Innospec, Inc. (IOSP)

Q4 2012 Earnings Conference Call

February 13, 2013 09:00 a.m. ET

Executives

David Williams –VP, General Counsel & Chief Compliance Officer

Patrick Williams – President & CEO

Ian Cleminson – EVP & CFO

Analysts

Jon Tanwanteng – CJS Securities

Ivan Marcuse – KeyBanc

Chris Shaw – Monness Crespi

Chris Butler – Sidoti & Company

Gregg Hillman – First Wilshire Securities

Presentation

Operator

Good day and welcome to the Innospec Q4 2012 Results Conference Call. For your information, today’s conference is being recorded.

At this time, I would like to turn the conference over to Mr. David Williams.

Pleased go ahead, sir.

David Williams

Thank you, and good day, everyone. My name is David Williams, and I’m Vice President, General Counsel and Chief Compliance Officer at Innospec, Inc. Thank you for joining our fourth quarter and year-end 2012 financial results conference call. Today’s call is being recorded.

As you know, late yesterday, we reported our financial results for the quarter ended December 31, 2012. The press release is posted on the company’s website at www.innospecinc.com. An audio webcast of the call and the slide presentation on the results are also now available and will be archived on the website.

Before we start, I would like to remind everyone that certain comments made during this call might be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Generally speaking, any comments regarding management’s beliefs, expectations, targets or other predictions of the future are forward-looking statements.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by those forward-looking statements. These risks and uncertainties are detailed in Innospec’s most recent 10-K report as well as other filings we have with the SEC. We refer you to the SEC’s website or our site for these and other documents.

In our discussions today, we have also included some non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measures is contained in our earnings release and in the presentation that follows, a copy of which is available on the Innospec website.

With us today from Innospec are Patrick Williams, President and Chief Executive Officer; and Ian Cleminson, Executive Vice President and Chief Financial Officer.

And with that, I will turn it over to you, Patrick.

Patrick Williams

Thank you, David, and welcome everyone to Innospec’s fourth quarter and year end 2012 conference call. Overall, we had a very good fourth quarter, particularly in our core businesses where we closed the year in very solid position poised for continued growth in 2013 and beyond.

Our Fuel Specialties segment performed especially well in the quarter given the very mild start to the winter season in all regions. Fuel Specialties delivered record sales revenue driven by strong performances in EMEA and the Americas and we had created good momentum going into 2013. Principally due to the richer sales mix, Fuel Specialties gross margin improved 1.1 percentage points to 31.3% for the quarter allowing for a full-year gross margin above our 30% target.

Market demand in the Oilfield Specialties sector remained reasonably strong during the fourth quarter, creating a stable base for our continued build out of this business. Late in the fourth quarter, we closed on an acquisition of Strata Control Services Inc. an important step in growing Oilfield Specialties and we’ll continue a controlled pursuit of other attractive acquisitions in this market.

Recognizing the importance of opportunities in the oil and gas and fuel sectors. We added Lawrence Padfield to our Board of Directors during the quarter. Larry has more than 30 years of oil and gas experience and will lend important experience and perspectives as we pursue business development in these areas.

Performance Chemicals showed continued good growth during the quarter and Personal Care, Fragrance Ingredients and Polymers driven by higher volumes across all markets and importantly, strong margin improvements. We are pleased with our performance and strategy in Performance Chemicals and we remain optimistic about our sales prospects despite sluggish underlying growth in the industry as a whole.

Our Octane Additives business had a strong quarter as we predicted including the completion of a large order held over from the third quarter as we indicated in our Q3 results. In line with our policy of full compliance, we booked a remediation charge in the quarter to bring our environmental liabilities in line with the latest ways of disposal requirements which softened our margin in this business.

As you know, the TEL market is a sunset industry and we have been deeply involved to phase out of TEL from motor gasoline usage and the conversion to unleaded gasoline for a number of years now. We will continue to work responsibly with the few remaining TEL countries, helping in orderly transition to unleaded gasoline without undue disruption to transport and economic growth.

I will now turn the call over to Ian Cleminson who’ll review our detailed results and the return for some comments about our business and strategies going forward.

Then we will you’re your questions.

Ian Cleminson

Thanks, Patrick. Turning to slide six in the presentation, the company’s total revenues for the fourth quarter were $213.7 million, a 7% increase from a year ago. The overall gross margin rose by 1.6 percentage points from last year to 30.4% driven by record sales within Fuel Specialties and higher volumes across all Performance Chemicals markets.

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