Jack Clem - Chief Executive Officer Charles Herlinger - Chief Financial Officer Diana Downey - Head of Investor Relations.

Ivan Marcuse - KeyBanc Capital Markets Jeff Zekauskas - JPMorgan John Roberts - UBS Edlain Rodriguez - UBS.

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

Today’s call is bring recorded and we’ve allocated one hour for prepared remarks and question and answer session. All participants will be in a listen-only mode. 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 Web site 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 second quarter 2015 earnings conference call. I’ll begin today’s call by providing highlights from the second quarter and will then turn the call over to our Chief Financial Officer, Charles Herlinger, who will provide more details on our quarterly results.

Finally, I will comment on the broader industry trends and our updated outlook for 2015 before opening up the lines to take your questions. As a reminder, Orion went public in July 2014 so we have just observed our one year anniversary of a public company.

We are very pleased with the progress we have made both with the execution of our strategic plan and with the financial performance we have delivered thus far. We believe we have delivered on the commitments made to our shareholders and the broader investment community during our IPO road show in 2014.

Since last summer, we have strengthened our specialty black business growing adjusted EBITDA margins for the latest quarter to 31% from 26% at the time of the IPO while growing quarterly volumes.

We have increased rubber black margins growing these to 15% for the latest quarter compared to 12% at the time of the IPO, while holding regional market share. We paid €60 million in dividends and we have reduced leverage from 3.1 times to 3.8 times. Now moving specifically to our second quarter results.

We experienced solid operating results with especially strong performance of our specialty carbon black segment, which deliver double-digit adjusted EBITDA growth. Overall profitability and cash generation was strong despite the continuation of a volatile economic environment.

The company grew both volumes and adjusted EBITDA margins in each of our specialty and rubber carbon black businesses and increased combined contribution margin.

These results were delivered even though our rubber segment faced headwinds in the form of unfavorable feedstock cost impacts which are distinct from the general cost movements in feedstock that are passed along to our customers. There has also been a further decline in demand in Brazil due to the economic environment in that region.

Nevertheless, we remain confident in our ability to execute our strategy of continuing to strengthen our specialty black segment while improving adjusted EBITDA margins in our rubber black segment. Our robust cash generation supports our ability to pay strong dividend, fund our capital investment and continue to reduce leverage.

During the second quarter of 2015, we grew contribution margin by 5.7% year-over-year while adjusted EBITDA of €56 million was in line with the prior year's second quarter.

We continue to generate strong cash flow driven by both strong operating performance and cash positive reduction in working capital as a result of lower feedstock cost and effective working capital management. Our revolving cash facility remains undrawn.

We expanded adjusted EBITDA margins significantly for both specialty carbon black and the rubber black businesses to 31.1% and 14% respectively.

Specialty benefited from volume growth, stronger contribution margin, the impact of declining feedstock prices on revenue and foreign exchange affects while rubber black was helped by foreign exchange affects, the impact of declining feedstock prices on revenue, as well as volume growth and efficiency gains.

We anticipate adjusted EBITDA margins at this level for the rest of the year which is ahead of our expectations in specialty and in line with the stepwise improvements expected rubber margins when we developed our business strategy. Turning to Slide 4.

Volumes increased 4.6 thousand tons from the prior year to 260,500 metric tons in the second quarter of 2015.

Our specialty and carbon black volumes rose in the quarter, however, revenues decreased €58.9 million year-over-year due to sales price declines resulting from the pass-through of feedstock costs offset by foreign exchange translation effects from a stronger U.S. dollar and our increased volumes.

Despite the strength in the reported revenue, our raw material cost pass-through mechanisms and fixed cost management proved to be efficient again this quarter as contribution margin, gross profit and net income all increased.

During the past quarter in the first half of this year, we had delivered on our commitments to strengthen our specialty black segment which had an outstanding quarter and we remain optimistic about our ability to continue with the improvements we have seen in rubber black, where these have grown volumes in line with open market while demonstrating the ability to improve EBITDA margins.

Now turning to Page 5. We delivered a strong performance for the first half of 2015, growing volumes by 1.6%, expanding contribution margins by 7.1% and growing adjusted EBITDA by 3.7% or €3.9 million to €110 million. I will now turn the call over to Charles who will provide you with more detail on our performance by segment..

Thanks, Jack and good morning everyone. As Jack explained earlier, it was a very strong quarter for specialty business as you can see by turning to Page 6. Our specialty black segment volume increased by roughly 2000 metric tons or 4.2% to 54,700 tons in the second quarter of 2015 from 52,500 tons in the prior year.

This increase in volume reflects increased demand in Europe and Asia-Pacific. Adjusted EBITDA for specialty carbon black segment increased by 11.9% to €30 million in the second quarter of 2015, compared to €26.8 million in the prior year. Adjusted EBITDA margin increased significantly to 31.1% and 25.9% in the prior year period.

The strength in our adjusted EBITDA margin reflects improved profitability and also is enhanced by the effect of the decline in feedstock costs on revenue. Turning to Page 7. Our rubber carbon black segment, volume increased by 2.4 thousand tons or 1.2% to 205.8 thousand tons in the second quarter 2015 from 203.4 thousand tons in the prior year.

Growth is due to increased demand in Europe and Asia-Pacific which was offset by significantly weaker demand in Brazil due to worsening economic conditions.

Adjusted EBITDA of the rubber carbon black segment decreased by €3.2 million to €25.9 million in the second quarter of 2015, reflecting gross profit development taking into account negative foreign exchange translation impacts on below margin fixed costs and the elimination of changes in depreciation.

Adjusted EBITDA margin grew by 170 basis points to 14% compared to 12.3% in the prior year period, reflecting the effects of lower feedstock costs on sales revenue. Moving on to Page 8, I will provide an update on our balance sheet and cash flows.

Cash inflows from operating activities in the quarter amounted to €47.2 million, consisting of a consolidated profit for the period and €14.6 million, adjusted for depreciation and amortization of €17.8 million, excluding finance costs of $13.3 million impacting net income.

Net working capital totaled €198.2 million as of June 30, 2015, compared to €203.7 million as of March 31, 2015. Days of net working capital ended the quarter at 64 days, down one day from the prior quarter.

Cash outflows from investment activities in the second quarter of 2015 amounted to €17.5 million consisting of expenditures for improvements primarily in the manufacturing network throughout the production system which is in line with our expectations for the full year.

Cash outflows for financing activities in the second quarter amounted to €34.2 million, comprised primarily of two dividend payments of €10 million each, regular interest payments of €9.1 million and regular debt repayments of €1.8 million.

As of June 30, 2015, the company had cash and cash equivalents of €113 million which represent an increase of €42.5 million from December 31, 2014. This increase in 2015 continues to be driven by strong operational performance and a reduction in working capital of €29.7 million.

The company's non-current growth indebtedness as of June 30, 2015, was €706.6 million. Net indebtedness was €600.6 million, which represents a 2.8 times LTM/EBITDA multiple. I will now turn the call back to Jack, who will provide some additional comments on our key markets and geographies and then will finish up with the outlook..

Thank you, Charles. Turning to slide's 9 and 10. North America continues to be a solid market for Orion and we believe it will strengthen even more as we move through the year and into 2016. There has been a reduction in imported Chinese tires, which presents an opportunity for demand to pick up in North America for rubber black.

Specialty black margins in North America strengthened in the second quarter as mix improved and we benefited from reduced raw material cost as raw material prices dropped. In Europe, our rubber black business witnessed stronger demand as that economy continues to recover despite its concerns about Greece.

In total, our specialty business also experienced growth in the quarter with improved margins and higher demand both from Europe and from global markets. Our Asia rubber black business concentrated in Korea, performed very well again this quarter.

We continue to improve operating efficiency as we commissioned new equipment that delivered feedstock yield. The Asian specialty carbon black business saw very strong growth also with better margins due to mix and increased sales penetration. The South American economy has worsened, eroding rubber black demand and reducing our volumes in the region.

Unfortunately, we do not see any signs of this improving in 2015. I would like you to keep in mind that our exposure here is fairly low, so it has not materially affected our business so far.

While the South African economy still remains weak, our performance there was good last quarter due to initiatives to increase productivity and some uptick in demand by the local tar producers.

As we consider the full year 2015, please turn to page 11, consistent with our ability to execute our operational and strategic plan with current macro outlook, we maintain our full year adjusted EBITDA guidance of €210 million to €225 million for 2015.

We expect to continue to experience a negative feedstock cost development reference earlier that has impacted our rubber carbon black segment, although we have just announced a price increase to mitigate this impact to the extent possible.

While maintaining the financial guidance for 2015 in the range we set last year, our current expectation is to be at the midpoint of the range. We expect to continue generating strong free cash flows and paying quarterly dividend in 2015 at our current level.

As you can see, we are pleased with the performance of Orion and we remain optimistic about our future. We wish to thank all of our employees for their hard work and shareholders for their continued support. With that, operator, please open up the lines for questions..

[Operator Instructions] Our first question is coming from the line of Ivan Marcuse with KeyBanc Capital Markets. Please proceed with your question..

The first one is on the feedstock increases in terms of, outside of the oil. Could you explain the dynamics that are going there? And then also on top of that, your competitor has made a public announcement that they're trying to raise prices in various regions as a result of the feedstock, it sounds like they're having the same issue.

Is that something that you are also trying to get pushed through?.

Good morning, Ivan It's Jack. Good to hear from you. The feedstock is -- and I think we went through that in some of our previous comments, there are price differences that occur periodically between that price that we pay for our feedstock and that which we pass along our customers, these published indices that are out there.

Often times the indices can work positive/negative. This particular year, we seen an especially difficult impact from a change in the pricing that we pay and that which we pass along our customers. Some of this is caused by just dynamics out of the U.S. Gulf Coast and to some extent the U.S.

West Coast of material moving out of North America into the Asia Pacific and European region. There has been a particular upsurge in demand for this material out of the U.S.

At the same time, the supply of the quality of that material used to make carbon black has diminished simply because some of the production slates in United States have changed as U.S. has gone to more domestic crude and less of the heavier material imported into the U.S. So you have got a bit of constraint on the supply side.

A surge in demand for material moving out of the U.S., primarily to Asia Pacific and also to some extent Europe, which has pressured this particular material and created this offset in price as we have mentioned in our publication. We released a press release yesterday, in fact, announcing a price increase to deal with some of this.

Specifically targeted that as well. The announcement is out there, it's on our Web site.

Just in summary, on September 15 we intend to raise prices to the extent possible or we don’t have already agreed upon contract between 6% to 8% globally with the exception of South America where the figure will be higher just simply because of some of the currency fluctuations in that region..

Okay, great. Thanks for the additional detail. My next question would be, your specialty black continues to be very strong, would you, assuming feedstock costs stay where they're at, who knows, but let's say they stay at this level.

Would you anticipate that you'd be able to, there's all of, I guess improving next, you'd see that margin slowly continue to rise higher? Or how do you think about this business and sort of the potential looking forward down to the next six to twelve months?.

It's a forward-looking statement, Ivan. You know we are going to shy away from that. I can tell you that up until now, through the second quarter, we have been able to hold on to some of these margins as oil has relaxed like that. It's our anticipation that what we have done in the past, we think we can continue to do in the future.

But beyond that I think that would be speculative to talk about what happens in the next few quarters in the regard..

Great. And then last question and I'll jump back in the queue.

Your working capital reduction of about £29 million that you talked about, how much would you say, I don't know if it's possible to break out, but where is oil versus your operational improvements? Meaning, if oil were to rise or whatever, a certain amount of working capital will come back in.

But as you've been improving the operations I would imagine that some of the working capital improvement may be permanent.

Is there any way to sort of break that out or think about that going forward?.

Yes. Hi, good morning. Charles here. The three elements was the oil factor, the actual reduction in levels of working capital and then those FX effects as well. But we are not getting into sort of treaties on this subject. A lot of the, the majority, of what we have experienced this year has been oil related, clearly with the steady decline in oil price.

You are right though, that we have improved our working capital management although some of that will be the retained should oil go back up to where it was. So that’s why we frequently ask questions. We get some metrics around what we expect to happen to working capital for change in the oil price.

But bottom line, over half of what we had in working capital improvement is oil related and then a portion of the rest is due to improved operational processes..

Thank you. Our next question is coming from the line of Jeff Zekauskas of JPMorgan. Please proceed with your question..

So, what raw material is going up for you? I mean, oil prices obviously have come off pretty sharply since the end of the second quarter and when you look at published [resin] [ph] prices, they seem to be going lower..

Jeff, I mean all that's the case. Petroleum prices have fallen around the globe. [Resin] [ph] prices, 3%, 1%, those all fall. And as you know if they rise and fall, we pass those along in or indexed contracts to our customers. What's changed is the difference between the index that you see in these published reports and the actual price paid.

And that index is what governs our sales contracts. So as that index moves up and down, we pass that along monthly, for the most point, to our customers, whether it's up or down. But sometimes there can be a basic difference between what the index shows and what we actually pay.

Like to fit -- basis difference to you, that term, which has actually been inflated over the last several months. It really begin to get severe for us at least, around the end of the first quarter or last year not really affecting too much until now, this half year. When that occurred, it just became, it's a big scale.

We needed to seek some relief in terms of base price. That’s why we announced this increase that we announced yesterday..

Can you talk a little bit about either carbon black demand globally or rubber black demand globally? In that your overall volumes are up a little bit more than 1% and, obviously, some of your competitors have lost a lot of market share.

So unless Chinese producers are really picking up a lot of share in the scheme of things, it seems that the rate of growth of the industry is pretty slow this year.

And under those circumstances why would you be optimistic about being able to capture some of these price adjustments that you want to capture?.

Well, industry utilization rates are actually pretty high, Jeff. I mean there hasn’t been capacity added in -- you have to speak about more regionally where we operate. That’s why we can be fairly optimistic about that. As we look at North America, we know that North America is running very tight right now, we can feel it out there.

And we know what our own utilization rates are, they are in the 90% range for Orion assets. Europe, interestingly enough, our European assets are running fairly tight as well. Not quite a tight as United States but we can feel it there also.

And while we don’t have any visibility on competitive utilization rates, you can see it all the time, it's in the market. So when we look at Europe, when we look at U.S., we feel that utilization rate, Korea seems to be going fairly nicely. It's not quite as strong as the other but it's running more or less at the level that we have seen in the past.

You know the mid-80s, that type of thing, which is sufficient for that particular market. South Africa, I'll mention that one as well, that’s actually seeing quite a nice uptick as well. Some of the producers down there I think have taken some initiative, tar producers rather, have taken some initiative to step up some of their volume.

So it's been a bit of a pleasant surprise for us. Where see low utilization rates is South America. And as I mentioned, our exposure there is pretty low but for us, we are talking 70%, kind of 70%, of being 70% or so in that in region.

So when you take all of that out and look at it in terms of where our base is and utilization rates in our region, that’s why we can be somewhat optimistic about it..

And then lastly, the CapEx in the quarter was I think 17.5 million.

Why did CapEx spike up so much in the second quarter and why should it be so much lower going forward?.

CapEx can be pretty lumpy, you know. It depends on the spending of a particular project. Typically you don’t have what I consider an even flow on CapEx. Sometimes it's a strong fourth quarter, sometimes is happens in other quarters. So I think it's just lumpiness associated with that.

I don’t know, Charles, if you have...?.

No, no, it's right. I think as you would expect, Jeff, we try to delay payments of the [short] [ph] projects. That causes the lumpiness. That’s the driver..

[Operator Instructions] Our next question is coming from the line of John Roberts with UBS. Please proceed with your question..

I believe you source some of your raw materials from the steel industry.

Is the weakness in production among steel producers contributing to that raw material tightness?.

Not really. We do source some of that. That’s coal-based material. That largely an Asia phenomena but we also take some of that material outside of Asia. But this particular phenomena that we talked about a little bit earlier, is driven more by fuel crackings, slurry oil produced from the U.S. refiners, petroleum refiners..

Got it.

Does the board review the dividend at every meeting or would it be reviewed at the anniversary from when you initiated it? And would we expect the dividend to move with earnings growth, or are you more focused on debt reduction here that it might -- dividend increases might lag the earnings?.

The board tends to review the dividend John, towards the anniversary date. I would say that’s probably the best way of putting it. In terms of what we sort of measure it on, we are getting to the end of the first calendar year post IPO.

The target we have set for the dividend for this year we have announced, it's full quarterly payment of €10 each -- a million euros each. And we see it in line with that review from the board that how the year developed and how the balance of cash remains.

We are just trying to balance the goal that we have talked about of producing leverage from above three when we started out towards 2.5 times. And that decision are not balancing out if you like, will be something we probably look at with the board in the last quarter this year, of calendar quarter this year..

Thank you. Our next question is a follow-up question from the line of Jeff Zekauskas of JPMorgan. Please proceed with your question..

Can you talk about the benefits of currency in the quarter and for the first half on your income statement?.

Yes. Let me talk about at the EBITDA level simply because if you look at contribution margin, they will have the fixed cost impact and FX and so on and so forth. So at the EBITDA level, interestingly the impacts are very similar in the second quarter as they were in the first quarter of 2015.

Meaning that in the second quarter we had an overall adjusted EBITDA level, we had a benefit of about €5.5 million of FX benefit at that level. Which was very close to the amount inherent in the first quarter. So for the half year, we are at around -- just about bang on €11 million of benefits for the half year.

And interestingly, the dynamic, Jeff, that we talked about in the first quarter, essentially repeated itself in the second quarter in that the differentials that you have been talking about earlier on this call that Jack addressed, were similar order of magnitude overall as a negative factor offsetting these FX positive gains.

And that is the case with Q2 of 2015. It's the case with Q1 of 2015 and obviously for the half year 2015, it's the case..

And then lastly, what are the carbon black utilization rates in the United States currently for the industry? As best as you can tell?.

Jeff, I wouldn’t comment on the industry other than to say that, as I said a little bit earlier, I think it's running pretty tight this week we have that feel from customer demand. But our own assets right now are running in the 90% range..

Do you think the industry is running in the U.S.

in the 80s or in the 90s?.

I would say in the high 80s..

High 80s. Okay. Great. Thank you so much..

Thank you. Our next question is a follow-up coming from the line of Ivan Marcuse of KeyBanc Capital Markets. Please proceed with your question..

All right. This is a quick question.

In terms of seasonality in the back half, is there anything to sort of think about in terms of the quarters or is it pretty much evenly distributed historically?.

No. I mean similar pattern to prior years. The only thing we would point out as we have done before are that that December tends to be short month. It's a holiday period. And that has that slight, somewhat of an impact on the last quarter of the year. But other than that, those I think remain -- is the main factor we have certainly seen.

There is nothing particular we would point out this year that differs from prior years at least at the moment..

Thanks. And then if you look at your Korean business, continues to do well. I mean we've all heard that China is slowing down and there's a lot of capacity over there.

Is there any risk or have you seen any sort of imports into Korea from China or any other regions where maybe they're trying to place some volume?.

There is Chinese material in Korea. I don’t remember the exact number but we are talking about something like maybe, call it 10% plus-minus. Maybe a little bit higher. Call it 10%-15% of the market in rubber black. And it's typically the lower end commodity stock, the rubber black.

But right now, I mean the Korean facilities are competitive against those. So they have taken a position, I think tire producers typically just like to have additional sources, like to have additional options. But in terms of an increase, we haven't seen an increase this year with respect to carbon black penetration into Korea. It's been barely flat..

Okay. Then my last question [indiscernible].

If you look at your SG&A and your R&D, do you expect to maintain the same level as we saw in the first half -- in the second half?.

Yes, essentially so. I mean FX has a bit of an impact that assuming currency were on the same level, yes..

Thank you. Our next question is coming from the line of Edlain Rodriguez with UBS. Please proceed with your question..

Bill, just one quick question. A follow-up on China.

With the softness in China now, how does that impact the relationship with your joint venture partner? Does it make it easier or harder for you to really gain control of the venture?.

So we don’t have a joint venture partner in China. There is a joint venture currently as you know between [Evonic] and the Chinese state-owned enterprise called JFIC. The particular conditions in China right now, we don’t see are having any impact at all on these ongoing negations that we have got in order to take that facility back into our fold..

Okay, that's fair.

And just a quick update on the status of the EPA negotiations and what's going on there, if you can update us?.

Sure. Our negotiations continue, we think we have made some progress with EPA. In fact there has been some development there. We have also disclosed in our filings a lot of information about that. So I would comment beyond just what I have said, with respect to I think of some of the progress that we have made with the EPA.

There have been two suppliers in the industry to have actually settled. And probably news, we all know Cabot and Continental. We continue our settlement negotiations and as far as we can tell, the other two suppliers continue their negotiations as well with the EPA..

Thank you. [Operator Instructions] Thank you. It appears there are no further questions at this time, so I would turn the floor back over to Mr. Clem for any additional or concluding comments..

Okay. We thank everybody for taking the time on this August summer day on Friday to listen our story about Orion Engineered Carbons. As you can tell, we are satisfied with this past quarter, we are satisfied with the first half of this year. Satisfied, actually, as a first full year as a public company.

And with that, I would like to just say thank you for taking the time and we appreciate the time and attention you have given us. Great questions. And we look forward to speaking with you next quarter. Thank you..

Thank you very much..

Thank you. Ladies and gentlemen, this does conclude today's teleconference. We thank you for your participation and you may disconnect your lines at this time..