Strong sales growth up 8 percent;
Semi-annual dividend increased 14 percent
Innospec Inc. (NASDAQ: IOSP) today announced its financial results
for the first quarter ended March 31, 2019. The Company also
announced the declaration of its semi-annual dividend of $0.50 per
common share for the first half of 2019, representing an increase
of 14 percent. This dividend will be paid on May 30, 2019, to
shareholders on the record at May 21, 2019.
Total net sales for the quarter were $388.3
million, an 8 percent increase from the $360.7 million reported in
the corresponding quarter last year. Net income was $28.7 million,
or $1.17 per diluted share, compared to $22.2 million, or $0.90 per
diluted share, recorded a year ago. Adjusted EBITDA for the quarter
was $51.7 million, an 18 percent increase from $43.9 million in the
first quarter of 2018.
Results for this quarter include special items
summarized in the table below. Excluding these items,
adjusted non-GAAP EPS was $1.25 per diluted share, compared to
$1.02 per diluted share a year ago, a 23 percent increase. Innospec
closed the quarter in a net debt position of $86.9 million. Cash
generation for the quarter was positive with net cash provided by
operating activities of $13.2 million, before capital expenditures
and software capitalization of $11.2 million, which included $3.8
million for the purchase of our site at Herne, Germany.
Adjusted EBITDA, income before income taxes 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.
|
|
Quarter ended March 31, 2019 |
|
Quarter ended March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions,
except share and per share data) |
|
Income
beforeincome taxes |
|
|
Netincome |
|
|
Diluted
EPS |
|
|
Income
beforeincome taxes |
|
|
Net
income |
|
|
Diluted
EPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP
amounts |
$ |
38.8 |
|
$ |
28.7 |
|
$ |
1.17 |
|
$ |
29.7 |
|
$ |
22.2 |
|
$ |
0.90 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
acquired intangible assets |
|
4.6 |
|
|
3.6 |
|
|
0.14 |
|
|
4.6 |
|
|
3.7 |
|
|
0.15 |
|
Foreign currency
exchange gains |
|
(2.3 |
) |
|
(1.7 |
) |
|
(0.07 |
) |
|
(1.0 |
) |
|
(0.8 |
) |
|
(0.03 |
) |
Adjustment of income
tax provisions |
|
- |
|
|
0.2 |
|
|
0.01 |
|
|
- |
|
|
- |
|
|
- |
|
|
|
2.3 |
|
|
2.1 |
|
|
0.08 |
|
|
3.6 |
|
|
2.9 |
|
|
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
non-GAAP amounts |
$ |
41.1 |
|
$ |
30.8 |
|
$ |
1.25 |
|
$ |
33.3 |
|
$ |
25.1 |
|
$ |
1.02 |
|
Commenting on the first quarter results, Patrick
S. Williams, President and Chief Executive Officer, said,
“I am very pleased to report another strong
quarter of growth. We have again significantly increased sales,
operating income and EPS. All our strategic business units have
contributed to this growth, confirming the strength of our
strategy.”
“This has been achieved despite the higher than
anticipated costs driven by share-based compensation accruals, as
our share price rose by 35 percent during the quarter impacting EPS
by 23 cents. Even with this increase, we believe an improvement of
23 percent in adjusted EPS is an excellent result.”
“Fuel Specialties continued its track record of
growth with another very good quarter, improving both sales and
margins to deliver a 17 percent improvement in operating income.
All three regions contributed to this success.”
“Although Performance Chemicals sales were flat
against a strong quarter last year, the headline numbers were
impacted by currency movements. Gross margins continue to improve
and together with controlling costs allowed the business to post a
12 percent improvement in operating income. We continue to be
delighted by the customers response to our innovative new
products.”
“Once again, Oilfield Services outpaced the
market, delivering a 23 percent increase in sales, and more than
doubling operating income compared to the same quarter last year.
While conditions in this market remain challenging, we are pleased
to have further expanded sales both with existing and new customers
across our target basins.”
“As we expected, there were no sales in Octane
Additives during the quarter. We have no further orders on hand,
but indications from our one remaining customer are that there will
be a final order towards the end of Q2 or early in Q3.”
Revenues in Fuel Specialties were $156.0 million
for the quarter, a 9 percent increase from $143.4 million last year
driven by volume growth of 8 percent and a positive price/mix
variance of 5 percent offset by a negative currency impact of 4
percent. Gross margins were up 1.9 percentage points on last year’s
quarter to 35.7 percent. Operating income improved by 17 percent to
$32.9 million, compared to $28.2 million in the same quarter last
year.
In Performance Chemicals, revenues of $118.1
million were down 5 percent from $124.0 million a year ago and
while volumes and price/mix were unchanged, there was a negative
currency impact of 5 percent. As we anticipated, gross margins
improved to 22.5 percent from 20.5 percent a year ago reflecting
continued delivery of our improvement projects. Overall, operating
income increased to $13.5 million, up 12 percent from $12.1 million
a year ago.
Revenues in Oilfield Services for the quarter
were $114.2 million, up 23 percent from $92.9 million in the first
quarter of 2018. Volume growth of 6 percent was augmented by a
price/mix benefit of 17 percent. Gross margins were down 0.8
percentage points on the comparable quarter. The Oilfield Services
business delivered an operating income of $7.8 million for the
quarter which was more than double the $3.0 million reported a year
ago.
As we anticipated there were no Octane Additives
revenues in the quarter compared to $0.4 million a year ago, which
resulted in an operating loss of $2.8 million for the quarter,
compared to a loss of $1.4 million in last year’s first
quarter.
Corporate costs for the quarter were higher than
expected at $15.2 million, compared with $13.0 million a year ago
due mainly to higher personnel related expenses driven by increased
share-based compensation accruals.
The effective tax rate for the quarter was 26.0
percent, compared to 25.3 percent in the same quarter last
year.
For the quarter, net cash provided by operating
activities was $13.2 million, compared to a cash outflow of $2.0
million a year ago. As of March 31, 2019, Innospec had $123.5
million in cash and cash equivalents and total debt of $210.4
million, resulting in net debt of $86.9 million.
Mr. Williams concluded,
“This has been a really good start to 2019 for
Innospec. In a market which is plagued with uncertainty over
economic growth and inter-regional trading concerns, we believe our
focus on the development of innovative new technologies continues
to pay dividends in all of our markets. The 35 percent rise in
share price has resulted in higher share-based compensation
accruals which increased costs, equivalent to EPS of 23 cents. But
even with this headwind, we still delivered an increase of 23
percent in our adjusted EPS.”
“Cash generation was positive which is in
contrast with previous first quarters, during which we tend to
experience cash outflow. We believe that our balance sheet remains
in very good shape.”
“Capital expenditure in the quarter included the
acquisition of the land and buildings at our Herne site in Germany.
This site is strategically important to Innospec and this
investment is a cost-effective alternative to the previous leasing
arrangements.”
“I am also pleased that our Board has approved a
further increase in our semi-annual dividend to 50 cents per share,
which is the twelfth successive increase, continuing our record of
returning value to shareholders.”
“We believe that our long-term strategy
continues to endure and produce excellent results. As we develop
further innovative technology to meet clearly-defined customer
needs, we anticipate that our prospects for the rest of this year
and beyond remain very attractive.”
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
adjusted EBITDA, income before income taxes excluding special
items, net income excluding special items and related per share
amounts together with net debt. Adjusted EBITDA is net income per
our consolidated financial statements adjusted for the exclusion of
charges for interest expense, net, income taxes, depreciation, and
amortization. Income before income taxes, net income and diluted
EPS, excluding special items, per our consolidated financial
statements are adjusted for the exclusion of amortization of
acquired intangible assets, foreign currency exchange gains and
adjustment of income tax provisions. Net debt is total debt less
cash and cash equivalents. 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, these non-GAAP measures address questions the
Company routinely receives from analysts and investors and the
Company has determined that it is appropriate to make this data
available to all investors. 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 uses adjusted EPS
(the most directly comparable GAAP financial measure for which is
GAAP EPS) and adjusted net income and adjusted EBITDA (the most
directly comparable GAAP financial measure for which is GAAP net
income) to allocate resources and evaluate the performance of the
Company’s operations. Management believes the most directly
comparable GAAP financial measure is GAAP net income and has
provided a reconciliation of adjusted 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 2000 employees in 23
countries. Innospec manufactures and supplies a wide range of
specialty chemicals to markets in the Americas, Europe, the Middle
East, Africa and Asia-Pacific. The Fuel Specialties business
specializes in manufacturing and supplying fuel additives that
improve fuel efficiency, boost engine performance and reduce
harmful emissions. Oilfield Services provides specialty chemicals
to all elements of the oil & gas exploration and production
industry. The Performance Chemicals business creates innovative
technology-based solutions for our customers in the Personal Care,
Home Care, Agrochemical, Mining and Industrial markets. Octane
Additives produces octane improvers to enhance gasoline.
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,” “estimates,” “anticipates,” “may,” “believes,”
“feels” or similar words or expressions, for example) which relate
to earnings, growth potential, operating performance, events or
developments that we expect or anticipate will or may occur in the
future. 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 Innospec and affecting our business
operations and prospects are described in Innospec’s Annual Report
on Form 10-K for the year ended December 31, 2018 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” in such reports.
Innospec undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.
Contacts:
Brian WattInnospec
Inc.+44-151-355-3611Brian.Watt@innospecinc.com
Schedule 1
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
INCOME
|
|
|
(in
millions, except share and per share data) |
|
Three Months Ended March 31 |
2019 |
|
|
2018 |
|
|
|
|
|
|
Net sales |
$ |
388.3 |
|
$ |
360.7 |
|
Cost of goods sold |
|
(270.5 |
) |
|
(256.2 |
) |
Gross profit |
|
117.8 |
|
|
104.5 |
|
|
|
|
|
|
Operating
expenses: |
|
|
|
|
Selling,
general and administrative |
|
(72.5 |
) |
|
(67.3 |
) |
Research
and development |
|
(9.1 |
) |
|
(8.3 |
) |
Total operating
expenses |
|
(81.6 |
) |
|
(75.6 |
) |
Operating income |
|
36.2 |
|
|
28.9 |
|
Other income, net |
|
4.1 |
|
|
2.5 |
|
Interest expense,
net |
|
(1.5 |
) |
|
(1.7 |
) |
Income before income
taxes |
|
38.8 |
|
|
29.7 |
|
Income taxes |
|
(10.1 |
) |
|
(7.5 |
) |
Net income |
$ |
28.7 |
|
$ |
22.2 |
|
|
|
|
|
|
Earnings per
share: |
|
|
|
|
Basic |
$ |
1.17 |
|
$ |
0.91 |
|
Diluted |
$ |
1.17 |
|
$ |
0.90 |
|
|
|
|
|
|
Weighted average shares
outstanding (in thousands): |
|
|
|
|
Basic |
|
24,437 |
|
|
24,369 |
|
Diluted |
|
24,594 |
|
|
24,574 |
|
|
|
|
|
|
INNOSPEC INC. AND
SUBSIDIARIES
Schedule 2A
|
|
|
SEGMENTAL
ANALYSIS OF RESULTS |
|
Three Months Ended March 31 |
(in
millions) |
|
2019 |
|
|
2018 |
|
|
|
|
|
|
Net sales: |
|
|
|
|
Fuel
Specialties |
$ |
156.0 |
|
$ |
143.4 |
|
Performance Chemicals |
|
118.1 |
|
|
124.0 |
|
Oilfield
Services |
|
114.2 |
|
|
92.9 |
|
Octane
Additives |
|
- |
|
|
0.4 |
|
|
|
388.3 |
|
|
360.7 |
|
|
|
|
|
|
Gross
profit/(loss): |
|
|
|
|
Fuel
Specialties |
|
55.7 |
|
|
48.5 |
|
Performance Chemicals |
|
26.6 |
|
|
25.4 |
|
Oilfield
Services |
|
37.7 |
|
|
31.4 |
|
Octane
Additives |
|
(2.2 |
) |
|
(0.8 |
) |
|
|
117.8 |
|
|
104.5 |
|
|
|
|
|
|
Operating
income/(loss): |
|
|
|
|
Fuel
Specialties |
|
32.9 |
|
|
28.2 |
|
Performance Chemicals |
|
13.5 |
|
|
12.1 |
|
Oilfield
Services |
|
7.8 |
|
|
3.0 |
|
Octane
Additives |
|
(2.8 |
) |
|
(1.4 |
) |
Corporate costs |
|
(15.2 |
) |
|
(13.0 |
) |
Total operating
income |
$ |
36.2 |
|
$ |
28.9 |
|
|
|
|
|
|
|
|
Schedule 2B
|
|
|
NON-GAAP
MEASURES |
|
Three Months Ended March 31 |
(in
millions) |
|
2019 |
|
|
2018 |
|
|
|
|
|
|
Net income |
$ |
28.7 |
|
$ |
22.2 |
|
Interest expense,
net |
|
1.5 |
|
|
1.7 |
|
Income taxes |
|
10.1 |
|
|
7.5 |
|
Depreciation and
amortization: |
|
|
|
|
Fuel
Specialties |
|
0.9 |
|
|
1.0 |
|
Performance Chemicals |
|
4.7 |
|
|
5.0 |
|
Oilfield
Services |
|
4.3 |
|
|
4.1 |
|
Octane
Additives |
|
0.3 |
|
|
0.3 |
|
Corporate
costs |
|
1.2 |
|
|
2.1 |
|
Adjusted EBITDA |
|
51.7 |
|
|
43.9 |
|
|
|
|
|
|
Adjusted EBITDA: |
|
|
|
|
Fuel
Specialties |
|
33.8 |
|
|
29.2 |
|
Performance Chemicals |
|
18.2 |
|
|
17.1 |
|
Oilfield
Services |
|
12.1 |
|
|
7.1 |
|
Octane
Additives |
|
(2.5 |
) |
|
(1.1 |
) |
Corporate costs |
|
(14.0 |
) |
|
(10.9 |
) |
|
|
47.6 |
|
|
41.4 |
|
Other income, net |
|
4.1 |
|
|
2.5 |
|
Adjusted EBITDA |
$ |
51.7 |
|
$ |
43.9 |
|
|
|
|
|
|
|
|
Adjusted EBITDA by segment includes operating
income relating to the segments, excluding depreciation and
amortization.
Schedule 3
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED BALANCE
SHEETS
|
|
|
|
|
(in millions) |
|
March 31,2019 |
|
December 31,2018 |
Assets |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
Cash and
cash equivalents |
$ |
123.5 |
$ |
123.1 |
Trade and
other accounts receivable |
|
296.7 |
|
279.7 |
Inventories |
|
249.1 |
|
248.0 |
Prepaid
expenses |
|
11.7 |
|
11.6 |
Prepaid
income taxes |
|
1.6 |
|
1.5 |
Other
current assets |
|
1.0 |
|
- |
Total current
assets |
|
683.6 |
|
663.9 |
|
|
|
|
|
Net property, plant and
equipment |
|
199.7 |
|
196.4 |
Goodwill |
|
363.1 |
|
364.9 |
Operating lease
right-of-use assets |
|
37.4 |
|
- |
Other intangible
assets |
|
130.4 |
|
136.3 |
Deferred tax
assets |
|
8.6 |
|
8.8 |
Pension asset |
|
97.6 |
|
95.9 |
Other non-current
assets |
|
6.2 |
|
7.2 |
Total assets |
$ |
1,526.6 |
$ |
1,473.4 |
Liabilities and
Stockholders’ Equity |
|
|
|
|
|
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts
payable |
$ |
123.9 |
$ |
126.8 |
Accrued
liabilities |
|
123.8 |
|
132.1 |
Current
portion of long-term debt |
|
21.5 |
|
21.4 |
Current
portion of finance leases |
|
1.5 |
|
1.8 |
Current
portion of plant closure provisions |
|
5.3 |
|
5.9 |
Current
portion of accrued income taxes |
|
12.6 |
|
8.6 |
Current
portion of operating lease liabilities |
|
11.4 |
|
- |
Total current
liabilities |
|
300.0 |
|
296.6 |
|
|
|
|
|
Long-term debt, net of
current portion |
|
186.3 |
|
186.2 |
Finance leases, net of
current portion |
|
1.1 |
|
1.5 |
Plant closure
provisions, net of current portion |
|
44.4 |
|
43.6 |
Accrued income taxes,
net of current portion |
|
40.0 |
|
40.0 |
Unrecognized tax
benefits, net of current portion |
|
14.2 |
|
14.0 |
Operating lease
liabilities, net of current portion |
|
26.0 |
|
- |
Deferred tax
liabilities |
|
48.1 |
|
48.2 |
Pension liabilities and
post-employment benefits |
|
15.6 |
|
15.7 |
Other non-current
liabilities |
|
2.0 |
|
2.1 |
Equity |
|
848.9 |
|
825.5 |
Total liabilities and
equity |
$ |
1,526.6 |
$ |
1,473.4 |
|
|
|
|
|
Schedule 4
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
|
|
|
Three Months Ended March
31 |
(in
millions) |
|
2019 |
|
|
2018 |
|
|
|
|
|
|
Cash Flows from
Operating Activities |
|
|
|
|
|
|
|
|
|
Net income |
$ |
28.7 |
|
$ |
22.2 |
|
Adjustments to
reconcile net income to cash provided by operating activities: |
|
|
|
|
Depreciation and amortization |
|
11.6 |
|
|
12.6 |
|
Deferred
taxes |
|
0.2 |
|
|
1.7 |
|
Cash
contributions to defined benefit pension plans |
|
(0.3 |
) |
|
(0.3 |
) |
Non-cash
movements on defined benefit pension plans |
|
(1.6 |
) |
|
(1.1 |
) |
Stock
option compensation |
|
1.6 |
|
|
0.8 |
|
Changes
in working capital |
|
(31.3 |
) |
|
(36.2 |
) |
Movements
in accrued income taxes |
|
4.4 |
|
|
(2.8 |
) |
Movements
in plant closure provisions |
|
0.4 |
|
|
0.7 |
|
Movements
in unrecognized tax benefits |
|
0.3 |
|
|
0.6 |
|
Movements
in other assets and liabilities |
|
(0.8 |
) |
|
(0.2 |
) |
Net cash provided
by/(used in) operating activities |
|
13.2 |
|
|
(2.0 |
) |
|
|
|
|
|
Cash Flows from
Investing Activities |
|
|
|
|
|
|
|
|
|
Capital
expenditures |
|
(10.7 |
) |
|
(3.8 |
) |
Internally developed
software |
|
(0.5 |
) |
|
(0.8 |
) |
Net cash used in
investing activities |
|
(11.2 |
) |
|
(4.6 |
) |
|
|
|
|
|
Cash Flows from
Financing Activities |
|
|
|
|
|
|
|
|
|
Net repayment of
revolving credit facility |
|
- |
|
|
(5.0 |
) |
Repayment of finance
leases |
|
(0.6 |
) |
|
(0.7 |
) |
Issue of treasury
stock |
|
1.0 |
|
|
1.0 |
|
Repurchase of common
stock |
|
(1.9 |
) |
|
(1.1 |
) |
Net cash used in
financing activities |
|
(1.5 |
) |
|
(5.8 |
) |
Effect of foreign
currency exchange rate changes on cash |
|
(0.1 |
) |
|
0.3 |
|
Net change in cash and
cash equivalents |
|
0.4 |
|
|
(12.1 |
) |
Cash and cash
equivalents at beginning of period |
|
123.1 |
|
|
90.2 |
|
Cash and cash
equivalents at end of period |
$ |
123.5 |
|
$ |
78.1 |
|
|
|
|
|
|
|
|
Amortization of deferred finance costs of $0.2
million (2018 - $0.1 million) are included in depreciation and
amortization in the condensed consolidated statements of cash flows
and in interest expense, net in the condensed consolidated
statements of income.
Innospec (NASDAQ:IOSP)
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Innospec (NASDAQ:IOSP)
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