Greetings, and welcome to the Orion Engineered Carbons’ Fourth Quarter 2017 Earnings Call. At this time, all participants are in a listen-only mode. A 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, Ms. Diana Downey, Vice President, Investor Relation 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 fourth quarter and full year 2017 financial results. I’m Diana Downey, Vice President, Investor Relations. With us 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 the slide presentation to the Investor Relations portion of our Web site. We will be referencing this presentation during the call. Before we begin, I 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, February 23, 2018, 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.

Thank you, Diana. Good morning, and thank you for joining us for our fourth quarter and full year 2017 earnings conference call. Our agenda, shown on on slide three, addresses the key metrics of our fourth quarter, some of the more noteworthy accomplishments of 2017, comments on the fourth quarter performance of our two Carbon Blackbusiness segments and the business as a whole. We will also offer our view of the current and anticipated state of our markets and our actions to capitalize on these improving markets. Charles Herlinger will provide detail on our financial results, and discuss guidance for the full year 2018. We will then open the lines to take your questions. Before we discuss the details of final quarter of 2017, I would like to comment on some of our key accomplishments of the past year. Slide four lists some of the highlights which are part of the strength of Orion's business model, our strategy and the capable execution of our team. It was a year with challenges as usual, but yet we’ve positioned the company to take advantage of an improving economy by continuing to make major changes in our production network that align with our strategy of moving that capacity to higher value products. We strengthened our balance sheet again with improved long term debt financing, committed to a simplified reporting and listing structure by moving, for example, to dollar reporting and response to input we've received from our investment community. And as of December last year, we floated the remainder of our stock to the public market with the exit of our private equity owners. It was another year of successive EBITDA growth and strong cash conversion for Orion. Now moving onto our fourth quarter highlights on slide five. Our two Carbon Blackbusinesses executed…

Thanks, Jack. Good morning, everyone. Turning to slide nine and our consolidated fourth quarter results. Our overall volumes decreased by 2.8% or 7.7 thousand metric tons from the prior year’s quarter to 272.9 thousand tons with the major components of this decline attributable as they have been throughout much of the year to the closure of our Ambès, France rubber facility, capacity reduction in the U.S. and the ongoing conversion of capacity in South Korea. Revenues nonetheless increased by 4.4% to €288.5 million in the quarter compared to €276.3 million last year, largely due to the pass-through of higher feedstock costs. Our overall contribution margin declined in the fourth quarter, falling 4.1% to €112.9 million versus €117.7 million in the prior year’s period. As the top waterfall chart on the right hand side of the slide shows, this drop in contribution margin was driven by the change in volume, as well as the impact from sales mix, foreign exchange effects and feedstock mix. Efficiency gains, face price and other items providing a partial offset. Referring to the second waterfall chart on the right hand side, the contribution margin declined in the quarter was more than offset by positive foreign exchange impact on our fixed costs and by SG&A costs savings. As a result, adjusted EBITDA increased by 0.7% to €56 million. Our adjusted EBITDA margin of 19.4% declined by 70 basis points versus last year's fourth quarter in large part due to the higher revenue base. The waterfall chart on the bottom right hand side of this slide analyzes the change in our operational results of EBIT, which decreased from €36.7 million to €26 million in the fourth quarter of 2017 compared to the fourth quarter of 2016, as a result of the decline in the contribution margin, an increase…

Thank you, Charles. Slide 12 summarizes the favorable development that are driving the creation of value for Orion in these markets. This slide also speaks to major initiatives we have underway to address these developments. These had beeen and remain the focus of our business. We have referred to the tightening Carbon Black markets but believe it might be helpful to look at these on a region-by-region basis. Slide 13 shows that in most regions of the world and in fact thinking as a whole, the Carbon Black production industrial network has not kept pace with demand growth. Where before this demand was set by an ever increasing supply of capacity from China, in fact that over supply that process came to a whole a couple of years ago when the domestic players begin to lose competitiveness due to major swings in the cost of their feedstocks. Furthermore, environmental regulations are being strengthened and even more importantly enforced, resulting in the curtailment and closure of capacity. Chinese Carbon Black demand will certainly continue to grow and Carbon Black capacity will also grow, but not at the disruptive rate seen in the past. With stronger producers, those with the resources and technology can deal with regulatory and market requirements will continue to grow with this market. The situation for the weaker players who have reduced or have been forced to reduce supply will continue to be increasingly challenging. In U.S. and in Europe, margins have not faced capacity increases and in fact have resulted in either stagnant or reduced capacity. And yet, demand will continue to move up in these economies and have taken a favorable turn lately with the construction of new green field tire plants in both regions, some aimed at regional demand growth, some for onshore production previously…

Thank you [Operator Instructions]. Our first question comes from the line of Lawrence Alexander with Jefferies. Please proceed with your question.

Could you just go over again on what you’re doing with conversions from rubber to specialty or curtailment over in 2018, 2019, what your plans are?

I mean the major conversion converting right now is a conversion in Korea that’s a significant one started last year and it’s substantially a conversion of one of the largest plants we have in the system is in conjunction with the closure of the smaller plant that we have in Korea where some of these products were made. So by closing that plant, which is roughly 40,000 tons or so we’re converting the capacity in that facility in Korea to accept all of that business and walking away from some of the lower margin business in that area, and that's a conversion which involves several units, we haven't disclosed how many units but it's quite a few units and that's the major conversion that's going on right now. We of course have on the board additional conversion opportunities that we're looking at currently. And we'll have to make a call at some point in time what conversion needs to happen or if it's in the unit and we'll make -- we've added a new unit as we disclosed earlier in Korea since there's a constant demand for certain types of products require a new unit rather than just a particular conversion. And pressuring that a little bit, just so you kind of understand how we think of it more as we've seen some of the margins arise in rubber black, particularly in certain regions, the incentive to actually do a conversion lessens a little bit. So we'll make a decision based on the margins that we have in rubber as those units largely running full right now around the world with the few exceptions. We make a conversion there, or add unit to the system.

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

Wondering if you can give a little more color on your volume expectations by the segment, because I think you mentioned expectations for volume growth that followed pretty much the GDP or what have you. But I mean you know, specialty has been growing in mid to high single-digit range, but you also mentioned that you might not outperform the market by as much this year as you really focused on getting price. And then on rubber, you closed the line in Texas, you’d consolidated in Korea. So I am wondering if there is still some headwinds there? So just wondering if you can help us frame it up, how to think of volumes after factoring all that stuff in to the segments in 2018?

The specialty segment, we actually [indiscernible] based on last quarterly call after showing several quarters of the years impact, it's been really high single-digits or even low double-digit rates. We feel like what we need to do now is consolidate around the business that we've got and gain back the margin that's lost by this pressure on feedstock. So while we still intend to outgrow the market. And I think what I said last quarter call still holds. This is going to be somewhere in the middle single-digit rate, we believe. We probably could push on that a bit but we think more importantly right now is given the pressure that we've seen from feedstock the third and fourth quarter of this year, which continues at least it’s leveled off in the first quarter of this year, we think it's important to really temper that growth and consolidate pricing around the margins that we think this business actually deserves. Does that answer your question there, Kevin?

And then on the rubber side, what about there. Is there still going to impacts from still anniversarying the closure of the Korea that created consolidation and also the line closure impact? Are those going to be headwinds on volumes still in 2018 or should we -- just trying to just expect more of a market type growth rate in '18?

I think a market type growth rate is probably fair. While a lot of our systems are running right now, there are some capacity gaps here and there. I mean, largely speaking, the whole network for our rubber system right now is running roughly 90% or so, that's very, very heavy in Europe. Our capability for expansion there or expansion to sales is limited but there is still some headroom other places in the system right now. And I think given that and given our capabilities, I think we should be able to grow I guess -- take what you consider the regional growth rates and we should be able to do that. While we would say that taking part of the system out in U.S. with that capacity that we closed, we know that it's part of this 2017 our Chinese facility wasn’t completely full either, it’s filled up as we move through the end of the year with that pressure that came into Chinese market with environmental and curtailments and so forth. So there’s bit of an offset there and there is a few other puts and takes like that. Long answer Kevin but for the most part I think you could probably model on regional growth.

And then when I look at the guidance, you talked about EBITDA of 230 to 250 in 2018, which implied over the 228 in 2017. So the midpoint and size about 12 million EBITDA improvement in euros. But given the level of pricing, it sounds like it's being achieved across the industry in rubber Carbon Black and it sounds like specially you should probably grow volumes. And I would imagine there would be some EBITDA growth there as well that you recover some of the price raw -- sounds like pricing actions you’re taking are gaining some traction. And so I'm just trying to think of are there any -- it seems like that could be a little conservative. So I'm trying to understand if there is some -- I think FX will probably be a little bit of a headwind. But is there anything I am missing in that bridge that might be is offset or what would it take to get to the high end versus the low end of the guidance range in 2018?

Let me just start with part of your question, and I get on to the rest of it. Just on the guidance you are referring to if you were based obviously when we convert our financial statements to U.S. dollars, which will be effective and we expect it to be effective with the first quarter of 2018. The FX effects you referred to receiving the euro strengthens a bit or stays where it is versus last year, we're actually having to move in our favor. So just want to get that point out there, which underlines in a sense the point you are trying to make which is that we’re starting with a pretty broad guidance range and that will narrow as the unfolds. And frankly as we said before on the call, we've learnt over the years that you start broaden you narrow it as the year happen runs through and hopefully you narrow it with this plant towards the higher rent. And that's -- the factors that we’re seeing now looking into the rest of 2018 as you summarized look pretty good. And so there is nothing specific that we would say against the comments you’ve have made other than the fact we’re at the beginning of the year and we've learnt over the years to do as I just said.

And then maybe last one from me. How are the pricing actions going in specialty? It did sound if I look at the EBITDA per ton it got down to about 441, you rose in the December quarter, which if I look that in history that’s pretty low and it tends to bounce back when it gets to that type of level? So could you give some type of commentary on what you’re seeing, how those pricing actions are going and when you would expect to recoup the inflation that you’ve seen?

We’ve made pretty good progress on that, Kevin, going into the fourth quarter of the year and then we had that spike in oil, which set us back a little bit. I mean quite frankly, it has been a headwind for us and it’s something that we began finding in the middle of the year. One of the reasons also that we think we need to focus on price rather than gaining the market share that we gained in the past. So we focused on that, as I said earlier. But as long as your point, we made some good progress going into the fourth quarter. I’m glad we did what we did otherwise these fourth quarter numbers and margins for specialties would look little less attractive than they do right now. So into the first quarter, we’ve had some success actually and I think we’ll probably be able to give you more color on that for our earnings call for the first quarter of 2018. But the time being I’m feeling pretty good. I mean given the tightness in the industry right now and the fact that we see a lot of demand for our products. In fact some demand that we just simply can’t satisfy in some corners of the world, because of limitations here and there, we are getting some decent moves on price. So probably more color on that is appropriate for our first quarter call, but right now I’m feeling fairly optimistic about our ability to push back and get some of the margins back in specialty that we have in those prior quarters.

Thank you [Operator Instructions]. Our next question comes from the line of Duffy Fischer with Barclays. Please proceed with your question.

I guess first, you mentioned in your release your intention to grow your dividend as your net income continues to grow. Now obviously, I don’t want to front run around any conversation obviously you have with your board. But is there any broad target you’re aiming for in terms of payout ratio or some other metric we can work off of to think about how we should expect that to grow?

No, I mean we’re not in a position to stop pegging on dividend to particular payout ratio. But I would take as a general guidance, the levels of payout ratio you tend to see in the chemical industry. We’ve had historically a rather high payout ratio, it’s now normalizing quickly and we wanted to stay normal as that process continues we’re mindful. So anything we’re looking at to enhance shareholder value but we’re mindful that’s an important lever to adjust as well and is part of our capital allocation policy.

And then you called out a cogeneration benefit I believe in this quarter in the rubber business, because of higher energy prices. I was hoping you could talk about maybe the rough magnitude of the gain this quarter or just anyway you can help size the cogen earnings relative to the base business this quarter?

We haven't given a rule of thumb with respect to that. And we probably could do that I just think it maybe get a little bit more complicated, because there's a variety of different types of cogenerations that we have. But generally speaking, when oil prices go up, we sell steam, hot water, electricity around the world at general pricing. We have been reluctant to disclose what the income is from our cogeneration, we won't do that now. But I can tell you that when you see $10 a barrel move in energy prices, it’s a pretty significant move for us in our EBITDA figures. So again, I think probably generally speaking the rise that you've seen and I guess the ranking that we've just given you in our commentary, it should give you an idea just how much impact the rise in the oil in the fourth quarter made versus fourth quarter of last year.

And if I could just squeeze in one housekeeping question quickly for Charles, you mentioned shifting the over reporting results to U.S. dollars in the first quarter of '18. When should we expect U.S. dollar and historical data to be available?

At the same time. You obviously need to have a comparative clearly. Essentially, we expect that we will provide investors with the same level of visibility in U.S. dollars as they have today in euros, certainly the prior three years and that sort of stuff.

Thank you [Operator Instructions]. Our next question comes from the line of John Roberts with UBS. Please proceed with your question.

On your plans to improve technical rubber black in the quarter. Were the volumes down in technical rubber Carbon Black, as well like the overall rubber segment or did technical rubber performed well like the Specialty Black segment?

I don't have that data in front of me right now. We could look it up and get back with you, John. Off the top of my head, I would say probably not, I mean quarter-over-quarter the percentage of technical rubber grew I think you saw that. But your question is with the decline in overall rubber, was it disproportionately, one way or the other or pro rata. My sense is that what we decline in the end was not the technical rubber, because where we backed away from capacity was not in the technical rubber area. And the Ambès closure potentially plain vanilla.

Yes, and the Orange closure in the fourth quarter was commodity materials. Again, I don't think that would be the case. I think we probably would have see that maintained or grown technical rubber goods.

And then as a follow-up to grow the technical rubber grades going forward here, technical rubber blacks, is that a conversion process like you're doing between rubber and specialty or is it much more easy to grow the technical rubber grades just by changing reactor conditions in your existing tire black units?

It's a little bit in between. I would call it a little bit easier than actually -- it gets easier than what you would consider conversion to specialty, but we cannot and most -- I would say suppliers cannot just simply change conditions, turn a few knobs in the technical rubber. It requires significant changes in reactor configuration, to some extent feedstocks and downstream processing equipments. And so you're talking CapEx as well as some technologies that we possess that allows that. So conversion like we’ve done for instance in one of our facilities in Texas would be taking it towards specialty but not all of the way and in order to be able to tackle these technical rubber. The other part is just simply there are some very special types of products out there that we've talked about in the past those improved growing resistance or improved aberration where without sacrificing other properties of tires or rubber in general. And they require certain type of I guess distribution of materials in order to do that, whether it’s aggregate distribution or particle size or surface treatment or whatever.

Thank you [Operator Instructions]. Our next question comes from the line of [indiscernible] with Keybanc Capital Markets. Please proceed with your questions.

So I was just wondering, you mentioned with EBITDA margins in rubber being the highest on record in the previous quarter. Do you think that's a good level going forward into '18 or what do you think the potential of those margins could be in that business over the next couple of years?

We get [50.9], which was the highest we’ve been at the company for Orion. As I've commented in my commentary, I think it's still up side opportunity there a 15% EBITDA margin in rubber black is not really acceptable, I think for this business. So what we’ll do to the rest of '18 there, I think right now I would say we've got some headroom still in '18 as these efficiency programs come in, and that's given a fixed price of oil because you know this EBITDA margin can move around pretty substantial before the same amount of contribution margin, but for different changes and price of oil. So going forward maybe the best thing to do is to assume that we’ll continue to have some improvements into quarters and what we saw in the fourth quarter, particularly because we've seen some decent pricing gains going forward. But again, you've got to fix the price of oil to understand where that’s really going to be. Charles, do you got any additional comment on that you would like to make.

I’ll point out the issue that we were primarily focused on adjusted EBITDA, because the percent EBITDA margin obviously is a function of the revenue line changing, because of the pass through of oil prices. So we do anything that there is significant more profitability to come out of the rubber business as it starts to earn its cost of capital, it doesn’t at the moment, clearly and particularly in some regions. And we expect for the demand conditions that Jack outlined at the start of this call to continue to move us in that right in the right direction to the cost of capital. The percent margin development should reflect that subject to how oil prices change. So you could end up in a situation that we would still at a 14% margin, but with a significantly higher EBITDA simply because of the movement in oil price affecting revenues.

And then I was just wondering with the new tire plants coming online in the U.S. Could you give us any indication on how you are doing with winning those contracts with potential new customers or do you think it’s just benefiting the whole U.S. industry with higher utilization rates?

I think it’s the latter actually. I would like to say that we were in a pole position with several of these, but I think by the time it washes out that typically situation where the contracts are distributed according to capacity in the business. So I know there are certain players that have come to the U.S. where we’re very strong and we’ve been able to capture large positions with those new plants. The existing players in the U.S. that have added plants we captured positions there as well. But I think it would probably be remiss for me to comment and say that we’ve -- a disproportion on amount of that, because I’m not too sure that that to be the case.

And then just one last question for clarification. You’re still running that plant in Seoul correct. And when do you expect -- is that going to be till 2019 that could shut down when you lose that volume?

That plant in Seoul will close mid-year this year. As we mentioned, we were able to secure a binding agreement to sell the property, which was one of the trigger points as to when we would actually bring it to a close. Our target all along has been to close the plant mid-year 18’. We’ve been working on the opportunity to fill the real estate on the land given the fact it’s in suburb in Seoul and quite valuable. So when we were able to conclude that binding agreement last week, we fund up and confirm to our employees as well that we would seize operation at the end of June 2018. Unfortunately, at this point in time given the work that we’ve been doing to transform the Korean production network, we’re fully capable at this point of absorbing the production that we want to absorb and we will be of course shedding the business that’s the lowest margin business in that business according to our strategy all along for that project in Korea.

So you’d say it’d be safe to assume that overall rubber volumes might decline in the back half of the year with some of that business that you’re shutting the lower margin business?

Yes, I think that’s probably fair. I mean certainly decline in that particular region. On the other hand as I said little bit earlier to an earlier question, we still have some gaps in the system right now that we’re seeking. And given the dynamics in the global market right now, I mean we’ve got an opportunity we think to see a lot of material in other places and then fill up these gaps in our capacity in locations. I mean the U.S. has still got a little bit of capacity, South Africa has got a bit of capacity there is some here and there. And perhaps we would be able to offset that, it’s a bit of a challenge but that’s the goal right now.

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

Well, thank you everybody for your attention this morning. I hope that you’ve seen that going into 2018 we’re doing that on the basis of a fairly solid platform in ’17. What I really like what I see about 2018 is not only the situation that we put ourselves in positioning our network, positioning our production mix, strengthening our sales groups and so forth but also just the fundamental industry dynamics that are forming up out there with the limitation of supply growth and overall demand growth is going on right now, particularly as these economies develop, not only in the developed economies but also in the southeastern Asian economies, the emerging economies and becoming, we think there's a real opportunity to grow. We'll do that. We'll attempt to confirm time to occupy the majority of our capacity as I mentioned a little bit earlier. But we'll also be focusing as we went from '17 to '18 to pushing back on margins, particularly in that specialty area. So thanks everybody for your attention. And we look forward to speaking to you [indiscernible] [49.30]. Thank you very much.

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