Q4 2021 Innospec Inc Earnings Call
These risks and uncertainties are detailed in <unk> 10-K, 10-Q, and other filings with the SEC. Please.
Please see the FCC side or aspects site for these and other documents.
In our discussions today. We've also included some non-GAAP financial measures.
Reconciliations to most directly comparable GAAP financial measures is contained in our earnings release.
non-GAAP financial measures should not be considered as a substitute for or superior to those prepared in accordance with GAAP.
They are included as additional clarification items to aid investors in further understanding the company's performance. In addition to the impact of these items expense had on financial results.
With us today from <unk> are Patrick Williams, President and Chief Executive Officer, and Ian <unk> Executive Vice President and Chief Financial Officer, Beth I'll turn it over to you Patrick Thank you, David and welcome everyone to <unk> fourth quarter 2021 conference call.
I am pleased to present, another very strong set of quarterly results for EDA spec <unk>.
Despite sustained supply chain labor and inflationary headwinds we ended the year with record quarterly sales and full year operating income up 74% on the prior year.
Cash flow was extremely strong in the quarter and our net cash position improved to $140 million.
In addition to.
We announced that our board has approved a new $50 million share repurchase program.
I'm extremely proud of the way our <unk> team has navigated this year's volatile market conditions to deliver these strong set of quarterly results and full year results.
Our business teams remains safe resourceful and customer focused throughout this challenging year.
We believe we are entering 2022, well positioned for continued innovation and growth in all our businesses.
Performance chemicals achieved record quarterly sales and surpassed the $5 billion in full year sales for the first time.
The business delivered its fourth consecutive year of operating income growth and margin expansion with full year operating income up an impressive 29% over 2020.
With our $70 million organic growth investment plans in motion and our new state of the art Global Technologist and are on track for completion by Q2 of this year.
We're well positioned to meet our customers' growing technology demands.
Customers that consumers want sustainability, but they also want high performance. This dual requirement will continue to drive exciting technology lead future growth opportunities across all of our performance chemical end markets.
Fuel specialties achieved record quarterly and full yourselves, along with improved operating leverage.
Gross margins ran below our target of 32% to 35% range.
But this was primarily due to continued delay in jet fuel demand recovery sales mix and contract formula price increases, which naturally lag cost inflation.
As jet fuel demand continues to recover and cost inflation moderates, we expect gross margins to return to our target range.
Consistent with our performance chemicals business. The majority of our current sales and future growth opportunities in fuel specialties are directly tied to sustainability.
I am proud of the role that <unk> technology plays and directing in directly addressing these global initiatives to deploy cleaner fuels and increase fuel economy.
Our technology adds critical safety emission reduction and performance properties to diesel renewable and distillate fuels.
Our society moves towards cleaner fuels tighter emission standards and higher efficiency engines, our addressable market expands.
The global drive to find cost effective ways to reduce emissions burned cleaner fuels and increase operational efficiency plays directly to our technology leadership.
Oilfield services grew sales and expanded operating margin for the sixth consecutive quarter.
The overall market environment in terms of commodity prices completion and production activity is expected to continue to improve in 2022.
As in the prior quarter with this backdrop, there continues to be significant potential operating growth.
Now I will turn the call over to Ian Clemson, who will review our financial results in more detail then I will return with some concluding comments after that and I will take your questions. Thanks, Patrick turning to slide seven in the presentation. The Companys total revenues for the fourth quarter were $413 2 million.
33% increase from $310 8 million a year ago.
Given by recovering demand in all our businesses compared to a COVID-19 impacted the prior year.
Overall gross margin decreased by two percentage points from last year to 27, 3%.
EBITDA for the quarter was $44 8 million compared to $40 2 million last year a.
Net income for the quarter was $23 9 million compared to $22 6 million a year ago.
Our GAAP earnings per share with 96, including special items, the net effect of which decreased our fourth quarter earnings by 34 per share.
Year ago, we reported GAAP earnings per share of <unk> 91, which included the negative impact from special items of 36 cents per share.
Excluding special <unk>, our adjusted EPS for the quarter was $1 30 compared to $1 27.
Year ago.
For the full year total revenues of $1 5 billion increased 24% from $1 2 billion in 2020.
EBITDA for the year was $178 2 million compared to $108 9 million in 2020, net income was $93 1 million compared to $28 7 million a year ago.
Our full year GAAP earnings per share with $3 75, including special items, which decreased our full year earnings by $1 <unk> per share.
In 2020, we reported GAAP earnings of $1 16 per share, which included the negative impact from special items of $2 <unk> per share.
Excluding special items in both years, our adjusted EPS for the year was $4 80.
Compared to $3 22, a year ago.
Turning to slide eight.
Revenues in performance chemicals for the fourth quarter were $168 4 million.
91% from last year's $114 6 million.
Volumes grew 2% with a positive price mix of 21% offsetting and adverse currency impact of 2%.
Gross margins of 21, 4% were down three four percentage points compared to 23, 8% same quarter in 2020.
Impacted by the slowdown of our manufacturing facilities over the holiday period, and one off inventory provisions, we expect gross margins to return to 24% in Q1 2022.
Operating income increased 16% from last year to $16 9 million.
For the full year performance chemicals revenues of $525 3 million were up 23% from last year's $425 4 million and operating income increased by 29% to $70 9 million.
Moving on to slide nine.
Revenues in fuel specialties for the fourth quarter.
<unk> hundred $79 5 million, 30% higher than the $138 3 million reported a year ago.
Volumes grew by 10% and there was a positive price mix effect of 22% offsetting a negative currency impact of 2%.
Fuel specialties gross margin for the quarter were below our expected range of 27, 4% compared to 31, 4% from the same quarter in 2020, driven by a weaker sales mix.
Truck formula price increases, which naturally lag cost inflation.
We believe gross margins will return to 33% being the lower end of our expected range and Q1 2022 as pricing action takes effect.
Operating income increased 1% from last year to $25 7 million.
For the full year fuel specialties revenues were up 21%.
$618 3 million and operating income was up 24% to $104 6 million.
Moving onto slide 10 revenues no field services for the quarter with $95 3 million up 65% from $57 9 million in the fourth quarter last year as customer activity continues to increase.
Gross margins of 35, 9% were up <unk> eight percentage points from last year's 35, 1%.
Operating income of $4 3 million was a $4 1 million improvements from a year ago.
For the full year oilfield services revenues of $359 eight.
33% from last year's 255 million and operating income of $10 4 million compared to an operating loss of $9 5 million in 2020.
Turning to slide 11, corporate costs for the quarter was $13 2 million compared with $10 7 million a year ago, due mainly to higher compensation accruals.
Full year adjusted effective tax rate was 22, 7% compared to 23, 5% a year ago due mainly to the geographical distribution of profits.
For 2022, we expect the adjusted effective tax rate to be 24%.
Moving on to Slide 12. This was another excellent quarter for cash with cash generated from operations of 68 8 million before net capital expenditure of $9 2 million.
In the quarter, we paid the previously announced semiannual dividend of <unk> 59 per common share.
This brought the total dividend for the full year to $1 16 per share a 12% increase over 2020.
For the full year cash from operations after net capital expenditure was $57 million compared to $116 2 million during 2020.
As of December 31, 2021, and expect to have net cash of $141 7 million a substantial improvement compared to net cash of $104 7 million a year ago.
And now I'll turn it back over to Patrick for some final comments.
Ian.
Entering 2022, we expect supply tight supply chain and the elevated cost inflation to continue.
It is imperative that our business teams maintained their sharp focus on technology customer service pricing and gross margin management.
We are cautiously optimistic that these conditions will moderate in the coming quarters, and we are well positioned for continued growth and margin expansion in all businesses.
Our portfolio is dominated by technologies that are critical to the performance of personal care cleaning and other daily used applications, including more sustainable and cleaner transportation.
Further price increases have been announced in all businesses in the first quarter and in parallel we continue to introduce innovative products, which can help offset the impact of higher prices to our customers through enhanced performance.
Our businesses did an excellent job managing cash and working capital during the quarter, increasing our net cash position to over $140 million.
We will continue to create value for our shareholders through our disciplined execution of our capital allocation programs.
These include funding, our well defined pipeline of organic growth projects pursuing complementary acquisitions, and increasing capital returns to shareholders through dividend growth and our newly announced $50 million share buyback facility.
Now I will turn the call over to the operator, and Ian and I will take your questions.
Thank you.
Remind me to ask a question press star one on your telephone to withdraw your question press the pound key.
Your first question today comes from the line of.
John Tom one Teng from C J.
<unk> Securities. Please go ahead your line is open.
Alright. Thank you good morning, everyone really net jogger.
On the demand.
Syed.
I was wondering can you talk about your high level expectations for pricing versus volume is a component as components of your revenue growth.
In each of the segments as we go forward I assume there is more pricing coming but I am wondering on the volume side of that expectation specifically what are you thinking there as we enter Q1 into 2022.
Yes, John let me start off with that one and I'm sure Patrick will come over with some comments so.
Just going through the individual businesses as we've been talking throughout 2021, we're really pleased with where performance chemicals is in our <unk>.
Really sweet spot.
We're expecting high single digit growth and we expect most of that growth to come through volume now there will be a raw material impact that will inflate those revenues a little bit like we have done in 2021 underlying in the business, we expect high single digit growth mainly through volume.
Fuel specialties is slightly different in fuel specialties has now reached back to that pre COVID-19 diesel demand globally.
We still got a little bit more to come in terms of volume from jet fuel.
That will come slowly throughout 2022, so you may well see a little bit more volume in field specialties, but overall, that's a business that will settle back into that low single digit growth rates again, we'll see some price inflation in the revenue line, but underlying you will expect to see probably one to two.
Percent volume growth in that business.
<unk> is really the one where we're a little bit uncertain at the moment customer activity slowly returning with capturing our share of the market.
And we'd expect the business to perform better than it has done in 2021, so again.
We're optimistic that we'll continue to see good volume growth there as well, yes, I think John it's Ben.
Nice to see volume growth.
Versus just pricing activity.
And it's been consistent throughout all three businesses as Ian alluded to so we're pretty confident and we're very happy with the quarter and we're very happy with the year end results.
Okay, great. Thank you for that color and it's also nice to see that you're expecting gross margin improvement in Q1.
Wondering if you could actually talk about Opex as we go forward as well.
Is there inflation that you need to address as well, especially in terms of wage.
Wage inflation and employee retention.
Yes, John .
Like everybody else in the industry and the wider.
The economy, we are seeing a lot of wage inflation, we've seen a lot of raw material inflation.
Freight.
Trucking you name it it's all coming through.
We're very clear.
Our people are key asset we want to do everything we can.
To attract the best talent and retain the best talent, so with second action.
Across all of our businesses around wages and working conditions and flexibility. So yes, we will see you will see us do a lot more with that how that impacts our operating expenses, we've baked into our numbers. It will have some pressure on.
So operating margins, but we think it's the right thing to do and will set the correct fashion whichever part of the world growth rates again.
Okay great.
Just a question on the buyback authorization is that more of an opportunistic thing.
What are you waiting for some opportunity or is that something you plan to execute rather quickly on it.
Just given what the alternatives are and your capital allocation.
And our strategy.
It's a little bit of both John .
It's being opportunistic in the marketplace, it's preventing dilution.
It's a little bit of both and I think that youll see that because we have such a balanced capital allocation program.
That this is easily manageable.
We would like to see this continue moving forward as the years move on so I think we're in a good spot.
We've really identified a great growth program in performance chemicals over the next five years, where our capital allocations going we've increased the dividend between 10% to 12% every year, we want to continue doing that I.
I think along with a nice share buyback and potentially increasing overtime as well puts us in a really good position.
Got it and one final one for me if I could just the $70 million in announced investment can you break that out between product lines and end markets and kind of what you're actually putting the money into.
Okay.
Yes, John Let me let me.
First go so the $70 million over just over two years with the investments for us.
And we're investing both in the U S and Europe .
We're investing across a number of our facilities. The primary focus of that initially will be in the personal care markets, but we'll also be investing capacity into our homecare markets and that will also support our growing business in agriculture, and industrial and mining as well so.
Primary focus will be personal care.
The business that we're seeing the most growth right now, but we're not just blind to the other parts of our business as well. So most of that will go into capacity expansions on the infrastructure that's needed around our pumps to manage that growth be tanking piping elaborate might be so there's an awful lot going on it's a multi year program.
And we're well on with it right now and Thats whats going to support the high single digit growth not just into 2022, but also into 'twenty, three and 'twenty four and beyond yes, I think just to add to that John .
It's all based around sustainability natural et cetera.
And Thats really been the themes all along and that's the theme of our growth moving forward and I think as Ian said typically when we add expansion and add reactors that volumes typically already spoken for and so it's a really nice program. That's put in place with some nice contracts to back it and it's all based around sustainability long term sustainability.
Natural.
Got it thanks, guys I'll jump back into queue.
Thank you thanks, Joe.
Thank you I will now hand, the call back to Patrick Williams for closing remarks.
Thank you all for joining us today, and thanks to all our shareholders customers and <unk> employees for your interest and support.
Do you have any further questions about <unk> or matters discussed today. Please give us a call. We look forward to being up with you again to discuss our first quarter 2022 results in May have a great day.
Thank you that does conclude today's conference. Thank you for participating you may all disconnect.
[music].
Okay.
Sure.
[music].
Yes.
Yes.
Yes.
Yes.
Great.
Okay.
Okay.
Okay.
Yes.
Yes.
Yes.
Sure.
Okay.
[music].
Yes.
Yes.
[music].
Yes.
Yes.
[music].
Okay.
Yes.
Yeah.
Yes.
Yes.
Tom.
Yes.
Yes.
Yes.
Okay.
Sure.
Yes.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
Yes.
Okay.
Sure.
[music].
Okay.
Okay.
Yes.
Sure.
Yes.
[music].
Sure.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Yeah.
Okay.
Okay.
Okay.
Yes.
[music].
Yes.
Yes.
Okay.
Yes.
Okay.
Yes.
Yes.
Okay.
Yeah.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Thank you.
Yes.
[music].
<unk>.
Yes.
Okay.
Okay.
Yes.
Yes.
Sure.
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
Yes.
[music].
Okay.
Okay.
Yes.
Okay.
Yes.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
[music].
Yes.
Yes.
Sure.
<unk>.
Yes.
Please.
Okay.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Okay.
<unk>.
Okay.
Yes.
Okay.
Okay.
Yeah.
Okay.
Okay.
Okay.
Yes.
Thanks.
Sure.
Okay.
Thanks.
Okay.
Sure.
Yes.
Yes.
Yes.
Okay.
Yes.
Yes.
Yes.
Okay.
Okay.
Yes.
Okay.
Sure.
Thank you.
Okay.
Okay.
Okay.
Sure.
Yes.
Sure.
Okay.
Yes.
Yes.
Thank you.
Yes.
Yes.
Sure.
Yes.
Sure.
Okay.
Sure.
Thanks.
Yes.
Okay.
Yes.
Yes.
Okay.
Yes.
Sure.
Okay.
Okay.
Yes.
Okay.
[music].
Okay.
Yes.
Yes.
Okay.
[music].
Yes.
Thanks.
Yes.
Okay.
Yes.
Sure.
Yes.
Sure.
Yes.
Okay.
Thanks.
Yes.
Okay.
Okay.
Okay.
Yes.
Okay.
Sure.
Yes.
Okay.
Yes.
Yes.
Yes.
Okay.
Okay.
Okay.
Yes.
Sure.
Thanks.
Sure.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
[music].
Okay.
Okay.
Yes.
Okay.
Hum.
Okay.
Okay.
Sure.
Thank you.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Yes.
Yes.
Okay.
<unk>.
Sure.
Okay.
Okay.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
Great.
Okay.
Okay.
Okay.
Okay.
Okay.
Okay.
Sure.
Thank you.
Okay.
Okay.
Okay.
Okay.
Okay.
Thanks.
Sure.
Yes.
Okay.
Okay.
Hi.
Sure.
Okay.
Okay.
Sure.
Okay.
Yes.
Sure.
Yes.
Sure.
Yes.
Okay.
Okay.
Sure.
Okay.
Okay.
Okay.
Okay.
Yes.
Yes.
Yes.
Okay.
[music].
Okay.
Yes.
Yes.
Sure.
Okay.
Yes.
Yes.
Thanks.
Yes.
Okay.
Yes.
Okay.
Okay.
Okay.