Good day, ladies and gentlemen. This is Alan Chapple, Director of Corporate Communications at Rain Carbon Incorporated. Welcome to Rain Industries Limited Earnings Discussion for the December 2021 quarter. With me on the call today are Mr. Jagan Reddy Nellore, Vice Chairman of Rain Industries Limited, Mr. Gerard Sweeney, President of Rain Carbon Incorporated, and Mr. T. Srinivas Rao, Chief Financial Officer of Rain Industries Limited. Along with the earnings presentation, we also released management commentary on Friday, February 25th. We've been receiving questions from certain investors and analysts regarding industry developments and the status of our expansion projects. Accordingly, Rain management will be addressing those questions. Before we begin, management would like to mention that some of the statements made in today's discussion may be forward-looking in nature, and they could be affected by certain risks and uncertainties. The company's actual results could differ materially from such forward-looking statements. We'll now start the discussion. Let's begin with a couple of questions for Gerry related to our Advanced Materials segment. First, Gerry, does the increase in PETRORES capacity ensure that we can run our coal distillation plants at optimal capacity, even if there's some geopolitical disruption or reduction of smelting capacity in Europe? Thanks, Alan. Actually, we are not announcing an increase in our PETRORES® capacity. Rather, we altered the existing capacity that we have to produce additional PETRORES® product. As for the second part of the question, PETRORES® is not produced from coal tar so d emand for PETRORES® does not impact the utilization of our coal tar pitch plants. Okay. Thanks, Gerry. Given the robust demand for CARBORES® and PETRORES®, are we considering adding additional capacity for production? If so, how quickly can that be accomplished? As we've mentioned in our Q4 2021 management commentary, we already altered existing production capacity at our plant in Poland so that it can now produce PETRORES® as well as CARBORES®, giving us greater flexibility to meet the demand for each product depending on that demand. Once our production capacity for PETRORES® and CARBORES® is fully utilized in the future, we'll then evaluate further CapEx investments in this area. Okay, thanks, Gerry. I have a couple questions now for Jagan related to Advanced Materials. Are we developing any new products in that segment that might bear fruit in the short to mid-term? We are constantly researching and developing new products and improving our existing products. However, there are no new products in the short to medium term in the pipeline that we expect to have material impact on earnings. Okay, thanks, Jagan. Another investor wants to know about the declining EBITDA margin that appears to be happening in the Advanced Materials sector during the past couple of years. What has been driving this trend? And do you expect CARBORES®, PETRORES®, and our water-white resins to help reverse this? Thanks, Alan. Actually, EBITDA margins in Advanced Materials have improved in recent years. It is important to remember that at the end of 2020, we divested our superplasticizers business, which used to contribute about $8 million annually to this segment. Unfortunately, in 2021, segment margins were impacted by an unprecedented increase in energy prices, which we are working to pass through to our customers, as well as costs to stabilize and optimize the HHCR plant and the time lag in passing along increasing raw material costs to our customers. We believe these issues will be addressed going forward and are looking to a stronger 2022 for this part of our business. Thanks, Jagan. Turning to CapEx. The first question is whether our investments are achieving tangible results. Specifically, when does management believe that our recent CapEx projects will generate returns and put the company on the path to higher earnings? As mentioned in the management commentary, we have invested approximately $225 million over the past few years on growth projects and product portfolio modernization. We expect to achieve returns from the current year on these CapEx investments. Okay. Thanks, Jagan. Srinivas, I have a CapEx question for you. Can you provide us with our plans for 2020 and 2023? How much of this is for maintenance capital expenditure, and how much of this will be for growth CapEx? Thanks, Alan. As mentioned in our recent management commentary, there's no major CapEx spending in the pipeline except new CapEx for solar power plants in our cement business. Instead, we are focusing on optimizing the returns from the investments we already made. In general, we incur maintenance CapEx of about $70 million per year. However, due to delays in completion of certain maintenance projects in 2021 as a result of supply chain disruptions and COVID-related labor issues at all our plants, we expect spending in 2022 to be around $90 million and we will be back to around $70 million thereafter. Thanks, Srinivas. Now let's turn to the Carbon business segment. Jagan, what is the likely capacity utilization for the calcination operations in 2022, specifically for the new vertical shaft calciner? Also, are we contemplating to sell the production from the new vertical shaft calciner in India or we're gonna export? During 2021, our calciners operated at about 75%, and given the robust demand by the aluminum industry, we expect utilizations to be at a similar level, a tad bit higher level in 2022. As for the shaft calciners, we are looking to operate the plant at approximately 40%-50% capacity. If we receive relief from the petroleum coke import restrictions, that would increase, and the majority of the production from the shaft calciners will be exported. Okay, thanks, Jagan. How many tons of green petroleum coke are we sourcing from domestic refiners in India? And is that number likely to increase in the coming year? We are currently sourcing about 50,000-60,000 tons domestically in India and expect that it'll increase to about 100,000 tons in 2022. Depending on the evaluation of the DGFT allocations for imports, the domestic procurement may vary slightly. Okay. Gerry, turning to the U.S. situation, are we gonna be able to source enough GPC for our U.S. calcination plants considering the permanent closures of some refineries? Will we be able to run all of our U.S. calcination plants at optimal capacity? Yeah. We have long-term relationships with our refinery suppliers, and we're also, in most cases, strategically placed to preferably receive their GPC production. We don't foresee any major issues in sourcing the GPC volumes we require to optimally operate our portfolio of U.S. plants. Also, once the U.S. ACP production facility is fully operational, it will give us even more flexibility to receive a wider palette of raw material specifications, resulting in further improved availability for our plants. Okay. Gerry, speaking of the U.S. ACP plant, what is the anticipated capacity utilization of that facility in 2022? To what extent can it help mitigate the GPC sourcing issues? We're currently evaluating various operating scenarios for our U.S. ACP plant, including where optimum capacity utilization will be in the longer term. Obviously, we just started this plant up in December of last year. Ultimately, this will be determined by balancing product performance at varying blend ratios as well as GPC market forces and the capacity optimization of our calciners. Given all of that, it's too early really at this point to project ACP capacity utilization for 2022. Okay. Thanks, Gerry. In recent calls, we've talked about the challenge of, you know, getting GPC supply. Have we found new suppliers over the past couple of years, and have we entered into any new long-term agreements with them? Yeah, we have indeed found, you know, many new supply sources for GPC, both from already existing and new startup GPC production sources. They're geographically diversified, and their availability has proved especially beneficial to Rain when increasing volumes of Chinese GPC supplies were consumed within its domestic market during COVID. In addition to securing additional GPC supplies, there is an ongoing effort to strengthen our relationship with them, build new and more efficient logistical supply chains for their materials. In short, we don't foresee any major issue in sourcing GPC we need going forward. Okay. Thanks, Gerry. Is there a risk of GPC costs increasing more sharply than calcined petroleum coke prices in the coming months? How confident are we in our ability to pass along those cost increases to our customers? Yeah. GPC and CPC prices have increased dramatically with the resurgence in demand. As we've explained in the past, we are a converter and have the ability to pass on the increased costs that we incur to customers. The only thing that I would like to point out is that at some points, we do have a lag in passing that cost along, but that's not been the case of late. Given the current market conditions with increased demand for all commodities, we don't see any medium to short-term risk in passing our costs along to the end consumers. Okay. Thanks, Gerry. Another investor is asking if there has been any reduction in CPC capacity globally due to the shortage of GPC or environmental concerns. There were news articles about European and Chinese calciners having to reduce their operations. Is this helping us secure more GPC in any meaningful way? One major European calciner supposedly did experience operational issues, and we understand that several Chinese calciners were curtailed before and during the Winter Olympics as part of an overall drive to reduce industrial emissions. These factors did temporarily reduce the global capacity utilization of the calcining industry. However, there was also a reduction in throughput in some Chinese coking refineries. Any extra GPC that became available during that period should be seen as temporary and nothing on a long-standing basis. Okay, thanks, Gerry. Now we have a couple questions dealing with pricing. First, with high aluminum prices, can we expect a similar increase in CPC and coal tar pitch pricing, along with corresponding positive impact on our margins? Yeah, it's hard to predict the future, but we don't see a lot of upward opportunities still remaining since we're pretty much record high levels in our products to this point. Again, I'd like to emphasize that we are generally considered as a converter, and that gives us the ability to maintain rather stable margins regardless of price level. That said, at any particular time, margins could be higher or lower than average due to, as the aforementioned time lag, with the resetting of finished product prices against raw material prices. Overall, though, in the long run, we maintain a pretty consistent margin for our products. Thanks, Gerry. What is the price outlook for calcined petroleum coke and coal tar pitch, and how are the prices determined? Yeah, as I referenced in the last question, you know, like most commodity prices, we're trading, you know, at multi-year highs on a lot of our products. We expect the trend to continue for at least a few more quarters because we've not seen prices top out yet. Apart from the prices of raw materials, change in the supply and demand also influence the prices of our finished product, which ultimately, as I said, you know, wash through for us as a converter. Okay. Thanks, Gerry. Now we have a couple of questions related to coal tar. How comfortable are we in our ability to secure coal tar to run our operations at optimum levels? And have we been able to increase our supplier base during the last couple of years? We have extremely strong long-term relationships with both our vendors and our customers, in the distillation business, in particular our coal tar suppliers. We're very comfortable with our supply scenario, and don't foresee any major issues in sourcing coal tar, moving forward. Okay. That being the case, how does the recent news about the curtailment of capacity by steelmakers Cleveland-Cliffs and U.S. Steel impact the company directly or indirectly? Yeah, those closures will indeed impact the total global availability of coal tar raw material. However, our long history of successfully sourcing raw materials from alternative sources and maximizing the productivity of our carbon raw materials really enable us to meet these challenges. We've had a very effective sourcing strategy that's positioned us very well, and we expect will continue to position us well in the future. Okay. Is there a risk of coal tar prices increasing more sharply than pitch prices in the coming months? And how confident are we in our ability to pass along those cost increases to customers? Yeah. The you know, we've seen rapid increases already in coal tar prices, which we've passed along. As we've mentioned, you know, as a carbon converter in both distillation and our calcination businesses, fluctuating market scenarios are what we've always really dealt with as a company year in and year out. As such, we're confident in our ability to pass along any and all cost increases. Like I said, the only caveat can be you know, time lags when we see a sharp drop in the market, but that's certainly not a scenario we're looking at today. Okay, thanks, Gerry. Jagan, let's move on to debt. I have a three-part question for you. Can you provide us with an update on the company's timeline for refinancing the 2025 maturities? Is April still a possibility? Also, given that the Rain Carbon bonds are trading at par on the exchanges, do you plan to be more aggressive in buying back the bonds? And finally, what kind of debt reduction can we expect in the coming year? We are closely watching the market and will take necessary action when the markets are favorable. There is no obligation to refinance the debt in the current or next year, which allows us to be opportunistic with the timing. Additionally, if opportunities arise for the repurchase of the high price debt, we will evaluate them as they become available to reduce debt and as excess cash is available. However, at this time, due to the substantial increase in prices of raw materials and finished products and the startup of our new plants, approximately about $150 million of cash has been used to meet the incremental working capital needs of the business. We'll continue to focus on debt reduction going forward. Thanks, Jagan. Srinivas, the next question I have is for you. Do we have any plans to restructure or simplify the organizational structure, such that dividend payments and buyback of equity become more tax efficient? Thanks, Alan. While we constantly watch for changes that impact our structure, we believe all the restructuring activities completed remain valid today. Accordingly, we don't plan to do any further restructuring of our organization. Okay, thanks, Srinivas. As you might imagine, there are some questions related to energy prices. Gerry, can you update us on the company's hedging strategies? Also, what percentage of our energy costs is being hedged? Finally, energy costs account for what percentage of the total cost structure in the company? Yeah, approximately 60% of our energy requirements in Europe are hedged for the first quarter. Approximately 40% have already been hedged in the second quarter. At the same time, we're continuously monitoring the changes in prices, particularly natural gas, and we'll increase the hedging quantities accordingly when the opportunities present themselves. In terms of energy's percentage of our total cost structure, really the energy consumption varies significantly depending on the particular product and also therefore the location of the production in our businesses. Okay. Thanks, Gerry. An investor wants to know about other expenses. They increased by approximately 25% quarter-over-quarter. What caused this increase? Do we expect other expenses to remain in this range again in 2020, 2022? Srinivas, can you take that? Thanks, Alan. The increase was primarily related to rising energy costs in Germany, specifically the price of natural gas, which hit unprecedented levels in the fourth quarter of 2021. As long as these energy prices are at that level, we don't expect any further decline in the other expenses going forward. Okay. Thanks, Srinivas. In our fourth quarter commentary, we noted that higher energy prices in Europe resulted in a $15 million EBITDA impact on the Advanced Materials business. Will the price hikes taken by the company cover this entire amount? We try to push the operating costs to the customers to the fullest extent possible. However, our vendors and customers are also in the same situation, and we have been negotiating with them to make the best out of it. Okay, thanks. Thanks, Srinivas. Gerry, it appears that the Advanced Materials business might have suffered more than our coal tar pitch business from the higher energy costs in Europe. If so, why? Yeah, that's correct. This is a perfect example of the fact that our Advanced Materials products are much more energy intensive versus our distillation products. Building on the prior question, that's a perfect example of where products are different in energy costs. Moreover, Advanced Materials was also impacted by the delay in passing on these costs to customers, which impacted profitability as mentioned previously. Thanks, Gerry. The next question focuses on the hydrogenated hydrocarbon resins plant in Germany and what some investors view as slow path to full production and profitability. With that in mind, and considering the installation of new reactors and other improvements made to the plant in the past year, what can investors expect from HHCR in 2022? Thanks, Alan. Capacity utilization has been rising steadily since the plant was commissioned in 2020. If you recall, the second half of 2020 was a period during which the new resins were distributed to customers for technical evaluation and confirmation. Much of early 2021 was spent stabilizing the plant, which allowed us to operate the facility at approximately 50% during the second half of 2021. For 2022, we expect the plant to be operating at about 75% capacity utilization by the end of the year. We do expect some improvement in the HHCR overall performance in 2022. Good. Thanks, Jagan. Srinivas, shifting gears, can you provide some color related to the impairment loss incurred during the fourth quarter? Several years ago, we purchased some equipment and performed civil construction to extract pitch from a pond at one of our sites in Germany. Our authorization for extracting the pitch expired in the fourth quarter of 2021. Since we have no alternative use for that equipment, the asset has been impaired. Thanks, Srinivas. Next, as you might imagine, we have a few questions related to the situation in Russia. Jagan, first of all, what is the anticipated impact on GPC availability, sourcing and pricing as a result of the conflict in Ukraine? Also, what percentage of Rain Carbon's total requirements are being sourced from Russia? And finally, what is the company doing to mitigate the risks? GPC from Russia makes up a very small percentage of our GPC requirements, and therefore we do not expect any material impact from a GPC perspective. Okay. Similarly, beyond GPC, what is the anticipated impact of the Ukraine-Russia conflict on the distillate production unit in Russia and its sales of coal tar pitch? And what contingency plans are we making for that in the market? Russia contributes about 7.6% of Rain's consolidated revenue. The majority of the plant's coal tar is sourced in Russia, as are the sales of coal tar pitch. As of now, we don't anticipate any major impact from the Russia-Ukraine conflict, but we are closely monitoring the developments and will take necessary actions as necessary. Okay, thanks, Jagan. Srinivas, we have an investor who's asking about the reasons for the write-off of deferred tax assets and whether there is any time limit for availing German tax attributes. Alan, we have deferred tax assets in Germany, majorly on interest carryforwards, tax losses, pensions and other items which can be utilized in future based on the nets of these items. As per accounting standards, these positions could be evaluated at periodical intervals, generally on an annual basis, if creation of DTA is appropriate or any adjustment needs to be done. Due to unprecedented increase in energy prices and stabilization costs for HHCR plant, German tax group had tax losses during the year triggered for evaluation of the positions as at December 31st, 2021. Since as per standard, there is negative evidence of tax losses, the deferred tax assets created earlier need to be adjusted even when we have better or improved future projections. Accordingly, we have unrecognized the deferred tax asset created in the books as of December 31st, 2021. However, it was a non-cash item and a temporary reversal due to the accounting constraints. Since there is no time limit to avail such tax attributes, we would be able to use them in the future. Good. Thanks, Srinivas. Our last couple of questions are related to India. Jagan, what is the latest GPC quota allotted to the company for 2022? DGFT has provided us with a second allocation of about 83,000 tons of GPC for the 2021 fiscal year, giving us a current overall allocation of 135,000 tons for the period. Finally, Jagan, last questions from investors are wondering when the new vertical shaft calciner will begin to provide returns on the CapEx invested in the plant, and when the company expects to resolve its ability to import additional GPC specifically for that plant. With that in mind, can you provide an update on the commissioning of the new shaft calciner and its anticipated production in 2022? We continue to await authorization from the Indian government and the DGFT for import allocations of GPC into the special economic zone as the finished material would be predominantly exported from the SEZ. While the government decision has been delayed by the pandemic, we expect a resolution in the next few months. Until such time, we expect to use a combination of raw material options available for us for the vertical shaft calciner to be able to operate at about 40%-50% capacity in 2022. Great. Thank you very much, Jagan, and thanks to you, Gerry and Srinivas. Ladies and gentlemen, this concludes Rain's management question and answer session for the December quarter of 2021. We look forward to talking to you again.