# DEAR FELLOW SHAREHOLDERS

_Source: `DeepSeekOCR_Ardian_pruned_1k/basic-materials-specialty-chemicals/NYSE_OEC_2019/NYSE_OEC_2019.mmd` · pages 7-13_

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DEAR FELLOW SHAREHOLDERS

IT HAS BEEN A PLEASURE TO MEET WITH MANY OF YOU IN 2019. I APPRECIATE THE IDEAS AND COUNSEL YOU HAVE SHARED WITH ME. INVESTORS HAVE A BROADER PERSPECTIVE THAN ANY ONE COMPANY CAN HAVE, AND THEIR INPUT IS AN IMPORTANT ELEMENT OF OUR EFFORTS TOWARD BUILDING VALUE.

I researched Orion Engineered Carbons, Carbon Black, and their applications extensively before joining Orion. Naturally there were a number of things I learned only after working here and talking with our people and customers. In this letter I would like to convey some of those learnings and where we are going.

## People and Culture

From the start I have been impressed by the Orion team's passion for Carbon Black and for serving our customers well. I quickly established a "Thought Leader" team which allowed me to directly communicate with roughly 120 leaders across the company. We established norms for the company, defined some aspirations as to the kind of culture we want to realize, and collaboratively defined a set of values to guide us.

Putting actions behind our commitment to value people, we stepped up employee communications, and promoted constructive problem-solving and inclusion. We rebranded the Management Team as a Leadership Team and improved cohesion at this level, eliminating the conflict of delegating downward. These actions promote an environment where people have the confidence and support to make decisions. Greater access to training is a clear desire of our team and is consistent with our values. We are on track to provide greater access to training in 2020 by launching an on-line learning platform.

We have also worked to simplify work processes, define roles, and streamline the organization. To strengthen the use of Lean Six Sigma, I added a Black Belt-certified employee to the Leadership Team who works directly with me on enterprise opportunities. Collectively these actions will improve employee experience and speed of action at Orion.

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## Carbon Black is Core

There are two implications to the statement that Carbon Black is core. First, that we are committed to both Specialty and Rubber Carbon Black, with each expected to contribute to our long-term value creation strategy while benefiting from a number of secular trends supporting attractive growth over time. We remain a leader in Specialty Carbon Black and appreciate its differentiated nature, profit margins, and growth prospects. At the same time, we are well-positioned within the Rubber Carbon Black market, which has good margins and relatively stable underlying demand dynamics. There are also numerous synergies to producing both materials, including coordinated feedstock purchasing, economies of scale (most of our plants produce both products) and the ability to provide customers with a full range of grades and particle sizes. Ultimately, we need and want to operate in Rubber Carbon Black and will treat it as the important business unit that it is, as we evaluate long-range strategy and capital allocation decisions, subject to our stringent focus on achieving healthy returns on capital.

The second implication is that we see ample room to grow in Carbon Black in terms of technology, applications and geographies. We do not need to travel far to find growth opportunities, as the Carbon Black market represents a sizeable profit pool and we expect will provide sufficient opportunities that meet our return objectives to enable Orion to achieve substantial growth in the coming years.

## Plants

Since going public in July 2014, we have been working towards right-sizing our production footprint, resulting in consolidations or closures in Portugal, France and South Korea. While we will continue to remain diligent in reviewing our portfolio to identify underperforming assets, we consider our current footprint to be largely well-optimized for the markets they support. Going forward, we see value-creating investment opportunities in enhancing reliability, quality, efficiency, and energy integration across our current fleet of plants. This work largely consists of a wide array of attractive, but relatively small projects with quick payback periods. We will continue to work away at this journey for several years, as we drive to embed productivity as an integral part of the Orion cultural DNA and a reliable, annual contributor to the company's underlying, long-range growth rate.

## EPA

Orion is retrofitting four plants in the USA with emission controls. These are the biggest projects Orion has undertaken since the carve-out from Evonik. It was clear that we needed to deploy experienced talent commensurate to the challenge and that our initial estimates did not fully appreciate the scope of this work. We have added project execution talent and I am pleased to report that we were nearly complete with our first retrofit, and in the field constructing the second, before COVID-19 struck. When the pandemic passes, we will get back to these projects. Meanwhile, we continue technology screening and scoping work for the next two plants which are due onstream in December 2022 and December 2023.

As part of the carve-out from Evonik, Orion was provided an environmental indemnity which we believe anticipated the EPA work. Unfortunately, negotiations between Orion and Evonik were not productive and we initiated arbitration in Germany in early 2019. We expect this to be a lengthy process.

## VALUES

![](images/8_0.jpg)

SAFETY AND
SUSTAINABILITY

![](images/8_1.jpg)

INTEGRITY

![](images/8_2.jpg)

CUSTOMER FOCUS

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ACCOUNTABILITY—WE GET THINGS DONE

![](images/8_4.jpg)

VALUE PEOPLE

![](images/8_5.jpg)

INNOVATION

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3.7%

Adjusted EBITDA
4-Year CAGR

$231M

Cash from operations in 2019

$355M

Liquidity at year-end (12/31/19)

## ESG

I believe Environment, Sustainability and Governance (ESG), particularly environmental sustainability, to be an opportunity and threat for Orion. Recognizing this, in 2019 we added Sustainability to the charter of the now Nominating, Sustainability, and Governance committee, formed an internal committee which I chair, set and published sustainability targets, and issued our first sustainability report.

We also launched a community support program, empowering our people to support social needs in the communities where we operate. So far in 2020, we have donated 3,000 surgical masks to hospitals in Italy and Germany. Directly nurturing our communities and supporting our employees' philanthropic efforts are core to our values.

From a governance perspective, with the changes to our nominated slate of directors, we are moving forward in terms of board diversity and board independence. We also instituted several governance policies such as share ownership requirements for executives and directors.

## Business

One of our key priorities is to increase our focus on return on investment (ROIC). We cannot be satisfied with improving margins, higher EBITDA or delivering sustainable growth over time if either of our businesses are below reinvestment pricing. In 2019, we added ROIC to our Long-Term Incentive Plan, with relative total shareholder returns being the other component. Having the right framework drives the right capital allocation which is one of my key roles.

Next, we increased regional empowerment. Empowering the people close to the customers releases their entrepreneurial spirit and accelerates decision-making. One representation of this occurred in the Americas, where a more empowered Americas' team, under a new leader, opened a cost-effective customer application lab, strengthening our Specialty Carbon Black business.

Rubber pricing was another priority. We worked hard in 2019 to change our mindset for the 2019/2020 pricing cycle with excellent results. Regardless of COVID-19's impact on volumes in the short-term, we demonstrated the higher value Rubber Carbon Black can deliver.

## Looking forward to 2020

Times like these reward companies who act decisively, protect their people, preserve cash, and stay close to customers while continuing to advance their strategic plans. Downturns are always followed by recoveries and our goal is to emerge stronger than before. Emerge Stronger is our mantra for 2020. By emerging stronger we are going to advance our strategic position, demonstrate the resiliency of our business to our stakeholders and continue to deliver shareholder value.

Sincerely,

![](images/9_0.jpg)

Corning Painter
Chief Executive Officer