Orion SA (OEC) 2015 Q1 法說會逐字稿

Good morning, and welcome to the Orion Engineered Carbons' First Quarter 2015 Earnings Conference Call. Management will be utilizing a slide presentation for this call, which is available now for download on Orion Engineered Carbons' Investor Relations page at www.orioncarbons.com.

Today's call is being recorded, and we've allocated one hour for prepared remarks and question-and-answer session. (Operator Instructions)

At this time, I would like to turn the conference over to Diana Downey, Head of Investor Relations at Orion. Thank you. You may begin.

Thank you, Operator. Good morning, everyone. We released our earnings press release after the market closed yesterday, and have posted a slide presentation to the Investor Relations portion of our website at www.orioncarbons.com. We will be referencing the slides during this call.

Today's speakers are Jack Clem, Chief Executive Officer; and Charles Herlinger, Chief Financial Officer. Before we begin, I would like to remind you that some of the comments made on today's call, including our financial guidance, are forward-looking statements. These statements are subject to the risk and uncertainties as described in the Company's filings with the SEC. Actual results may differ materially from those described during the call.

In addition, all forward-looking statements are made as of today, and the Company does not undertake to update any forward-looking statements based on new circumstances or revised expectations. Also, non-IFRS financial measures discussed during this call are reconciled to the most directly comparable IFRS measures in the table attached to our press release.

I will now turn the call over to Jack Clem.

Good morning, and thank you for joining us today for our first quarter 2015 earnings conference call. I will begin today's call by providing highlights from the first quarter. And we'll then turn the call over to our Chief Financial Officer, Charles Herlinger, who will provide more detail on our quarterly results. Finally, I will comment on the broader industry trends, and our updated outlook for 2015 before opening up the lines to take your questions.

Beginning with slide 3, we are very pleased with our results for the first quarter of 2015. We continue to successfully execute our strategy to grow our Specialty Carbon Black business, and both grow and improve the profitability of Rubber Black business.

During the first quarter of 2015 we grew adjusted EBITDA of 7.8%, and contribution margin by 8.6%. We also continued to generate strong cash flow, with our cash balance increasing by EUR50.2 million in the quarter, driven by both strong operating performance and a positive working capital development.

It was another turbulent quarter in the energy markets, but in spite of this our raw material cost pass through mechanisms proved effective again, sheltering our margin from downward price pressure. We were, in fact, able to increase these margins in some markets, notably in Specialty Blacks.

We expanded our adjusted EBITDA margins in both the Specialty and Rubber Black businesses, due to improved contribution margins and the effect of lower feedstock costs on our revenue. I also want to remind you that when we discuss volume growth being in line with current GDP expectations, we are talking about full-year growth. There will be fluctuations that can push volumes higher or lower for any given quarter.

Turning to slide 4, our first quarter volumes were 253,000 metric tons, a slight increase from the prior year. While volume growth was limited in the first quarter, both segments saw increases.

Growth in Rubber Carbon Black was driven primarily by Europe and the US in spite of a slow start to the year attributed to a surge of Chinese tire imports and particularly difficult weather in the Northeast. This was partially offset by weakness in Brazil, leading to a strong Specialty volume growth in our European business, which was partially offset by weakness in the Americas and South Korea.

We commented last quarter on the impact of Chinese tires on US rubber production, as most producers raced to fuel the pipeline ahead of the US-imposed tariffs. The surge in Chinese imports has abated during the latter half of the first quarter, and while partially being replaced with imports from other countries, total imports are falling thus far in 2015.

We generated revenues of EUR290.4 million, and more importantly increased contribution margin by 8.6%, or EUR8.7 million, to EUR109.8 million. Orion's Adjusted EBITDA increased 7.8% year over year to EUR53.9 million.

The strong increase in contribution margin and adjusted EBITDA, in spite of limited volume growth during the first quarter, reflects successful management of our margin and mix, improvements in the efficiency of our operations, and favorable currency effects. We experienced a EUR5 million foreign exchange benefit this quarter, due to a strengthened US dollar. These gains were offset by unfavorable feedstock cost impacts of a similar amount.

I will now turn the call over Charles, who will provide you more detail on our performance by segment.

Thanks, Jack. And good morning, everyone. Turning to slide 5, our Specialty Black segment volume increased 1,000 metric tons, or 0.4% to 51,100 metric tons in the first quarter 2015, from 50,900 metric tons in the prior year. This slight increase in volume reflects increased demand in Europe, offset by some weaker demand in Asia Pacific and in the Americas.

Adjusted EBITDA of the Specialty Carbon Black segment increased to EUR28.6 million in the first quarter of 2015, compared to EUR25.7 million in the prior year. Adjusted EBITDA margin increased significantly to 29.1% and 25.2% in the prior-year period. The strength in our adjusted EBITDA margin was enhanced by the decline in feedstock prices, non-indexed customers, and net favorable foreign exchange translation effects.

Turning to slide 6, our Rubber Carbon Black segment volume increased 3,400 metric tons, or 1.7%, to 201,800 metric tons in the first quarter of 2015, from 198,400 metric tons in the prior year. The growth was due to increased demand in Europe and North America, which was offset by weaker demand, primarily in Brazil.

Adjusted EBITDA of the Rubber Carbon Black segment increased by EUR1 million, or 4.2% to EUR25.3 million in the first quarter of 2015, from EUR24.3 million in the prior year, reflecting the benefit of growth profit development, taking into account the elimination of changes in depreciation.

Adjusted EBITDA margin grew 260 basis points to 13.2%, compared to 10.6% in the prior-year period, reflecting the effect of lower feedstock costs on sales revenue, as well as favorable net foreign exchange translation impacts, and efficiency gains.

Turning now to slide 7, I will provide an update on our balance sheet and cash flows. As of March 31, 2015, the Company had cash and cash equivalents of EUR120.7 million, which represents an increase of EUR50.2 million. This increase was driven by the strong operational performance of the business and reduction in working capital of EUR28.9 million.

The Company's noncurrent gross indebtedness as of March 31, 2015 was EUR706.3 million [sic - see press release, EUR706.6 million]. Net indebtedness was EUR594.5 million, which represents a 2.87 times LTM EBITDA multiple.

Cash inflows from operating activities in the quarter amounted to EUR74.8 million, consisting of a consolidated profit for the period of EUR14.8 million, adjusted for depreciation and amortization of EUR16.6 million, exclusion of finance cost of EUR14 million impacting net income, and a cash contribution from decreased networking capital of EUR28.9 million, primarily associated with a reduction in receivables and inventories, due to feedstock cost declines.

Net working capital totaled EUR203.7 million at the end of the quarter, compared to EUR219.7 million at the end of 2014. Days of net working capital were 65 days, down one day from the prior quarter.

Cash outflows from investing activities in the first quarter of 2015 amounted to EUR13.8 million, consisting of expenditures for improvements in the manufacturing network throughout the production system, which is line with our expectations for the full year. We plan to continue financing future capital expenditures with cash generated by our operating activities.

Cash outflows for financing activities in the first quarter amounted to EUR14.4, comprised primarily of our regular interest payments of EUR9.5 million, and regular debt repayments of EUR3.2 million. I will now turn the call back to Jack, who will provide some additional comments on our key markets and geographies. And then we'll finish up with the outlook.

Thank you, Charles. Now please turn to slide 8. This year is developing much as we had expected. North America continues to be a strong market for Orion, and we believe it will strengthen even more as we move through the year.

There's been a reduction in imported Chinese tires, and US tire manufacturers after a bit of a slow show start, are now running strongly. The tire producers are moving ahead with their investments in new North American tire production capacity, and even some new tire investment announcements have been made.

Our Rubber Black facilities in this region are running close to their capacity limits, and we're making good progress in filling out the Specialty Black capacity that we added last summer in Texas.

In Europe, while the economy is not as strong as it is in the US, it has been improving, and even performing a bit better than we had expected. Global demand for our specialty products produced in Europe continues to grow. And we continue to make progress that's filling the capacity of the new after-treatment facility we recently added in Germany.

Our Asian Rubber Black business, which is concentrate in Korea, performed very well this quarter. We continued to improve operating efficiencies as we commissioned new equipment that delivers higher feedstock yields.

The Asian Specialty Carbon Black business remains strong. And in Korea, we saw a very high mix of premium products, which positively impacted adjusted EBITDA.

Lastly, there is no material change in the outlook for South America and South Africa. As demand in both regions remains weak. Our operating rates have fallen some in Brazil. But our exposure here is fairly low, so it has not materially affected our business so far. And while the South African economy remains weak, our performance there has improved over the prior year due to initiatives to increase productivity.

Finally, as we consider the full year of 2015, please turn to slide 9. As you have heard, we are pleased with our start to 2015. We believe we have a good start to the year, and we continue to be in a position to deliver strong financial and operational performance, while delivering on our commitment to pay dividends to our shareholders.

The regional economies continue to be in line with our expectations, perhaps even a bit more favorable. Our pricing mechanisms should continue to provide support for our margins. And our initiatives to improve both top line and cost performance are running well. And finally, we hope to see current stability for the remainder of the year.

Consistent with this outlook, we reiterate our guidance for the full year adjusted EBITDA of EUR210 million to EUR225 million for 2015, and believe we are driving towards the upper half of this range.

With that, Operator, please open up the lines for questions.

(Operator Instructions) Ivan Marcuse, KeyBanc Capital Markets

Hi. Thanks for taking my questions. Nice start to the year. If you look at your Specialty business, your gross profit dollars per metric ton really jumped up. And I understand that there's some moving parts. But how much did the segment benefit from a positive variable cost? And would you expect sort of that level of gross profit per metric ton to maintain for the rest of the year-- variable cost defining by price versus raw materials?

Yes. Good morning, Ivan. It's Charles here. You're right. Our gross profit per metric ton jumped up. The big drivers that are in there, and we talk about that in the release, are the effect of depreciation, with about a nearly EUR2 million, EUR1.9 million positive impact from that. And that is an effect that will continue all year. And we had some FX benefits of a similar amount as well.

And then of course we're having the benefit of the fact that on our non-index business, some of the [oil] costs are being maintained. So those are the three factors. In terms of depreciation, that is certainly an effect that will continue all year. FX is-- you know our assumption on that in our outlook. And the same comment goes for the development of costs.

The key thing to note though, on the cost side of things, with raw materials is the pass through mechanism. Be it Specialty or be it Rubber Carbon Black division, it's proved to be effective in this time of rapidly-- in this recent case-- changing, decreasing feedstock. That's an important measure for us of the resilience of our pass through mechanism. But in summary, that's how I'd answer your question.

Got you. And then in your press release you say something to the effect of-- about negative feedstock cost developments. What does that mean when you say it hurts EBITDA?

Ivan, the feedstock market, there is as you can imagine around the world, there's a lot of moving parts and pieces to that. We have Gulf Coast. We have West Coast. We have coal tar. And mostly it's supply and demand dynamics that happen there, coupled with the fact that sometimes these raw materials slate change. And we've seen a pretty substantial change in the slate of raw material in the United States, as shale oil is manufactured or processed more in the US refineries. It's lightened up the feedstock, and as a result of that lighter feedstock and some of these other supply shifts, we've seen decreasing yields and little bit more competitive feedstock market than we had in the past.

Got you. And then a quick question, and I'll jump back into the queue. I'm noticing your cash flow, your expectation is you're going to pay $10 million a quarter in dividend. But in your cash flow, I didn't see a dividend come out this quarter. Is that more of a timing function? Would you expect to see sort of like a $20 million number next quarter? Or how do you think about it from a cash flow perspective, the dividend coming out?

Yes. Good question. The dividend for the first quarter came out after our Shareholder's meeting in the middle of April. So-- and then the second quarterly dividend was aimed to be at the end of the second quarter. So you're absolutely right. We'll catch up from the cash flow point of view in the second quarter with two lots of quarterly dividends. And then thereafter for this year, we'll have our quarterly dividend in each of the quarters three and four.

But the first dividend of the year is a function of needing to be paid essentially just after our Annual Meeting, which takes place in the first week or so of April.

Great. I'll jump back in the queue. Thank you.

Jeff Zekauskas, JPMorgan

Thank you very much. Can you talk about your expectations for growth in global Carbon Black demand this year, and your assessment of the amount of global capacity that's being added? Is the industry getting tighter or looser? And is the growth rate of Carbon Black accelerating or slowing down, and why?

Jeff, I think overall it's stayed kind of on a long-term secular trends, we'll call it 3% to 4% globally. And as you know, it varies dramatically by region. The established regions typically, you would think maybe 1% to 2%, maybe a little bit higher, in growth spurts like we have right now in the US, and China of course is much stronger. And I don't see really any variation of that. It seems to be continuing at that pace. But I mean clearly it is probably slanted a little bit more towards the Asia-Pacific region during this period of time.

Tire building, I would say, maybe not quite as pronounced, that direction, but certain the MRG that are driven by the OE markets are probably stronger now in Asia-Pacific over the long term than they had been in the past.

In terms of 2015, we see growth in the United States. We see growth actually in Europe, albeit a little bit more calmer. You know what our visibility is in China right now. But our Korean facilities are running much as we had expected in 2014 looking into 2015.

In terms of capacity additions, there has been capacity additions. But as you know, most of those additions have occurred in China. Interestingly enough, we think the Chinese market seems to be tightening a bit. In the past we've talked about Chinese capacity (inaudible) anywhere from the high 60s to the mid-70s. That does seem to be climbing up right now, perhaps because of some capacity closures. But I think it's largely a demand-driven factor.

But in terms of the rest of the world, utilizations are tightening. I think the United States right now, at least we are running (inaudible). It seems to be that the industry is running fairly full right. I mean in Europe we're running quite tight at the [current time].

I guess maybe the overall question was on what is global demand versus global capacity, it does appear to us at least to be tightening. And as overall slackness that we talked about in the past in China, it does to seem to be kind of getting (inaudible) at this point.

There's been some commentary that pricing has become more aggressive in China, or more price competitive. Do you believe that that's the case? And do you believe that that would have any effect on any of the other global jurisdictions?

There's an interesting dynamic in China right now. Again, you have to realize our presence there, in the absence of the Evonik QECC facility, which we've talked about in the past, we can comment later in the discussion if needed. So it is a bit limited. But we've got this situation in China where the import tariffs for tires into the US were imposed at about the same time that the dynamics between petroleum-based feedstocks and coal-based feedstocks set into play.

And I think that probably put the Chinese producers in a bit of a frenzy. Because they had at the same time demand shrinking, and their cost of supply rising. So I think these guys are pretty highly levered, as we understand it. So I think driven by cash, I think there was quite a bit of competitive activity going on during that period of time, based on our observation.

There have been some market share shifts over the past 9 months in Carbon Black. There have been some winners and some losers. Do you think that the losers want to get back their share? Or because of the timing of contract renewals, there's not much of that will happen this year? Or how do you see the general competitive dynamics in terms of the ebb and flow of share.

Jeff, are you speaking of China still, or are you talking-

No. I'm speaking on a more-- I'm speaking in North America and in Europe.

Yes. I think it's pretty static right now. You know how contracts work at least in different regions, particularly in the US and in Europe. The contracts are set pretty much for the year. So I would say, currently whatever the share of balance is, just depending on a few little lane shifts here and there which are typically pretty marginal or pretty minimal, I don't see much change in 2015.

2016? We'll have to see what the contracts [come in at].

Okay. Thank you so much.

Kevin Hocevar, Northcoast Research

Hey. Good morning, everybody. I wonder if you could-- back to Ivan's question on the feedstock cost. It sounds like they largely offset the FX benefits you had. Are those-- do you expect those to continue for the balance of the year, kind of at a similar level? Or will those dissipate at all, or be a bigger headwind? Could you comment on kind of where you expect that headwind to go, going forward?

Kevin, my sense, because you know one of the dangerous things is trying to predict what happens in oil markets. But my sense is that we probably will see some degree, some continuation of that. The feedstock slate that exists for the conditional [FCCs] out of the US right now are not likely to change. I mean oil prices are moving up. So some crude slates are probably changing.

But for the most part I would think this lighter crude slate is probably going to continue. And that will have a negative effect on us. The dynamics between coal tar and petroleum-based feedstock seem to be going back to more of the traditional way. We've seen a rise, as you know, in the cost of oil. WTI is moving up nearly close to 60 right now. Brent is over 60.

At the same time, we've seen a reversal in some of the coal tar materials as they head back down. So that traditional differential between those types of feedstocks seems to be reestablishing. So some think that could be advantageous to us. So I mean notations both ways, but's a little difficult to call it right now.

Okay. And one of the things I didn't hear you mention as either a negative or positive, was your annual contract base price negotiations. Were those largely neutral, whether some be positive, some be negative, but in the end it's relatively neutral? Or did those have any real impact on earnings either way during the quarter or really I guess for the balance of the year?

You know, we always hesitate to get too far into the notion or concept, or the details rather of pricing. I can tell you, we've been able to move up margin and mix based on just different types of products that we sell, and some of the efficiency gains. And there's some winners and some losers, as you move from year to year. But I don't think I'd really want to get much further into that.

Sure. And then just finally, the cash generation of the business was pretty strong. So just wondering what we should think of for cash flow for this year, and also how we should think of working capital as well, moving forward.

Well, you're right. It was strong. And a big piece of it, as we mentioned in the release, was working capital related triggered through the falling oil prices that we've had until recently. It's a function of where you think oil is going to go. I think most of that falling oil prices, Kevin, has played out through our working capital, not entirely all of it, but getting to feel the most of it now.

And it's a function of where we expect oil prices to go. If we think that oil prices are going to stay around where they are, then we're not going to have the working capital (inaudible) that we've experienced in the first quarter, to that extent at least, for the rest of the year.

But underpinning it is that we expect our EBITDA to have a strong conversion rate to cash anyway, with or without working capital. That's obviously why we disclosed the two pieces.

So long story short, if you assume where oil prices are going to stay around where they are now, then we will have a bit more benefit from falling oil that's still got to work its way through our inventories or our receivables particularly. And then that will start to dissipate. But we will continue to have a very strong conversion of EBITDA to cash. So the days, if you like, about where we are, our goal is to keep them around about where they are or a bit better. And we'll see if we can achieve that.

Okay, great. Thank you very much.

Paul Walsh, Morgan Stanley

Good morning, guys. Thanks for taking my questions. Good morning, Jack. Good morning, Charles. I had just one on the underlying business. Perhaps I was thinking about this in the wrong way. But if I look at the FX benefit that you guys had in the first quarter, and it's consistent of what we're seeing across the board (inaudible) right now. If I sort of strip that out, I know you had some of the raw material headwinds.

But did you see an acceleration in some of the underlying growth characteristics in your business as you move through this year, whether it's volume or further delivery on some of the cost elements in the business? And that's really the foundation of my sort of question for today. Thank you.

Just to be clear, if you look at the adjusted EBITDA level, the FX benefits that we had in the first quarter were counterbalanced by these negative oil factors that Jack described earlier in the call. And we've talked about the visibility and our judgment on how those two factors continue.

We still have our underlying efficiency gains that we've talked about that on the Rubber side, our goal regardless of what oil does to revenues and therefore to reported EBITDA margin, our goal is to move our EBITDA margin over the next three years, maybe a little bit longer, by about 3%,

So that is intact, Paul. And we expect to deliver that throughout the remainder of this year. I mean we started in the first quarter. That was a-- if you net out the FX impacts and adjusted EBITDA beneficial at EUR5 million, and the oil factors going the other way. And just to put them to one side, then a big driver net-net of our overall EBITDA improvement in the quarter, best part of EUR4 million, is a big chunk of that, not alone, but a big chunk of that is efficiency gains. And those we expect certainly to continue as the year moves on.

In terms of your question about volume, as Jack said in his introductory remarks, we see-- we still expect the sorts of volume dynamics growth that we talked a quarter ago, as this year unfolds. So those two factors are important factors for us to, if you like, hit the underlying targets that we put firmly out there.

And just to be on top of this, in terms of the raw material headwinds that offset the FX gains, is just-- help my understanding. Is that a timing issue, given the past three contracts and that kind of stuff? Or is it more a function of pricing power in Rubber Carb and Black, for example, or you've had to give more in price than the raw material decline required?

It's not a sales price issue, Paul. It's a purchase cost of the feedstock and the quality of the feedstock, which is the offset. It's not a lag. It doesn't have anything to do with that lag factor.

Exactly. It's not-- this isn't lag. The lag factors were pretty well balanced, actually in this quarter.

Okay. Thanks a lot, guys. Thank you.

John Roberts, UBS

Good morning. I think last quarter we talked about the possibility of going to the US dollar as your functional currency, even if you remained domiciled in Europe and reported in euros. Any updates on that? And if you were able to do that, could you run your global business to a currency neutral dollar equivalent earnings guidance? You give guidance today in euros. But I don't know if you had to do it dollars, could you run the business so that that would be relatively insensitive to currency?

To that very point, Paul, I mean the conversion, and again emphasizing this is not a decision we've made. And there are many schools of thought on this as you know. But we want to make sure that we really fully understand the currency effects of running this business off a functional US dollar before we were to ever make that change.

I mean the mechanics frankly, with our systems, are pretty straightforward, as you'd expect. The issue is do we have an understanding of the dynamics of the business, and our contracts that are associated with that. Because one thing about our foreign currency profile is this quarter the benefits we've talked about are very heavily skewed towards translation. Meaning we've got a US dollar P&L. We translate it back into euros, Korean, whatever. And very much not a function of transaction FX factors.

And that's an important part of our business model. We've worked very hard to minimize those transaction-related FX effects, plus, minus. That's a balance business, in the sense the balance, it's the equivalent of balancing the business in terms of our feedstock pass through mechanism. And that piece of work still has to be done, to your question, if we change our functional currency. And that is something that is under consideration. It will take us some time.

Okay. Thank you.

Peter Luber, Post Street Capital

Hey. Good morning, guys. I wanted to talk a little bit about North America. It seems like investment on the OEM side is accelerating. I know Goodyear Tire, on their conference call, said growth in North America is an attractive investment. Can you just talk a little bit about capacity utilization on the carbon side, where it is, and can it accommodate this growth? And how tight could this market get going forward?

Peter, I think it's already pretty tight right now. And there's been these additional expansion plans. And now it's by the tire manufacturers. So I think we've talked at length about many of the expansions that were announced earlier. But there's been even new ones. So Goodyear announced one of Mexico. There's another I think in plans right now by Trelleborg. Giti Tire has announced a new greenfield plant in South Carolina. All of these facilities are going to require Carbon Black. And right now the yields are pretty tight. We don't see a lot of slack capacity out there.

And when I talk about North America, I have to include the Canadian plants and the two Mexican plants as well, because they serve this entire North America. So the question how tight can it get, it's already pretty tight. And we see demand rising currently as we go through the next few years. And as you know, the [EPA114] issue has constrained expansion plans. Now that might relax some after there's settlements by the industry. But right now, even absent that, I think it would take a while for some of those capacity expansions to come on.

So I guess in answer to your question, coming back to the original, it's tight now. And it's going to become tighter.

And do you think we'll see that impact pricing going forward?

I always hesitate to comment on pricing. But typically in the markets, when it's tight, pricing [funds] up.

Just one more question on cash flow. You talked about the positive cash flow for the rest of the year. You're building cash on the balance sheet. Can you just talk about how you guys are thinking about using that cash? You already have a very nice dividend yield-- you know, what your priorities are there.

Well, yes. Given our float and the fact that we're not looking to buy back stock, so we can take that off of the table. It comes down to dividend. And obviously we've talked before about the QECC acquisition. That's something we are-- we've got a comment on that in the Q&A, something that we're keen to close. We think that's on track to do that, in line with the original agreement that we have with Evonik. So those are the two main factors, Peter.

And it does beg a question, okay. Given the cash development that may not fully answer your question. We'll start giving that consideration as this year unfolds, clearly.

(Inaudible) quite frankly a bit de-levering with (inaudible).

That's a good point. We've said we started off with a bit over 3, slightly a smidgeon over 3 when we did the IPO. And we said we wanted to move towards 2.5 or so. We thought that was certainly a very comfortable leverage ratio for us. Actually we're comfortable now. Obviously that's a function of growing EBITDA as well. But that's the other factor in the mix, yes.

Okay. Great. That's all I had. Great execution this quarter.

Ivan Marcuse, KeyBanc Capital Markets

Hi. A couple quick questions on the Specialty business again. I was a little bit surprised that Asia and North America was down for that business. To what degree-- was that a function of maybe some destocking in those regions, and with a little going up, would you expect sort of a restock? Or how do you look at volumes in this business going through the year?

We did see a bit of destocking in that business. Probably that's the largest part of it. Some of the other is just simply a function of mix. Some of the business was, call it maybe just a little bit on the lower end of the margin scale. And so we decided to divert the capacities to other products. It's not what I would consider a significant shift, one way or the other.

Okay. And then what do you think of underlying Carbon Black demand for growth for North America and Europe right now?

Are you talking about (inaudible)--

Rubber-- I'm sorry. Rubber Black. Like are you expecting Europe to be up 1% or are you hoping for flat or it sounds like your commentary is kind of a little bit better?

Our growth in Europe is actually stronger than that into 2015. It's stronger than what we expected. We expected limited-- a mild-- a very low single percentage, even 1% or so. And it seems to be quite a bit better than that, or a little bit better. I'd say more like 2% to 3% right now. Hopefully that will continue. The US much the same thing, maybe a point or so higher.

In Europe, what do you think is driving the growth? Is it a function of just easy comparisons or are you seeing sort of where you're selling to, an improvement in replacement demand or improvement in I guess the general consumer spending?

I think it's a little bit of all those actually. I don't know. I think-- it's a matter that people can just go so long. Economies, while they're not all that great, have kind of backed away from the edge of doom, like we were a couple years ago. Maybe pocketbooks have loosened up a little bit. Perhaps fuel has a moderated a bit. So I think all of these things working together, maybe people feel a little bit more comfortable about putting on a new set of tire. Trucks are running a little bit more on the roads than we used to. I think it's just a little bit of all that, actually.

I wouldn't want to paint that as a really bright picture in Europe, mind you. And it is very bifurcated between the North and the South, and the Central and the South. But for the most part I think you'd say it's a bit better than it was, and a bit better than what we thought it would be so far.

Got you. And then the last question I have is if you-- with North America tightening, and the plants in Canada and Mexico, do you ship down to Mexico from your plants? And if not, is that an opportunity? And then on the flip end, with the market tightening, would that-- could you see an acceleration or maybe an increase of imported Carbon Black coming in? Or how do you-- if you look out the next two to three to four or five years in this market, how do you sort of see that developing?

There are cross-border shipments. There's certainly more cross-border shipments from the US and Canada than there are in Mexico to the US and vice versa. There are some. But it's not what you'd consider really significant. Probably the greatest common pool would be Canada and the US, just simply because of the geographies and the complications of moving across the Mexican border.

But that could certainly change. The problem is as you add capacity in Mexico, the Mexican facilities right now we think are running fairly tight, like the US facilities as well. So maybe a round-about answer to your question is I mean Canada is tight. Mexico is tight. And the US is tight.

And you ask about imported materials. There will be imported materials. I think the commentary we've made on the past and we'll continue to reinforce that, is there will be some materials that come in. But the logistics [are daunting]. This material has to come in. It has to be converted over the typical type of delivery vehicles within the US which are usually for a large volume, railcars, which is not an easy process to do, or bulk trucks which are equally difficult. And it's that a very, very long supply chain from any export source.

And with the recent change and the way the dynamics between US energy costs and Asian energy costs, which maybe dependent more on coal material, that's a bit of a challenge to be competitive at this point.

Okay. And then I guess I lied to you. I have one more question. I think I read or saw somewhere. I don't know where. It's in my head. That's there's been some hurdles that have been resolved with the Chinese plant that you've been sort of negotiating for years and buying from Evonik. If you did say something, I missed it. I apologize. What's sort of your expectation of getting that plant closure done, or getting into that business within 2015? Or how would you gauge it where we sit today, knowing that things are going to change?

Well we've been working very hard, as you know, on closing this deal with Evonik. Without getting into the gritty details, there were some issues that stood in the way of our being able to close on that. We believe at this point that the critical issues now are gone, or at least resolved or can be resolved, let me put it that way. And that we will move on pace to close this deal.

It's clear to us that the facility can be easily integrated back into our network. We know the technology. It's actually a licensed technology facility by us. So bringing it back in would be very easy. We know most of the people there. So we're working very diligently right now with Evonik. And Evonik has an obligation under the agreements to transfer that facility to us. And we certainly will hold them to those obligations.

Great. Thank you taking my questions. I appreciate it.

Thank you. Mr. Clem, there are no further questions at this time. I'll turn the floor back to you for any final remarks.

Okay. Well thank you very much. Great questions. We appreciate that a lot. Let me just sum this up by saying it was a good start to the year. Although one quarter doesn't make a year, but it's always nice to get off to a good start in the year.

We have some favorable trends working in our direction right now that we've talked about. These trends associated with the volume, some of the mix improvements that we've got. A lot of internal initiatives which are proving favorable right now, and some what I would consider exogenous factors like currency and so forth that are working in our favor.

Also we had some negatives that we've talked about, with some of the feedstock materials. But all in all, right now those seem to be netting in our favor as we move forward. It seems our strategy that we put in place when we established this business is working well and playing out the way we want it to. A lot of hard work still left in front of us. There's a lot of good things still left to do in this business, and we've got a good team working on those now.

But overall, I'd say we're satisfied with where we are with the business. We appreciate your attention in our business, and look forward to talking to you next quarter.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful afternoon.