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OMNOVA Solutions Inc. (NYSE:OMN)

Q4 2013 Earnings Conference Call

January 17, 2014 11:00 a.m. ET

Executives

Kevin McMullen – Chairman & Chief Executive Officer

Michael Hicks – Chief Financial Officer and Senior Vice President

Analysts

David Begleiter – Deutsche Bank AG

Roger Spitz – Bank of America Merrill Lynch

George D'angelo – Jefferies & Company

Bill Hoffmann – RBC Capital Markets

Michael J. Sison – KeyBanc Capital Markets Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the OMNOVA Solutions Fourth Quarter Earnings Discussion Conference Call. (Operator Instructions). Also as a reminder, today's conference is being recorded.

At this time, we’ll turn the conference call to your host, Chairman and CEO, Mr. Kevin McMullen. Please go ahead, sir.

Kevin McMullen

Good morning and thank you for joining us for our conference call to discuss fourth quarter 2013 results. Joining me today is Mike Hicks, Senior Vice President and Chief Financial Officer. I'd like to turn the call over to Mike to make comments on forward-looking statements.

Michael Hicks

Thanks, Kevin. During this conference call, OMNOVA representatives may make forward-looking statements as encouraged by the Private Securities Litigation Reform Act of 1995. All statements in this conference call and in subsequent discussions with the company's management, other than historical information, are forward-looking statements. These statements represent management's current judgment on expectations for future results and other matters. A variety of risk factors highlighted in the company's Form 10-K and in our most recent earnings release could cause business conditions and the company's actual results to differ materially from those expected by the company or expressed in the company's forward-looking statements. In addition, certain financial measures referred to during this call are non-GAAP financial measures. For an explanation or reconciliation of these non-GAAP measures, see our most recent earnings release. Kevin?

Kevin McMullen

Thanks Mike. In our fourth quarter, OMNOVA posted year-over-year improvements in profitability on both and as reported and adjusted basis. Net income rose significantly from the prior year, with particularly strong segment operating profit in Engineered Surfaces which had its best quarter since 2001. Our Specialty Chemical product line had higher volumes year-over-year, with volumes in seven of 10 specialty product categories exceeding last year’s levels. However, weak paper market conditions and competitive pricing pressures in our North American performance material product line negatively impacted the results of our Performance Chemical segment overall.

Generally, improved results in the quarter are due to a better mix of higher margin business in Engineered Surfaces and encouraging trends in several key businesses and markets. Those markets include oil and gas exploration, transportation, as well as U.S construction and refurbishment, which impacts several of our product lines. In addition, the portfolio changes, manufacturing rationalization and the cost reduction actions we have taken have significantly improved our competitive position.

During the quarter, we continued to move ahead on initiatives to broaden our global footprint and respond to changings needs of our customers and markets. We made progress on a number of these investments during the fourth quarter, and I’ll expand upon the status of our actions in a few minutes. But first, I’d like to summarize our consolidated fourth quarter results as reported in our earnings release.

Fourth quarter net sales were $234.4 million, down $19.5 million from the fourth quarter of 2012. The year-over-year sales decline was driven primarily by 6.4% in reduced pricing and 1.5% in lower volumes. Much of the reduction in pricing was the result of pricing formulas in the Performance Materials product line which are indexed to changes in raw material cost.

Gross profit in the fourth quarter of 2013 was up $3.2 million from the previous year, primarily due to lower overhead costs as a result of our cost reduction actions and a better sales mix. Gross profit margins also improved to 22.1% versus 19.1% in the fourth quarter of 2012. Net income for the fourth quarter was $7.9 million or $0.17 per diluted share compared to $700,000 in net income or $0.01 per diluted share for the fourth quarter of 2012. The 2013 fourth quarter included a gain on the sale of assets in Taicang, China, which was partially offset by several items related to the former commercial wall covering business.

Excluding these unusual items, adjusted income from continuing operations was $5.5 million or $0.12 per diluted share compared to adjusted income from continuing operations of $2.5 million or $0.06 per diluted share in the fourth quarter of last year.

Selling, General, and Administrative expenses in the 2013 fourth quarter declined to $27.9 million as compared to last year’s fourth quarter SG&A of $29.1 million. The $1.2 million year-over-year improvement was due to lower annual incentive compensation expense and a reduction in discretionary spending.

Interest expense was $7.6 million in the 2013 fourth quarter, down $1.1 million from the fourth quarter of last year. The decline was due primarily to lower borrowing spreads as a result of the second quarter refinancing effort and lower foreign borrowings.

Income tax expense for the fourth quarter of 2013 was $700,000, a 7.4% effective income tax rate. Income tax expense in the previous year’s fourth quarter was $1.4 million or a 53.8% effective tax rate. For the full-year 2013, the effective income tax rate was 22.6%. The lower tax rate for the fourth quarter in the year was due primarily to higher income in our foreign jurisdictions where the rate was lower than U.S. statutory rate, one-time tax benefits related to our operations that were previously sold, and other one-time tax items, all of which totaled $2.4 million.

Cash tax payments in the U.S. over the next few years are expected to be minimal as the company has approximately $113.6 million of U.S. federal net operating loss carry forwards and $108.9 million of state and local tax net operating loss carry forwards with expiration dates between 2022 and 2033.

OMNOVA's trailing 12-month adjusted EBITDA, as defined by our Term Loan Credit Agreement, was $97 million at the end of fiscal 2013. The company’s leverage ratio of net debt to adjusted EBITDA improved from the third quarter to under three times, and we were in full compliance with all lender covenants. During the year, we continued to deliver positive cash generation as we reduced net debt by $20.5 million at fiscal yearend. At fiscal yearend, net debt had declined to $286.8 million. At the same time, we were able to fund investments for global manufacturing and capabilities expansion and for the repurposing of certain manufacturing assets in the United States.

Turning now to the business segment results, beginning first with Engineered Surfaces. Fourth quarter net sales were $55.9 million, a 13.2% decrease, or $8.5 million lower than the fourth quarter of 2012. The decline was driven by the strategic decision to exit certain low margin China residential furniture applications, lower sales in Performance Films, and the impact on manufacturing operations of a typhoon-related flood that affected the Minhang, China plant during the quarter. As a result of the tireless efforts of our team to bring the plant back online in just 10 days, the Minhang flood is not expected to have a material effect on 2014 results.

Despite the lower sales in the fourth quarter, adjusted segment operating profit for the Engineered Surfaces segment improved to $6 million and was the highest quarterly adjusted segment operating profit for this business unit since 2001. This compares to an adjusted segment operating loss of $1.1 million for the fourth quarter of last year. The improvement in the 2013 fourth quarter was due to favorable sales mix, improved yields, lower manufacturing costs related to the closure of our Columbus, Mississippi production plant in the first quarter of 2013, and the restructuring earlier in the year of our Asian operations. This restructuring included a headcount reduction of over 90 employees.

Engineered Surfaces reached a milestone in the fourth quarter posting double-digit adjusted segment operating profit margin at 10.7%. It was a significant improvement over the negative 1.7% in the fourth quarter of 2012. The profitability of the global Coated Fabrics product line improved significantly from the fourth quarter of last year despite lower sales. Sales were negatively impacted by our decision to exit the lower margin segments in the China residential furniture market and the Minhang flood disruption. Our Thailand based Coated Fabrics business contributed to improved profitability of the global business. In fact, our Thailand facility, which produces upholstery for many of the major Japanese automotive OEMs serving the emerging Southeast Asian markets, had one of its best years ever in 2013.

Sales for the Laminates and Performance Films product lines were $32.9 million in the fourth quarter of 2013, a decline of $4.2 million from the prior year. Lower Performance Films sales represented most of the decline. However, demand continues to be strong in residential and commercial construction-related markets. The improving U.S construction market provides significant opportunities for our Laminates, which are used in a number of residential applications; including kitchen and bath cabinets, flooring, interior window profiles, home furnishings, and specialty acrylics for bath surrounds.

Our Laminates are also used in commercial applications such as retail display fixtures and food service tabletops, seating, and exits. In addition, our Laminates are found in a number of surfaces for recreational vehicles, a market that has also begun to bounce back over the last few years. Our laminates provide a functional and design upgrade to many RV interiors where they are used on countertops, dining surfaces, cabinetry, ceilings, trim, and moldings.

Turning now to Performance Chemicals; net sales were $178.5 million in the fourth quarter of 2013, down $11 million from the same period last year. The sales drop was driven by much lower raw material input costs, which resulted in lower index-based pricing in the Performance Materials product line, formerly known as Paper and Carpet Chemicals. Pricing in the fourth quarter of 2013 was down 9.1%. Performance Chemicals generated $13.9 million in adjusted segment operating profit in the fourth quarter of 2013 compared to $18.5 million for the same period in 2012. Higher operating profit in the Specialty Chemicals product line partially offset a profit decrease in Performance Materials due to the lower pricing in volume.

Sales in Performance Materials were $60.6 million in the fourth quarter of 2013, compared to $74.8 million in the fourth quarter of 2012. OMNOVA secured a new two-year contract with a major coated paper producer, retaining all of our 2013 volumes with this customer. Competitive pricing issues were a challenge for the Performance Materials product line in 2013, but the company is committed to taking necessary actions to defend share in our traditional North American paper and carpet markets. At the same time, we continued to develop products that focus on growth opportunities in Performance Materials, including the specialty paper, packaging and commercial carpet markets. These products utilize a range of technologies that include bio-based copolymer, hybrid chemistries as well as ethylene-based emulsions to deliver greater customer value.

Our Specialty Chemical product line had a solid fourth quarter with sales of 117.9 million, a $3.2 million increase from the same period in 2012. The year-over-year increase was driven by improved volumes in sales mix. Volumes grew in seven of 10 specialty product categories during the quarter, including oil and gas, coatings, nonwovens, tire cord, antioxidants and elastomeric modifiers.

As with Engineered Surfaces, the Performance Chemical segment is benefiting from the recovering U.S construction market. We also grew sales of construction related products in the rest of the world. For example, global Specialty Coating volumes were up 7% for the full year 2013 and demand for our saturates and release systems for masking and construction tapes increased 5%. Volumes in elastomeric modifiers that provide improved performance properties for numerous thermoplastic applications were up 13% in 2013 and antioxidants were up 19%. Our WINGSTAY antioxidants have been long recognized as the industry standard for the protection of thermoplastics, latex and rubber products for a broad range of high performance applications. Demand for OMNOVA's products used in global disposable and durable nonwovens in textile applications was up 12% during the year.

In addition with a 14% increase in volumes, it was another strong year for our chemicals sold into oil and gas drilling applications where we are well positioned with a number of proprietary, high-performance chemistries in both liquid and dry form. As I mentioned earlier, we have a number of exciting investments in the performance chemicals business that are critical elements of our growth strategy. Late in 2013, we completed the styrene butadiene latex expansion at our Caojing, China chemical plant which will enable us to serve a broader range of specialty applications in China and Southeast Asia, including nonwovens, tape, personal care, transportation, carpet, packaging, construction and coatings. The Caojing plant was only just commissioned in 2011. The need for expansion speaks to the growth that is occurring in the region as a result of a growing middle class, improving standard of living and adoption of global consumer product brands. Production quantities are currently ramping up in Caojing.

In North America where styrene butadiene industry capacity utilization has declined, we converted certain excess SD capacity to the manufacturing of hollow plastic pigments. This work was completed in the spring of 2013 and we are now working to broaden the application of this high performances technology into a wide range of specialty markets. In the middle of 2013, OMNOVA announced an investment to redirect additional SD capacity to the production of styrene acrylic and other specialty emulsion chemistries at our Mogadore, Ohio site. Initial progress was made in the fourth quarter of 2013. When the project is completed at the end of 2014, the company estimates operating savings of $4 million per year beginning in 2015.

Finally, our investment to add new acrylic emulsion capabilities at our plant in Le Havre, France also began in late 2013. This project will be completed in the middle of 2014, further strengthening our specialty coatings leadership for applications such as exterior masonry coatings, stain blocking primers and direct to metal and incandescent paints.

In summary, OMNOVA’s fourth quarter results reflected year-over-year improvement in earnings, with solid performances in the Specialty Chemical product line and in Engineered Surfaces. We were encouraged by the improved profitability and increased volumes in many areas of our company. We were also encouraged by the progress our Engineered Surfaces segment has made over the past two years. Our actions to divest or exit unprofitable businesses, reduce operating costs, and consolidate our global footprint are having positive, tangible results. We continued to take aggressive actions and make targeted investments to improve our competitive position and become a world class provider of global Specialty Chemical and Engineered Surfaces solutions. We are committed to building upon these investments and actions, with the single minded focus of enhancing long term shareholder value.

Mike and I would now be happy to answer any questions that you might have. Operator, I’ll turn it back to you.

Question-and-Answer Session

Operator

(Operator Instructions). And our first question in queue will come from David Begleiter with Deutsche Bank. Please go ahead.

David Begleiter – Deutsche Bank AG

Kevin, just given the recent spike in styrene, can you help us with how that might impact Q1 performance and Performance Chemicals?

Kevin McMullen

Yes. So we’ve seen styrene costs go up here. It’s gone up over the last year or so, and it’s continued up here. That will add to our raw material costs for much of our Performance Materials, formerly Paper and Carpet pricing was indexed. There is a lag on that, so we won’t capture all of that in the first quarter, but we will get that as the year -- as it progresses into the second quarter. And for other parts of our business, we’ll be looking at pricing actions to offset that raw material inflation.

David Begleiter – Deutsche Bank AG

Do you think Performance Chemicals earnings could be up either year-over-year or quarter-over-quarter in Q1?

Kevin McMullen

We don’t give guidance on quarters. But as you know, our first quarter seasonally is our weaker quarter. It begins December 1. And so, we’re very focused on trying to build on the momentum that we created here in the second half of the year. And so, that’s our focus as we go into 2014.

David Begleiter – Deutsche Bank AG

And just on Engineered Surfaces, what was the impact of the typhoon and other -- in Q4 on that business, earnings basis?

Michael Hicks

Dave, we missed a couple million dollars in sales versus our plan, and we have built up a receivable on our balance sheet both for property and business interruption, and since we’re still in negotiations with the insurance company, again we’re not giving an exact number on that, but again the sales loss that we thought we had in the quarter was about $2 million, and that would have been pretty good margin business.

David Begleiter – Deutsche Bank AG

And just on the same issue, earnings power given the performance, strong numbers in the back half of the year. Earnings power, Kevin, for this segment in 2014 and beyond?

Kevin McMullen

For Engineered Surfaces, certainly our goal, as you’ve heard me say many times, is double-digit operating profit, and that remains our goal going forward. I think our laminates business has been achieving that, and our Coated Fabrics business made a big step forward in 2013. And so, we look to build on that progress. That remains our goal. We weren’t here for the year, but we did make it for the quarter in Engineered Surfaces. We exceeded that double digit target that we have for the business.

Operator

Thank you. Our next question in queue, that will come from Roger Spitz with Bank of America. Please go ahead.

Roger Spitz – Bank of America Merrill Lynch

Perhaps you gave this, and it was too fast for me, but can you break down within chemicals between Performance and Specialty, your year-over-year for the fiscal Q4, the change in volume and pricing.

Michael Hicks

Yes, Performance Materials which is Paper and Carpet, volumes were down 7.6% and in Specialties, volumes were up 7%. So in total on the pound we were down about 1.2%. Pricing drop for the quarter was $17 million, and that was split pretty evenly between the two.

Roger Spitz – Bank of America Merrill Lynch

In Paper and Carpet, the price decline, some of it obviously is contract, but you also called out competitive pricing. I think on the prepared remarks you said a lot was contract. Can you break out any further how much was sort of contract driven versus competitive pricing driven?

Michael Hicks

Yeah. Most of that in the quarter was contract driven, Roger. We did secure our largest paper customer at a reduced price from where we had been previously in the year for that, new two-year contract, so that impacted us a little bit in the quarter because that contract became effective in October, but most of it was related to the big year-over-year decline in butadiene, slightly offset by higher styrene prices year-over-year.

Roger Spitz – Bank of America Merrill Lynch

If you look at the fiscal ’13 overall year-over-year for Paper and Carpet chemicals, the first half -- fiscal first half was down 23%, and then the fiscal second half was down 19%. Should we think about this on a sales basis? Should we think about this business as now being roughly stabilized or will see, maybe not to this extent, these kind of sales action going forward.

Kevin McMullen

Yeah. So you had two things working there, right? You had volumes declining in the paper market in particular and then you had revenue declining because of the fall in raw materials. And so, if raw materials stabilized we wouldn’t expect the revenue declines given the index pricing we have. If raw materials go up, we would expect some expansion there. So part of the revenue line, assume a big part of the revenue line depends on where raw materials go, we tend to look at volumes to take that effect out of the equation and better understand that.

Michael Hicks

We lost some business also in the fourth quarter of 2012, Roger. So that impacted those numbers. We’ve not lost any significant business in account of legacy SB Latex part and in the hollow strip plastic pigment. We did pick up some volume through the year, so I’d say . asset, whatever the forecast is for, decline in the coated paper market this year, certainly we don’t see any volume deterioration from market share loss as of now, and again we’ve contracted most of the volume for 2014 has been put under contract as just a few mils that come up here in the rest of the year.

Kevin McMullen

Roger, I don’t know if this helps or not, in publication papers we see a structural decline in that business, but other areas where we see the potential to counteract that or in Specialty Papers in packaging and then while Carpet has been off for the last couple of years, we think with an improving residential construction market, we think the Carpet market will see positive increases as we go forward into 2014. So there are some pieces of that Performance Materials segment that we think the market will be growing.

Operator

Our next question in queue will come from Laurence Alexander with Jefferies. Please go ahead.

George D'angelo – Jefferies & Company

This is George D'angelo sitting in for Laurence today. Given all the portfolio shifts in recent years, how would you benchmark operating leverage to growth in the automotive market and should sales grow faster than auto builds due to penetration and substitution effects or about the same? Thanks.

Kevin McMullen

So a lot of our exposure in automotive is in the Asian automotive market, particularly in Engineered Surfaces where we have a growing franchise in China as well as in Thailand producing automotive interiors, so upholstery for seating and increasing other components of the interior as well. We would expect the opportunity to grow at better than market rates there given penetration in substitution place that we have there. So yeah, that would be the expectation going forward.

George D'angelo – Jefferies & Company

Just one more. The capacity utilization of the hollow plastics pigments business, would you say it’s higher or lower margin than the segment average?

Kevin McMullen

So from the utilization standpoint, we’re probably in the 60% range and it would be better margins than the rest of that segment.

Operator

Our next question in queue will come from Bill Hoffmann with RBC Capital Markets. Please go ahead.

Bill Hoffmann – RBC Capital Markets

Kevin, I wonder if you could talk a little bit more about the Specialty Chemical side of the equation. You had volume growth about 7% this year and just wanted to get some sense of as you look forward what kind of growth you expect to get out of that business.

Kevin McMullen

We certainly would look at -- those kinds of rates -- those rates of volume growth going forward. There’s a fair amount of variability within the specialty area. We think oilfields will grow more rapidly than that. We think the Coatings business has the opportunity to grow at those levels. Our nonwovens business has the opportunity to grow to those levels. Other areas that may not grow quite to that total 7% or 8% level, tire cord is a big question going on in terms of the tire construction, tire inventory. Last year tire build was down, even though automotive build was up. So replacement tires are not being used as prevalently or replaced as frequently as they once were. So other areas we see good opportunities for growth, elastomeric modifiers, antioxidants, all areas in our specialties area that we think we can grow in that mid to high single digit year-over-year growth rate.

Bill Hoffmann – RBC Capital Markets

Thank you. That’s helpful. And then shifting to the paper sector again, you do talk about some of the opportunities in specialty papers and packaging. Do you see enough opportunity out there that you might be able to offset some of the declines that we expect to continue in the coated side?

Kevin McMullen

Yeah. That’s certainly our intention and our focus is to pursue those opportunities to offset the decline. We have very good technology. We think it’s very relevant for those specialty areas. Part of the opportunity we have is a historical function that we did not really focus on, the Packaging Specialty areas when were in a joint venture with Rohm and Haas for a number of years. Now that that joint venture has ended when Dow acquired them a few years ago, it opens up that market for us to focus more where we have very relevant technology for the market. So that’s certainly the focus of that business team to help us get some of the decline that’s happening in publication papers.

Bill Hoffmann – RBC Capital Markets

Just on a relative basis, is that maybe a quarter of the size of the coated paper side or 10%? Just trying to get a sense of even if you have some good growth, how much it impacts the overall.

Kevin McMullen

Yeah. So it’s probably ---

Michael Hicks

8% of the Coated Paper market. We have a very small share there now.

Bill Hoffmann – RBC Capital Markets

And then just last question, you talked about the consolidation of the Akron plant and from a cost standpoint, but I just wonder from an end market standpoint whether you see some opportunity to develop some incremental product opportunities there.

Kevin McMullen

Yeah, absolutely. We are working aggressively to do that largely in our specialty coatings area and the opportunity has improved with the Mogadore production where we have larger reactors, more cost effective reactors. So that opens the opportunity for the emulsion side of our business in coatings. We also have a very important dry resin part of our business and we will focus the existing Akron plant on the dry resin which they have been producing and we’ll continue to produce going forward. So we’ll have a much more focused approach to those two parts of the business that are very important for us.

Operator

Our next question in queue will come from Mike Sison with KeyBanc. Please go ahead.

Michael J. Sison – KeyBanc Capital Markets Inc.

In terms of Engineered Services, the improvement in ’13 versus ’12, pretty impressive, up $12 million. Can you break that down for us? How much of that was really just cost savings at -- and maybe product mix? Help us understand the profitability improvement for the full year.

Michael Hicks

On a continuing basis Mike, let me get those numbers in front of us. We have been from $9.3 million to $17.7 million. So it’s a little bit over $8 million and I’d attribute half of it to the closure of the Columbus plant and having better efficiencies by transferring most of that product to Thailand and the rest of it was improvement in China. China did not participate in a lot of the transfer of sales for coated fabrics out of Columbus. So part of the growth in profitability came from Asian operations. Laminates was pretty stable year-over-year. Performance Films was down a bit, but again of the $8.4 million of continuing improvement in operating profit, I’d say half of it was from Columbus and half of it was other actions we took, primarily in Asia.

Michael J. Sison – KeyBanc Capital Markets Inc.

Do you have more cost savings that would positively impact ’14 as well?

Michael Hicks

There’s a little bit in the first quarter year-over-year because we were operating Columbus through the middle to end of February in 2013.

Michael J. Sison – KeyBanc Capital Markets Inc.

And it’s interesting in the fourth quarter you had the lowest sales quarter but the highest profitability. If your sales were completely flat in ’14 versus ’13, Kevin, would your profitability be at double digits?

Kevin McMullen

It would probably be slightly below that.

Michael J. Sison – KeyBanc Capital Markets Inc.

And then for Performance Materials, when you think about 2014 versus ’13, it sounds like you continue to grow the Specialty Chemical businesses and you also as I recall do have some wins in paper that maybe helps you in ’14 versus ’13. Any other positive drivers that could get earnings up in ’14 versus ’13?

Kevin McMullen

We expect -- as we say, we expect this North American construction market to continue to improve and that will help many segments of our company in Performance Materials. It will clearly help Carpet, but in our Engineered Services it will help our Laminates business. In our Specialty Chemical business it will help coatings and many other pieces of that. So I think we are encouraged by early signs of market improvement in some of the large markets like North American construction and refurbishing where we get significant benefit from.

Michael J. Sison – KeyBanc Capital Markets Inc.

And as I recall, don’t you have some cost savings maybe from the changes the Mogadore plant are a help too?

Michael Hicks

That will be 2015. We’ve got a large plant there that is very active and a lot of time is going to be required during weekends and plant shutdowns to do the complete conversion there. So it’s going to take most of this year to complete that conversion from [escalate text reactors] to acrylic reactors. So we’re looking at $4 million incremental improvement in operating profit starting ’15.

Operator

We do have a follow up question in queue from Roger Spitz. Please go ahead.

Roger Spitz – Bank of America Merrill Lynch

Hey, we talked about the new major Coated Paper customer, new two-year spot agreement, but at a reduced price. Is there any EBITDA headwind guidance that you can provide on that reset lower price?

Michael Hicks

We’ll just put this way, Roger. We also on a year-over-year basis have more HPP volume and as we look at the year, we’re seeing that that the EBITDA in the paper part of the business is flattish and now again it’s a market from a total volume perspective is flat versus if the market drops 5% that certainly would change our outlook. But for right now on an EBITDA side, it’s relatively flat with ’13 because of the additional HPP volume that we have.

Roger Spitz – Bank of America Merrill Lynch

You may or may not be really into this and maybe you can’t even respond to it, but as you know Verso and NewPage want to get together. They probably are part of the -- they’re saying they’re going to save $42 million of raw material costs outside of fiber and pulp annually. So I guess the concern would be that there’s potentially an additional impact that could potentially occur sometime in the future. But again I’m not sure how you’d respond to that or if you can.

Michael Hicks

I could just give you some facts on where we’re at and again it’s very early in their process and I think just this approval and other things are going to take some time. But we have over 70% of the emulsion binder volume with Verso and NewPage. Verso we signed a new contract with them in January of ’13 and NewPage was October of ’13. So independently they chose us as their largest market share provider and their pricing and everything is very similar. Those contracts run till December of ’15. So we have about two years left on that and it would be our goal to continue to be the preferred supplier to them and to make sure in our customer service and any changes in product and performance we continue to maintain that position.

So again it’s quite a ways till they would consummate a deal and then quite a ways before our contract expires. So that’s the position that we’re in. They buy a lot of raw materials outside of pulp. So I’m sure that they’re going to attempt to get better relief from various suppliers and we’ll see how that plays out for us. But again we’ve got a contract with some lengths here and again they independently chose us as a large supplier. So we feel that we’re in an okay position.

Roger Spitz – Bank of America Merrill Lynch

Lastly, what’s your 2014 CapEx guidance?

Michael Hicks

On the CapEx side, we are looking at some level in the low 30s. We’ve got about $9 million for the Akron and Mogadore consolidation and we had acrylics capacity expansion in France that we’ll finish up here in the first half of the year. We also have a headquarters project. We’ll be moving into a new headquarters in November. That CapEx number in the low 30s excludes the headquarter project. On the headquarter project we’ve already got separate state and local financing that’s lower than our average cost of our existing financing structure. So excluding that, from an operating basis it’s going to be in the low 30s the forecast today.

Operator

At this time there are no additions questions in queue. Please continue.

Kevin McMullen

Okay. Thanks operator. If you wouldn't mind giving people the replay instructions and we'd like to thank everyone for joining us today. We look forward to talking to you at the end of our first quarter.

Operator

Thank you. Ladies and gentlemen, a digitized telephone replay is scheduled from January 21, 2014 at 1:00 p.m. Eastern time until February 14, 2014 at 11:59 p.m. Eastern Time. Also, an audio replay will be available on the OMNOVA Solutions website at www.omnova.com until noon Eastern Time on February 14, 2014. That does conclude your conference for today. We do thank you for your participation and for using AT&T’s Executive Teleconference service. You may now disconnect.

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