IOSP Innospec Inc

GAAP and Adjusted Non-GAAP Diluted EPS of $0.65 Per Share; Minimal Special Items and Stable Exchange Rates in the Quarter

Sales Performance Reflects Richer Sales Mix and Improved Pricing in Fuel Specialties and Higher Volumes in Performance Chemicals, Offset by Order Pattern/Timing and a Weaker Euro Versus a Year Ago

Cash Management, Inflows and Liquidity Solid, With Continued Balance Sheet Strength

Stronger Q4 Expected Due to Order Phasing, New Contract Wins, and Contract Renewals Underpinning Growth for 2013 and Beyond

Innospec Inc. (Nasdaq:IOSP) today announced its financial results for the third quarter ended September 30, 2012.

Total net sales for the third quarter were $183.4 million, a 9 percent decrease from $202.1 million in the corresponding quarter last year. Net income was $15.5 million, or $0.65 per diluted share, and after adjustments for special items in both this year and last, was down $7.0 million or $0.28 per diluted share. EBITDA (earnings before interest, taxes, depreciation, amortization and impairment) for the quarter was $20.2 million, and benefited from minimal special items and stable exchange rates in the quarter.

Results for the third quarter include several special items, which are summarized in the table below. Excluding these items, adjusted non-GAAP EPS was $0.65 per diluted share, a decrease from $0.93 a year ago. Cash generation for the quarter was strong, with operating cash inflows of $33.7 million, before capital expenditures of $5.2 million. Net cash stood at $99.6 million at the end of the quarter.

EBITDA and net income excluding special items, and related per-share amounts, are non-GAAP financial measures that are defined and reconciled with GAAP results herein and in the schedules below.

For the first nine months of 2012, total net sales of $562.7 million decreased from $573.9 million in the corresponding period last year. Net income for the nine-month period was $55.6 million, or $2.33 per diluted share, compared with $29.3 million, or $1.19 per diluted share, a year ago. Excluding special items, diluted earnings per share for the first nine months of 2012 were $2.44, down slightly from $2.52 a year ago. EBITDA for the first nine months of 2012 was $78.2 million, compared with $47.3 million a year ago (which included a civil complaint settlement and associated legal and professional expenses of $50.5 million).

Commenting on the quarter, Patrick Williams, President and Chief Executive Officer, said, "Despite continuing soft economic conditions in world markets, as well as erratic order patterns this quarter in both Fuel Specialties and Octane Additives, we made important progress in our two growth engines during the third quarter, which we expect will serve us well in the fourth quarter and into 2013.

"We are particularly pleased with a number of contract extensions and proposed joint technology agreements which have deepened our relationships with key customers, as well as new contract wins in our Fuel Specialties and Performance Chemicals segments.

"We renamed our Active Chemicals segment as Performance Chemicals during the quarter, to better reflect the nature of that business.  Importantly, we witnessed the expansion of our Personal Care line; steady progress in our Fragrance Ingredients business; and an upturn in our Polymers business.  At the end of the second quarter we stated our belief that we had reached the bottom of the Polymers market, and it appears that we were broadly right, although the improvement in volume so far has been in the lower margin applications.

"Octane Additives sales were impacted significantly by delivery schedules during the quarter, particularly with respect to one large order, which we expect will be recognized in the fourth quarter.  Meanwhile, we continue to record strong cash inflows throughout our businesses, which have enabled Innospec to maintain a very strong and liquid balance sheet position."

Net sales in Fuel Specialties for the third quarter were $127.0 million, down 7 percent from the $136.1 million reported in last year's third quarter, as a richer sales mix and improved pricing were offset by lower volumes and a weaker Euro. By region, sales were down 2 percent in the Americas and 12 percent in Europe, Middle East and Africa (EMEA). Sales in Asia-Pacific were up 10 percent, driven by improved volumes. The Avtel business performed to plan in the quarter, but suffered in comparison with a very strong third quarter last year. The segment's gross margin was 29.0 percent. Operating income for the quarter was $19.6 million, compared to $19.9 million a year ago.

In Performance Chemicals, net sales increased by 7 percent, to $46.8 million. Polymers markets have stabilized, showing a slight uptick in volumes sequentially over the second quarter, as we predicted, with a focus on lower-margin business. By region, sales increased 30 percent in the Americas, primarily due to strong growth in the Personal Care and Fragrance Ingredients markets. Sales decreased 8 percent in EMEA due to the weaker Euro, and 4 percent in Asia-Pacific, a result of lower Fragrance Ingredients volumes, together with intense competitive and economic pressures. Performance Chemicals' gross margin was 22.2 percent, up slightly from the year ago figure. The segment's operating income was $5.6 million, up from $5.0 million in last year's third quarter.

Octane Additives' net sales for the quarter were $9.6 million, compared with a strong comparative of $22.1 million a year ago, primarily due to delivery phasing during the quarter, with respect to one significant order. We expect this order to be recognized in the fourth quarter. The segment's gross margin was 36.5 percent, a decline from last year's 45.2 percent, which reflects lower production volumes. Operating income for the quarter was $1.5 million, primarily impacted by the timing of shipments, compared to $8.4 million last year after adjusting for the $46.5 million pre-tax charge related to the civil complaint settlement and associated legal and professional expenses.

Corporate costs for the third quarter were $9.1 million, compared with $6.3 million a year ago. The increase was primarily due to increased share based compensation accruals. The current year effective tax rate is 18.8 percent compared to 10.1 percent last year which benefited from the tax deductions recognized in respect of certain of the special items.

Net cash generated from operations was $33.7 million, more than triple the $9.4 million a year ago, and includes an $18.9 million decrease in working capital in the quarter. As of September 30, 2012, Innospec had $133.6 million in cash, cash equivalents and short-term investments, and debt of $34.0 million.

Mr. Williams concluded, "While phasing of orders contributed to the third quarter trading being lower than we expected, we believe that our business strategies are bearing fruit, and will deliver growth in the fourth quarter and continue through 2013, despite the global economies remaining sluggish."

Use of Non-GAAP Financial Measures

The information presented in this press release includes financial measures that are not calculated or presented in accordance with Generally Accepted Accounting Principles in the United States (GAAP). These non-GAAP financial measures comprise EBITDA and net income excluding special items, and related per share amounts. EBITDA is net income per our consolidated financial statements adjusted for the exclusion of charges for interest expense, net, income taxes, depreciation, amortization and impairment of Octane Additives segment goodwill. Income before income taxes, net income and diluted EPS, excluding special items, per our consolidated financial statements are adjusted for the exclusion of acquisition-related costs, adjustment of income tax provisions, foreign currency exchange losses, civil complaint settlement and civil complaint legal and professional expenses. Reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are provided herein and in the schedules below. The Company believes that such non-GAAP financial measures provide useful information to investors and may assist them in evaluating the Company's underlying performance and identifying operating trends. In addition, management uses these non-GAAP financial measures internally to allocate resources and evaluate the performance of the Company's operations. While the Company believes that such measures are useful in evaluating the Company's performance, investors should not consider them to be a substitute for financial measures prepared in accordance with GAAP. In addition, these non-GAAP financial measures may differ from similarly-titled non-GAAP financial measures used by other companies and do not provide a comparable view of the Company's performance relative to other companies in similar industries. Management believes the most directly comparable GAAP financial measure is GAAP net income and has provided a reconciliation of EBITDA and net income excluding special items, and related per share amounts, to GAAP net income herein and in the schedules below.

About Innospec Inc.

Innospec Inc. is an international specialty chemicals company with approximately 850 employees in 20 countries. Innospec manufactures and supplies a wide range of specialty chemicals to markets in the Americas, Europe, the Middle East, Africa and Asia-Pacific.  Innospec's Fuel Specialties business specializes in manufacturing and supplying the fuel additives that help improve fuel efficiency, boost engine performance and reduce harmful emissions. Innospec's Performance Chemicals business provides effective technology-based solutions for our customers' processes or products focused in the Personal Care; Household, Industrial & Institutional; and Fragrance Ingredients markets. Innospec's Octane Additives business is the world's only producer of tetra ethyl lead.

Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included or incorporated herein may constitute forward-looking statements.  Such forward-looking statements include statements (covered by words like "expects," "anticipates," "may," "believes" or similar words or expressions), for example, which relate to operating performance, events or developments that we expect or anticipate will or may occur in the future (including, without limitation, any of the Company's guidance in respect of sales, gross margins, pension liabilities and charges, net income, growth potential and other measures of financial performance). Although forward-looking statements are believed by management to be reasonable when made, they are subject to certain risks, uncertainties and assumptions, and our actual performance or results may differ materially from these forward-looking statements. Additional information regarding risks, uncertainties and assumptions relating to the Company and affecting our business operations and prospects are described in the Company's Annual Report on Form 10-K for the year ended December 31, 2011, and other reports filed with the U.S. Securities and Exchange Commission. You are urged to review our discussion of risks and uncertainties that could cause actual results to differ from forward-looking statements under the heading "Risk Factors."  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.

CONTACT: Brian Watt
         Innospec Inc.
         +44-151-356-6241
         Brian.Watt@innospecinc.com
         
         Robert D. Ferris
         RF|Binder Partners
         +1-212-994-7505
         Robert.Ferris@RFBinder.com

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