Orion S.A. Common Shares

Greetings and welcome to Orion Engineered Carbon's fourth quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Ms. Wendy Wilson, Head of Investor Relations and Corporate Communications. Thank you. You may begin.

Thank you, operator. Good morning, everyone, and welcome to Orion Engineered Carbon's conference call to discuss our fourth quarter 2020 financial results. I'm Wendy Wilson, Head of Investor Relations and Corporate Communications. With us today are Corning Painter, Chief Executive Officer, and Lauren Crenshaw, Chief Financial Officer. We issued our press release after the market closed yesterday and have posted a slide presentation to the Investor Relations portion of our website. We will be referencing this presentation during the call. Before we begin, I'd like to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and and the rest. In addition, all forward-looking statements are made as of today, February 19, and the company does not undertake to update any forward-looking statements based on new circumstances or revised expectations. Non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release. I will now turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone, and welcome to our fourth quarter earnings conference call. 2020 tested just about every company's ability to be nimble and responsive. I'm pleased to say the Orion team passed the test with flying colors. They ensured that our customers' needs were met both during the depths of the reception and through the demand surge. They implemented many improvements to our plants and work processes. Most importantly, their exceptional discipline in adhering to our COVID-19 safety protocols resulted in our having zero workplace transmission of the disease in 2020. A truly extraordinary accomplishment. I congratulate them again on their dedication. 2020 was our first major recession as a standalone entity. And so by getting through it well proves something about resilience that's hard to convey with just words on a call. I'm quite pleased with the speed of our recovery and the strength of our financial position through the end. Ultimately, we borrowed a modest net $27 million to fund operations for the year and experienced a one-turn increase in our leverage at year end. From a capital allocation perspective, in March we suspended our dividend to provide financial flexibility to weather the impending economic storm. Going forward, we will emerge stronger as we establish a capital allocation policy that maximizes shareholder value First, ensuring our financial standing across the severe economic downturn like 2020. And second, by ensuring that we have adequate capital to fund value-enhancing growth initiatives, that is, projects with economic returns significantly in excess of our cost of capital. And third, by establishing a mechanism to guide the size and frequency of capital return to shareholders over time. We also significantly enhanced our board independence and diversity in 2020, further demonstrating our commitment to effective, transparent, and accountable corporate governance practices. From a financial perspective, in the fourth quarter, we reported adjusted EBITDA of $66 million, up 30.4% year-over-year, reflecting the substantial operating leverage we expected the business to deliver as the economy recovered. Our company-wide adjusted EBITDA margin was 20.9%, and the specialty carbon black margin was 30.5%. These strong results were primarily attributable to our specialty carbon black business unit, which saw volumes rise low double digits sequentially. We also experienced slightly less seasonality than anticipated in our rubber carbon black business, where volumes declined mid-single digits sequentially. I believe the strong tone also reflected a mix of restocking in some markets and a fundamental increase in underlying demand. Finally, we continue to make progress with our sustainability efforts. We published our latest sustainability report during the quarter. It highlights progress across multiple ESG dimensions, including our governance, emissions reductions, strategic collaborations, employee engagement, culture and community We're working diligently to ensure that sustainability is an opportunity for us and to make it an integral part of our strategy. From a product perspective, our emphasis reflects a threefold focus on recycled carbon blacks, such as those made from oil recovered from end-of-life tires, green carbon blacks derived from renewable feedstocks, and enabling carbon blacks, which refers to grades that enable lower fuel consumption or extend useful lives. The report also details how we are partnering with leading companies across the value chain to drive a circular economy and sustainable solutions via the Black Cycle Consortium. I invite our stakeholders to discover more about the path we are charting towards a more sustainable future by downloading the report from our website. On today's call, Lauren and I will cover the fourth quarter results, comment on 2021 rubber pricing negotiations, discuss two growth initiatives, and finally share perspective on our outlook for the year. After our prepared remarks, we'll be happy to take your questions. We began providing slide four early in the crisis, and it remains illustrative today. It breaks down our business by end market, and more. Replacement Tire, which makes up roughly 60% of that business, has led throughout the recent recovery as expected. We saw a sharp bounce off the bottom driven by a combination of rising passenger car mobility earlier in recovery and relatively high commercial truck driven demand. Despite the mobility restrictions in certain parts of the world, global rubber volumes during the fourth quarter were nonetheless quite strong at 98% of 2019 levels. This exceeded our expectations for this stage of the recovery, given that so few people have been vaccinated and that the infection rates remain high in many countries. With this backdrop, we negotiated 2021 rubber carbon black pricing for most of our markets outside of Asia. Although the conditions were not ideal, particularly in North America, we achieved pricing and share broadly consistent with 2020 levels. We are determined to continue the march towards higher pricing in 2022. Shifting gears to the original equipment side, which makes up approximately 40% of our rubber volumes and 15% of our specialty volumes, this market has picked up sharply in recent months and also beat expectations. Global light vehicle sales showed a classic V-shaped rebound through December 2020, according to LNC Automotive. A recovery shape that some did not anticipate, but that we have been pleased to see. The automotive chip shortage is a new challenge for the industry, and we expect this to dampen OEM demand slightly during 2021. Most of the 85% of our specialty business that does not go into automotive we characterize as coincidence or lagging in nature. Certain markets, such as printing for traditional publications, continue to lag. However, in the fourth quarter, Quite a few proved to be what I'd call fast followers, with many remarkably exceeding 2019 levels. Examples in this category include general plastics, wiring cables, industrial coatings, and batteries. A few segments did particularly well through the recession, including food packaging and those linked to consumer DIY, like architectural paint and mulch. Now, turning to our fourth quarter results in greater detail. As you can see on slide five, adjusted EBITDA increased to $66 million year over year. We achieved higher volumes driven by a combination of higher baseline demand across nearly all of our specialty end markets, restocking, and new specialty business. In addition, we benefited from higher base price, primarily in rubber and favorable specialty mix. These drivers and less-than-expected rubber seasonality were partially offset by the margin impact of lower oil prices and higher fixed costs. We remain very confident in the long-run growth outlook for carbon black demand, which we expect to continue to grow in line with GDP over time, with certain geographies such as Asia growing faster than others. Our strategy continues to emphasize positioning the line to capture a disproportionate share of growth in specialty and technical grade credit in black. You can see this in our business mix, with approximately 25% of our volume being specialty and fully 75% of our adjusted EBITDA is driven by specialty and technical grades. This strategy guides our capital allocation, prioritizing growth capital towards specialty and technical grade markets. In that vein, slide six details two strategic initiatives that will expand our capacity to meet increased demand in higher margin market segments and higher growth geographies. The first initiative highlighted a 25 KT expansion of our Ravenna Early facility, primarily dedicated to specialty grades, was originally announced in 2018. This expansion is now expected to be mechanically complete by end of year and to begin ramping up in 2022, providing much-needed additional capacity for our polymer and coatings customers in particular. We are also pleased to announce a project-constructed greenfield facility in China to serve the robust demand for our specialty and technical rubber grades there. Our plant in Huabei, Anhui Province, will make 65 to 70 KT's, cost about $60 to $70 million and begin production in 2023. The plant design allows for further expansion. Given where we are in the economic cycle, a common question we get from long-term investors is, what's around long-range earnings capacity? Slide 7 starts with our 2020 volumes and then adds in our approximate leverage to our existing capacity and then layers on the two projects I just discussed. At this time, I'll turn the call over to Lauren.

Thanks, Corning. Turning to slide 8, while revenue was down 2.1% year-over-year, it rose roughly 12% sequentially, reflecting a continuation of the strong recovery trends we have observed for the past two quarters now. Contribution margin increased 11.1% year-over-year, mainly due to higher specialty volume and realized pricing gains, primarily in rubber. The sequential increase in contribution margin of 18.1% was driven by higher volumes in specialty and strong product mix. Adjusted EBITDA rose 4.4% year-over-year to $66 million and 19.9% sequentially, reflecting the rise in contribution margin partially offset by higher fixed costs. The increase in fixed costs reflected timing effects as the year-ago quarter benefited from lower incentive comp accruals and higher fixed cost capitalization levels, one-off effects that wash out on a 12-month basis. Finally, we reported adjusted net income for the quarter of $24 million down year-over-year as higher adjusted EBITDA was primarily offset by the impact of a net roughly $3 million in realized losses related to adjusting our FX risk management strategy by unwinding two cross-currency swaps. As a result of this action, our exposures have been reduced, and going forward, we expect transactional-related FX volatility impacting our P&L should be lower. Turning to slide nine, notably, total company volumes rose roughly 2% year-over-year. The contribution margin rose 11%, reflecting strong operating leverage, favorable rubber price, and specialty makes. adjusted EBITDA rose 4% year-over-year with higher contribution margins partially offset by higher fixed costs. Finally, net income declined by approximately $10 million year-over-year, primarily due to the impact of increasing our reserve by roughly $6 million for post-closure costs related to the site of our former rubber manufacturing facility in Anves, France. Higher pension costs and the impact of unwinding the cross currency swap that I mentioned earlier also contributed to the decline. Slide 10 details our year-to-date sources and uses of cash. On a full year basis, the key takeaway is that in a year when economic conditions in the pandemic resulted in adjusted EBITDA of only $200 million, we nevertheless required only a net $27 million in borrowing operationally while continuing to successfully advance our EPA safety Sustaining and Growth Capital Investments. Overall, as the economic crisis of 2020 began to unfold last spring, our leadership team embraced the challenge to make 2020 a proof point for the financial wherewithal of our business, which has weathered numerous downturns over the past century that we've been in operation, but none before 2020 as a public company. Although the economic storm has not completely passed, we are pleased to have come through the first phase of it in a relatively strong financial position for this stage in the economic cycle. Slide 11 summarizes our leverage and liquidity profile at year-end. Liquidity available at any leverage level was $342 million at quarter-end. As a reminder, as a result of converting a significant portion of our revolver to ancillary capacity earlier in the year, we are now able to borrow 100% of the €250 million commitment under our revolver at any adjusted EBITDA level without our leverage covenant being in play. At this stage of the economic cycle at 3.4 times, we are about one turn of leverage higher than our steady state target of two to two and a half times. All in all, that's a comfortable place for us to be at this stage in the cycle, and we would expect to return towards target levels as economic conditions and earnings normalize. Overall, the strong state of our liquidity and the absence of any significant debt maturities until 2024 give us confidence in our ability to continue successfully navigating this period of suppressed economic activity while funding our sustainability investments in the U.S. and advancing growth initiatives that will provision us to emerge stronger and with greater earnings capacity as we exit this period. Moving to slide 12, specialty volumes increased 15% year over year and Rose 11.3% sequentially. Volumes were up year-over-year across most end markets with Asia Pacific and EMEA performing somewhat better than the Americas. From a profitability perspective, gross profit per ton declined 4.2% but increased 15.4% sequentially. Adjusted EBITDA increased 22.4% year-over-year and rose 46.9% sequentially reflecting strong Operating Leverage. The next slide breaks out the major year-over-year drivers of adjusted EBITDA, the most significant of which was higher volume, driven by a broad-based surge in demand across essentially all in-market, with polymers particularly strong in the EMEA and APAC regions, outpacing North America on a relative basis. Turning to slide 14, rubber volumes were down 2.4% year-on-year and down 3.3% sequentially. representing stronger levels than anticipated in our original four-quarter guidance, as Corning mentioned earlier. Geographically, volumes were down in our tire business across all regions, particularly in North America and Asia, while MRG volumes rose in China and were slightly down in most other regions. From a profitability perspective, gross profit per ton declined 7.3% year over year. Slide 15 shows the development of adjusted EBITDA for the rubber-carbon black business, which was mainly driven by lower volumes related to a combination of a commercial negotiation strategy in 2019 that emphasized price over volume and weaker global economic conditions. Higher price reflects 2020 contractual base price increases, partially offset by base. With that, I will turn the call back over to Corning.

Thanks, Lauren. Moving to slide 16, given the degree of uncertainty with the pandemic, we will not be providing adjusted EBITDA guidance for 2021 at this time. For your information, we've established a base case planning scenario, assuming the pandemic does not functionally end until 2022. As we get a clearer view of the situation, we'll consider reinstating that portion of our guidance. From a volume perspective, Our 2021 full-year planning scenario assumes volumes resemble the second half of 2020 annualized run rate. However, I remind you that I put a higher value on agility than forecasting. January volumes were very encouraging, continuing the momentum from Q4 with rubber volumes tracking around 98% of year-ago levels and specialty volumes tracking about 120% of year-ago levels. From an S&A perspective, as a reminder, in 2020 we targeted $15 million in cost reductions, of which roughly $3 million were permanent. We ended up significantly exceeding our target, driven mainly by temporary cost reductions. These temporary cost reductions should reverse in 2020 with the rebound in volumes, resulting in a roughly $20 million increase year over year, excluding the impact of fluctuations in distribution costs which are also included in our SNA as reported. We expect capital spending to be approximately $170 million, with safety and continuity spending in the range of $60 and $65 million, EPA-related spending to be in the range of $55 and $60 million, and growth investments in the range of $40 and $45 million. Depreciation is projected to be in the range of $95 million to $100 million. Debt surface in the range of $27 to $29 million. Our effective tax rate around 30% and shares outstanding on the order of $60.6 million. Slide 17 restates some key takeaways from the quarter. They reflect that our team rose to the challenges we faced in 2020 and positioned us for further successes as economies recovered. Their focus and dedication were tremendous. I'd also like to recognize our customers, suppliers, communities, shareholders, and other key stakeholders who worked with us through this period of time. We look forward to your continued support as we profitably and responsibly grow Orion for many years to come. With that, operator, please open up the line for questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star key. One moment while we poll for questions. Our first question comes from the line of Josh Spector with UBS. You may proceed with your question.

Hey guys, thanks for taking my question and congrats on a solid 2020. Just maybe to start on the volume side, That specialty volume you call out for January is quite impressive, and I know disaggregating demand and inventory effects is kind of challenging, but I don't know if you can provide any color of what you've seen over the past few weeks, if there's any subsiding there, or if strength from a demand perspective is continuing, and maybe how you think about the sequential volume move in that segment for the whole quarter at this point in time.

All right, Josh. So first of all, thanks for your comments. We intentionally listed the order. We see it at this point as primarily end customer demand. However, some portion of restocking, and in our case, some portion of some new business in that order. The thing about the restocking, you know, always brings up the question, well, when is that going to be behind us? And I think that some of our customers have intended to do that for a while. In Asia, for example, to restock before the Chinese New Year disruptions to shipping and that kind of thing. But I think what people have seen is just demand has continued to grow and what was going to be perhaps an intended restock has really ended up serving underlying demand. So we'll have to see how Asia in particular reacts coming out of Chinese New Year. But I think that in January is going to be indicative of a strong first quarter.

Okay, thanks. That's helpful. I guess maybe just on the specialty pricing dynamics, a couple things to ask around there. I guess the EBITDA per ton was probably the highest level that we've seen in some time. I assume some of that was pretty strong volume leverage there. and wondering how you see that progressing kind of through the year. And then as demand remains strong, is our pricing dynamics and specialty different kind of in this cycle? Are you able to get pricing faster, which maybe mitigates the effect of rising raw materials quicker than what you would expect in a weaker demand cycle?

Excellent question. Well, you can imagine that is a key priority for us. So we're in a situation with increasing input costs and at the same time, very high level demand. And that's the situation that lends itself to pricing appropriately for the situation, which in this case means moving those prices up with underlying cost inflation. And that's something we're going to be working very hard on.

And Josh, I would just also add that In terms of GP per ton, we ended the year in the 640 level, as you can see on slide 12. And we should see some favorability in the new year, probably in the 680 to 90 sort of range. And on rubber, we also expect that GP per ton to be higher, probably in the 250 plus range.

All right, thanks. I'll turn it over.

Our next question comes from the line of Mike Lipsy with Barclays. You may proceed with your question.

Thanks, guys. Good morning. Nice end to the year. It seems like volumes are carrying over, at least into the beginning of the first quarter of the year. I guess it seems like there's a fair amount of moving pieces. Obviously, demand is good, but oil prices are coming back up. You talked about some of the temporary costs coming back into the business. and maybe just give us a sense of where earnings are trending so far in the first quarter.

So I'll take a first set of comments on that and I'll let Lauren allow you to make some further comments. So I think, first of all, the situation is set for one where we would see a positive for earnings, right? So the oil price, we've given the metric before on how changing oil prices can affect our P&L, and there's no reason why that isn't going to play back in exactly the same way as oil prices come up. It is sometimes a challenge in a specialty environment, but what's very fortunate right now is that the specialty volumes are very strong at the same time. So all of that lends itself to a favorable situation from a profitability perspective.

And I would add that from a volume perspective, our planning scenario assumes, if you do the math, about 90% of 2019 levels and that the current crisis doesn't end until 2022. I know that that isn't the guidance in terms of EBITDA guidance that we've given in the past, but if you wanted to imagine 95 or 100 percent of 2019 levels, we've also given perspective in terms of incremental margins that will be helpful in terms of getting there. And the 30 to 35 percent for rubber, we think it's still a reasonable proxy, and the 45 Plus for specialties as well. Arriving oil price environment on balance over the course of a year should be a net benefit to us. If you think about Brent last year averaging about $43, for example, if it averaged $10 more per barrel, we would expect a positive impact on our EBITDA between $7 and $10 million on average over the course of the year. And so we won't give quarter to quarter. Estimates on oil price dynamics, but on balance, a rising price environment is a positive for us. Got it.

I apologize just because there's so many moving pieces. I just want to make sure I understand. You talk about oil being a positive, and it sounds like orders are continuing positive. Should earnings trend higher sequentially or lower? I guess without the guidance, there's a lot of moving pieces, and I just want to make sure I have the right expectations here.

Well, we haven't provided guidance, but we've given the volumes, which are definitely a move forward. So I think one can use some of those ratios that Lauren just did. And I think doing that math, you come out with a favorable picture. Lauren, did you want to add something? No, that's right.

Okay.

Our next question comes from the line of Kevin Hostbar with North Coast Research. You may proceed with your question.

Hey, good morning everybody. Nice end of the year there. I'm curious on the new capacity front, so 25,000 tons being added next year, another 65,000 or 70,000 tons the year after that. How much is this adding to your specialty capacity? I think you sold 230,000 tons. this year. So how much is this adding overall cumulative specialty? How much is it adding to the mechanical rubber goods? And are you aware of other, it seems like you're not targeting the tire grade rubber, but more the specialty and technical rubber. Are you aware of other capacity additions coming in specialty and technical rubber over the next couple of years as well? Just trying to get a sense for what type of capacity is being added over the next couple of years here.

Right. So the 25 tons in Ravenna, that reactor makes specialty. It can also make some of the higher-end rubber grades. A typical scenario is that you would start up doing qualification volumes on specialty, but maybe in the first year sell a fair amount into rubber, and then that would transition over time. In a time like this, where demand is really quite strong in specialty, you could more aggressively get a very large portion of that over to specialty quickly. In the case of China, when we say technical rubber grades, we're heavily into MRG there, as you know. Some of those technical rubber grades that we'd be making here could go into tires as well. We do have a number of global tire accounts who do have facilities in China, so that's also an option for us there.

What I would add, Kevin, is that both of these expansions, if you look at our EBITDA per ton just as a total company, it's about 230 or so. Both of these expansions are well in excess of that, and so they are accretive margin-wise and mix-wise to the total company. Okay, gotcha.

And then you guys have a couple of facilities in Texas, I believe some of your competitors do too, and obviously there's some winter storm impacts going on there. So I'm curious if you've had any issues with your facilities there or if you're aware of any issues in the industry or suppliers or anything like that that could affect your facilities or industry facilities or your suppliers. Down there.

Right. So first of all, thank you for that question, because it gives me a chance to just recognize our employees and our investors as well in Texas, Louisiana and other areas that have just been quite impacted by this situation. We have, I really salute the employees who have come to work, working in our facilities, getting us online, keeping us online when maybe at home there's some pretty significant hardships. and in particular in Borger, Texas, where the team has kept the cogeneration unit going, which of course is an important issue in Texas right now. But we have been impacted. We've been impacted by utilities, natural gas and power. And we're in different situations in different plants in terms of and reactor lines in terms of, you know, if we have to go ahead or where we are in restarting or if we're in full operation at this point.

Okay.

All right, thank you very much.

Our next question comes from the line of John Tanwantang with DGS Securities. You may proceed with your question.

Hi, good morning, gentlemen. Thank you for taking my questions in the next quarter. Corning, can you clarify, did you say you achieved similar pricing to 2020 on an absolute level or similar pricing increases? I'm not sure if I heard the right thing there.

What we've said is that our profitability levels and our share levels were essentially stable year over year in terms of pricing margin.

Got it. So as you head into Q1, the pricing hasn't changed too much? Correct. Correct. Okay, got it. And then can you talk a little bit about the quarterly cadence that you're going to see this year? I get that Q1 is going to be strong on the continuation of the momentum that you're seeing in Q4 and then enjoy staying low. But do you see a little bit of a hangover as we reach Q2 or Q3? And maybe does that bounce back up as we exit the year with vaccination, you know, roll out of time? What are you thinking just in terms of, you know, versus historical seasonality and how you see this year playing out?

So, John, I'm unfortunately going to disappoint you on this. I mean, I think there's so many scenarios out there on how the disease is going to play out. Vaccines are going to play out, consumer confidence. And then you can have to think about that for each of the various markets that we're in. And I think that It's a very dynamic situation, and that's why we chose not to do guidance, just because I think guidance implies more certainty than the current environment allows for. And our focus on this is whichever way these things play out, that we're going to be agile, we're going to be reacting to them, taking plans up, down, whatever we need to do to support our customers and run the business well. I would really, you know, it would just be speculation, in my opinion, in terms of playing out how the year's going to go.

Let me just add that I want to be clear that the fact that we're not giving guidance simply reflects us being candid to say we don't feel confident that we can forecast and others have what you need if you want to assume 90, 95, 100% of 2019. I think we've given the kind of perspective that allows you to do what we're doing, which is looking at various scenarios and what those outcomes could be.

Understood. And thank you for that, Colin. I appreciate it. Just one last one for me. With the $55 to $60 million in CapEx on EPA spend this year, do you have an update on whether you're going to complete the investment or not, just in terms of cost and your latest talk with your contractors?

Well, so we would expect them in 2022 to do about $50 million, have the balance in the order of, let's say, about $15 million to do in 2023. Does that answer your question?

Yes, it does. Thank you very much.

All right.

Our next question comes from the line of Chris Kapsch with Loop Capital Markets. You may proceed with your question.

Yeah, so thanks for taking my question. It's sort of follow up on what Lauren just said with respect to the sort of the volumes that might be expected in 21, these are the 2019. And I guess looking at your slide seven, if I look at that capacity that's available, it looks like you're, you know, I'm assuming that first bar, you're counting through the full year, which would imply about 82% utilized over the course of the year. And if your general comments about 21 volumes looking like second half of 20 volumes, it looks like you get to, as you referenced just now, Lauren, call it 90 to 95% utilization rate. So I'm just wondering, is that the right way to think about it? And then are those the improvement over Is it balanced across rubber black and specialty or do you think it's going to be skewed more towards specialty?

Yeah, I would say when we initially came up with the planning scenario, we did exactly what we're saying. We looked at the second half volumes and we annualized those. Clearly, you are seeing, based on our January and February order books, specialty outperformed year to date. As you look at that incremental capacity to an economic recovery, we do publish our contribution margins for the total company, which are about 530. And so, yes, specialty is outperforming year to date. But I think I just use the aggregate contribution margin rather than guess about mix at this point. And that gives you a sense for what the upside could be.

Okay, and then just to follow up on that, the incremental margins that you referenced, 30 to 35 for rubber, 45% plus, is that just a function of the better overhead absorption or does that also factor in right now a more favorable Energy scenario over 2020 and a more favorable FX scenario, or would those be sort of incremental to the incremental margins?

Those both would be incremental. And so those incremental margins are oil price neutral. To the extent that oil prices, I'm just using an example, are up $10 on average for 12 months, we would expect a favorable impact on top of that on the order of $7 to $10 million to the extent that FX is up year to year. We provide guidance there that says for 1% change on average for the full year, there's a $2 million EBITDA impact. So those both would be additive to the core incremental margins.

Okay. Yeah, thanks. And then I get the, you know, this Stable pricing over 2020, not a bad outcome given the crazy year that 2020 was. Had you given an order of magnitude of how much that base pricing was up for 2020 over 2019? If I'm going to sort of toss away 2020, I think we'd all like to forget 2020, but compare 2021 to 2019, in addition to those incrementals, you'll have the Better Pricing. Can you just remind us what the improvement was?

Well, let me say, on the rubber, what we're saying is that the pricing will resemble last year, sort of year over year. So if you look at revenue by KTs, you'll get an average selling price for rubber, and we're saying we're pleased that the outcome resembles last year.

Okay, fair enough. I think I can do the solve the two equations, two unknowns from here. Thank you so much. Thank you.

Our next question comes from the line of Josh Spector with UBS. You may proceed with your question.

Yeah, hey again. Thanks for taking the follow-up. Just a quick one on the bridge, Lauren. The other line overall was, you know, a more significant negative than I S.A. Common Shares,

You should expect that other, from an oil price dynamic, it could very well be flat to positive because oil prices have risen. And so we've shared with you that on the way down, it's a tailwind, a headwind, and on the way up, it's a tailwind. So that was the end of 2020. and it was negative year over year as was the capitalization that we benefited from etc but as we look into the new year it's a new year and it depends on the year-over-year oil price dynamic which today is tilting towards positive and so I would say close the book on 2020 and as we look to 2021 it'll just depend on all price dynamics which so far are upward.

Okay, I guess maybe for me to clarify then is that was it a bigger impact in 4Q versus 3Q because of the volumes being higher and it had a bigger impact? Because I guess I look at 3Q and say oil price was lower year over year for the prior six months to that versus 2019 and the impact was less. Is that the main driver?

No, the main driver was that in the fourth quarter of last year, we had lower bonus accruals and we had more capitalization at some of our plants of fixed costs. These are idiosyncratic dynamics that wash out. And so that's why you saw a bigger other in the fourth quarter than the third. And over a fairly 12-month basis, it's a wash. That's why.

Okay, thanks. And just on a quick one on sustainability, I guess you saw an announcement from a large tire producer that they're investing in some recycling capacity with what appears to be a recycling company, and part of the output there is carbon black from there. And I was a little bit surprised to see no carbon black or major carbon black producer involved in that project. Is there anything we should be reading from that? or is there involvement from you guys and others in that arena?

I'm not sure exactly which project you're mentioning. We are an active participant in the Black Cycle project and in that scenario we'd be taking the oil from the pyrolysis process and then converting that into carbon black. Maybe just a background on this. So the program is you take end-of-life tires, you shred them, you put them in a pyrolysis unit, which means you heat these things up to high temperature, and coming out of that you end up with some solids that are mainly carbon black, but they also have ash and the other materials that are in a tire, and you also get this pyrolysis oil or tire-derived oil and so forth. So one approach is using that oil. We're in some programs working on that as well as and other renewable sources for carbon black oil. The challenge with the recycled carbon black is just in terms of applications, the relative impurities that are in it and the overall condition of the carbon black. That's something that we're certainly very interested in and we continue to follow.

Okay, I guess, yeah, I was specifically referring to a Michelin project being done with Enviro. Is that something that you guys are involved in?

No, we're not in that. We're in a different Michelin project called Black Circle.

Okay, all right.

Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. One moment while we hold for questions. Our next question comes from one of Lawrence Alexander with Jeffrey. You may proceed with your question.

Good morning. Could you touch on a couple of things? One is, is the arrangement with the EPA kind of set and done? Or are there areas where the new EPA could come back and revisit? And if so, could you discuss your expectations around that, if any? And then I guess secondly, can you give some sense of how you're thinking about the ground rules for growth capex once the EPA projects are done. And then lastly, your thoughts around what conditions or constraints might lead to delaying or deciding to reinstate dividend.

Okay. So let's start then in sequence with the EPA. The consent decrees that we and essentially all the other carbon black manufacturers in the U.S. operate under were negotiated under the Obama administration. We don't think there's going to be any further air emissions issues associated with us. I think they tend to go from industry to industry, and I think we're all in the implementation mode there. I don't expect any changes to that. In terms of growth, I would see this in the broader category of just capital allocation. So we would put up an emphasis on, amongst other things, making sure we have the financial wherewithal, we get our debt levels and so forth in a position that we want. We'll always be investing in continuity and safety capital for our core business. And after that, we would see highly accretive, highly profitable growth. I think that's always a good use of money, but at the same time, Having a structured, regular return of capital to shareholders. And maybe your final question then is, so what would be the timing? What would be the things that would go into that? Again, I'd say, you know, the debt levels, understanding the economy, both where it is and how stable it is. So let's say macroeconomic situations, as well as the specifics to land itself. and then finally coming in with a dividend at a level that is sustainable for this company through a business cycle and a level at which investors have confidence.

Thank you.

Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Corning Painter for closing remarks.

Well, thank you all for your time and attention today. And one more time, just a moment to recognize the severe hardships in much of Texas, Louisiana, other parts of the South. And one more time, an appreciation to our employees who are keeping the lights on, so to speak, in our facilities at a time when there's a lot of personal hardships as well. So thank you all for that, and everyone have a nice day. Thank you very much.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and enjoy the rest of your day.