OM Group, Inc. (OMG)

OMG 
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OM Group, Inc. (OMG)

Q4 2009 Earnings Call Transcript

February 25, 2010 10:00 am ET

Executives

Troy Dewar – IR

Joe Scaminace – Chairman and CEO

Ken Haber – CFO

Steve Dunmead – VP and General Manager, Specialties

Greg Griffith – VP, Strategic Planning, Development and IR

Analysts

Saul Ludwig – KeyBanc Capital Markets

Mike Harrison – First Analysis Securities

Rosemarie Morbelli – Ingalls & Snyder

Chris Hatch [ph]

Presentation

Operator

Good morning. My name is Tracy, and I will be your conference operator today. At this time I would like to welcome everyone to the fourth quarter 2009 year end results conference call. (Operator instructions) Mr. Dewar, you may begin your conference.

Troy Dewar

Thank you Tracy. Good morning, everyone and welcome to our review of OM Group's 2009 fourth quarter results. Joining me this morning are Joe Scaminace, Chairman and Chief Executive Officer; Ken Haber, Chief Financial Officer; Steve Dunmead, Vice-President and General Manager Specialties; and Greg Griffith, Vice-President Strategic Planning Development and Investor Relations.

The copy of the press release was issued earlier this morning, as well as the presentation materials that accompany our discussion can be found on the investor relations' portion of our website at investor.OMGI.com. As a reminder, comments made this morning by any of the participants on the call may include forward-looking statements based upon specific assumptions and subjects to uncertainties and factors which are difficult to predict.

Actual results could differ materially from those expressed or implied. A more complete disclosure regarding forward-looking statements can be found at the bottom of our press release or in our Form 10-K and applies to this call. At this time I will turn the call over to Joe Scaminace.

Joe Scaminace

Thank you, Troy, and good morning, everyone. Before I turn the call over to Ken Haber, I would like to share my perspective on 2009 and also look ahead to 2010. Like many global companies we faced difficult business conditions last year. While these challenges tested our ability to grow, we were able to create momentum for our company by aggressively managing the things within our control.

This momentum took many forms. For example, volumes grew in the fourth quarter as end market demand improved and businesses replenished their inventories. All of our business units achieved higher volumes in the second half of the year compared with the first half. This was particularly true in our electronic technologies business where volumes in electronic chemicals were up 31%. Additionally volumes in Ultra Pure Chemicals increased 14%. These volumes, coupled with improving cobalt price, resulted in sequential revenue growth in the fourth quarter and in the second half of the year.

Improving cobalt supply demand fundamentals contributed to an average cobalt price in the second half of the year that was 28% higher than the first half. As a result, our second half revenues were 21% higher than those recorded in the first half of the year. Operating profit rebounded nicely. While margins were pressured in the first half of the year by a drop in volume, and falling cobalt prices, we saw double digit operating margins in the second half of the year, excluding restructuring charges.

These margin improvements were certainly helped by our profit enhancement initiatives and cost reductions. Also despite the macro-economic challenges, cash from operations continued to be a positive story. Cash provided by operations in the second half of 2009 was up 45% from the first half of the year. We generated positive cash flow from operations for the last seven quarters. This is a real testament to our working capital management and operational excellence initiatives.

So, in 2009 we were able to protect our margins and optimize our cash flow from operations. And we did this without sacrificing the quality of our products or our ability to satisfy our customer's needs. I'm very proud of the effort made by all of our associates at every level of this organization to identify these opportunities but more importantly to act on them.

As I look ahead at 2010, I'm confident in our ability to manage what's in our control. Even in the face of continuing uncertainty about the strength and duration of the economic recovery. Therefore, we will continue to be vigilant in maintaining a low and variable cost structure during what will likely be a slow recovery in end market demand throughout the remainder of this year.

Our lower cost structure will help us maintain our margins and our overall financial strength, particularly our ability to self-fund growth through strong free cash flow. There is no doubt that we were severely tested in 2009. And we still came through this with positive profit after some of our adjustments and strong cash flow. I'm optimistic that our results going forward will be stronger as these conditions improve.

My enthusiasm for 2010 and beyond is also a result of our recently announced acquisition of EaglePicher Technologies. This well-known company is a manufacturer and designer of batteries, battery systems, and energetic devices. Let me share a few thoughts with you about this acquisition. First, as you know we have been working diligently over the last several years to transform OM Group's business model and focus on two growth platforms, electronic chemicals and portable power. This acquisition will accelerate this transformation by giving us a bird's eye view of the latest developments in portable power and more specifically lithium ion batteries.

Gaining in end market perspective brings us a view-point that will allow us to advance our development of battery materials and technologies with the uniquely integrated supply chain. Second, EaglePicher adds to our business portfolio a longstanding market leader in several stable markets such as defense and aerospace. In addition to this, they participate in high growth markets with very strong growth potential in medical and alternative energy.

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