On Friday, Orion Engineered Carbons announced that its Board of Directors has approved a capital allocation plan that includes the repurchase of up to $20 million of its common stock over the next 12 months depending on market conditions. The company also will use €70 million of available cash to reduce debt by approximately 10%, thereby reducing ongoing annual debt costs by about €3.5 million. This debt payment will be initiated in December 2015. The company also tightened the range of its FY 2015 Adjusted EBITDA outlook to €205 million to €210 million, from €203 million to €210 million.
In a press release announcing the decision, Orion’s CEO Jack Clem said:
This plan highlights our confidence in Orion’s long term business model and our ability to deliver both operational and financial performance in the future. We are pleased with the strategic position and performance from our Specialty Business, which is delivering excellent profitability and expanding volumes around the globe. Regarding our Rubber Business, with the acquisition of the majority stake in the carbon black plant in Qingdao, China, we have gained a position in this region as the leading supplier of high purity technical grades to the automotive markets. This acquisition complements our expanding Asian business and will have an immediate positive impact on the EBITDA performance of our Rubber Business. Furthermore, volumes in all of our producing regions are holding up as we head toward the end of the year. Given this, we are tightening the range of our FY 2015 Adjusted EBITDA outlook. Moving forward, we believe the organizational change to place operations under control of our individual business units is progressing well. This change increases alignment of processes needed to successfully execute our strategy. Also we expect this change in business structure to best position Orion to exploit future industry consolidation opportunities. We are pleased that our Board has approved a capital allocation strategy that addresses both our current valuation in the public markets while also enabling the company to bolster its balance sheet by repaying approximately 10% of debt currently outstanding. We remain confident in our ability to fund internal improvement initiatives while continuing to generate strong free cash flows enabling us to pay out a healthy, quarterly dividend of EUR10 million, as we have done since our Initial Public Offering. While we have been disappointed with the performance in our Rubber Business in 2015 as a result of negative feedstock impacts, we believe we remain well positioned to execute our long term strategy. We expect to drive continued growth in our Specialty Business. We also expect cyclical and structural margin upside in our Rubber Business as the feedstock environment normalizes, and we execute on our Asian strategy following the acquisition in Qingdao earlier this year. We are pleased that our business model has generated such strong free cash flows that allow this proactive and robust capital allocation strategy.
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