Q3 2019 Earnings Call
Through the speaker presentation there'll be a question and answer session to ask a question. During the session you will need to press star one telephone.
So much advice the call this being recorded the day once they the six stuff November 2000 in 19.
<unk> Oh, no like that over the cold beer first speaker today the jokes. Thank you. Please go ahead.
Good good good day every one of my name is David Jones aren't Vice President General counsel into compliance officer to inspect.
Thank you for joining our third quarter 2019 financial results Conference call Baseball is being recorded.
As you know late yesterday, we recorded our financial results for the quarter in September 30th 2019.
Press release is posted on the company's website that inspecting dot com.
The slide presentation on the results is now available on her website and broken audio webcast and the slide presentation will be archived on the website for six months.
If we're starting to Bucks right everyone at certain comments major it's called might be characterized forward looking statements under the private Securities litigation reform active 1995.
Generally speaking any comments regarding management's beliefs expectations targets, rather prediction to the future or forward looking statements.
Segments of all the number redskin uncertainties that could cause actual results to defer materially from the anticipated results implied by those for instance.
<unk> in a certain needs are <unk> report and the 10-Q . reports for the Cork ended March 31st 2019 in June 30th 2019, as well as other problems, we have with the F.D.C.
You're referring to the F.C.C. website for our five for these and other documents.
I'd fly three we go over the use of Noncat financial measures.
Discussion today, we've also <unk> included Noncat financial measures reconciliation for the most directly comparable got financial measures is contained in our earnings release, a copy which is available on the in a fake website.
[noise] today's agenda.
Today from Innospec, or Patrick Williams, President and Chief Executive Officer, Indian Clemensen Executive Vice President and Chief Financial Officer was that turned up geometric. Thank you David and walk them every once in a specs thirdquarter 2000, and lighting conference call.
But maybe segmenting the chemical industry reporting difficult trading conditions.
Very pleased to be recording another good settle results <unk>.
Despite somebody's headwinds, we continue to find a combination of good technology.
Why did they focus on customer service, they're supporting our profitable growth.
However remain cautious about future prospects as the market dynamics remain uncertain.
During turbulent times like this are strategy I bought bring it balanced portfolio businesses.
Allows us to continue to grow by taking advantage of positive trends in some sectors.
While dealing with these challenging market conditions.
We have delivered excellent cells grow up to a bar business units, which has contributed to operate income improvement, 14% and adjusted non B.I.P.P.S. as increased by 17% compared to the same quarter last year.
<unk> favorable tax conditions in the quarter.
We deliver $30.1 billion, a net income which is up by 46% on the third quarter of 2018.
This was also an extra one quarter precast generation, which is allowed us to reduce net debt to just 22.7 million, which is equivalent to apply actually 0.1 time either die.
Built specialties had an excellent quarter S. sales increase the boat aviation and marine applications, which added to a solid performance and our traditional markets.
Aquatic next during the quarter was particularly rich, which contributed to gross margins, what's real hot at the higher end of our expected range.
Well, we are coffins continue to put a business business future prospects will be more like typical growth rates in these markets.
We expect to experience turbulent conditions that performance chemicals business.
I personally have packed like global trade disputes.
Yeah difficult and use markets.
That's background, our business has performed reasonably well.
Although revenues are down part of the impact is a continuance of depressed possible materials and the translation impacts a foreign exchange.
Despite underlined blinds begin doubt gross margins continued to improve.
Reflecting our strategy to focus on well have more profitable product lines.
We have a number of opportunities to give us confidence that we will have a stronger fourth quarter, however market conditions make a somewhat cautious I'm prospects for 2020.
You only gas market is also obscene <unk> very bought out during the quarter.
However, our old what services business has again performed exceptionally well improving revenue by 17%.
Further enhancing gross margins.
Outgrowth is driven by our stimulation in production activity levels. That's customers continue to find a combination of excellent technology in customer service brings tangible benefits to their operations.
We are well aware of the second nature of this market and we're delighted to have completed our first commercial cells in our new drag reducing agent technology during the quarter.
We'll be focus it off including further sales contracts to complete the first base of our best but.
We have also made our first small cells of Saudi Arabia, which is the second part of our strategy to reduce the impact of cyclicality any all filled market.
Yeah, I came out of its revenue and earnings reflected the completion of the latest small order.
There'll be a further order in the fourth quarter and we would keep you updated on any orders in the 2020.
<unk> view our results in more detail than I will return look further comments on the quarter in our outlook. After that we will take your questions yeah.
<unk>.
It's like something in the presentation complete total revenues for the third cool so with 300 and sum to 1.9 million two per cent increase from 363.1 million a year ago.
The overall gross margin was 32%.
From 30.6% last year, driven by improvements in law strategic businesses.
<unk>, Yeah, you for the quarter 51.1 million over 14% compared to 44.7 million in the same forced to last yet.
Oh <unk> 22 cents included several special items next effective which decreased all third quarter earnings by 18 cents per shot.
A year ago, we reported <unk> 84 cents, which included a negative impact from special items of 36 cents per shot.
Excluding special actions in both years are <unk> with $1.40 cents for sure.
<unk>, we fourth of July 3rd quarter of 2080.
17 cents improvements.
Maybe he wants to slide I read an easy field specialties for the third quarter, well 144.4 million.
Sent higher than the 134.9 billion before through the years ago.
And by a 12% improvement two volumes offsets by negative price mixing packed up 3%.
Diverse currency impacts of 2%.
We can live with margins at the higher end of our range at 57.5%, 1.3% you'd points on the site paid last year, driven by a rich product mix.
Operating income was up for the cost outfits, you won't put 1 billion, an 8% improvement from last year.
Do you just like 911 easy performance chemicals for the third quarter would 99.9 million down by 30.
30% impact the 148 million in the same cool to last year.
In addition to a 3% times it was currency impacts a 3% negative price mixing packs.
<unk> with down 7% compared to the same carried last year.
Gross margins, which went to 3.6% Oh, no 0.6% she's points on the second quarter last year.
<unk> was down 25% from last year.
1.3 million.
Just like 10, once again oilfield services recorded a very strong growth compared to the same cost to last year.
<unk>, 17%, it's 121.4 million.
This was driven by good levels of costume activity in the North American markets.
Oh jeez improved by 1.8 centuries points to 33.9%.
The second quarter last year.
<unk> was 10 million in the quarter compared to 7 million and the third quarter of 2080.
Greece of 43%.
You're going to slide 11 that he's not see another two to the cost 6.5 million compact 9.3 million in the same culture here to go with the latest daughter being fulfilled as expected.
Oh price of income with no point 8 million for the quota compared to 2.7 million in the same period last year.
Oh. So this time, we have one or two on hand for delivery in Q. full of 12 million.
There's the potential for for the small ordering 20 223.
<unk> <unk>.
Since the slide 12 corporate costs for the cost of with 50 million within our expected range compared to 12.7 million in the same period last year.
Effective tax rate for the quarter was 23.4%.
52.2% last year, driven by the geographical location taxable profits, we expect the full yet effective tax rates to be 25 cents.
Maybe not just like 13, you close the cost of <unk> 23.7 million down from 54.8 million at the end up the last quarter.
This was a strum quota for cash we'd net cash generation from operating activities 40 million compared to 34.8 million a year ago.
A lot between prefer that and then the courts or with net debt approximately nope, one times eat it D. I.
I, just <unk> tend to 32019 and expect <unk> three bleeding cash.
And so to that 133 million.
<unk> for some final comments thanks again.
These are very complex a challenging times for every one of the chemical industry.
Data stream customers appealing ahead, where's the global trade disputes.
And the drag on <unk>, which is exacerbated by uncertain government policies.
The key to future growth respect will be continued successful investment and development of new technologies.
This is allowed us to outpaced the market's during this year.
And it will continue to be our core competency in the future.
With challenging conditions.
<unk> have a strong balance sheet, which allows the company to take advantage of opportunities when they arrive [laughter] proponents of our business also is delivered excellent cast generation the quarter.
Which is frozen reduced our leverage with net debt to eat but now at 0.1 times.
We first introduced irregular dividend six years ago, and we had delivered an annual increase of 10 per cent spend 50 per cent during that period.
I have to like the board at the side, you again increase our sitting by animal dividend, which result in an annual didn't have a dollar two per share.
Did you say 15 per cent increase over last year.
This delivers on our commitment to return value for shareholders.
I will return to call over the operator in you and I will take your questions.
Thank you, ladies and gentlemen, we will now began to questioning that sort of session. As a reminder, if you wish to ask that question you will need depressed star one on your telephone keypad and wait for it needs to be announced and if you wish to cancel your requests you may press. The ASCII once again star one if you wish to ask a question.
Our first question is from the line up John <unk>. One thing. Thank you. These ask that question.
Good morning, gentlemen, thank you for taking my question send congratulatory quarter.
More than John people in jail. Thank you.
Can you break out how much I am or 2020 product was in your field businesses quarter and what's that all still prep work how was it actually added is going into bunker fuels.
Yeah, John It's Bachelor It was it was mostly prep work still on pre cleaning the tanks.
You will not see the actual performance driven side of it until 2020 actually kit kicks into effect. So it's mostly just tank cleaning more than anything else in preparation for about 2020.
And and you know, we typically don't give product lines and what their actual.
Revenue and and contribution is to to the quarter, but I will tell you this bit as it is it is definitely making a difference now and that business. We continue to see that moving forward 2020.
Okay, great and any update on how you expect that to to kick in as as they start buying a performer status or you know towards the end of this quarter or in January whenever they need to be buying the stuff by yeah. We're still in the unknown stage again, we don't know up as can be treated at the refinery or at the terminal or on the or on the vessel and so.
It it's still kind of up you know I would say by end up queue for first part of Q., what we'll have a much better idea of what it's going to look like what the market conditions are going to look like.
Okay, great on the D.R.A. side can you kind of color the close opportunity there for that I 12 to 24 months and it's most of that an oilfield or is that also being sold refineries on the show side as well.
Yeah. Most of this you know failed and we're selling quite a bit now to Brazil, China, Australia.
And just starting here in the U.S. now we've have are all of our first commercial cell has gone out a quarter.
We would we would expect that the.
Plant that we built dispersed stage of D.R.A. will be full like Q1 of a next year and we'll be looking to add additional capacity at that time.
But you know.
Even with the press crude prices. This business continues to go what do the fact that it's an energy savings for the pipeline.
So for US we used to this at the grocery business and if you recall, John we've always said to take cyclicality out the all filled market needs to be selling into Saudi you'll need to have D.R.A. and that's exactly what has gone on that score.
God No that's great to hear they remind me what the capacity of that unit is at this point in time good revenue per year, Yeah. It's fairly small right now we don't get capacity on it but it's fairly small, but you'll probably see es triple that capacity sometime in 2020.
Okay. So maybe just go back or two size the opportunity for you guys.
You know, we typically don't give that number job, but I would say all I could tell you, it's north of $20 million well north.
Okay, Great and then finally, just can you discuss your your outlook X. to D.R.A.'s and and you know just given the decline recounts I know you're sensitive guy and why you're doing.
Spansion, but I'm, just you outlet for that bit of it.
Yeah, I mean, it's difficult.
Everything's driven off crude prices Nat gas gas prices and no I think you're really started to see some leverage balance sheets are are are hitting the market on N.P. side business that concern us. So we obviously you have to watch for credit risk.
But most of the customers that were involved with you know as we've always said, we'd get about a six month outlook on what it looks like to their drilling programs and they're pretty solid going into 2020, So we feel confident there.
I think as long as crude stays in that 53, 54 and above range, we used to still see single the high single digit growth numbers.
No we're not us acceptable as we used to be with crude prices do the fact that we've balanced out that portfolio by it again as I said earlier selling into Saudi and D.R.A. and so this is why we can we can really you know.
Managing market in a downturn and that's what we've been able to deal.
Got it and then are you kidding sharing that business outside of D.R.A.S or is it more as a.
Is a more correlated to production.
Well, we're getting share.
Okay, great in one that's one for me just giving want to stock is today.
Small deserve by the but should we expect cause the impact to.
Compensation. Thank you for.
Yeah, I would say that for a.
Emily and I've every one dollar change will probably have a style I 1 million dollar impact on the shared based compensation.
Early days, yet jumped select see how they share price performs over the next cool.
As well deserved.
Okay, great. Thank you so much.
Thanks, John sex jokes.
The next question is from the line of David Silver. Thank you Peace essay question.
Yeah, Hi, thank you.
So.
I guess I would like to start maybe with the fuel specialty segmented in particular, the 12% volume growth that you record. It this quarter you.
I that seems to be you know well above the <unk>.
Historic the underlying growth rate in that segment. So I was wondering if you could point out whether it was timing whether there's a specific new business opportunity that that flowed into the results this quarter and if if it was possible is if there was any way to size the.
Marine.
Oh initial marine fuel sales is maybe a percentage of that.
Share that 12% a year.
Good morning.
If you look at the business it was driven by Optel and it was driven by the marine the marine applications as well in general, though across our traditional business. It was up as well, where you're seeing a little slow down in consumption gasoline.
Not seen a slow down a consumption d. so from what we've seen in the marketplace today.
So that's really where the growth has come from in the quarter, we'll see that balance itself back out into one you know, we we don't see a 12% increase in Q1 room for will go back to our traditional 2% to 3%.
But that that's really what drove to grow thank you for.
It's like two three.
Okay. Thank you for that.
And I'd like to you know and relatively new here. So I apologize if I'm going to be asking something you've said and number it a few times before but.
You know I was comparing the oilfield services level of activity to a few years ago when crude oil prices in my estimation, we're not substantially different sites. Your activity levels are substantially different and I I I believe this was all organic because I believe your.
I'm in a efforts in that area, where around 2012, or so I ran did around 2012 or so so could you talk about let's say why you know you're running it maybe close to 500 million dollar revenue pace in that.
Segment. This year led man, let's say in 2017, you were closer to 300 million I mean, what what are the the key elements that that lead to that much higher level of activity. Thank you yeah, David what I'll do it savvy and asked the front portion of it all come on the back side of it sure David So.
Business and got 52 levels that we've been able to execute across a number fields <unk>. So where this business started smoking direct you'll pray to multi these needs to the market I'm not sure to gain traction over the last number of years and aligned with the the excellent technology, we have in the high service levels that.
Been able to deliver H. really cool the attention interest is a a number of customers across the <unk> in Texas and Oklahoma. So really the organic growth got you've identified has really been about those establishing ourselves in the market I'm really expanding out offering to our existing customers and bringing you <unk>.
So it's gaining market share and that's what we've been able to be tremendously well over the last couple of years no credit for the guys out there yeah I think.
Made a good point and you did as well David This is all organic growth.
So we have outpaced and market quite substantially.
And it's not just what goes on in in you know, Texas, Oklahoma, Colorado State. We if we're very well established but we also do a lot of business over in South America that we've expanded we we've obviously they have talked about taking cyclicality out of this business, which we knew we had to get into Saudi due to OPEC.
Arrangements within a pack and how they operate.
But just as important we knew we had to get into d. already because that crosses over into our fuel specialties business.
And so for US it was a function of bringing on high margin products into a very cyclical market that are noncyclical and that's really what's helped establish the third quarter and that's why we feel very competent going into Q4 and in the 2020.
Okay and then just.
To follow up let me just thing for a second.
I know that they're our initial sales.
[noise] of D.R. raised in the oilfield services segment.
And am I correct in assuming that they did not materially.
Benefit earnings per share operating income in other words, they were initial sales but.
At least at this stage not not the not highly profitable in regards to three <unk> third quarter results is that correct correct that is cause you'll start seeing more benefit in Q4 and and also in Q1.
Alright, Thanks for that and then I would like to circle back on performance chemicals, and the the shortfall there and and in particular your commentary in the release regarding a potential you know relatively quick relatively fold rebound.
So could you just talk about maybe the the nuts and bolts behind the the volume drop this quarter in other words, we know that major European economies are soft.
I do wonder whether breaks it you know kind of through a monkey wrench and maybe some.
People's shipment plan to skip and you know the cross border issues in theory there.
So so maybe if you could kind of maybe just get behind some of the numbers and maybe talk about believers.
You thought fell a little short in the third quarter and that you indicated might be rebounding in the near future. Thank you.
Yeah, I I think a lot of it David was you just said it there's a lot speculation within the global trading environment.
Whether it's the tariffs with China, whether it's Brexit when there's a lot of different geopolitical issues going on around the globe.
And we saw a little bit of D. stock going on in the queue quarter as well and so along with these docking along with depress raw material costs, which are pass through along with a hit on F.X. you generally saw a fairly tough quarter and Q3 now what we're seeing in from the momentum coming out of Q3 go.
Into queue for is that the d. stocking have stopped when people are starting to water again.
I think the the rhetoric around the trade winds on the trade tariffs is starting to change a little bit and people are hoping to throw some positivity come out near future.
<unk> is all in unknown, yeah, it's basically kicking the can down the road, we think the new policy is.
But for US we're prepared from all aspects on how to operate under these conditions. We realize we took a hit in Q3 I don't think we'll see that again I think queue for you'll see as pulling back out of that.
Okay, and if he could just remind me, but within performance chemicals, what would you say the percentage exposure is to to Europe is or is it more than 60% or how would you kinda characterize says that business kind of as we look at it today.
Yeah, it's rubber geographic exposure sorry.
Round about 60%.
Okay very good thanks, a lot I'm going to get back in Q. appreciate it.
<unk>.
No for just question at the what what's your please continue.
Thank you all for joining us today, and thanks to our shareholders customers Innospec employees for your interest in support.
Yeah. They further questions about in us back or matters disgust on this call. Please give us a call.
Part of being up with you again for our fourth quarter results in February 2020 sex again.
So that does conclude already confront spurt today. Thank you <unk> all disconnect.
Yeah.
Yeah.
Yeah.