Orion Engineered Carbons S.A. (OEC) Q4 2014 Earnings Report, Transcript and Summary

Good morning and welcome to the Orion Engineered Carbons, Fourth 2014 and Full Year 2014 Financial Results Conference Call. Management will be utilizing a slide presentation for this call, which is available now to download on Orion Engineered Carbons Investor Relations page at www.orioncarbons.com. Today’s call is bring recorded and we’ve allocated one hour for prepared remarks and Q&A. All participants will be in a listen-only mode. [Operator Instructions]. At this time I would like to turn the conference call over to Diana Downey, Head of Investor Relations at Orion. Thank you, you may begin.

Thank you, operator. Good morning everyone. We issued 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 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 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 2014 fourth quarter and full fiscal year earnings conference call. I’ll begin today’s call by providing highlights from the fourth quarter and full year and will then turn the call over to our Chief Financial Officer, Charles Herlinger, who will provide more details on our recent quarterly results. Finally, I will comment on the broader industry trends and our outlook for 2015 before opening up the lines to take your questions. Beginning on slide three, we are very pleased with our results for the fourth quarter and the full year. We continue to successfully execute our strategy to grow our Specialty Carbon Black business and improve our Rubber Black business by growing in our markets, while marketing is improving our EBITDA margins. Doing this while providing the highest level of quality and service to our customers around the world has been the challenge as the Orion team has embraced and thus for accomplished. During the fourth quarter 2014, it grew adjusted EBITDA a contribution margin by double digits and generated a strong cash flow from operations of 60.2 million Euros and free cash flow, that is cash flow from operations less investing activities of 32.9 million Euros. For the full year our operations generated 172.4 million Euros in cash, exceeding our earlier expectation, which resulted in a free cash flow of 108 million Euros. We believe these results clearly demonstrate the effectiveness of our business to adapt to rapid and unexpected changes in the cost of energy. We also continue to benefit from our broad portfolio of products using a strong, geographically balanced customer base. In spite of dramatic changes in the price of our feedstock oils, we achieved our financial targets by maintaining margins, leaving customer demand and managing costs. This robust business model and our focus on cash management enabled us to pay our first dividend of 40 million Euros in December or 0.67 euro per share. We will continue dividend payments of some 10 million Euros per quarter in 2015 for each in the four quarters with the first payment in April of this year. Turning to slide four, our fourth quarter volumes were 239,000 metric tons, a 4% increase from the prior year, which we believe exceeded the growth of our relevant markets. We increased volumes in Rubber Carbon Blacks primarily in the America’s. In Specialties we grew volumes more broadly as we continue to expand our sales presence and technical marketing support in areas which were previously under served. We generated revenues of 316.8 million Euros and more importantly increased contribution margin by 10% or 9.4 million Euros to 103.5 million Euros. Our quarter saw strong movements in all our price and currencies and increased customer uncertainty caused by a number of geopolitical events. Nevertheless Orion’s adjusted-EBITDA increased 11.4% year-over-year to 48.4 million Euros, which placed us at the top end of our guidance for the full year of 2014. The increase reflects the impact of our initiatives to broaden ourselves and to improve the efficiency of our operation, resulting in strong increases in contribution margin per metric ton and improved volume as our team again did a good job in managing costs. The improvement in this business is evident as we continue to move the adjusted EBITDA margins of the entire businessupby 140 basis points to 15.3% from 13.9% in the prior year quarter. In turning to slide five, we were very pleased with the results and our ability to deliver on the guidance we gave you when we went public last summer. Total volumes were 990.9 kmt, a 2.3% increase from the prior year. We generated net sales of 1.3 billion Euros and contribution margin increased by 5.9% or 23.3 million Euros, up to 419.7 million Euros. Despite increased volumes revenue declined by 1.6%, mainly as the result of lower oil prices and mix impacts. We reiterate that in a business that has affected energy pass through mechanisms revenue was not such a reliable guide to performance. We know that the contribution margin has the most accurate view of performance. Adjusted-EBITDA increased again this year up by 8.6% year-over-year to 207.7 million Euros and adjusted EBITDA margin moved up by just under 1.5 percentage points up 15.8% from 14.3% in the prior year. I’ll now turn the call over to Charles, who will go over our result by segment in more details. Charles.

Thanks Jack and good morning everyone. As shown on slide six, our Specialty Black Segment volume increased by 3.5000 metric tons or 7.7% to 48.8000 metric tons in the fourth quarter of 2014, from 45.3000 metric tons in the fourth quarter of 2013. This increase in volume was represented by increased demand in Europe and the Americas. Adjusted EBITDA of the Specialty Carbon Black segment slightly declined to 20.2 million Euros in the fourth quarter of 2014 compared to 21.5 million Euros in the fourth quarter of 2013 in spite of stronger contribution margins, as the low margin costs rose due to our investments in additional resources to sales projects and technical marketing support throughout the globe. The adjusted EBITDA margin declined to 21.4% from 23.7% in the prior year period, consistent with our strategy of developing volume growth or maintaining stable margins. While this adjusted EBITDA margin is below our historic averages for Specialty Carbon Black, it is not uncharacteristic of the decline we usually see in the fourth quarter when customers are winding down operators for the year. Further it reflects our investments to growth of stable margin in the future. Turning to slide seven, our Rubber Carbon Black segment volume increased by 5.6000 metric tons or 3% to 190.5000 metric tons in the fourth quarter 2014, from 184.9000 metric tons in the fourth quarter of 2013. This increase was due to an increased demand in North America, which was offset by somewhat weaker demand in Europe, Brazil and South Africa. Adjusted EBITDA of the Rubber Carbon Black segment increased by 6.3 million Euros or 28.3% to 28.3 million Euros in the fourth quarter of 2014, from 22 million Euros in the fourth quarter of 2013, reflecting the benefit of gross profit development, taking into account the elimination of changes in depreciation. Adjusted EBITDA margin grew 270 basis points to 12.7% compared to 10% in the prior year period. Moving to slide eight, I will provide an update of our balance sheet and cash flows. As of December 31, 2014 the company had cash and cash equivalents of 70.5 million Euros. The company’s non-current growth indebtedness as of December 31, 2014 was 670.2 million Euros, mainly comprising the non-current portion of our new term loan liabilities, net of transaction costs of 669.8 million Euros. The Dollar denominated portion of this loan increased during the fourth quarter when converted to Euros based on the year end 2014 closing exchange rate. Current liabilities to banks as of December 31, 2014 totaled 9.6 million Euros. Net indebtedness was 621.7 million Euros. Cash inflows from operating activities in the fourth quarter of 2014 amounted to 60.2 million Euros consisting of a consolidated loss for the period of 8.3 million Euros, adjusted for depreciation and amortization of 20.0 million Euros, as well as cash and non-cash finance costs of 23.4 million Euros impacting the net income, and a decrease in net working capital of 24.9 million Euros, primarily associated to receivables that reflect the beneficial impact of declining oil prices. Net working capital totaled 219.7 million Euros at December 31, 2014 compared to 255.5 million Euros as of September 30, 2014. Our days of net working capital continue to reflect our focus on cash management and supply chain control, ending the year at 68 days. Cash outflows for financing activities in the fourth quarter amounted to 46.4 million Euros and comprised of dividend payment on December 22, 2014 of 40 million Euros, repayments of local credit facilities of 9.6 million Euros, repayments on the new credit facility of 1.7 million Euros and interest payments of 9.5 million Euros. Cash flow from financing activities was positively affected by cash received from realized gains from foreign currency derivatives of 13.5 million Euros, representing short term foreign currency hedges against the U.S. dollar portion of our term loan entered into concurrently with the IPO. Effective with year end of 2014, these short term currency hedges have not been renewed. I will now turn the call back to Jack, who will provide some additional color on our key markets and geographies and then finish up with the outlook.

Thanks Charles. Now please turn to slide nine, I would now like to provide you with an overview of the markets as we see them today and how we see them developing in 2015. North America continues to be a strong market for Orion and we believe it will strengthen during the year. Falling fuel prices has had a direct impact on miles driven, the housing markets are continuing to recover and with the recent tariff imposed on certain imported cars, demand for Carbon Black is expected to be strong. Our facilities in this region have been running very strong and are near the capacity limits. We announced car company investments and U.S. production capacities are proceeding at pace. In Europe the economy is not as strong as in the U.S., but it’s slowly recovering in line with our expectations. The market for our Specialty Carbon Blacks produced in this region have remained strong, while global demand for products produced in Europe continuous to grow. After closing our plant in Portugal, we drove the business in other facility, which tighten our capacity utilization in the region. Our substance for Rubber Blacks in Asia is concentrated in Korea. Here we have been seeing signs of slower growth as some of our customers start the tide of stronger currency and Chinese competition. The Asian Specialty Carbon Black business remains strong and has been bolstered by a build of these resources in the region; although Korea did see some slow down again as a result of currency headwinds. Nevertheless we have had a very strong mix of premium products driven by our sales push, which we believe will continue to positively impact adjusted EBITDA. As mentioned earlier and discussed in our last earnings call, China’s prior import duties are being implemented at levels that unlike any of those products are competitive in the U.S. There [indiscernible] tied into America at year end and this profit at January is our customers that serve the Tier II and Tier III levels were hurt by imports attempting to get in under the wire. We are not sure how long it will take to work down this inventory, but I do not see a lasting pat the next few months. The Chinese car industry is quite large, so we have to be aware that some of these volumes will show up in other regions that we serve. We are likely to experience some higher imports into the U.S. of cars from other Asia Pacific countries besides China, exiting during the previous position of duties, but it is too early to determine how this will play out. We will update you however on our view as let’s say the year progresses. Finally in South America and in South Africa demand remains weak. Despite having only one plant in Brazil we have been able to keep operating rates fairly high and our exposure is therefore is struggling, the economy has not materially affected our business so far and now the South African economy remains weak. We expect our business in the region will deliver results consistent with the recent past. On slide 10, the main takeaway here is that our major markets remain relatively stable. There continues to be strong succulent growth trends in North America and Asia Pacific, while Europe although weaker is experiencing a slow recovery, which we hope to see strength in 2015. Turning to slide 11, as you’ve heard we are satisfy with our results for the quarter and the full year 2014. As we move into 2015 we continue to execute our strategy and deliver the results and the efforts we outlined and we went public in 2014. Our key markets are performing in line with our expectation and we’re benefiting from the initiative we put in place to grow contribution margin and control expenses while generating robust cash flows. Looking ahead to 2015, assuming the market financial environment continues according to our expectation. We see full year adjusted EBITDA to come in between 210 million Euros and 225 million Euros. Under these assumptions we also expect another strong year of cash generation, with an effective tax rate about 35% consistent with the prior year. With that operator please open up the line for question.

Thank you. [Operator Instructions] Our first question comes from the line of Kevin Hocevar with Northcoast Research. Please proceed with your question.

Hey, good morning to everybody there. Congrats on a nice quarter.

Thanks Kevin.

In terms of – one of your competitors mentioned that they lost 15% of their market share in the U.S. and I was wondering if you are picking up any of this and if so, could you help us understand what type of benefit that could be in 2015?

Yes Kevin, we’ve talked about our volumes for the year and for the quarter. It’s easy enough for us to say that we believe we’ve grown at a greater rate than the market in that particular area, with any further speculation of how much share shift there was between competitors. I think its kind off limits for this call.

Sure, okay and then looking at your FAQ slide a little later in that presentation, why was the oil price windfall benefit smaller in the fourth quarter compared to the second and third quarters and what are you are expectations to the earnings impact from lower oil prices in 2015?

Hi Kevin, it’s Charles. I mean what happened we think is – we know how was the oil falls in the fourth quarter was obviously rapid and pronounced and the speed of the falls accompanied with particularly in December where you in the second half of December particularly, in Europe and U.S. have been shut down meant that they weren’t necessarily the sales available to take advantage of some windfalls. So long story short the two factors, the speed of change and the change over the December holiday period caused that effect. Obviously we’ve seen some folds of this magnitude before, so to speak in 2008, 2009 was a very different, very different economic background. The learning for us at least is be profile and effects of each of these sort of seismic changes in oil prices at their own fingerprints and that was the fingerprints of this particular change.

Okay, great. And just a final question, could you update us on any progress towards compliance with the EPA in the U.S.?

Sure, I need to simply say it was sort of at the same situation we’ve been in the past. We’ve gotten discussions that are ongoing right now with the EPA, as well as discussions with our indemnifier that is ironic. Those discussions continue as they have been before. We are making progress on it now, but I would say that there is not a significant change in the circumstance from where we were the last time we talked.

Okay, all right great, thank you very much.

Our next question comes from the line of John Roberts with UBS. Please proceed with your question.

Thank you. I believe your sourcing folks are often able to find pockets of raw materials at significant discounts to the contract benchmark or the benchmarks in your contracts. When raw material markets are volatile like this, are there more opportunities than normal to do that or does the market become less liquid and therefore fewer opportunities to buy below the benchmarks?

Yes, great question John. There is a lot of moving part in that, because there is a lot of different types of raw materials. There is arbitrage opportunities around the world, there is coal based material, there is petroleum based material, steam cracker material, all of them, but then on different types of inputs and different types of freight rates. So yes, when there’s volatility sometimes the window is opened, sometimes they are closed. I would say probably the most interesting thing to comment on that is when prices fall typically business like ours, the cost of raw materials businesses like ours don’t see as much savings the energy initiatives that they on path. It’s not a material impact on us, but that would probably be the largest issue there. While with respect to greater opportunities and volatility, yes probably, but not such that it’s a situation that we look forward to. Our view is when we have stable raw material markets; it’s actually a better situation for us.

Okay. And then maybe as a follow-up, your business is largely currency hedged in Euros and even though you reported Euros, I assume that you could choose to be hedged in U.S. dollars if you wanted to, so that as the Euro weakened your Euro earnings will go up if you will and be relatively stable on a dollar basis. Is your European position just too large that that would be too expensive to run the business that way or would you just choose to because you report in Euros and like it to be stable from a Euro currency perspective.

Yes, I mean it’s just one of these discussions John that you can get into and never come out of the other side. But the up-short is what we wanted to do Max is two things: In each of our businesses, let’s take the major ones in Korea, the US, the Euro. We try to make sure that the cash inflows and outflows proceed through payments of those businesses, to the extent they are not in the local currency, which is the Euro in the case of Europe, the dollar in case of the U.S. etcetera. So both of that’s balanced and if they are not balanced we hedge on the balance sheet foreign currency exposures. That’s the first step we do and I think that’s pretty standard for most companies probably. The second point which I think is what you’re probably driving at more is when you take, you translate financial space in the U.S. or in Korea back to Euros, then you have an impact. I’m not aware, because while the company, while again in the farm industry the price is to hedge that, but that translation just gets very difficult to deal with. If we were a for the sake of discussion, a U.S. dollar reporter, that function currency, you’d automatically switch that around. In other words, the U.S. dollar, the financial status in the U.S. could already be in the home currency and you will be translating the Euro based financial statements to dollars. So I think that’s the big factor. In other words, it sort of from a translation point of view, which is the big effect for us it would automatically switch. It can switch to our function and currency.

Could you have a functional U.S. currency and still report it in Euros?

Yes, I believe so, yes.

Okay, thank you.

Our next question comes from the line of Duffy Fischer with Barclays. Please proceed with your question.

Yes, good morning fellows. Just a follow up on currency; when we look at your guide for this year, the 210 million to 225 million Euros, year-over-year how much currency benefit is there in that number?

Assuming that the dollar there, I think we’re primarily talking about the dollar associated with that. Considering the dollar, it’s about between 1.10 to 1.15 and 1.16. We expect a high single digit benefit; call it 7 million Euros or 8 million Euros, something like that. I mean a number of assumptions there and obviously it depends on the distribution of our business as you are well aware that had a little bit of magnitude. So that’s the measurements that come with you.

Okay, and then if Orion stays where it’s at, how much more or how many more dollars will we be able to take out a working capital do you think and push through cash flow this year.

Yes, it’s a good question. Let me just get into slight detail. Bear in mind our working capital leverage impacts about 22 [ph]. In fact I’ve now dressed that in the back of the presentation slides in the frequently asked questions. The two factors that obviously are oil and I think there’s another – we think there’s another probably 15, maybe 20, the timing of the specificity to judge million to go in terms of our year-end cash position alright. However what’s against that, it’s a smaller effect, but certainly it is the fact that working capital, whether its denominators in dollars obviously with a strengthening dollar increases it in terms of Euro. So that drives up the, if you like the Euro value of that working capital, so you got those two factors. But the bottom line above all, the bottom line is we expect a strong cash flow generation in the first half of this year, not only because of the business itself, but because of the factors we’ve just been discussing.

Okay. And then just the last one on tires in particular, obviously you guys have more insights than we do. Where do you think they are kind of with the destocking cycle? Obviously you don’t want to hold inventory if you think oil is going to roll at a slightly price. So is there more to go or how would you think about the timing of the inventory cycle for tires globally?

Listen, we do have a little bit more insight, just because of the information that we gain from our customers, so although there, I don’t think there’s total transparency with respect to their inventory and such, but just a sense of the order patterns as such I’d say that it could get a little bit on the regions, but the U.S. is kind of an interesting situation with the surge in ports at the end of last year, attempting to get in under a lot of these Chinese imports. We think that will play out over the next couple of months if it’s not already about to play out. Europe, my sense there is that the destocking is over. There is probably some place still, not with the target customers, but with smaller customers waiting to mark their store for lower prices, but that also given the recent rise in the price of oil is about to be over, so I think that that stock played out. In Korea, they’ve been through a significant destocking process, even through the last half of last year. At this point in time we don’t really see anything like coming from the volumes. They remain pretty strong and have no real indication of that. In Brazil, again kind of we’re the smallest player there, so what we see is our stocked supply chain that we are committed to and our customers committed to some time ago. There probably was some, appeared to be some at the first of this year, hopefully that’s planning itself out right now too. The big players of North America and of course in Europe and I think those aren’t that over.

Great. Thank you fellows.

Thank you.

Our next question comes from the line of Eugene Fedotoff with Keybanc. Please proceed with your question.

Good morning guys. Congratulations on a good quarter.

Thank you.

Well thanks.

If I look at your guidance, EBITDA guidance for 2015 and it seems like you use those options behind, maybe the midpoint of the guidance, continuing growth of GDP rate and stable oil prices, but can you provide a little bit more colors far as your risks, what will it take for you to come in at the low end of the guidance or at the high end of the guidance.

Well, let me comment and then Charles can take it from there. Of course that guidance is always going to be based on a set of assumptions and the first assumption is that’s going to happen with market demand and that’s going to be the largest driver. But as you probably know, make sure that the pricing that we have, it’s at this point. So statue is something that’s not necessarily at play or limit. All those out there in this competitive activity around, but largely we feel it’s like the biggest lives looking forward to pick me out in ‘15 with the market risk. There volumes could move up or down and we have a very bullish assumption and the rest of the assumption I guess in North America. We think that’s probably pretty solid and we’re operating the right track now. In the US they are very strong and we think they will actually strengthen as we get into the second half of the year. U.S. is probably a larger question mark for us. We think its recovering and we think recent actions by the ECD and so forth are going to continue to move those economies and hopefully continue a slow, but steady growth, but I would say from the market demand standpoint that’s probably the largest question mark that we have. Korea continues to be pretty stable. There are some currency headwinds in Korea, because that kind of stabilized as we got to the end of last year and hopefully we’ll continue to see that stable. And their currency is not necessarily the translation issues, but Charles will talk about just simply how our customers are willing to compete in those regions or I guess from a business standpoint that would be the largest issue. The second would be raw material changes in there. As you know we have a lot of pass through, mostly pass through mechanisms for not only feedstock, but our energy cost and there I think we’re fairly well insulated. I think just given the volatility that we saw last year and our ability literally to deliver, you know not only EBITDA, but also contributing margins in our current targets that we set up speaks to the sustainability of that business model. But there also could be very sharp changes one way or the other that could impact, and I think some of that could be on the up side, some of that could be on the down side and for the market as well quite frankly. So that is visible, the largest levels, that cost is fairly well in line and has been for the last seven years. We haven’t any [indiscernible] of five and even below margin cost and fixed operating cost. We’ve been fairly pleased with the management of that. But apart from that you might get into some of the things that Charles would touch on correctly in and...

Yes, but I mean we touched on currency. I think those are the main points Jack, the products, the business, the training commission.

Thanks for your time guys. Also when we look at tariff on Chinese imports for U.S. now and you talked about possibility that our Asian regions will supply that volume. So if you look at that, I know it’s still probably too early to say, but what kind of regional shifts you anticipate for global production and how would you benefit from those?

Yes, I think overall the U.S. will benefit from it. Last time we went through this process I think the tariffs weren’t quite depositing on this town. The tariffs are pretty high and I think it’s going to make most of the Chinese imports fairly uncompetitive. We do know that our customers are looking right now to fill some of those gasp. While I think some of the guys that have production in China also have production in non-Chinese, Asian locations and they will look to shift some of the imports into the United States from those Chinese facilities to other facilities. But the fact of the matter is when they do that, they will be shipping it to higher production costs and probably with higher price tags, which will make them less competitive. That being the case, yes we not only I think a diminishment of the Chinese materials coming in, because of the import tariffs, but you are allowed to see why the import did come in and likely it come in at a higher price, which is again likely to start it, some of the amount that they couldn’t hear it. I’m not trying to avoid your question about what particular impact that’s going to have. It’s just I think it’s a little too early to tell. The one thing I can’t say is, we think some Chinese tariffs are not going to push away all the imports of Chinese cars, which arguably are the majority of imported cars in the United States. There will be some leakage around into the revenue economies, but overall I think it’s going to substantially suppress the supply of those imports and I think it probably placed to the construction and start-up as we move Chinese facilities that have been debt in North America by the major car companies, some of which are Asian by the way, seeing that this is a trend that’s probably sustainable.

Alright thanks, and just a last question on your Specialty Black’s. You saw pretty strong volume this quarter. Can you talk about the developing initiatives that they were doing there about sort of what you achieved in 2014 and your goals for 2015? Thank you.

Again it’s a fairly complex business. It addresses a lot of different markets unlike the Rubber business, which is largely as you know the tire focused and the mechanical rubber focus and living by a largely automotive. And it was a business that really attacks all parts of GDP, how we are going forward. We have some great products. We have particularly products with the coating business, the plastics business and so we have continued to push those products, not only in areas that were previously underserved. As we pointed out in the past, our predecessor company didn’t really serve some of the regions of enrolment as well as we believed we could. So we’ve added a lot of technical staff, field support staff in areas which we really didn’t attack and you can see in the financials we commented on the investments that we’ve made in specialties to add that staff. That’s what we consider as the sales push, simply the products that we have to-date which are successful, very successful and the conventional and traditional parts of our markets being pushed in areas where we have been less represented. I’d say the other aspect is improving the same products that we have, as well as some new product development that’s underway right now. But all of those coupled together with what I would consider a stronger focus on sales and marketing, a higher degree of transparency because of the better systems that we have today, and quite frankly just a better more confident sales and technical staff that we’ve had over the last couple of years. They are really improving, but they are doing an excellent job of marketing the products that we’ve got and seeking the markets for the new products that are under developed currently.

Great. Thank you.

Our next question comes from the line of Paul Walsh with Morgan Stanley. Please proceed with your questions.

Thanks very much. Morning Jack and Charles. I have just a few questions if I can. On the gross margin developments, particularly in the Rubber Carbon Black business, I’m just curious to see how sustainable you think the recent gains are, how much is down to low oil and the temporary sort of dislocation between your selling prices and raw materials. Could there be any normalization or is this a new level in the fourth quarter from which we can expect to work from. And secondly, just on the Specialty Carbon Black business, you talked about some slightly high costs in the fourth quarter. I’m just wondering if you could expand on that and sort of what that means for 2015 and then maybe just some housekeeping for me if that’s okay. On the DNA, you are still expecting sort of around 80 million Euros in charge this year and on working capital you talked about 15 million Euros to 20 million Euros still to come from low raw material prices, but what’s the sort of general thinking around working capital in 2015. Is it a reduction of 15 million Euros to 20 million Euros or are you looking to hold it steady with underlying working capital outflows offsetting the oil effect. Thank you.

Let me tackle the first two, the Rubber margin and the Specialty costs first Paul and good morning by the way.

Good morning.

We set out to improve these rubber margins roughly more than 1.5 percentage points per year and we’ve proceeded well on that target, driven by not only expansions of our footprint, dealing with fixed cost, but more importantly dealing with the operating efficiency of the business. We’ve improved our raw material purchasing, our conversion, our yield conversion, our energy costs, cleaning out the system and that’s largely driven this margin expansion. So you can look to changes in the cost of oil, windfall here, windfall there, but that’s sort of a bit of a fraction considering what’s going on the fundamentals of the business, which is simply improved yield and better purchasing of raw materials. So I think yes, the question is, is it sustainable? I think we will continue to improve in the rubber margin with the initiatives that we have in place, as we move forward. The Specialty costs I mentioned to the previous questioner, that we had invested quite a lot in new people, in areas that we didn’t have the people pushing our specialty products before. We focused on lot of new efforts in our Chinese market, our South East Asia market. We’ve added staff in South American and we’ve added additional staff in traditional markets such as Korea, Europe and North American, and that’s the build-up of cost that we’ve had in that specialty. I don’t see us building at the rate going forward, but we built from ’13 to ’14 in that area if that’s your question. There could be some additional incremental costs, but there are not going to be a growth in cost for below margin expenditures for that of specialty that we’ve seen in the past.

Just to add to that point on Specialty value, as we look into this current quarter, you will see the numbers and that’s where you can find more tracks just for that mental [indiscernible] with businesses who need help when we look at the development of gross profit margin per ton. And so these effects on investment target expenditures effects that design to beat the business and empty it out. To your question about DNA, just a reminder. The $80 million of sales, $60 million is deprecation, $20 million is amortization of acquisition related intangibles. So I’m pointing that out because – just looking at this now we have very quick depreciation rates in this company and they are just actually undertaking a study of that in Q1. So we will come back to you on that, at the end of the Q1 into Q2, but we certainly did not expect deprecation to go up and they may well come down by a bit. But we will be more specific when we finish that study. Working capital days, I mean they are not the world’s most aggressive manager of working capital, the 68 days at the end of the year. We certainly want to hold it at that. We don’t do any discounting of receivables. Obviously we could get that number down if we wanted to, but that’s not what we think is productive for the business. We think that cash is going to free up Paul and to answer your question, I only think it’s going to be sucked in by other factors driving up working capital. So we think that’s real cash that we dropped to at bottom line and dropped to the bottom line of cash so to speak and a postcard for both 2015, that’s our expectation. Q – Paul Walsh: Can I just follow up gents on the guidance and it feels like a lot of the margin improvements, particularly in Rubber Carbon Black are just fundamental. I mean there’s nothing one-off about them at all and I’m just curious on the guidance. I mean if just take a base of 207 and at the currency gain you talked off of between seven and eight, I mean you are getting to the middle of that guidance already. And so even at the upper end it sort of, it doesn’t seem to be pushing the bar. So just curious as to how much conservatism you are baking into that guidance? So is there something I’m missing.

No it’s just that we are started the year Paul. You know as the year unfolds we expect to narrow that guidance and maybe there is still sort of very much have the mindset of reaching the IPO that we tend to give guidance, if anything make sure you hit the ground. So the manufactures early is the year, we like the way the year has started. We know that some companies don’t even give any guidance, that’s right. Obviously we want to be following in line the opportunities, the good performance in the market and we are trying to continuing to bring, build our track record in that regard. Q – Paul Walsh: That’s very clear. Thanks a lot guys. Well done.

Thank you. We have no further questions at this time. I would now like to turn the floor back over to management for closing comments.

Okay, well thank you very much for your attendance and your attention today. We hope that we’ve been clear in our presentation as we hope that you understand our business. We are very pleased of course as I said earlier about our progression I think of this movement of our overall business EBITDA margin up to nearly 16% from where we started this business sometime ago as a significant accomplishment. It’s on the backs of a continued great business and specialties; its 25% EBITDA margins and it continued march-up with EBITDA margin in Rubber Black. Depending on the development of the markets, we again feel very comfortable with the guidance that we’ve given. As Charles said a little bit earlier, as we proceed through the year we will gain that guidance, change it as we see necessary, tighten it as we become more confident as we go forward. But in the mean time we appreciate the attention and thank you for your time this morning.

Ladies and gentlemen, this does conclude today’s teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.