 213.1 | -0.2 |
| Adjusted EBITDA in EUR million | 28.4 | 25.3 | 12.0 |
| Adjusted EBITDA/metric ton in EUR | 134.9 | 114.6 | 17.7 |
| Adjusted EBITDA Margin (%) | 14.9 | 14.1 | 80bps |
Industry demand for Rubber Blacks remained strong during the quarter but
segment volumes declined by 10.8 kmt or 4.9% in the fourth quarter of
2017 from 221.1 kmt in the fourth quarter of 2016 as a result of the
closure of standard grade rubber capacity in France and the U.S. and the
ongoing conversion of standard grade rubber capacity in South Korea to
specialty production.
Revenue increased by €10.3 million, or 5.7% to €190.5 million in the
fourth quarter of 2017 from €180.2 million in the fourth quarter of
2016, as a result of the effect of oil price pass through to customers
on indexed price agreements and base price increases in the 2017
agreements. These increases more than offset the impact from a reduction
in standard grade volumes, as well as negative foreign exchange
translation impacts.
Gross profit of the business decreased €2.4 million, or 5.1% to €44.7
million in the fourth quarter of 2017 from €47.1 million in the fourth
quarter of 2016, as a result of mix impacts, unfavorable regional
feedstock mix, foreign exchange translation impacts, asset impairment
charges related to hurricane Harvey and accelerated depreciation charges
related to the restructuring in Korea.
Rubber Adjusted EBITDA increased 12.0% to €28.4 million in the fourth
quarter 2017 from €25.3 million in the fourth quarter 2016, reflecting
mainly the exclusion of asset impairments and one-time depreciation
charges and improved sales and general administrative expenses. Adjusted
EBITDA margin was 14.9% in the fourth quarter of 2017 compared to 14.1%
in the fourth quarter of 2016 reflecting the Adjusted EBITDA development.
Balance Sheet and Cash Flow
As of December 31, 2017, the Company had cash and cash equivalents of €
60.3 million, which represent an increase of €4.5 million from September
30, 2017. During the fourth quarter the Company paid a quarterly
dividend of €10 million, regularly scheduled quarterly interest payment
of €6.4 million, and €1.8 million of mandatory debt repayment.
The Company’s non-current indebtedness as of December 31, 2017 was
€567.6 million, composed of the non-current portion of term loan
liabilities of €553.6 million (€563.6 million gross term loan
liabilities reduced by capitalized transaction costs of €10.0 million),
plus local non-current bank loans of €10.4 million and €3.6 non-current
debt from financial derivatives.
Our net cash at December 31, 2017 totaled €53.3 million, comprising cash
and cash equivalents of €60.3 million less the current portion of term
loan liabilities of €7.0 million. Accordingly, net indebtedness was
€520.7 million, composed of gross term loan liabilities of €563.6
million, plus local bank loans of €10.4 million and less net cash of
€53.3 million. This represents a 2.29x LTM Adjusted EBTIDA multiple,
down from 2.32x in the previous quarter and down from 2.50 times at end
of 2016. Capitalized transaction costs as well as non-current debt from
financial derivatives are disregarded in computing net indebtedness
under our lending agreements.
Cash inflows from operating activities in the fourth quarter of 2017
amounted to €54.8 million, consisting of a consolidated profit for the
period of €21.1 million, adjusted for depreciation and amortization of
€22.8 million and the exclusion of finance costs of €8.6 million. Net
working capital totaled €186.8 million as of December 31, 2017, compared
to €204.1 million as of September 30, 2017. Net Working Capital ended
2017 at 62 days, reflecting continued effective working capital
management.
Cash outflows from investing activities in the fourth quarter of 2017
amounted to €29.1 million reflecting primarily expenditures for
improvements in the manufacturing network. Cash outflows for financing
activities in the fourth quarter of 2017 amounted to €22.3 million,
consisting primarily of the quarterly dividend, the regular interest
payment and debt repayment.
2018 Outlook
Mr. Clem concluded, “We are witnessing favorable industry dynamics
brought about by strengthening demand and limited growth in supply. We
have gained price in our major rubber contracts for 2018 and we are
seeing substantial improvements in specialty black pricing as we work to
catch up with the rise in the price of feedstocks. It appears that the
global economy is moving in the right direction and we remain optimistic
that the large investments made in the U.S. by our tire customers will
result in a long awaited uptick in demand for U.S. rubber blacks.
Consistent with this outlook, we expect a full year Adjusted EBITDA for
2018 to be in the range of €230 million and €250 million. This outlook
is based on the assumptions that volume growth will be in line with
current GDP expectations and that oil prices, exchange rates and
feedstock impacts will be at levels experienced late in the fourth
quarter of 2017.
As previously announced, we will begin reporting our results in US
dollars rather than euros effective with the first quarter of 2018.
Accordingly, and based on the same set of assumptions previously
outlined, we are guiding to full year Adjusted EBITDA between $270
million and $300 million.
Within this backdrop of a positive trading environment, it is the
Company's intention that dividends start to grow as net income
increases. Furthermore we confirm our intention to remain in a net debt
to Adjusted EBITDA leverage ratio in the range of 2.0 times to 2.5 times
based on the current pipeline of investment opportunities. Based on
strong performance in 2017 and our positive expectations for the coming
year we intend to implement a program to buy back up to $20 million of
Orion shares over the coming year as opportunities arise.”
Other guidance metrics for 2018 include shares outstanding of 59.3
million before any buy back and vesting of awards under the Group’s Long
Term Incentive program, an underlying tax rate of 32 -33% on pre-tax
income, and capital expenditures reflecting an operating run rate
consistent with the past of approximately €60 million but with the total
rising to over €80 million due to the expenditures associated with the
consolidation of our plants in Korea. This excludes EPA related capex
spending. As mentioned earlier we reached an agreement to sell the land
occupied by our smaller plant in Korea. We expect this transaction to
more than offset the cash requirements associated with this major
consolidation project.
Depreciation and Amortization for 2018 is estimated to be approximately
€80 million. This outlook does not consider contingencies described in
Note 9 to our consolidated financial statements as at December 31, 2017.
Conference Call
As previously announced, Orion will hold a conference call tomorrow,
Friday, February 23rd 2018, 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 March 02, 2018:
| U.S. Toll Free: | 1-844-512-2921 |
| International: | 1-412-317-6671 |
| Conference ID: | 13674881 |
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.
About Orion Engineered Carbons
Orion is a worldwide supplier of Carbon Black. We produce a broad range
of Carbon Blacks that include high-performance Specialty Gas Blacks,
Furnace Blacks, Lamp Blacks, Thermal Blacks and other Carbon Blacks that
tint, colorize and enhance the performance of polymers, plastics, paints
and coatings, inks and toners, textile fibers, adhesives and sealants,
tires, and mechanical rubber goods such as automotive belts and hoses.
Orion runs 14 global production sites and four Applied Technology
Centers. The group has approximately 1,441 employees worldwide. For more
information please visit our website www.orioncarbons.com.
Forward Looking Statements
This document contains certain forward-looking statements with respect
to our financial condition, results of operations and business,
including those in the “2018 Outlook” and “Quarterly Business Results”
sections above. These statements constitute forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of
1934, as amended. Forward-looking statements are statements of future
expectations that are based on management’s current expectations and
assumptions and involve known and unknown risks and uncertainties that
could cause actual results, performance or events to differ materially
from those expressed or implied in these statements. Forward-looking
statements include, among others, statements concerning the potential
exposure to market risks, statements expressing management’s
expectations, beliefs, estimates, forecasts, projections and assumptions
and statements that are not limited to statements of historical or
present facts or conditions. Some of these statements can be identified
by terms and phrases such as “anticipate,” “believe,” “intend,”
“estimate,” “expect,” “continue,” “could,” “should,” “may,” “plan,”
“project,” “predict” and similar expressions. Factors that could cause
our actual results to differ materially from those expressed or implied
in such forward-looking statements include those factors detailed under
the captions “Note Regarding Forward-Looking Statements” and “Risk
Factors” in our Annual Report on Form 20-F for the year ended December
31, 2017 and in Note 9 to our audited consolidated financial statements
regarding contingent liabilities, including litigation. You should not
place undue reliance on forward-looking statements. Each forward-looking
statement speaks only as of the date of the particular statement. New
risk factors and uncertainties emerge from time to time and it is not
possible for our management to predict all risk factors and
uncertainties, nor can we assess the impact of all factors on our
business or the extent to which any factor, or combination of factors,
may cause actual results to differ materially from those contained in
any forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statement – including those in the
“2018 Outlook” and “Quarterly Business Results” sections above – as a
result of new information, future events or other information, other
than as required by applicable law.
Reconciliation of Non-IFRS Financial Measures
In this release we refer to Adjusted EBITDA, Contribution Margin and
Adjusted EPS, which are financial measures that have not been prepared
in accordance with International Financial Reporting Standards as issued
by the International Accounting Standards Board (“IFRS”) or the
accounting standards of any other jurisdiction and may not be comparable
to other similarly titled measures of other companies. Adjusted EBITDA
is defined as operating result (EBIT) before depreciation and
amortization, adjusted for acquisition related expenses, restructuring
expenses, consulting fees related to group strategy, share of profit or
loss of joint venture and certain other items. Adjusted EBITDA is used
by our management to evaluate our operating performance and make
decisions regarding allocation of capital because it excludes the
effects of certain items that have less bearing on the performance of
our underlying core business. Our use of Adjusted EBITDA has limitations
as an analytical tool, and you should not consider it in isolation or as
a substitute for analysis of our financial results as reported under
IFRS. Some of these limitations are: (a) although Adjusted EBITDA
excludes the impact of depreciation and amortization, the assets being
depreciated and amortized may have to be replaced in the future and thus
the cost of replacing assets or acquiring new assets, which will affect
our operating results over time, is not reflected; (b) Adjusted EBITDA
does not reflect interest or certain other costs that we will continue
to incur over time and will adversely affect our profit or loss, which
is the ultimate measure of our financial performance and (c) other
companies, including companies in our industry, may calculate Adjusted
EBITDA or similarly titled measures differently. Because of these and
other limitations, you should consider Adjusted EBITDA alongside our
other IFRS-based financial performance measures, such as consolidated
profit or loss for the period.
Contribution Margin is calculated by subtracting variable costs (such as
raw materials, packaging, utilities and distribution costs) from our
revenue. We believe that Contribution Margin and Contribution Margin per
Metric Ton are useful because we see these measures as indicating the
portion of revenue that is not consumed by such variable costs and
therefore contributes to the coverage of all other costs and profits.
Adjusted EPS is defined as profit or loss for the period adjusted for
acquisition related expenses, restructuring expenses, consulting fees
related to group strategy, certain other items (such as amortization
expenses related to intangible assets acquired from our predecessor and
foreign currency revaluation impacts) and assumed taxes, divided by the
weighted number of shares outstanding. Adjusted EPS provides guidance
with respect to our underlying business performance without regard to
the effects of (a) foreign currency fluctuations, (b) the amortization
of intangible assets which other companies may record as goodwill having
an indefinite lifetime and thus no amortization and (c) our start-up and
initial public offering costs.
Contacts
Orion Engineered Carbons S.A.
Investor Relations
Diana Downey,
+1 832-589-2285
