Innospec Inc. Reports Fourth Quarter and Full Year 2005 Earnings
06 Februar 2006 - 10:15PM
Business Wire
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. -0- *T
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
======= ====== *T
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