Orion SA (OEC) 2016 Q1 法說會逐字稿

Greetings and welcome to the Orion Engineered Carbons First Quarter 2016 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host. Diana Downey, Vice President, Finance and Investor Relations for Orion Engineered Carbons. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and welcome to Orion Engineered Carbons conference call to discuss first quarter 2016 financial results. I'm Diana Downey, Vice President, Finance and Investor Relations. With me today are Jack Clem, Chief Executive Officer and Charles Herlinger, Chief Financial Officer.

We issued our earnings press release after the market closed yesterday and have posted an accompanying slide presentation to the Investor Relations portion of our website. We will be referencing these slides during this call. 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 risks 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, May 6, 2016 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. Jack?

Thank you, Diana. Good morning and thank you for joining us today for our first quarter 2016 earnings conference call. Our agenda for today is shown on slide 3. I'll begin the call by providing highlights from our first quarter and comments regarding our two Carbon Black businesses. Then I will turn the call over to our Chief Financial Officer, Charles Herlinger, who will provide more detail on our financial results and discuss our outlook for 2016. After Charles has finished I'll return to make a few closing comments and then open the lines up to take your questions.

Starting with our first quarter highlights on slide 4, we are pleased with the results and consider this another solid quarter of growth for Orion, particularly given the persistent headwind we continue to face in this low oil price environment and its impact on our feedstock costs. These solid results come from volume growth, which continue to outpace the market. Robust cash flow and record results from our Specialty Carbon Black business while Rubber Carbon Black business performed reasonably well in a very tough market. The takeaway here is that our strategy of emphasizing higher value, more profitable carbon black products continues to deliver the results we have targeted for growth and for profitability. This was the second quarter in a row were we grew volumes by approximately 10%. Sales from the newly acquired Chinese facility helped bolster these figures but even absent these new Chinese sales, our organic growth was 4.9%, a figure in line with our strategy to maintain global leadership in specialties and grow at or above the regional markets in our rubber black business.

Adjusted EBITDA increased slightly to EUR54 million in the first quarter of 2016 from EUR53.9 million in the strong first quarter of 2015, during which oil prices were high relative to today. Sequentially, our results improved by 6.1% from EUR50.9 million in the fourth quarter of 2015 on stronger performance by both businesses. Our adjusted EPS was EUR0.28 per share. In keeping with the capital allocation strategy we discussed with you last year, we voluntarily repaid another portion of our debt and continued our stock repurchase plan.

Slide 5 provides detail on the product mix for both businesses in our key market regions. We also show the positive long-term performance trends for these businesses. Please note that our specialty carbon black business accounted for slightly over 21% of our volume in the first quarter of 2016, a level consistent with that seen over the past few years. But the business's adjusted EBITDA has risen sharply as a percentage of our total, increasing to a record 64% of total adjusted EBITDA, this is up from 53% in the prior year on a combination of strong results with specialty and the headwinds faced by the rubber black business. The twin charts show gross profit per ton and adjusted EBITDA margin for our two businesses over time. Our specialty business continues to improve on its prior impressive results as it builds momentum, but please note that adjusted EBITDA margins for both businesses have continued to improve over time as a result, among other factors, of our ongoing strategic intention to shift to higher value-add products, including shifting capacity to specialty production and moving rubber volumes to more technically unique grades, including those sold to the mechanical rubber goods industry. Of course, we remain committed to productivity improvements, which have been especially critical to improving the performance of our rubber black business. Our sales are not so diversified around the globe and with the addition of our new plant in Qingdao, we improved on this measure considering the growth of the markets in Asia-Pacific and especially China.

Let's turn to slide 6 and discuss the rubber carbon black business first. Rubber Carbon Black volumes increased to healthy 8.4% to 218.7 kilotons in the first quarter of 2016 of which about three quarters of this increase came from sales via our recently purchased facility in China, which added 12.6 kilotons to our total volumes. Absent this contribution, volumes still would have grown at slightly over 2% or roughly in line with projected worldwide GDP growth for the period and that expected in our targeted regions. By geography, we grew sales in Europe, Korea and South America while South Africa saw values decline. The US also declined due to slower demanded at some accounts in the first quarter relative to a strong 2015 first quarter and a deliberate shift in product mix to more value-added grades.

Revenue declined by 22.5% to EUR149.2 million on the resulting pass through of feedstock cost to our customers. Gross profits also declined falling 16.7% from EUR43.6 million to EUR36.3 million due to negative feedstock impact and to a lesser extent unfavorable foreign exchange translation effects, which was partially offset by our volumes in China. The differential experience between product pricing and the real cost of feedstocks was EUR2.8 million for the quarter. We expect to see this impact improve as we move through the year. While adjusted EBITDA in our rubber carbon black business decreased this quarter dropping to EUR19.5 million as a result of the negative feedstock cost development, we held the adjusted EBITDA margin relatively stable at 13.1%. The stability in the adjusted EBITDA margin is both a function of the decline in reported revenues due to the pass through of lower oil prices as well as our ability to manage our gross profitability effectively as a result of these lower oil prices. We announced in March of this year that our rubber carbon black business would be implementing a surcharge based on the feedstock cost that we are experiencing especially those in Europe, which was to be effective April 1. We've gotten some traction with this initiative and expect to see some positive impact on our margins as we move into the next few quarters. Cost negotiations continue, however, and while we are optimistic given the sensitivity of this matter, we will not comment further on it at this time. Further, it would be premature for us to make any assessment as to how these efforts will play out over the course of this year.

Now let's move to our Specialty Carbon Black business. Turning to page 7, as you can see this business clearly had a great quarter with record results on a number of key metrics. Volume in the first quarter of 2016 increased 15.7% to a record 59.2 kilotons versus 51.1 kilotons in the prior year with volume growth occurring in all geographic regions. Growth was particularly robust in NAFTA and Korea with NAFTA benefiting from strong sales of Polymers, coatings and inks. Korea benefiting from strong regional demand in many smaller market sub regions that benefited from our ongoing global investments to strengthen sales and technical support to increased penetration of our new products and product extensions.

Revenue declined only slightly, falling 1% to EUR97.1 million as strong volume growth, almost completely offset the negative impacts from price declines resulting from the agreements where we pass along feedstock cost to customers and some smaller impact from regional product mix. Gross profit for Specialty in the quarter rose a strong 16.7% to EUR45.3 million as our gross profit per ton remained quite stable at EUR765, a strong testament of our ability to manage price effectively in the face of lower feedstock cost. The leverage produced by growth and active class management resulted in adjusted EBITDA surging 20.7% to a record EUR34.5 million compared to EUR28.6 million in the prior year's period. Our adjusted EBITDA margin also improved, rising to a record 35.5% from 29.1% in the first quarter of 2015. I think it's worth re-emphasizing, that this steadily growing and highly profitable side of Orion accounted for almost two-thirds of our adjusted EBITDA in this quarter. I'll now turn the call over to Charles, who will begin with an overview of our consolidated performance.

Thanks, Jack. And let me also wish everyone a good morning. Turning to slide 8, and our consolidated first quarter results, as Jack stated, our volumes increased by 9.9% or 24.9 thousand metric tons from the prior year to 277.8 thousand metric tons of which OECQ accounted for 12.6 thousand metric tons.

As has been the case for some time, we grew volumes in both our businesses in the first quarter of 2016 and we remain optimistic that our growth initiatives in tandem with attractive end market demand will allow us to continue to do so in the future. Faced with sales price declines resulting from the pass through of lower feedstock costs, our revenue accordingly declined this quarter by EUR44.1 million or 15.2% to EUR246.3 million from EUR290.4 million last year.

The strong performance of our specialty carbon black business produced a 4.1% gain in our overall contribution margin to EUR114.2 million in the first quarter of 2016. This was EUR109.8 million in the prior year's period. As the waterfall chart on the right shows, volume led by specialty carbon black was the key driver in the quarter of the contribution margin improvement, more than offsetting differentials and currency headwinds. We delivered adjusted EBITDA of EUR54.0 million representing a slight year-over-year increase, but on adjusted EBITDA margin of 21.9%, an increase of 330 basis points above last year's first quarter.

Referring to the second waterfall chart on the right, adjusted EBITDA was primarily boosted by the contribution margin increase, which was offset by the sales support investments we made in Asia and fixed costs associated with the newly acquired OECQ. Lastly, our net income in the first quarter 2016 was EUR13.4 million, down 9.4% from EUR14.8 million in the prior year's quarter. As the final waterfall chart on slide 8 illustrates, higher depreciation and non-recurring items fully absorbed the positive impact of lower financing costs.

Let's turn to slide 9, which reviews our first quarter cash flow dynamics as well as covers balance sheet metrics. As we demonstrated every quarter since we've been public, we're a strong cash generator. In the first quarter of 2016, we generated EUR60.1 million from operations, which includes a EUR16.9 million contribution from a further reduction in our working capital. Our uses of cash flow this quarter, which include capital expenditures, interest payments, required debt repayments and dividends total EUR44.7 million giving us available free cash flow of EUR15.1 million. This excess provided us with ample flexibility to voluntarily repay debt of EUR20 million and repurchase approximately 300,000 shares of our stock.

Turning to our balance sheet, net working capital totaled EUR172.3 million as of March 31, 2016 compared to EUR183 million as of December 31, 2015. Days of net working capital at the end of the first quarter were 64 days flat with the year-end figure. As of the March 31, 2016, the company had cash and cash equivalents of EUR57 million, which represents a decrease of EUR8.3 million versus December 31, 2015. The company's indebtedness as of March 31, 2016 was EUR623.9 million and our net indebtedness was EUR577.1 million, which represents a 2.78 times LTM EBITDA multiple, down from 2.89 in the previous quarter.

Our goal remains to steadily reduce this multiple over the next several years through a combination of free cash flow and adjusted EBITDA growth. As a reminder, the noncurrent debt chart on the bottom right corner of this slide is designed to illustrate the fact that some of our debt is denominated in US dollars, but reported in euros and thus gets revalued every quarter as these currencies fluctuate. So while our debt appears to have risen at times over the past year, the increases were in fact accounting adjustments due to changes in the value of the US dollar.

Moving on to 2016 expectations, slide 10 provides you the macroeconomic assumptions we are using as recently provided by the IMF World Economic Outlook database. The regional forecasts here are unchanged from those we provided on our last call. To recap, with the exception of Brazil, our remaining markets are all expected to see moderate to good GDP growth in 2016. The same holds true for the autobuild numbers that are shown in slide 11, as they are all still expected to largely track regional GDP growth rates.

Turning to slide 12, which represents our guidance and our cash flow analysis for 2016, while we have seen a slight improvement in the oil and feedstock pricing environment over the past couple of months and we have started the year with good first quarter results. We are holding to the 2016 EBITDA guidance range of between EUR205 million and EUR225 million that we provided on the fourth quarter conference call. At this point in the year, though there is still uncertainty ahead for example, in oil and feedstock pricing in the outcome of the price negotiations underway with our European customers as well as in global economic conditions, this in our view calls for taking a wait and see approach as the year unfolds.

In terms of other full-year guidance metrics, we continue to target a 35% tax rate as well as depreciation and amortization of EUR60 million and EUR20 million respectively. For capital expenditures, we now project EUR60 million. I will now turn the call back to Jack, who will provide some comments on operational priorities for 2016 and discuss our responses to ongoing oil price deflation.

Thank you, Charles. We remain focused on the operational priorities discussed with you in the past and listed on slide 13. Even though oil prices have recovered some over the past few months, they remain at a level which requires us to continue actions to offset the impacts of this low oil price environment. These responses continue to include shifting lower value grades and capacities to higher value products and maintaining focus on improving raw material efficiencies while streamlining our production network.

We are encouraged that our surcharge in Europe is finding some traction, also the market environment is looking a little better with the US showing strength in replacement tire demand not seen in quite some time. Integration of our facility in China is going well with performance in utilization at or above our expectations. And our specialty business continues to excel in all measures continuing to push Orion's product mix to more technically complex products.

In summary, we continue to be optimistic about our ability to profitably grow volume in both of our businesses based on the confidence we have in our team and strategies it has developed to improve yields, increase operating efficiencies and transition to higher value added products. We will drive innovation and maintain leadership in our specialty carbon black business as it continues to be our major engine of growth and profitability.

And we will manage the headwinds faced by our rubber carbon black business remaining focused on optimizing our production network, maximizing our profitability as we maintain share in our target markets. As always, we wish to thank our investors for their confidence in Orion and all of our employees for their hard work during this past quarter.

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

(Operator instructions) Ivan Marcuse, KeyBanc Capital Markets.

A couple quickly, is in the specialty businesses I understand that you are looking for above market growth, but the 16% was I would imagine multiples above whatever the markets have been growing. So how would you differ - if you look at the volumes on a year-over-year basis, how much of that was growth out of your traditional markets versus growth out of the initiatives that you've been talking about the past year or past couple of years if there is any way to differentiate that?

It's a good question Ivan and is a little hard to differentiate the difference between the two. I mean, what you are seeing is really a result of a lot of initiatives that have come in to pass. I mean, that is a spectacular growth of that particular quarter and I wouldn't pretend to say that we will continue to grow it that way going forward. I mean, we're committed to growing at greater than market rates, which that's a great headstart on 2016 to beat the markets for the year. But I would say, it's a culmination of a number of things. As you know, we've converted some capacity which we've put into play right now into our specialty markets. We've been pursuing some particular initiatives for growth in the polymer industry, particularly in Asia-Pacific, which have come to pass very nicely for us. And we've put a lot of new people in locations, which heretofore we did not have such as Southeast Asia, South America and so forth and those are beginning to pay off as well.

So maybe it is a bit of a step occurring because some of these things came together very nicely after the first of this year, but distinguishing between the different areas is something I'm not prepared to do right now. But I would say, it was a great quarter for that particular business.

Great. And then did you see any - I guess, within this business or rubbers for that matter, did you see any increase in volume demand or order patterns as you moved through the quarter as oil started to rise, so I would suspect that you saw a little bit of destocking in the first half of the quarter versus re-stocking in March and then maybe heading in April as oil accelerated or did you not see any impacts from that?

This may be a little bit, Ivan - stocking/destocking typically is not a huge issue in our business. You see it a little bit in some of the specialty products particularly in the distribution network, it is a little difficult to do in the rubber black business just simply because of the volumes and the need to manage that supply chain. But perhaps we saw a little bit of it as oil began to rise in that distribution chain, but I don't think it was a major factor certainly not the volume for that growth rate in the first quarter.

Great. And then switching over to the rubber black side, did you see within the Americas, North-South, as expected Brazil remains pretty weak. Did you see growth in the US and what were the volume trends in the Americas South and North?

I think the whole South American story has been told and retold. It continues to be pretty slow. Our business down there has picked up as we moved into 2016 with a smaller player there. So a little bit of change can make a big difference for us. So our operating rates for our facility in Brazil has actually moved up into the 80s now, utilization rates. So that's okay for us, but we can see that generally the overall demand trends in South America are pretty lackluster. Looking at North America, particularly the US, we do see some demand, it started out a bit slow, just thinking about the quarter as it unfolded January was a bit slower than what we thought, but as we moved through the quarter it began to tighten up. Currently, our operating rates in the US are pretty high right now, probably the highest operating rates we have are actually in Europe. But it's strengthened as it has gone through the quarter and I think it's a little bit associated with the replacement tire demand beginning to finally loosen up, some of the latent demand in that market seems to be coming to play as we move through this quarter.

Great. I know you don't want to comment on the surcharges but I guess I'll ask a question anyway, how much of the volume in Europe for you is, I guess, spot or contract or a business that you could actually - the surcharges would actually impact if at all through the years, is it 10% of your business or is it 50% of the business so I know most of it is contract, correct?

You're correct, Ivan, I really would prefer not to comment on it.

Okay. And then last question. It is probably more for Charles, in your cash flow guidance on slide 12, as you talk about net working change being zero, what's the base of oil that you are using there? So I understand that $10 up and down impacts it. If you look at zero, should $40 be the number then $10 up and $10 down?

Yes, a little bit less than $40 actually, Ivan, and so if oil continues to kick up a bit, we will see some cash [lumped] into working capital in the dimensions that that you already referred to. But we modeled the projections and still do on the average oil price that we saw in Q4 of last year moved around a lot. That's why we decided to average it at the high 30s. So there might be a bit of absorption of working capital as Q2 unfolds.

I guess building on that and it's truly my last question, so if you look at your free cash flow for the year your expectations, there's nothing else in there except for take, I guess, the EUR200 and some million that you're looking to generate in EBITDA and then subtract EUR95 million and that should be pretty much what you're expecting in free cash flow again this year?

Yes and then out of that, our regular dividend which we're very committed to, with some additional CapEx and we look at our debt levels as we did in December.

John Roberts with UBS.

All of my questions have been answered. Thank you.

(Operator instructions) Charlie Webb, Morgan Stanley.

Just a couple from our end, firstly on the Asian sales support drag of EUR2 million on the EBITDA, just kind of getting an idea of how long we should expect that to continue, is EUR2 million a good run rate as we move through the year? That's the first question. And then the second question a bit more high level around the oil price, if we see the oil price steadily grind higher, what should we think about in terms of gross margins and the raw material differentials for the business?

Let me have a go at that and Charlie and Jack would chime in I am sure. On Asian sales support, remember that it's a bit lumpy, and you've said dragging down EBITDA realizes our investments in Asian sales support is partly driving, significantly driving the spectacular performance we've had in specialties. So we'll dose in technical sales support anywhere in the world, particularly on the specialty side where we expect to get a good payback. And so it's somewhat lumpy, that just happens to be the comparison of Q1 to Q1, but that is a fairly large step for a quarter change. I wouldn't expect to see that certainly every quarter, no. But we like that investment in the sense that it really allows us to maximize the performance of our businesses.

Commenting on the oil prices, oil prices in and of itself has couple of different impacts on the businesses, so clearly if oil arises the impact on specialties it could begin to compress some of those margins, but we've been pretty capable of passing on those prices and holding onto them if they go forward. So how that works out, has a lot to do with the competitive dynamics of that specialty market. But other than that, I don't like to think I could comment on it a whole lot more.

In the rubber business, oil price in and of itself rising is not the factor. It's the impact that oil price rises with respect to different types of movements in oil price, the differentials, the freight, the arbitrage opportunities and that sort of thing that's hitting and then when you get into that,, you get into a whole lot of speculation. In and of itself, a rising oil environment because of the way the oil has behaved in the past, if we use that as the pattern going forward, we think it's net-net better for us, better for the rubber business, because it does give us more opportunities and more flexibility to buy and tap different types of feedstocks for our facilities. Quite frankly, also as oil price rises, it gives us a little bit more of a boost in some of our energy sales, because as you know, we cogenerate quite a bit and our cogeneration revenue will depend on the price of oil. So there is some upside there as well. But giving you a rule of thumb would be very difficult at this point in time.

I mean, Charlie, just to remind you, we have said in the past just to sort of echo what Jack has said, in the specialty space, we would expect if oil goes back to whatever 90 that our EBITDA margin as a function of revenue will come down. But that has nothing to do with our absolute EBITDA earnings and our ability to recover price increases from the market as oil moves up. So the margin is something we obviously provide and we comment on, but it is by its very nature it has that function with oil price.

Chris Kapsch, BB&T Capital Markets.

I had to follow-up on just the commentary that you're the feedstock differentials had improved a little bit. The curiosity I have is if that's more a function of oil prices recovering and therefore I guess some of the past through indexes doing a little bit better or is it more a function of the availability of your feedstocks maybe which greater availability or they need better pricing or I guess the small sector be this one that you just mentioned Jack that co-Gen credits looking a little firmer. Just wonder if you could elaborate on which is driving the improvement sequentially in feedstock differentials. Thanks.

We had said as we've gotten close to the end of last year that we had seen a relaxation of feedstock differentials and I guess from a relative standpoint we're speaking here of improvement over the worst conditions that we saw, which were literally in the second and third quarter of last year. Some relaxation in the fourth quarter of last year, which we said we thought we would continue going into the first quarter of this year and that's what we're really referring to. So we have seen some of that. I think what drove again the relaxation of differentials from, say, mid-year last year to now is just a bit of the - I guess the oil markets have a tendency to kind of find more of a stable position than what they have, there was a real dislocation with the fall of oil last year, which puts this differential in place because of the excess demand of product from the Gulf Coast and the few other things that occurred at the same time. Some of those things have sorted themselves out in the system now, which has brought this relaxation in differentials. However, having said that, there's still that EUR2.8 million that we experienced in the first quarter of 2016, is still a pretty stiff headwind for us as we sit back today and a lot of that is associated with just simply the differentials between what we buy and then what we pass along to the customer and that's what we're trying to sort out right now with some of this surcharge activity that we have going on.

Is there a region where the differentials have improved more than other regions where they may haven't improved this much?

Actually, the US has improved versus prior year. We've seen those come back a little bit. So the US and Gulf Coast differentials have gotten a bit better. Some of the European differentials continue to be pretty, pretty difficult.

and then if I could ask about the businesses that you folded in or acquired now in China. Couple things, one, if you could just talk about the business trends in China how that looked may be sequentially through the quarter? And then, I think you have talked about this business as one that you wanted to shift over more towards specialty over time. Could you just talk about what that mix of that business in China is currently and what maybe what the asset utilization rate is currently?

Yes, the facility was and is dedicated to more high-end rubber black products and we've begun to move into some of the specialty, some of the non-rubber applications with that plant since we've acquired it. The large majority of the material that's produced there is not commodity ASTM grade but more tapping into the mechanical rubber goods in the high-end mechanical rubber goods. t is a premium plant for producing that type of material in China and as such it has a tendency to follow more the auto build in China than it does just the replacement market, which has more of a tendency to [inaudible] commodity materials for their raw materials. So while the auto build remains okay in China, it's not growing leaps and bounds, but it's still very large. That plant has maintained a fair degree of capacity utilization. Having said that, we also are beginning to move to bring it into some of the specialty products right now. I really would rather not comment just how much we're doing there at this point, but it's a fair percentage and it's one that we intend to grow to a substantial part of its capacity as we move through 2016 with pretty strong plans to have a fair position there in 2017 particularly in the polymer and in the printing inks markets.

And Jack, any comment on just the sequential demand trends in China during the course of the March quarter? Thanks.

It's running roughly at the same utilization rate that it was at last quarter I mean, we've got two quarters of ownership at this point and we have historical data looking backwards, I would say it's running really at the same rate. No trends up or down really.

(Operator instructions) John Roberts, UBS.

Simply raising the price in rubber black helps, but I don't think it's going to give you - structurally solve your issue of basis differential or divergence here. Are you working on any structural changes to the pricing model with the rubber black customers, maybe something like a year-end true up to or I don't know what else you might be thinking of?

John talking about processing and this kind of approach is always a little touchy. Let me just comment on what I can comment on there. What we're doing right now with the surcharge is simply trying to address some immediate issues that we have with the dislocation or imbalance between the purchase price and the sales price of our products. But I think we and I believe a good part of our customer base recognize that this is just a temporary patch that indeed we need to have some sort of structural change. And as we move into our contract season, which will begin shortly for 2017, I mean, this is likely, not likely, it will be very, very high on everybody's priority list to see what we can do to actually deal with this. A true up at the end of the year maybe not, but probably more likely a better recognition of what's going on with differentials and a mechanism that really wouldn't want to go into right now, that would give better transparency and better look through opportunities, because at the end of the day, our customers want to know that our formulas are behaving like we want them to behave, which is a pass through. I mean we're not in the business necessarily of speculating on oil or energy. What we would wish to do is make money on what we do well, which is efficiency capabilities in the sale of products around the world. But what we'd like to have this is a true pass through mechanism in our formulas. So we made that very clear. I had these discussions myself with many of our customers and they seem to understand that. So that's I think is spot on. A patch is not going to be the solution, it's got to be a structural change in the formula to make it more through pass through.

But one of their primary objectives, I assume is to be able to hedge their cost and therefore we have to stay linked to some financial hedgeble fuels benchmark prices, I would assume. And so there have to be some sort of lag mechanism I would assume, so that they don't want to be surprised in the short term and they want, I think, to be able to lay off some of the raw material risk to the financial markets is that fair to say?

Maybe I personally have not seen a lot of activity from a customer base in hedging carbon black, there may be a lot of hedging going on with natural rubber and synthetic rubber but I personally haven't see it in carbon black.

So you don't think that since their prices linked to hedgeble fuel contracts, you don't have they actually use that to hedge?

I don't have any personal experience within the tire company. I'm just telling you that I haven't seen or have been witness to that in those companies. We have had several conversations with many of our customers about their wish or I guess their exploration of that particular mechanism, but I've never seen it come to fruition at least not with our involvement.

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

Okay, well thanks. Thanks for joining us today and for your questions. We hope you'll agree with us that 2016 is really off to a very good start and that the results that we've given you give you a good reason to share the optimism we have about our Company and about its future. We believe that we're nicely positioned in this great business and think that this viewpoint is becoming more widely accepted with every quarter's results like the good results that we had this quarter. We appreciate your interest in Orion. We look forward to speaking with you again. We will be doing that when we report on our next earnings at the next quarter in early August.

So again, thank you for your attention and have a good day and a good weekend.

Thank you very much.

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