Orion SA (OEC) Risk Analysis

Carbon black consists of aggregates of primary nano-scale particles. The EPA and other governmental agencies have developed regulatory schemes under which they collect further data on nano-scale materials, including carbon black. In addition, the EPA and other nations' environmental regulatory authorities, including the European Commission, are also conducting extensive environmental health and safety investigations of nano-scale materials. If carbon black is found to be harmful to humans and/or to the environment, it could be subject to more stringent regulatory control, which could require us to incur significantly higher costs to comply with new environmental, health and safety laws and could adversely affect our reputation and business. See "Item 1. Business, Environmental, Health and Safety Matters." In the EU, in 2022 the European Commission finalized the process on the revision of the nanomaterial definition. With its updated recommendation on June 10, 2022 of the definition of nanomaterial (2022/C 220/01), the status for carbon black remains unchanged in comparison to the previous version (2011/696/EU). The majority of carbon black grades are defined as nanomaterials. Furthermore, the International Organization for Standardization ("ISO") developed the ISO TC 229 "Nanotechnologies," which considers carbon black a "nano-structured material." The industry is not yet generally affected by these definitions. However, certain regulations regarding cosmetics applications or articles which are intended for food contact have already implemented nano-specific provisions. Similar nano-specific provisions are also being discussed for other regulations which may additionally affect the use of carbon black in the future. This development may significantly affect our business in a manner we cannot predict, including by increasing the costs of doing business or decreasing the marketability of our products. This could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to tax in Luxembourg, Germany and in other jurisdictions, and significant judgment is required in determining our provision for income taxes. We make, and have in the past made, numerous decisions and assumptions in assessing and complying with our tax obligations, including assumptions regarding the tax deductibility of certain interest expenses, the upholding and recognition of our German tax group, the applicability of the regulations to our business as a group headquartered as a Luxembourg company and the prices applied between our subsidiaries for intercompany transactions, known as transfer pricing. Many of the tax laws that apply to us are complex and often require judgments to be made when the law is unclear or the facts are uncertain. While we believe the decisions we have made and the assumptions and practices we have applied are reasonable and accurate, we cannot guarantee that these decisions, assumptions and practices will not be questioned or rejected by the tax authorities. In particular, we are subject to tax audits in various jurisdictions, and could be subject to additional tax audits, and in many cases, these audits have not yet begun or have not been completed and could give rise to issues of this kind. If these tax authorities successfully challenge our decisions or assumptions, we could be required to pay additional amounts to such authorities to satisfy our tax obligations, which could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, though most of the jurisdictions in which we operate have double tax treaties with other foreign jurisdictions providing a framework for mitigating the impact of double taxation, such mechanisms for resolving such conflicting claims can be expected to be very lengthy. If such conflicting claims are not resolved in our favor, or if the resolution thereof is more extensive than we expect, it could have a material adverse effect on our business, financial condition, results of operations and cash flows.

We are subject to extensive supranational, domestic, foreign, federal, state and local laws and regulations governing environmental protection and occupational health and safety, all of which may be subject to change in the future. The raw material procurement, as well as the production and processing of carbon black and its byproducts involve the handling, transportation, manufacture, use and disposal of substances or components that may pose environmental risks or be considered toxic, hazardous or carcinogenic under applicable laws. We are also required to obtain permits or other approvals from various regulatory authorities for our operations, which may be required for matters including air emissions as well as wastewater and storm water discharge, storage, handling and disposal of hazardous substances, remediation of soil, tanks, pipelines or buildings and the operation, maintenance and closure of landfills. If we contaminate the environment, violate or are found to have violated or otherwise fail to comply with laws, regulations or permits or other approvals, or fail to receive the timely renewal of and due application for required permits, we may have to limit production, incur fines and civil or criminal sanctions, be required to undertake significant capital expenditures to achieve compliance, or be subject to other obligations by one or more regulatory authorities. Certain environmental laws and regulations could also impose strict liability, meaning the Company could be forced to assume liability for environmental damage caused by a party other than the Company, even in circumstances where the Company's actions were lawful. If environmental harm to soil, groundwater, surface water or natural resources is found to have occurred as a result of our current or historical (prior to the existence of the Company) operations, we may be required to incur significant remediation costs at our current or former production facilities, or at third-party sites and for storage facilities. Many of the facilities and third-party storage facilities we utilize have a long history of operation, which might in the future incur environmental compliance and remediation costs due to past spills, contamination, chemical storage, wastewater treatment and waste disposal practices and other activities depending on present and developing laws. For instance, some of our facilities have onsite landfills that have been open for a number of years; we may incur significant costs when these landfills are closed in accordance with applicable laws and regulations. Under certain laws and regulations, the obligations to investigate and remediate contamination at a facility or site may be imposed on current and former owners or operators who disposed of waste on–site. Liability under such laws and regulations may be without regard to fault or to the legality of the activities giving rise to the contamination. As a result, we may incur liabilities for contamination or wastes, including hazardous wastes, generated by our operations and disposed of onsite or at offsite locations, even if we were not responsible at the time the waste was disposed or the contamination occurred. Further, we may also incur additional closure and cleanup costs in connection with the closure of plants or separate feedstock storage sites, including costs relating to decommissioning of equipment, decontamination and clean-up, asbestos removal and relocation or closure of operating equipment such as storage tanks, pipelines, wastewater treatment systems, ponds and landfills. Our operations inherently create significant hazards when storing carbon black oil, converting carbon black oil to carbon black and packaging and storing of carbon black and shipping the products to our customers. These hazards and risks include fires, explosions, spills, discharges and other releases or exposures, any of which could impact the environment, neighboring community and our employees, which could result in, environmental pollution, personal injury or wrongful death claims, damage to our and neighboring properties and reputational harm. In these cases, authorities could impose fines, and the Company could be required to rectify any damage which occurs in or outside of our fence lines. Environmental and safety regulations are subject to frequent change, as are the priorities of those who enforce them, and we could incur substantial costs to comply with current or future laws and regulations, particularly if these regulations change rapidly or require us to comply with multiple, diverging sets of requirements in the different jurisdictions in which we operate. The global trend in environmental regulation is to impose increasingly stringent restrictions on activities that may affect the environment, although certain governments, including the current U.S. Administration, are engaging in efforts to reduce climate-related regulations in various jurisdictions in which we operate. Such regulations have in the past included, and may in the future include, laws and rules designed to reduce emissions of GHG, SO2, NOx, particulate matter and other air pollutants. For instance, the EU has enacted GHG legislation and continues to expand the scope of such legislation. The EPA has promulgated regulations applicable to operations involving GHG above certain thresholds, and the United States and certain states within the United States have enacted, or are considering, limitations on GHG emissions. Any new or amended environmental laws and regulations may result in costly measures for matters subject to regulation, including but not limited to more stringent limits or control requirements for our air emissions; new or increased compliance obligations relating to emission of GHG, SO2, NOx, and particulate matter; any impact our operations could have on the environment or surrounding community; which, in each case, could have a material adverse effect on our operations and financial condition and cash flows. We may be unable to offset these impacts or costs with price increases, productivity improvements, or cost-reduction efforts. Any success we do have in offsetting these impacts or costs will depend on competitive and economic conditions that are inherently variable. Compliance with future more stringent environmental laws and regulations may result in significantly increased capital expenditures related to prevention and remediation. Our business and financial conditions may be impacted if we are unable to finance these increasing compliance costs. Regardless, we may be required to incur non-capital expenditure costs to satisfy climate change and other environmental obligations imposed on us by the various regulations. Certain national and international health organizations have classified carbon black as a possible or suspect human carcinogen. To the extent that, in the future, (i) these organizations re-classify carbon black as a known or confirmed carcinogen, (ii) other organizations or government authorities in other jurisdictions classify carbon black or any of our other finished products, raw materials or intermediates as suspected or known carcinogens or (iii) there is discovery of adverse health effects attributable to the production or use of carbon black or any of our other finished products, raw materials or intermediates, we could be required to incur significantly higher costs to comply with environmental, health and safety laws, or to comply with restrictions on sales of our products, our reputation and business could be adversely affected, and we could become the subject of liability, litigation or enforcement actions. In addition, chemicals that are currently classified as harmless may be classified as dangerous in the future, and our products may have characteristics that are not recognized today but may be found in the future to be carcinogenic or otherwise impair human health. See "Item 1. Business, Environmental, Health and Safety Matters."

The operation of a chemical manufacturing business as well as the sale and distribution of chemical products involve safety, health and environmental risks. For example, the production and processing of carbon black and other chemicals involves the storage, handling, transportation, manufacture or use of certain substances or components that may be considered toxic or hazardous. Our manufacturing processes and the storage and transportation of chemical products entail risks such as leaks, fires, explosions, toxic releases or mechanical failures. If operational risks materialize, they could result in injury or loss of life, damage to the environment or damage to property. In addition, the occurrence of material operating problems at our facilities due to any of these hazards may result in loss of production, which in turn, may make it difficult for us to meet customer needs. Accordingly, these hazards and their consequences could have a material adverse effect on our business, financial condition, results of operations and cash flows, both during and after the period of operational difficulties, and could harm our reputation.

We are party to collective bargaining agreements. We also are required to consult with our employee representatives, such as works councils, on certain matters such as restructuring, acquisitions and divestitures. Although we believe that our relations with our employees are good, there can be no assurance that current agreements will not be terminated, new agreements will be reached or consultations completed without union or works council actions or on terms satisfactory to us. Current and future negotiations and consultations with employee representatives could have a material adverse effect on our business. In addition, a material work stoppage or union dispute could adversely affect our business, financial condition, results of operations and cash flows.

Our manufacturing processes consume significant amounts of raw materials and energy, the costs of which are subject to fluctuations in local and worldwide supply and demand as well as other factors beyond our control. The preponderance of raw material cost used in the production of carbon black is related to petroleum-based or coal-based feedstock known as carbon black oil, with some additional use of other raw materials, such as acetylene, hydrogen and natural gas. We obtain a considerable portion of our raw materials and energy from selected key suppliers. Although we maintain certain raw material reserves, if any of these suppliers is unable to meet its obligations under supply agreements with us on a timely basis or at all, or if we cannot source sufficient supply, we may be forced to incur higher costs to obtain the necessary raw materials and energy elsewhere. Additionally, raw material sourcing and related infrastructure (e.g., harbor access, cargo or ship availability, pipeline, tank, rail, waterway or road-access), may be subject to local developments or regulations in certain jurisdictions where we operate that may reduce, delay or halt the physical supply of raw materials. Our inability to source energy or quality raw materials like carbon black oil, including due to the Russia-Ukraine war, Middle East conflicts and China's relations with the U.S. and with the EU, or otherwise, in a timely fashion and at costs that we anticipate or that are acceptable to us, or an inability to pass-through any cost increases to our customers, could have an adverse impact on our business, financial condition, results of operations and cash flows. Most of our Rubber Carbon Black supply contracts contain provisions that adjust prices to account for changes in a relevant feedstock price index. However, we are exposed to oil price and gas price fluctuations, and there can be no assurance that we will be able to shift the price risks to our customers. Success in offsetting increased raw material, energy and tax or tariff costs with related price increases is also influenced by competitive and economic conditions, as well as the speed and severity of such changes, and could vary significantly, depending on the segment served. Such increases may not be accepted by our customers, may not be fully reflected in the indices used in our pricing formulas, may not be sufficient to compensate for increased raw material and energy costs or may decrease demand for our products and our volume of sales. Oil and energy price fluctuations have had, and are likely to continue to have, significant and varying effects on our earnings and results of operations, partly because oil price changes affect our sales prices and our cost of raw materials and energy at different times and amounts, and partly due to other factors, such as differentials affecting the ultimate carbon black oil price paid by us (versus a particular reference price index), carbon black oil usage amounts and ongoing efficiency initiatives, the value of which fluctuates with oil prices. Failure to fully offset the effects of fluctuating raw material or energy costs could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, volatility in costs and pricing could result in commercial disputes with suppliers and customers regarding the interpretations of complex contractual pricing arrangements, which could adversely affect our business. Significant movements in the market price for crude oil tend to create volatility in our carbon black feedstock costs, which have in the past affected and may in the future affect our Net Working Capital, cash requirements and operating results. Changes in raw material and energy prices have a direct impact on our Net Working Capital levels. Increases in the cost of raw materials lead to an increase in our Net Working Capital. Due to the quantity of carbon black oil and finished goods that we typically keep in stock together with the levels of receivables and payables maintained, increases occur gradually over a two to three-month period but can vary depending on inventory levels and working capital levels, generally. Net Working Capital swings are particularly significant in an environment of high price volatility. We may also be subject to volatility in the cost, quality and availability of raw materials and energy due to factors beyond our control, such as geopolitical conflict. See "Negative or uncertain worldwide economic conditions may result in business volatility and may adversely impact our business, financial condition, results of operations and cash flows" and "Our business, financial condition and results of operations have in the past and could in the future be adversely affected by disruptions in the carbon black oil and natural gas supplies, including disruptions caused by the ongoing Russia-Ukraine war, ongoing geopolitical tension in the Middle East and the growing tension between China and Taiwan" This could have an adverse impact on our business, financial condition, results of operations and cash flows.