Innospec (NYSE:IOP)
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Innospec Inc. (NYSE: IOP) today announced its earnings
for the fourth quarter and the full year ended December 31, 2005.
Summary
Fourth Quarter 2005 Results
-- Fourth quarter 2005 net loss after Octane Additives business
goodwill impairment and restructuring charges was $(7.6)
million, or a loss of $(0.62) per diluted share, compared with
net loss of $(13.3) million, or a loss of $(1.08) per diluted
share, for the fourth quarter 2004.
-- Fuel Specialties operating income was $6.3 million for the
quarter compared with $5.8 million for the corresponding
period in 2004.
-- Performance Chemicals operating income was a loss of $(0.1)
million compared with an operating income of $0.2 million for
the corresponding period in 2004.
-- Octane Additives operating income was $14.8 million for the
quarter compared with $26.0 million for the corresponding
period in 2004.
-- Octane Additives business goodwill impairment was a charge of
$(10.3) million, or a loss of $(0.83) per diluted share, for
the quarter compared with a charge of $(17.7) million or
$(1.43) per diluted share for the same period in 2004.
-- Restructuring charges were $(6.2) million, or $(0.50) per
diluted share, for the quarter compared with $(3.0) million,
or $(0.24) per diluted share, for the corresponding period in
2004.
-- Net cash provided by operating activities was $23.4 million in
the fourth quarter compared to $25.5 million for the
corresponding period in 2004.
Full Year 2005 Results
-- The 2005 net loss after Octane Additives business goodwill
impairment and restructuring charges was $(123.9) million, or
a loss of $(10.02) per diluted share, compared to a net income
of $6.2 million, $0.48 per diluted share, in the corresponding
period last year.
-- Fuel Specialties operating income was $26.2 million for the
year which represents a 26% growth over the same period in
2004.
-- Performance Chemicals operating income was $1.0 million, which
is $0.8 million better than 2004.
-- Octane Additives operating income was $69.2 million which
represents a (34)% decline compared with $104.4 million for
the same period in 2004.
-- Octane Additives business goodwill impairment was a charge of
$(134.4) million, or $(10.87) per diluted share, for the year,
compared with $(40.7) million, or $(3.13) per diluted share,
for the same period last year.
-- Restructuring charges were $(31.3) million, or $(2.53) per
diluted share, for 2005 compared with $(8.3) million, or
$(0.64), for the corresponding period last year.
-- Net cash provided by operating activities was $39.3 million in
the year to December 31, 2005 compared to $62.4 million for
the corresponding period in 2004.
Paul Jennings, President and Chief Executive Officer, commented,
"I am very pleased with the overall performance of Innospec, both for
the quarter and full year. Fuel Specialties continues to grow from
strength to strength and the velocity of sales growth is very
encouraging. Performance Chemicals has needed some restructuring
during the year which is now complete and we have seen good sales
growth. Octane Additives delivered an excellent result which was in
line with our expectations. I am also particularly pleased with the
very significant reduction in corporate costs which clearly shows that
we have delivered on our goal of having a fit for purpose cost
structure by the end of 2005."
Mr Jennings continued, "The launch of our new identity, Innospec,
has clearly positioned us as a forward thinking business with a
commitment to our chosen markets in specialty chemicals. We are now
positioned to further grow our core businesses of Fuel Specialties and
Performance Chemicals and at the same time responsibly manage the
decline in Octane Additives. I am looking forward to a very exciting
2006."
Global Earnings and Cash Flow
The 2005 net loss of $(123.9) million, or $(10.02) per diluted
share, compared with a net income of $6.2 million, or $0.48 per
diluted share, for the same period last year. The loss of $(123.9)
million incorporated a non cash impact of $(134.4) million of charges
relating to the impairment of Octane Additives business goodwill.
Net cash provided by operating activities was a $39.3 million
inflow for the year. This compares to an inflow of $62.4 million for
the comparative period last year. The primary causes of the decline in
cash generation are the lower cash income, the timing of tax payments
and the build up of Octane Additives inventory to accommodate the
reduction in manufacturing capacity to ensure an ongoing effective
cost base.
Innospec Businesses
Following the launch of the Innospec identity, the Company has
also realigned its businesses to more closely reflect, in management's
view, how the Company operates and is managed.
The newly renamed Fuel Specialties business now includes TEL for
use in aviation gasoline and certain cold flow improvers previously
reported in the Octane Additives and Performance Chemicals businesses
respectively.
The Performance Chemicals business continues broadly unchanged and
our Octane Additives business is now focused on TEL for automotive
use.
Fuel Specialties reported another excellent quarter recording a
20% sales growth over the same period last year. 2005 sales were
$240.6 million. Sales in the EMEA, Americas and Asia Pacific regions
were 16.3%, 34.4% and 12.2% respectively higher than in 2004.
Operating income at $6.3 million represents a 9% growth in the fourth
quarter compared to the same period last year. 2005 operating income
of $26.2 million was up 26% for 2005 versus 2004, essentially driven
by volume growth in the refinery and detergent markets. The Company
also leveraged its global customer base through a streamlined
organizational structure. The new focused organization will enhance
the drive for customer intimacy in its target markets.
Performance Chemicals sales at $26.7 million represented a 30%
growth for the fourth quarter versus the same period last year. 2005
sales of $105.2 million were 127% ahead of 2004. This was mostly due
to the timing of the Leuna Polymer, Aroma & Fine Chemicals and Finetex
acquisitions.
The operating loss of $(0.1) million in the fourth quarter
resulted primarily from non cash acquisition amortization expenses of
$(0.3) million and difficulties in passing on recent raw material and
energy price increases to customers in a timely manner. Operating
income for 2005 of $1.0 million represents a $0.8 million improvement
from the prior year.
Octane Additives sales for the fourth quarter were $40.1 million,
which represents a (12)% decline on the same period 2004. The decline
versus prior year 2004 was mainly due to the loss of a major customer,
but this was partially offset by higher sales volumes to two other
major customers. Sales for 2005 were $181.9 million, (20)% lower than
2004. Operating income before goodwill impairment for the fourth
quarter was $14.8 million, which represents a (43)% decline from the
same period last year. Operating income before business goodwill
impairment for 2005 was $69.2 million, which is (34)% lower than 2004.
Corporate costs compared to the fourth quarter 2004 are 53% lower
at $4.7 million. Costs for the full year 2005 at $26.7 million
represent a decline of $6.3 million (19%).
Restructuring Charge and Other Expenses
A charge of $(6.2) million was recognized in the fourth quarter
2005 primarily as a result of restructuring and demolition activity in
the UK and an associated increase in pension curtailment charges
arising from restructuring. A charge of $(3.0) million was recognized
in the quarter related to other income and expenses primarily
associated with exchange losses and other sundry items.
Octane Additives Business Goodwill Impairment
As previously reported, a non cash business goodwill impairment
charge continues to be a regular feature of the results. The charge in
the fourth quarter was $(10.3) million, $7.4 million lower than the
charge in the equivalent period in 2004.
Liquidity and Financial Condition
Innospec confirms that it concluded a new three and half year
financing facility with its senior lenders on December 13, 2005, which
will enable the Company to pursue its strategic objectives. As
previously communicated, the maturity date of the new financing
facility will be June 2009.
Conference Call and Web-cast
Innospec management will host a conference call to discuss this
announcement on Tuesday, February 7, 2006 at 08.30 a.m. EST, and can
be accessed by using the dial-in numbers 1 (800) 370 - 0923 (toll
free) or 1 (973) 409 - 9261 (international), or via a simultaneous
web-cast on the company website www.innospecinc.com. The web-cast and
audio replay will be available beginning 11.30 a.m. EST on February 7
until midnight on February 21 on www.innospecinc.com or by dialing 1
(877) 519 - 4471 (toll free) or 1 (973) 341 - 3080 (international),
conference ID #6893805. A copy of this press release can be found at
www.innospecinc.com
About Innospec Inc.
Innospec Inc. is an international specialty chemical company with
almost 1,000 employees in 21 countries. Innospec divides its
operations into three distinct business areas: Fuel Specialties,
Performance Chemicals, and Octane Additives. Together, the three
businesses manufacture and supply a wide range of specialty chemicals
to markets in the Americas, Europe, the Middle East, Africa and
Asia-Pacific. Innospec's Fuel
Specialties business specialises in manufacturing and supplying
the fuel additives that help improve fuel efficiency, boost engine
performance and reduce harmful emissions. Innospec's Performance
Chemicals business includes a range of companies that manufacture
performance chemicals used in the manufacture of such items as
personal care products, household detergents, crop protection
chemicals as well as in the plastics, paper and fungicides and in the
metal plating and oil industries. Innospec's Octane Additives business
is the world's only producer of tetra ethyl lead (TEL). The management
team has a clear strategy in place to ensure the Company maximizes
shareholder value from TEL supply while monitoring and reducing
production in line with global demand.
Forward-Looking Statements
This press release contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements include all statements which address
operating performance, events or developments that we expect or
anticipate will occur in the future. Although such statements are
believed by management to be reasonable when made, caution should be
exercised not to place undue reliance on forward-looking statements,
which are subject to certain risks, uncertainties and assumptions. If
the risks or uncertainties ever materialize or the assumptions prove
incorrect, actual results may differ materially from those expressed
or implied by such forward-looking statements and assumptions. Risks,
assumptions and uncertainties include, without limitation, changes in
the terms of trading with significant customers or gain or loss
thereof, the effects of changing government regulations and economic
and market conditions, competition and changes in demand and business
and legal risks inherent in non-U.S. activities, including political
and economic uncertainty, import and export limitations and market
risks related to changes in interest rates and foreign exchange rates,
government investigations, material fines or other penalties resulting
from the Company's voluntary disclosure to the Office of Foreign
Assets Control of the U.S. Department of the Treasury and other risks,
uncertainties and assumptions identified in the Company's Annual
Report on Form 10-K for the year ended December 31, 2004 and those
identified in the Company's other reports filed with the Securities
and Exchange Commission. The Company undertakes no obligation to
publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
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Schedule 1
INNOSPEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Three Months Twelve Months
Ended Ended
December 31 December 31
--------------- ---------------
2005 2004 2005 2004
------- ------- ------- -------
(millions of dollars except per
share data)
--------------------------------
Net sales $ 135.7 $ 123.3 $ 527.7 $ 468.1
Cost of goods sold (87.3) (67.6) (338.3) (262.1)
------- ------- ------- -------
Gross profit 48.4 55.7 189.4 206.0
Selling, general and admin. (26.6) (26.4) (97.5) (89.6)
Research and development (2.6) (2.8) (11.2) (10.1)
Restructuring charge (6.2) (3.0) (31.3) (8.3)
Amortization of intangible assets (3.3) (3.7) (12.7) (11.2)
Impairment of Octane Additives
business goodwill (10.3) (17.7) (134.4) (40.7)
Other net (expense) / income (3.0) (7.0) (12.6) (6.5)
Interest expense (net) (2.2) (1.9) (7.6) (5.6)
------- ------- ------- -------
Total (54.2) (62.5) (307.3) (172.0)
------- ------- ------- -------
(Loss) / income before income taxes
and minority interest (5.8) (6.8) (117.9) 34.0
Minority interest (0.1) - (0.2) (2.0)
Income taxes (0.7) (1.7) (4.4) (20.1)
------- ------- ------- -------
(Loss) / income from continuing
operations (6.6) (8.5) (122.5) 11.9
Discontinued operations, net of tax (1.0) (4.8) (1.4) (5.7)
------- ------- ------- -------
Net (loss) / income $ (7.6)$ (13.3)$(123.9)$ 6.2
======= ======= ======= =======
(Loss) / earnings per share Basic $ (0.62)$ (1.08)$(10.02)$ 0.50
Diluted $ (0.62)$ (1.08)$(10.02)$ 0.48
Weighted average shares Basic 12,337 12,353 12,368 12,345
outstanding in thousands Diluted 12,337 12,353 12,368 12,989
ANALYSIS OF BUSINESS UNIT RESULTS
2005 2004 2005 2004
------ ------ ------- ------
(millions of dollars)
----------------------------
Net sales
Fuel Specialties $ 68.9 $ 57.4 $ 240.6 $195.6
Octane Additives 40.1 45.4 181.9 226.1
Performance Chemicals 26.7 20.5 105.2 46.4
------ ------ ------- ------
Total 135.7 123.3 527.7 468.1
------ ------ ------- ------
Gross profit
Fuel Specialties 23.9 18.8 80.2 67.6
Octane Additives 21.0 33.5 92.6 129.8
Performance Chemicals 3.5 3.4 16.6 8.6
------ ------ ------- ------
Total 48.4 55.7 189.4 206.0
------ ------ ------- ------
Operating income
Fuel Specialties 6.3 5.8 26.2 20.8
Octane Additives 14.8 26.0 69.2 104.4
Performance Chemicals(a) (0.1) 0.2 1.0 0.2
------ ------ ------- ------
Total Operating income 21.0 31.0 96.4 125.4
FAS 87 pension (charge) / credit (0.4) 0.7 (1.7) 2.7
Corporate costs(a) (4.7) (9.9) (26.7) (33.0)
Restructuring charge (6.2) (3.0) (31.3) (8.3)
Impairment of Octane Additives
business goodwill (10.3) (17.7) (134.4) (40.7)
Other net (expense) / income (3.0) (7.0) (12.6) (6.5)
Interest expense (net) (2.2) (1.9) (7.6) (5.6)
------ ------ ------- ------
(Loss) / income before income taxes
and minority interest $ (5.8)$ (6.8)$(117.9)$ 34.0
------ ------ ------- ------
(a) The newly renamed Fuel Specialties business now includes TEL for
use in aviation gasoline and certain cold flow improvers previously
reported in the Octane Additives and Performance Chemicals businesses
respectively. The Performance Chemicals business continues broadly
unchanged and our Octane Additives business is now focussed on TEL for
automotive use. Certain research and development activities which were
previously included within corporate costs have been reallocated to
the Performance Chemicals strategic business unit. The 2004
comparatives reflect these changes.
Schedule 2
INNOSPEC INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31 December 31
2005 2004
----------- -----------
Assets (millions of dollars)
Current assets
Cash and cash equivalents $ 68.9 $ 33.3
Restricted cash(a) 4.3 -
Accounts receivable, less allowance 64.8 84.4
of $2.2 (2004 - $4.0)
Inventories 96.4 76.9
Prepaid expenses 5.3 5.0
---------- ----------
Total current assets 239.7 199.6
Restricted cash(a) - 4.8
Net property, plant and equipment 67.3 71.8
Goodwill 200.4 332.2
Intangible assets 43.0 48.6
Prepaid pension cost 113.0 122.9
Deferred finance costs 2.1 1.4
Other assets 9.7 9.3
---------- ----------
$ 675.2 $ 790.6
========== ==========
Liabilities and Stockholders' Equity
Short term borrowings $ 14.5 $ 30.2
Current portion of plant closure provisions 10.1 10.0
Current portion of deferred income 2.0 2.0
Other current liabilities 113.8 127.2
Plant closure provisions (net of current
portion) 21.0 18.6
Deferred income taxes 41.9 44.4
Deferred income (net of current portion) 2.9 4.4
Long-term debt 130.1 94.1
Other liabilities 19.9 13.7
Minority interest 0.3 0.2
Total Stockholders' Equity 318.7 445.8
---------- ----------
$ 675.2 $ 790.6
========== ==========
(a) As part of the consideration for Aroma & Fine Chemicals the
Company issued the vendors with GBP 2.5m ($4.3m) of loan notes. Under
the terms of the agreement the loan notes have been secured by an
equal amount of restricted cash in escrow. The loan notes are due to
be paid in two equal tranches in January and September 2006.
Schedule 3
INNOSPEC INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Twelve Months
Ended
December 31
----------------
2005 2004
------- ------
(millions of
dollars)
Cash Flows from Operating Activities
Net (loss) / income $(123.9) $ 6.2
Adjustments to reconcile net (loss)/income to cash
provided by operating activities:
Depreciation and amortization 28.7 24.4
Impairment of Octane Additives business goodwill 134.4 40.7
Loss/(profit) on disposal of equipment 2.8 (4.3)
Loss on disposal of business - 13.7
Deferred income taxes (5.0) (0.8)
Changes in working capital 1.2 (10.5)
Income taxes and other current liabilities (22.5) 11.4
Impairment in carrying value of unconsolidated
investments 6.6 -
Movement in plant closure provisions 2.1 (6.8)
Movement in pension prepayment 10.0 (7.0)
Movements in other non-current liabilities 7.0 (4.6)
Movement in deferred income (2.1) -
------- ------
Net cash provided by operating activities 39.3 62.4
Cash Flows from Investing Activities
Capital expenditures (8.3) (9.6)
Business combinations, net of cash acquired (22.3) (80.2)
Increase in restricted cash - (4.8)
Proceeds from disposal of property, plant or equipment - 5.2
Proceeds from disposal of subsidiary undertakings 2.8 -
------- ------
Net cash used in investing activities (27.8) (89.4)
Cash Flows from Financing Activities
Net increase in borrowings 20.3 11.5
Capital leases - 0.5
Dividends paid (1.7) (1.5)
Issue of treasury stock 1.4 5.5
Repurchase of common stock (2.5) (4.5)
Minority interest - (0.5)
Refinancing costs (2.0) (2.7)
------- ------
Net cash provided by financing activities 15.5 8.3
Effect of exchange rate changes on cash 8.6 5.9
------- ------
Net change in cash and cash equivalents 35.6 (12.8)
Cash and cash equivalents at beginning of period 33.3 46.1
------- ------
Cash and cash equivalents at end of period $ 68.9 $ 33.3
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