Innospec Inc. (NASDAQ: IOSP) today announced its financial results
for the first quarter ended March 31, 2021. The Company also
announced the declaration of its semi-annual dividend of $0.57 per
common share for the first half of 2021, representing an increase
of 10 percent. This dividend will be paid on May 26, 2021, to
shareholders of record on May 17, 2021.
Total revenues for the first quarter were $339.6
million, a decrease of 9 percent from $372.3 million in the
corresponding period last year. Net income for the quarter was
$23.4 million or 94 cents per diluted share compared to $33.1
million or $1.34 per diluted share, recorded a year ago. EBITDA for
the quarter was $41.4 million compared to $56.7 million reported in
the same period a year ago.
Results for this quarter include some special
items, which are summarized in the table below. Excluding these
items, adjusted non-GAAP EPS in the first quarter was $1.06 per
diluted share, compared to $1.42 per diluted share a year ago.
Cash generation for the quarter was positive
with net cash from operating activities of $22.7 million before
capital expenditures of $10.3 million in the quarter. We closed the
quarter with net cash of $116.6 million.
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, 2021 |
|
|
Quarter ended March 31, 2020 |
(in millions, except
share and per share data) |
|
Incomebeforeincometaxes |
|
|
Netincome |
|
|
DilutedEPS |
|
|
Incomebeforeincometaxes |
|
|
Netincome |
|
|
DilutedEPS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported GAAP amounts |
$ |
30.8 |
|
|
$ |
23.4 |
|
|
$ |
0.94 |
|
|
$ |
44.2 |
|
|
$ |
33.1 |
|
|
$ |
1.34 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of acquired
intangible assets |
|
3.7 |
|
|
|
3.0 |
|
|
|
0.12 |
|
|
|
4.6 |
|
|
|
3.6 |
|
|
|
0.15 |
|
Foreign currency exchange
gains |
|
(1.6 |
) |
|
|
(1.2 |
) |
|
|
(0.05 |
) |
|
|
(2.5 |
) |
|
|
(1.9 |
) |
|
|
(0.08 |
) |
Legacy costs of closed
operations |
|
0.9 |
|
|
|
0.7 |
|
|
|
0.03 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Acquisition related costs |
|
0.8 |
|
|
|
0.6 |
|
|
|
0.02 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Adjustment of income tax
provisions |
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
0.2 |
|
|
|
0.01 |
|
|
|
3.8 |
|
|
|
3.1 |
|
|
|
0.12 |
|
|
|
2.1 |
|
|
|
1.9 |
|
|
|
0.08 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted non-GAAP
amounts |
$ |
34.6 |
|
|
$ |
26.5 |
|
|
$ |
1.06 |
|
|
$ |
46.3 |
|
|
$ |
35.0 |
|
|
$ |
1.42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commenting on the first quarter results, Patrick
S. Williams, President and Chief Executive Officer, said,
“This was another pleasing quarter with further
sequential sales growth in all of our businesses. Sales in
Performance Chemicals reached a record while sales in Fuel
Specialties and Oilfield Services advanced sequentially in their
post-COVID-19 recovery. Cash generation was again excellent, and we
increased our semi-annual dividend payment by 10 percent.
Despite the headwind of economic restrictions
and vaccination delays in Europe, Performance Chemicals delivered
record quarterly operating income up an impressive 17 percent over
the prior year. We are pulling forward organic growth investments
which enable less single-use packaging and milder and more natural
formulations. This resulted in the authorization during the quarter
of $10.0 million in new capital projects which are incremental to
our original 2021 plans.
In Fuel Specialties, sales for the first quarter
were 5 percent below last year. Global demand for refined fuel
products continues to improve but is still below pre-COVID-19
levels. Demand for aviation fuel still lags well behind other
transportation fuels. As global oil demand continues to recover,
higher volumes should benefit margins as leverage on fixed
manufacturing and overhead costs improves. In addition, we expect
margins to be supported by a better sales mix as demand for our
aviation additives continues to increase over the coming year.
In Oilfield Services sales and operating income
continued to grow sequentially despite the US winter storm event
which impacted certain oilfield activities during a two week period
in February 2021. Sequential sales grew by 28 percent, gross
margins remained in the expected range and operating leverage
continued to improve. Moving into the second quarter, we currently
expect to see additional improvement in activity levels and demand
for our products and services.
The pickup in economic activity over the past
two quarters has strained the global supply chain. Port delays and
regional shipping container shortages in addition to one-off events
like the US winter storm and the Suez Canal blockage have led to
widespread force majeure declarations in the global chemical
industry.
To date our supply chain, manufacturing and
sales teams have done an excellent job managing through this
environment. In addition to keeping our customers supplied, we have
implemented price increases across all our businesses to offset raw
material and freight cost inflation due to the above mentioned
supply-demand imbalances.”
Revenues in Fuel Specialties were $139.3 million
for the quarter, a 5 percent decrease from $147.0 million last
year. Volumes fell by 7 percent and there was a negative price/mix
impact of 3 percent offsetting a 5 percent positive currency
impact. Gross margins of 32.2 percent were at the lower end of our
expected range and 2.6 percentage points below the same quarter
last year. Operating income for the quarter was $23.8 million,
compared to $32.1 million in the same quarter last year.
Revenues in Performance Chemicals reached a
record of $125.9 million, up 11 percent from $113.1 million in the
first quarter last year. Volume growth of 7 percent and a positive
currency impact of 6 percent were partially offset by an adverse
price/mix impact of 2 percent. Gross margins improved by 0.5
percentage points from the same quarter last year to 24.9 percent.
Operating income reached a record of $18.3 million, up 17 percent
from $15.6 million a year ago.
Revenues in Oilfield Services for the quarter
were $74.4 million, down 34 percent from $112.2 million in the
first quarter last year driven by low levels of US completions
activity, but momentum continued on a sequential basis with sales
up 28 percent. Gross margins improved by 0.6 percentage points from
the same quarter last year to 32.9 percent. Operating income of
$1.2 million was down from $7.2 million in the same quarter last
year but was a substantial improvement over the $0.2 million in the
fourth quarter of 2020.
Corporate costs for the quarter were $15.1
million, compared with $12.8 million a year ago, due mainly to
higher personnel-related expenses driven by increased share-based
compensation accruals following the 13 percent uplift in our share
price over the quarter.
The effective tax rate for the quarter was 24.0
percent, compared to 25.1 percent in the same quarter last
year.
For the quarter, net cash provided by operating
activities was $22.7 million, compared to $2.4 million a year ago.
As of March 31, 2021, Innospec had $117.0 million in cash and cash
equivalents, and finance lease debt of $0.4 million, resulting in a
net cash position of $116.6 million.
Mr. Williams concluded,
“We are very pleased with the start to this
year, and over the coming quarters we expect to see continued
improvement in overall market conditions as the post-COVID-19
economic re-opening progresses. Improving demand conditions coupled
with supply-chain tightening is driving cost inflation which we are
managing through price action where required and close
collaboration with our customers.
In terms of capital allocation, we have begun to
pull forward incremental organic growth capital expenditures to
support existing demand in Performance Chemicals and have
significant balance sheet capacity to pursue complementary
acquisition opportunities for this business. In addition, we expect
to complete our third expansion in production capacity for our
proprietary, energy saving, drag reducing agents (DRA) technology
at our Texas plant by Q3 2021.
We believe that Innospec is well positioned for
the recovery in global economic activity in 2021. Supported by our
strong cash flow generation, I am also pleased that our Board has
approved a 10 percent increase in our semi-annual dividend to 57
cents per share, continuing our record of returning value to
shareholders.”
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, income before income taxes excluding special items, net
income excluding special items and related per share amounts
together with net cash. 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, legacy
costs of closed operations, acquisition related costs and
adjustment of income tax provisions. Net cash is cash and cash
equivalents less total debt. 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 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 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 1900 employees in 24
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 and 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.
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,” “could,” “believes,” “feels,”
“plan,” “intend” 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, including, the
effects of the COVID-19 pandemic, such as its duration, its unknown
long-term economic impact, measures taken by governmental
authorities to address it and the manner in which the pandemic may
precipitate or exacerbate other risks and/or uncertainties, 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, 2020 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:
Corbin BarnesInnospec
Inc.+44-151-355-3611corbin.barnes@innospecinc.com
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
INCOME
Schedule 1
(in millions,
except share and per share data) |
|
Three Months EndedMarch 31 |
2021 |
|
|
2020 |
|
|
|
|
|
|
Net sales |
$ |
339.6 |
|
|
$ |
372.3 |
|
Cost of goods sold |
|
(238.8 |
) |
|
|
(258.4 |
) |
Gross profit |
|
100.8 |
|
|
|
113.9 |
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
Selling, general and administrative |
|
(63.6 |
) |
|
|
(64.4 |
) |
Research and development |
|
(9.0 |
) |
|
|
(8.6 |
) |
Total operating expenses |
|
(72.6 |
) |
|
|
(73.0 |
) |
Operating income |
|
28.2 |
|
|
|
40.9 |
|
Other income, net |
|
3.0 |
|
|
|
3.9 |
|
Interest expense, net |
|
(0.4 |
) |
|
|
(0.6 |
) |
Income before income taxes |
|
30.8 |
|
|
|
44.2 |
|
Income taxes |
|
(7.4 |
) |
|
|
(11.1 |
) |
Net income |
$ |
23.4 |
|
|
$ |
33.1 |
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
Basic |
$ |
0.95 |
|
|
$ |
1.35 |
|
Diluted |
$ |
0.94 |
|
|
$ |
1.34 |
|
|
|
|
|
|
|
Weighted average shares
outstanding (in thousands): |
|
|
|
|
|
Basic |
|
24,601 |
|
|
|
24,529 |
|
Diluted |
|
24,840 |
|
|
|
24,742 |
|
|
|
|
|
|
|
INNOSPEC INC. AND
SUBSIDIARIES
Schedule 2A
SEGMENTAL ANALYSIS OF
RESULTS |
|
Three Months EndedMarch 31 |
(in
millions) |
|
2021 |
|
|
2020 |
|
|
|
|
|
|
Net sales: |
|
|
|
|
|
Fuel Specialties |
$ |
139.3 |
|
|
$ |
147.0 |
|
Performance Chemicals |
|
125.9 |
|
|
|
113.1 |
|
Oilfield Services |
|
74.4 |
|
|
|
112.2 |
|
|
|
339.6 |
|
|
|
372.3 |
|
|
|
|
|
|
|
Gross profit/(loss): |
|
|
|
|
|
Fuel Specialties |
|
44.9 |
|
|
|
51.2 |
|
Performance Chemicals |
|
31.4 |
|
|
|
27.6 |
|
Oilfield Services |
|
24.5 |
|
|
|
36.2 |
|
Octane Additives |
|
- |
|
|
|
(1.1 |
) |
|
|
100.8 |
|
|
|
113.9 |
|
|
|
|
|
|
|
Operating income/(loss): |
|
|
|
|
|
Fuel Specialties |
|
23.8 |
|
|
|
32.1 |
|
Performance Chemicals |
|
18.3 |
|
|
|
15.6 |
|
Oilfield Services |
|
1.2 |
|
|
|
7.2 |
|
Octane Additives |
|
- |
|
|
|
(1.2 |
) |
Corporate costs |
|
(15.1 |
) |
|
|
(12.8 |
) |
Total operating income |
$ |
28.2 |
|
|
$ |
40.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 2B
NON-GAAP
MEASURES |
|
Three Months EndedMarch 31 |
(in millions) |
|
2021 |
|
|
2020 |
|
|
|
|
|
|
Net income |
$ |
23.4 |
|
|
$ |
33.1 |
|
Interest expense, net |
|
0.4 |
|
|
|
0.6 |
|
Income taxes |
|
7.4 |
|
|
|
11.1 |
|
Depreciation and
amortization: |
|
|
|
|
|
Fuel Specialties |
|
1.3 |
|
|
|
1.0 |
|
Performance Chemicals |
|
5.4 |
|
|
|
5.0 |
|
Oilfield Services |
|
3.1 |
|
|
|
4.3 |
|
Octane Additives |
|
- |
|
|
|
0.3 |
|
Corporate costs |
|
0.4 |
|
|
|
1.3 |
|
EBITDA |
|
41.4 |
|
|
|
56.7 |
|
|
|
|
|
|
|
EBITDA: |
|
|
|
|
|
Fuel Specialties |
|
25.1 |
|
|
|
33.1 |
|
Performance Chemicals |
|
23.7 |
|
|
|
20.6 |
|
Oilfield Services |
|
4.3 |
|
|
|
11.5 |
|
Octane Additives |
|
- |
|
|
|
(0.9 |
) |
Corporate costs |
|
(14.7 |
) |
|
|
(11.5 |
) |
|
|
38.4 |
|
|
|
52.8 |
|
Other income, net |
|
3.0 |
|
|
|
3.9 |
|
EBITDA |
$ |
41.4 |
|
|
$ |
56.7 |
|
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 31,2021 |
|
|
December 31,2020 |
Assets |
|
|
|
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
Cash and cash equivalents |
$ |
117.0 |
|
$ |
105.3 |
Trade and other accounts receivable |
|
247.9 |
|
|
221.4 |
Inventories |
|
223.1 |
|
|
220.0 |
Prepaid expenses |
|
12.3 |
|
|
14.9 |
Prepaid income taxes |
|
5.0 |
|
|
4.2 |
Other current assets |
|
2.3 |
|
|
0.4 |
Total current assets |
|
607.6 |
|
|
566.2 |
|
|
|
|
|
|
Net property, plant and
equipment |
|
209.9 |
|
|
210.8 |
Goodwill |
|
367.2 |
|
|
371.2 |
Operating lease right-of-use
assets |
|
36.7 |
|
|
40.1 |
Other intangible assets |
|
70.2 |
|
|
75.3 |
Deferred tax assets |
|
7.4 |
|
|
7.6 |
Pension asset |
|
119.6 |
|
|
118.0 |
Other non-current assets |
|
7.5 |
|
|
8.2 |
Total assets |
$ |
1,426.1 |
|
$ |
1,397.4 |
|
|
|
|
|
|
Liabilities and Stockholders’
Equity |
|
|
|
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
Accounts payable |
$ |
114.5 |
|
$ |
98.7 |
Accrued liabilities |
|
131.8 |
|
|
129.8 |
Current portion of finance leases |
|
0.4 |
|
|
0.5 |
Current portion of plant closure provisions |
|
6.6 |
|
|
6.6 |
Current portion of accrued income taxes |
|
8.8 |
|
|
5.5 |
Current portion of operating lease liabilities |
|
12.2 |
|
|
11.3 |
Total current liabilities |
|
274.3 |
|
|
252.4 |
|
|
|
|
|
|
Finance leases, net of current
portion |
|
- |
|
|
0.1 |
Plant closure provisions, net of
current portion |
|
51.3 |
|
|
51.9 |
Accrued income taxes, net of
current portion |
|
32.4 |
|
|
32.4 |
Unrecognized tax benefits |
|
16.0 |
|
|
16.0 |
Operating lease liabilities, net
of current portion |
|
24.6 |
|
|
28.9 |
Deferred tax liabilities |
|
46.5 |
|
|
46.9 |
Pension liabilities and
post-employment benefits |
|
19.5 |
|
|
20.5 |
Other non-current
liabilities |
|
2.4 |
|
|
3.4 |
Equity |
|
959.1 |
|
|
944.9 |
Total liabilities and equity |
$ |
1,426.1 |
|
$ |
1,397.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Schedule 4
INNOSPEC INC. AND
SUBSIDIARIESCONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
|
|
Three Months EndedMarch 31 |
(in
millions) |
|
2021 |
|
|
2020 |
|
|
|
|
|
|
Cash Flows from Operating
Activities |
|
|
|
|
|
|
|
|
|
|
|
Net income |
$ |
23.4 |
|
|
$ |
33.1 |
|
Adjustments to reconcile net
income to cash provided by operating activities: |
|
|
|
|
|
Depreciation and amortization |
|
10.3 |
|
|
|
12.0 |
|
Deferred taxes |
|
0.1 |
|
|
|
0.7 |
|
Non-cash movements on defined benefit pension plans |
|
(0.8 |
) |
|
|
(1.2 |
) |
Stock option compensation |
|
1.6 |
|
|
|
1.2 |
|
Changes in working capital |
|
(13.6 |
) |
|
|
(46.8 |
) |
Movements in accrued income taxes |
|
3.7 |
|
|
|
1.6 |
|
Movements in plant closure provisions |
|
(0.2 |
) |
|
|
0.1 |
|
Movements in other assets and liabilities |
|
(1.8 |
) |
|
|
1.7 |
|
Net cash provided by operating
activities |
|
22.7 |
|
|
|
2.4 |
|
|
|
|
|
|
|
Cash Flows from Investing
Activities |
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
(10.3 |
) |
|
|
(7.8 |
) |
Net cash used in investing
activities |
|
(10.3 |
) |
|
|
(7.8 |
) |
|
|
|
|
|
|
Cash Flows from Financing
Activities |
|
|
|
|
|
|
|
|
|
|
|
Non-controlling interest |
|
- |
|
|
|
0.1 |
|
Repayment of finance
leases |
|
(0.2 |
) |
|
|
(0.3 |
) |
Issue of treasury stock |
|
0.5 |
|
|
|
0.7 |
|
Repurchase of common
stock |
|
(0.6 |
) |
|
|
(2.1 |
) |
Net cash used in financing
activities |
|
(0.3 |
) |
|
|
(1.6 |
) |
Effect of foreign currency
exchange rate changes on cash |
|
(0.4 |
) |
|
|
(0.6 |
) |
Net change in cash and cash
equivalents |
|
11.7 |
|
|
|
(7.6 |
) |
Cash and cash equivalents at
beginning of period |
|
105.3 |
|
|
|
75.7 |
|
Cash and cash equivalents at
end of period |
$ |
117.0 |
|
|
$ |
68.1 |
|
Amortization of deferred finance costs of $0.1
million (2020 - $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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