Orion S.A. (OEC) Earnings Call Transcript & Summary

Greetings, and welcome to the Orion S.A. Annual General Meeting. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Dan Smith, Chairman of the Board. Thank you. You may begin.

Good afternoon, everyone. I'm Dan Smith, Chairman of the Board of Directors of Orion S.A. I would like to welcome you to the Annual General Meeting of Shareholders of the company. In addition to me, all other directors of the company are present at this Annual General Meeting of Shareholders. Mr. Paul Huck; Mr. Hans-Dietrich Winkhaus, Mr. Didier Miraton, Ms. Kerry Galvin, Mr. Corning Painter, who is also CEO of the company; Ms. Mary Lindsey, Mr. Yi Hyon Paik, Mr. Michele Wurth. I also welcome Mr. Jeff Glajch, the CFO of the company. Dr. Christian Eggert, the General Counsel of Orion Group; and Mr. Carsten Opitz, the company's legal adviser on Luxembourg law matters. As Chairman of the Board of Directors, I hereby declare the meeting open and call myself to be Chairman of the meeting. In compliance with the provisions of the Articles of Association, I call Mr. Carsten Opitz, the company's Legal Adviser as Secretary of the meeting. I also hereby call Dr. Christian Eggert, Orion Group's General Counsel, the scrutineer at the meeting. The scrutineer will supervise the counting of the shareholder votes cast. For each agenda item subject to a vote, I will ask the shareholder representative to submit the vote to the shareholders as a percentage of votes cast to myself, the secretary and the scrutineer. There are no shareholders physically in attendance at the meeting venue in Luxembourg that could vote during the meeting. I want to remind you that voting during the meeting via telephone is not possible. Therefore, the vote to the shareholders that will be voted at this meeting are such vote to the shareholders of the common shares that are represented by proxy for the meeting duly executed and received by the voter deadline. This includes votes submitted via the Internet or by telecom. Please note that resolutions will be adopted by a simple majority of the votes validly cast at the Annual General Meeting. I would like to now verify whether the Annual General Meeting has been convened and blast with both the company's Articles of Association and Luxembourg Law of Government and commercial Companies dated 10th of August 1915, as amended and whether the meeting has been legally convened and fulfills the requirements in terms of the quorum. Article 10, the Articles of Association requires a notice of the general meeting of shareholders to be given to shareholders with a minimum of 15 days prior to the meeting by publishing the notice in Luxembourg official gazette and in Luxembourg newspaper as specified by the Board of Directors. Considering this, the Board of Directors published the invitation in Luxembourg official gazette and in newspaper commonly delivered in Luxembourg. The public notice regarding the Annual General Meeting of Shareholders was published in Luxembourg Trade & Company's registered on 31 May 2024, and in the newspaper Luxembourg in Tageblatt on 31 May 2024. The proxy statement and the proxy statement supplement to the Annual General Meeting were made publicly available through the U.S. Securities and Exchange Commission's EDGAR system on April 29, 2024, and on the company's website on May 1, 2024. The convening notes and agenda the Annual General Meeting generated together with the meeting materials were also sent by registered mail to the registered shareholders of the company on May 14, 2024. The convening notice was also uploaded to the company's website on May 1, 2024. Article 10 of the Articles of Association also provides that the Annual General Meeting of shareholders shall be held in the Grand Duchy of Luxembourg at the registered office of the company or at such other place as may be specified in the convening notice of such meeting within 6 months after the end of each financial year. The convening notice for every general meeting of shareholders shall contain the date, time, place and agenda of the meeting. The Board of Directors has decided that the Annual General Meeting of shareholders shall be held on Thursday, June 20, 2024, at 2:00 p.m. Central European time at the registered seat of the company located at 6, Route de Treves, L-2633 Senningerberg, Municipality of Niederanven in the Grand Duchy of Luxembourg. In addition to the opportunity to participate in person, shareholders were also providing the opportunity to participate in Annual General Meeting by teleconference. The dial-in information for participation in the Annual General Meeting by teleconference was published on our website 1 week prior to the Annual General Meeting date. Our shareholders are provided with the possibility to ask questions to the Board of Directors until 11:59 p.m. Central European Time on June 17, 2024 by sending an e-mail to our Investor Relations e-mail address, together with a proof of shareholders. No such questions were sent by shareholders. They will not be possible to raise questions and vote shares during the meeting if you participate via teleconference. The audited statutory annual financial statement for fiscal year 2023, including the management report was made available on the company's website since May 1, 2024. Also, the audited consolidated financial statement of the company for the financial year 2023 includes management report was made available on the company's website since May 1, 2024. Furthermore, these financial statements and management reports were sent by mail to the registered shareholders of the company on May 14, 2024. The audited statutory annual financial statement for the financial year 2023 and the audited consolidated financial statement for the financial year 2023, including the management reports were also available at the registered office of the company since May 10, 2024. The Annual General Meeting will deliberate validly regardless of the number of common shares present are represented by proxy. I note that the Annual General Meeting of shareholders has been convened in compliance with both the company's Articles of Association and Luxembourg law of government and commercial companies dated 10th of August 1915 as amended and that the meeting has been legally convened and fulfills the requirements in terms of the quorum. I kindly ask the shareholder representatives to show me their proxies for the shares they represent in accordance with filled out and signed attendance sheet.

I represent the public shareholders with 51,270,552 common shares. During the voting procedure, I will state how many represented common shares the shareholders voted for, against or abstained from a vote as a percentage of the number of shares that cast or have to vote on the perspective agenda. Please note that we have rounded the percentages according to established rules for such round.

Thank you, Ms. Galvin. I kindly ask the secretary and the scrutineer to note that out of total of 60,992,259 common shares of the company, having more -- no par value, 2,684,326 shares were held by the company as of April 28, 2024, which is 26, 2024 as the record date for this meeting, and therefore, are not entitled to vote. 51,270,562 common shares are represented at the meeting. I further ask the secretary and the scrutineer to note that a total of approximately 87.93% of the common shares that are entitled to vote are thus represented at the meeting. As a meeting has now come to an order, we shall move on to the matters that should be discussed and decided at Annual General Meeting according to the agenda. One or more shareholders of record holding at least 10% of common shares may put items on the agenda of Annual General Meeting, provided that the such items accompanied by a justification or draft resolution will be adopted at the meeting. I verify hereby that no additional item is put on the agenda of the meeting. I would now like to start with the fourth item of the agenda, which is the presentation of the management report by the Board of Directors and the reports of the independent auditor of the company in relation to the annual accounts and the consolidated financial statements of the company for the financial year that ended on December 31, 2023. I would like to ask Mr. Painter, the CEO of the company, to provide our shareholders with a brief overview of the business of the company and the financial year 2023 and to present the management report and the audited financial statements for the financial year 2023 on behalf of the Board of Directors.

Thank you, Dan. We, the Orion shareholders have much to be pleased when reflecting upon the achievements in 2023. Our company was one of just a handful of global chemical companies that delivered year-on-year growth despite meaningful macro headwinds last year and on an even smaller or more distinguished group of specialty chemical companies that achieved successive growth in each of the past 3 years subsequent to the onset of the global pandemic. This financial progress is a testament to the dedicated and tireless effort of varying employees around the world. Moreover, the achievement has been realized while our organization has simultaneously improved Orion's global safety metrics and while we have made substantial progress in improving the sustainability characteristics of our business. Orion's stronger financial returns also reflect continued benefit from the Carbon Black industry structural improvement, setting the stage for another positive step in performance in coming years. To recap, financial highlights from 2023 include the following: record year full adjusted -- record full year adjusted EBITDA of $332 million improved more than 6% compared to 2022 after a 15% gain in that prior period. This was despite a pronounced global inventory destocking cycle, which ensued and persisted throughout most of 2023 resulting in demand weakness across a variety of industrial end markets. Also, strong and improving free cash flow conversion allowed the company to fund $173 million CapEx, including nearly $30 million of residual EPA project spending and $64 million of growth CapEx, $66 million of share repurchases, representing about 5% of the public float, nearly $80 million of debt reduction, bringing the company's leverage multiple down to a comfortable 2.3% -- 2.3x level. These improved metrics and our stronger financial position will serve to facilitate the execution of an increasingly balanced capital allocation strategy moving forward including funding the very specific high-return growth projects, tactical maintenance CapEx that should enhance overall Orion manufacturing yields and quality and the potential for greater returns of excess capital to shareholders over time via dividends and/or additional stock buybacks. From this foundation, Orion management feels -- we're confident about both the trajectory of our business and especially continued progress towards our targeted mid-cycle EBITDA capacity threshold of $500 million, which is on the foreseeable horizon. On the sustainability front, Orion completed its multiyear investments in advanced emission control equipment at each of its carbon black production facilities in the U.S. as prescribed under a consent decree with the EPA and have several competitors who have fewer plans to execute. To address the lithium-ion battery market, we introduced enhanced kappa 10 branded conductive additives and these products are supported by our new battery innovation center in Germany. We made substantial progress towards our investment in a flagship report facility in Texas, which will produce high-purity acetylene-based conductive carbons with [ lithium-ion batteries ]. When ramped and combined with its sister facility in Bayer, France, this business will play a vital role in the energy transition by serving lithium-ion battery and high-voltage transition cable markets. As a result of these projects and numerous other initiatives, our rating assessment by EcoVadis, the world's leading sustainability rating firm was raised to platinum this year, the highest possible distinction. This places Orion amongst the top 1% of companies assessed by EcoVadis. Our sustainability portfolio may not have contributed yet to the shareholder value creation but we continue to believe that our industry leadership here will ultimately translate into competitive advantage as we benefit dynamics across multiple business functions. Thus, the focus on circularity remains a core part of our overall strategy. With 2023 behind us and looking to 2024 and beyond, there are numerous fundamental and other considerations providing options. Another successful annual supply contract negotiation cycle for the calendar year 2024 yielded positive pricing gains. In the sector of -- a higher -- excuse me, a variety of economic considerations and other cross currents, have customers remaining focused on localized security and supply concerns, the EU ban on the imports of Russian carbon black effective on January 1 is one example of this, as is the specter of higher tariffs going forward which together along with other factors should support another healthy pricing cycle for the 2025 negotiations. The global destocking phenomenon, which disproportionately impacted our Specialty segment in 2023 has diminished as these end markets further recover and when visibility regarding the ramp of our conductive carbon business improves, investors should envision a higher-margin Specialty segment becoming a more meaningful contributor to Orion's overall franchise. Another step change in EBITDA improvement, coupled with diminished CapEx needs should translate into greater free cash flow generation, enabling a virtuous cycle, including higher capital returns to shareholders. We also want to take this opportunity to express our sincere thanks to Orion investors for their continued support. We hope you recognize, appreciate and share our passion that the management team has towards our business, its prospects and our strategic vision. We look forward to responsibly reaching even greater levels of profitability as well as the benefits that should accompany this continued progress. Thank you.

Thank you very much, Mr. Painter. As stated and noted that no questions were submitted by the shareholders electronically or via in person. I would therefore like to close the fourth item of the agenda and move on to call for a vote of all other agenda items from item #1 to item #10, as the agenda of the Annual General Meeting as published on May 31, 2024, in Luxembourg Trade & Company's Register and on May 31, 2024, paper, Luxembourg Tageblatt for vote. Agenda item #1, the Board of Directors proposed shareholders resolve as follows: Ms. Kerry Galvin is appointed by [indiscernible] as Director of the company for a term ending on the day of the Annual General Meeting of the shareholders of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I represent the shareholders, which voted with 92.53% common shares voting in favor, 7.46% common shares voting against and 0.01% common share abstained from the voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Continuing with that agenda item #1, the Board of Directors proposed that shareholders resolve as follows: Mr. Paul Huck is appointed by the General Meeting as Director of the company for a term ending on the day of the Annual General Meeting of Shareholders of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I represent the shareholders, which voted with 99.46% common shares voted in favor, 0.53% common shares voted against, and 0.01% common shares abstained from vote.

I therefore, kindly, ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Continuing with item #1, the Board of Directors proposes that the shareholders resolve as follows: Ms. Mary Lindsey is appointed by the General Meeting as Director of the company for a term ending on the date of the Annual General Meeting of Shareholders of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I represent the shareholders, which voted with 99.57% common shares voting in favor, 0.42% common share voting against and 0.01% common shares abstained from voting.

I therefore, Kindly, ask the secretary and scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Continuing further with item #1, the Board of Directors proposed that shareholders resolve as follows: Mr. Didier Miraton is appointed by the General Meeting as Director of the company per term ending on the date of the Annual General Meeting of shareholders, both the company called to approve the company's annual accounts and consolidated financial statements for the financial year ended December 31, 2024.

I represent the shareholders which voted with 99.55% common shares voted in favor, 0.44% common shares voted against and 0.01% common abstained from vote.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Further continuing with item #1, the Board of Directors proposed that the shareholders resolve as follows: Mr. Yi Hyon Paik has appointed by the General Meeting as Director of the company for a term ending on the date of the Annual General Meeting of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I represent the shareholders, which voted with 97.12% common shares voted in favor, 2.87% common shares voted against and 0.01% common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Further continuing on #1, the Board of Directors proposed that the shareholder resolve as follows: Mr. Corning F. Painter has appointed by the General Meeting as Director of the company for a term ending on the date of Annual General Meeting of Shareholders of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I represent the shareholders, which voted at 99.5% common shares voted in favor, 0.49% common shares voted against and 0.01% common shares abstained from the voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Further continuing with item #1, the Board of Directors proposed the shareholder resolve as follows: Mr. Dan F. Smith is appointed by the General Meeting as Director of the company for a term ending on the date of the Annual General Meeting, shareholders of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I representative shareholders, which voted with 98.64% common shares voting in favor, 1.35% common shares voted against and 0.01% common shares abstained from the voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Further continuing with Item #1, the Board of Directors proposed that the shareholders resolve as follows: Mr Hans-Dietrich Winkhaus is appointed by the General Meeting as Director of the company for a term ending on the date of the Annual General Meeting of shareholders of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I represent the shareholders which voted with 99.5% common shares voted in favor, 0.5% common share voted against and 0.01% common shares abstained from the voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #1, continuing, the Board of Directors proposed the shareholders resolve as follows: Mr. Michele Wurth is appointed by the General Meeting as Director of the company for a term ending on the date of the Annual General Meeting of Shareholders of the company called to approve the company's annual accounts and consolidated financial statements for the financial year ending December 31, 2024.

I represent public shareholders, which voted with 97.11% common share voted in favor, 2.88% of common shares voted against and 0.01% common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #2, the Board of Directors propose to the shareholders resolve as follows: approval on a nonbinding advisory basis of the compensation paid to the company's named executive officers as disclosed in the proxy statement for the company's 2024 Annual General Meeting of Shareholders.

I represent shareholders, which voted with 95.96% common shared voted in favor, 4.02% common shares voted against and 0.02% common abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #3. The Board of Directors proposed that shareholders resolve as follows: the members of the Board of Directors subtly remunerated during the financial year that ends on December 31, 2024, as follows: For each nonexecutive directors shall receive a cash retainer of $105,000 and restricted common shares of the company with a value of $137,500 at the time of issuance. With such rewards, [indiscernible] vesting on the director service full approximate 1-year term, she or he was appointed for. Further, the nonexecutive Chairman Boards have received an additional cash retainer of $105,000. The Chairman of the Audit Committee of the Board shall receive an additional cash retainer of $25,000. The Chairman of the Compensation Committee of the Board shall receive an additional cash retainer for $25,000. And the Chairman of the Nominating, Sustainability and Governance Committee shall receive an additional cash retainer of $20,000. Each nonsharing, nonexecutive member of the Board, the following Board committees to receive an additional cash retainer as follow. For Oath committee members, an additional cash retainer of $10,000, for compensation committed members, an additional cash retainer of $7,000, and for Nominating, Sustainability and Governance Committee memeber, an additional cash retainer of $5,000.

I represent the shareholders, which voted with 99.74% common shares are in favor, 0.23% common shares voted against and 0.03% common share abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #4, the Board of Directors proposed to the shareholders resolve as follows. The annual accounts of the company in accordance with Luxembourg GAAP for the financial year that ended on December 31, 2023, after due consideration of the report from independent registered public accounting firm on such annual reports are approved.

I represent shareholders which voted with 98.72% common shares voted in favor, 0.02% common share voted against and 1.26% common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #5, the Board of Directors proposed that the shareholders resolve as follows: the consolidated financial statements of the company in accordance with U.S. GAAP for the financial year that ended on December 31, 2023, after due consideration to report from the independent registered public accounting firm on such consolidated financial statements are approved.

I represent public shareholders which voted with 98.72% common shares voted in favor, 0.02% common shares voted against and 1.26% common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #6. The Board of Directors proposed that the shareholders of the company hereby resolves carry forward the loss suffered by the company, corresponding to an amount of EUR 12,859,170 to $0.78 through the next financial year and the shareholders further approved the interim dividend declared by the company during the 2023 financial year and the aggregate amount of [ EUR 4,546,366 ].

I represent the shareholders has voted with 99.96% common shares voted in favor, 0.02% common shares voting against and 0.02% common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #7. The Board of Directors proposed to the shareholders resolve as follows: the members of the Board of Directors are discharged for the performance of their mandates during the financial year at the end of December 31 2023, including discharge for any liability in connection with the performance of their mandates, including the management of the company's affairs during such period.

I represent the shareholders in total with 95.11% common share voted in favor, 0.04% common shares voted against and 4.85% common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #8, the Board of Directors proposed that shareholders resolve as follows: the independent auditor, Ernst & Young, Luxembourg, Société Anonyme [indiscernible] self derivation agreed. If discharged from any liability in connection with the performance of its mandate during the financial year that ended on December 31, 2023, including the audit of the company's annual accounts and consolidated financial statements for such period.

I represent the shareholders, which voted with 94.4% common shares voted in favor, 0.75% common shares voted against and 0.8% of common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #9, the Board of Directors propose to the shareholders resolve as follows: Ernst & Young, Luxembourg, Société Anonyme cabinet to reduction agreed is appointed as independent auditor of the company for the financial year ending on December 31, 2024, for the purpose of all statutory accounts as required by Luxembourg law, including the annual accounts consolidated financial statements of the company.

I represent the shareholders voted with 99.94% common shares voted in favor, 0.05% common shares voted against and 0.02% common shares abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. Agenda Item #10, the Board of Directors proposed to the shareholders resolve as follows: the shareholders of the company hereby ratify the appointment of Ernst & Young LLP to be the company's independent registered public accounting firm for all matters not required by Luxembourg law for the fiscal year ending on December 31, 2024.

I represent the shareholders, which voted with 99.94% common shares voted in favor, 0.04% common shares voted against and 0.01% common shared abstained from voting.

I, therefore, kindly ask the secretary and the scrutineer to note this outcome and that the resolution is adopted as proposed by the Board of Directors. If anybody wish to discuss additional matters in connection with the agenda of this Annual General Meeting of shareholders. I note this not to be the case. Now that all matters constituting the agenda of Annual General Meeting of shareholders have been handled. I hereby declare the meeting closed at 2:32 p.m. Central European Time. Thank you very much for your attendance, and have a great day.