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OM Group, Inc. (OMG)

Business Update Call

January 22, 2013 10:00 AM ET


Joe Scaminace - CEO

Chris Hix - CFO

Rob Pierce - VP, Finance


Kevin Hocevar - Northcoast Research

Mike Harris - First Analysis Markets

Chris Kapsch - Topeka Capital Markets

Andrew Dunn – KeyBanc Capital Markets



Good morning and welcome to OM Group’s Conference Call. Information presented on the call may include forward-looking statements that are subject to uncertainties, risks 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 OM Group’s Press Release or in their Form 10-K and applies to this call.

I now turn the call over to Mr. Joe Scaminace, Chairman and Chief Executive Officer of OM Group.

Joe Scaminace

Good morning, everyone, and thank you for joining us on this call this morning. Today, I am joined by Chris Hix, our CFO and Rob Pierce, VP of Finance, whose responsibilities include Investor Relations.

We are very excited to announce that we have entered into agreements to sell our advance materials cobalt business. This is a major step in realizing our vision to move away from commodity businesses to higher value-added businesses. This is the strategy that we have been consistently articulating and executing on since I joined the company back in 2005 and today’s announcement is a watershed moment in the history of the OM Group.

You can see our standard Safe Harbor disclosures on slide two, so let’s get right into the details on slide three. The sale of our cobalt business is the final step in our planned strategic exit of legacy commodity businesses.

Upon my arrival at OMG seven years ago, we had two businesses, cobalt and nickel, which were both tied to commodity metal prices. These were good businesses with great hardworking people, but the volatile earnings and unpredictability did not put us in control of our own destiny.

Our profitability was largely driven by metal prices, over which we had little control. The result was a business profile that was impossible to predict and not a firm foundation for a long term shareholder value creation.

We divested the nickel business in 2007 and with today’s announcement; we have completely existed our legacy commodity businesses and created a new company. This new company now concentrates on business in which we will grow sales and profits by developing solutions to meet complex applications and demanding customer requirements.

These businesses are driven by technology and innovation. Our superior technology will help fuel growth into new markets globally and new applications. We now posses a business model where we will be rewarded for the value that we deliver to our customers. As a result, we are now in control of our destiny and are developing a more predictable and sustaining earnings profile.

Our future is very bright. We are well positioned with a strong balance sheet to execute our strategy of both organic growth and synergistic acquisitions in our existing platforms.

We also have ample capacity for other capital deployment options, including substantial debt repayment and the $50 million share repurchase program that we also announced today.

Slide 4 is a very powerful depiction of all of the moves that we have made to make our strategic vision a reality. This shows the timeline from the sale of the nickel business in 2007 through today’s announcement of our cobalt exit.

As you could see, we have successfully utilized the proceeds from our nickel sales in 2007, along with the existing cash flows and leverage to make acquisitions that align with our strategy for long-term shareholder value creation.

Slide 7 provides a strategic overview of the new OM Group. We will continue to focus first and foremost on organic growth, continuing to develop and commercialize new products and expanding our geographic reach. We will also maintain our commitment to operational excellence and to a culture of continuous improvement. We will continue to work for higher margins and working capital efficiency.

And speaking of improvement, we will continue to focus on increased financial discipline throughout our organization to generate better returns. This is particularly important as we manage through what is shaping up to be a challenging start to 2013.

Even though we remained acquisitive, we are well positioned with the platforms that we currently have. Each of our three platforms have multiple opportunities to also create value via synergistic deals. The targeted outcomes of our strategy are first growing sales greater than 5% annually over the course of a normal business cycle, increasing profits faster than sales through our operating leverage; thirdly, generating free cash flow to fund our growth strategy; fourth, improving returns with strong financial discipline and acquiring synergistic businesses to further build value.

At this time, I will turn the call over to Chris Hix to walk us through the details of today’s announcement.

Chris Hix

Thanks Joe and good morning everyone. Slide 6 outlines the sale of our Advance Material’s business. We are selling the downstream business including our Kokkola refinery to a JV whose participants include Freeport-McMoRan, Lundin Mining and Gécamines. Gécamines is a 20% owner in our Congolese, which is known as GTL. Total cash consideration for the downstream business is $325 million at time of close with the potential for up to another $110 million over the next three years based on sales levels of the business.

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