INNOSPEC INC. Q4 FY2024 earnings call

• Performance Chemicals delivered double - digit operating income growth in the fourth quarter due to improved sales and margins, with a balanced pipeline of growth opportunities across global personal care, home care, agriculture, construction, and other industrial markets. - The integration and performance of the recent QGP acquisition in Brazil are proceeding as planned, supporting growth opportunities in both Performance Chemicals and Fuel Specialties in the region. - Fuel Specialties operating income increased 7% over the same quarter last year, and operating margin improved to just below the target range of 19% to 21%, remaining focused on further margin improvement along with top - line growth. - In Oilfield Services, as expected, results were similar to the third quarter with no recovery in Latin America production chemical activity anticipated in the near term. - In 2025, the goal is to improve operating income and margin to levels consistent with the full year 2022, and focus on achieving sequential quarterly improvements in core businesses including U.S. completions and production, and DRA in the Middle East.

Performance Chemicals: In the fourth quarter, revenues were $169.2 million, a 23% increase from the previous year's $137.2 million. For the full year, revenues reached $653.7 million, up 16% from $561.6 million the year before. Fuel Specialties: Fourth - quarter revenues were $191.8 million, a 5% increase from $182.1 million in the same period last year. Full - year revenues were $701.1 million, up 1% from the prior year. Oilfield Services: Fourth - quarter revenues were $105.8 million, a 40% decrease from $175.4 million in the fourth quarter of the previous year. Full - year revenues were $490.6 million, a 29% decrease from $691.3 million in the prior year.

• In 2025, target to improve operating income and margin to levels consistent with full year 2022. - Continue to focus on further margin improvement in Fuel Specialties in parallel with top - line growth. - Expect full - year effective tax rate in 2025 to be around 27%. - Aim for sequential quarterly improvements in core oilfield businesses in 2025.

• Forward - looking statements are subject to risks and uncertainties that could cause actual results to differ materially from anticipated ones. - Risks are detailed in Innospec's 10 - K, 10 - Q, and other SEC filings. - Latin America production chemical activity in Oilfield Services not resuming in the near term may impact results. - Pension settlement was a one - off non - cash charge, and there will be a slight headwind in 2025 regarding service credit.

Q: Could you just talk about the year - over - year volume increases in both the fuels and the chemical segment? Were those just easy comps, or were there timing factors, or were they just a significant improvement in the underlying runway demand there?

A: I think it was a significant improvement. It was due to organic - based projects that came to fruition. Market conditions stabilized for us, and we continued to expand our customer base.

Q: The sustainability of that demand into Q1, have you seen those trends continue?

A: We have. So far, the trends have continued.

Q: The margin, obviously, in Fuel Specialties was pretty outstanding. Do you think that is maintainable or sustainable for the future?

A: Yes, I expect to maintain the same margins as in the quarter.

Q: On the oilfield segment, you mentioned that you don't expect that large customer to come back in the coming quarters. I'm wondering what your long - term expectation for that customer is. If maybe, six months down the line, a year down the line, you think they might come back?

A: Yes, I think around the second half of the year, they might come back. We know the internal situation. It's political at present. There are articles about the crude coming out. The heavy crude has a lot of water in it, and U.S. refineries can't handle it easily right now. But at some point, they will have to come back, though it might be at a lower volume. And our technology is well - suited to treat those crudes.

Q: Is there a risk that the refineries retool to use different kinds of crudes in the market [indiscernible]?

A: No, they could treat it at U.S. refineries, but there's so much water in that crude currently that it's very expensive. We could use our products used in Mexico at U.S. refineries to help. It's just a matter of timing as there's a lot of water in the crude, and U.S. refineries aren't prepared for that much water.

Q: Ian, just one housekeeping item. You had a pension settlement charge in the quarter. Can you just give a little color and details around that? Did you spend any cash? And what's the pension liability going forward here?

A: Sure, Jon. We flagged this about two years ago that we were heading towards this point. We concluded the buyout in the fourth quarter. It removes the company's obligation to provide the cost of the pension scheme and gets rid of legislation changes, investment return risks, inflation assumptions, etc., from the company's balance sheet. This is a very positive thing. Part of U.S. GAAP accounting was to recycle historic gains and losses in reserves back into the income statement, resulting in a $155.6 million charge. It's a non - cash charge and a one - off event. In 2025, the difference is that in 2024 we had a $7.2 million service credit flowing through other income, but we won't have that in 2025, creating a $0.22 headwind. But otherwise, there are no ongoing costs or charges related to the pension.