雅保公司 (ALB) 2007 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first quarter 2007 Albemarle Corporation earnings conference call. My name is [Twalesha] and I'll be your coordinator for today. At this time, all participants are in listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to your host for today, Ms. Nicole Daniel, Director of Investor Relations. Please proceed.

Thank you. Good morning, everyone, and thank you for joining us today for a discussion of Albemarle's first-quarter results, which were released after the close of the market yesterday. Our press release contains preliminary results for the quarter and this information is subject to further review by the Company and our auditors as part of a quarterly review process. Please note that we have posted supplemental sales information as well as reconciliations for net debt and EBITDA on our website under the investor information section at www.albemarle.com.

I would also like to caution that the remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our annual report on our Form 10-K. Participating with me on the call this morning are Mark Rohr, President and CEO, John Steitz, Executive Vice President and COO, Rich Diemer, Senior Vice President and Chief Financial Officer, and Sandra Rodriguez, who will be working with me in Investor Relations. Now, I would like to turn it over to Mark.

Thanks, Nicole, and good morning, everyone. As always, we look forward to sharing performance details for the quarter and answering your questions after our remarks. Before we go on to the results, I would like to mention a few highlights from the quarter. First, if you missed the announcement a few weeks ago, we named to John Steitz as Executive Vice President and Chief Operating Officer. John is responsible for all aspects of Albemarle's marketing, sales, research, and supply-chain activities. For those of you who may not know John, he is a very capable business leader with tremendous focus on shareholder value. His hard work and dedication has played an integral role in positioning our Company to fully leverage our technologies and our products across the globe.

Also during the quarter, John Dabkowski, who has successfully led our Polymer Additives business for the last seven years, was named Vice President of Business Development. John's expertise in specialty chemicals, additives, and catalysts will help us develop acquisition opportunities that fit our business model. Luc van Muylem, who previously ran our flame retardant's business, was named as John's successor. Luc's international experience directing the world's largest flame retardant business positions him well to lead our Polymer Additives segment. We feel very fortunate to have such a strong team leading our businesses.

Moving on to a few other highlights, in March we celebrated the grand opening of our new technology center and also broke ground on our phosphorus flame retardant plant in Nanjing, China. The combination of technology and manufacturing presence in China positions us to capitalize on growth in this region. For reference, to date, we have roughly four percent of our sales from greater China and our sales in this region have grown over 300% since 2003.

You may have also noticed our increased spending in research. Year-over-year, we have increased R&D spending by 37% to a level of roughly 2.7% of sales. We are starting to expand investment in number of new catalyst areas, driven by the need to satisfy challenges in the fuels markets. We are also investing more money in Polymer Additives development products that we believe will further differentiate Albemarle in the marketplace.

With these highlights, let me now address the Company results. I am pleased to announce first quarter net sales of $589 million with earnings of $0.60 per share, up 67% from $0.36 per share in the first quarter of 2006. Our net income was $58 million, yielding net income margin of approximately 10%. This compares to earnings of $34 million in the same period last year.

The strength of this business model can best be seen through our margin improvement. Corporate gross profit margin for the quarter is 27%, compared to 20% in the first quarter of 2006. First quarter EBITDA margin is 19%, up 32% over last year. The segment income margin for every business was above 16%.

I especially want to salute our Fine Chemicals team for the role they have played in helping us achieve these results. Fine Chemicals' segment income margin improved almost 1000 basis points, going from 6.5% in the first quarter of 2006 to 16.2% in the first quarter of 2007. In this segment, our performance chemical business continues to do quite well. Clear brines is up significantly over last year and other bromine products continue to do well. Jordan is operating superbly, providing a cost basis and platform that allows us to serve Asia as we wanted.

New product development in Fine Chemistry services is also progressing well. Our forma and non- pharma development pipelines are strong, with 175 and 58 projects, respectively, and our new South Haven plant delivered strong profitability, contributing several cents to the quarter, with additional room for new product opportunities we are creating. Fine Chemicals is definitely out of the corporate study hall and making the grades we all expect. Some additional portfolio work remains that we plan to tackle this year, so expect in the coming quarters some modest charges as we announce this ongoing portfolio fine-tuning.

Our Catalysts business delivered strong results this quarter, with segment income margins again exceeding 16%. Refinery catalysts showed strong performance, as we gained traction on pricing in FCC and recorded HPC sales volumes at levels roughly 20% above our current capacity.

Polymer Additives segment income margins showed healthy increases year-over-year and held steady sequentially despite the drop in tetrabrom sales, reflected by weakness in the printed wiring board book-to-bill ratio. Proprietary product lines continue to experience real strength in the market and represent a differentiating factor that our customers value.

Shifting to the supply chain, raw materials, primarily metals, and ATH were up $11 million year-over-year and flat sequentially. Energy was down $1 million from first-quarter 2006 primarily due to lower natural gas in the US. The net-net raw material and energy costs are up roughly $10 million year-over-year. We expect to experience similar levels of raw material inflation through the year. It goes without saying, as our feedstocks continue to rise, it is essential that we execute on our existing pricing and cost saving initiatives to overcome this headwind.

Let's now talk about what we think about the rest of the year. In Catalysts, we expect full-year HPC volumes to be similar to full-year 2006 volumes, but as we discussed, this business does experience dramatic quarter-to-quarter volatility. As expected, our current order patterns show a softer second quarter, with volumes roughly half that of the first-quarter. However, we expect volumes to build more toward the back half of the year and as FCC and polyolefins catalyst performance goes well and we enter 2008. These things should positively impact our segment results through the year.

For the Polymer Additives business, we expect to see moderate growth, sustainable pricing, and favorable product mix throughout the year. Until the consumer electronics market rebounds and, in particular, tetrabrom, we expect revenue to remain flat. At the same time, we expect our proprietary products to grow nicely through the year, which will offset some of this decline.

Lastly, Fine Chemicals is showing great momentum at the start of 2007. We believe our hard work last year to restructure this portfolio is paying off and is clearly reflected in these results. Our team will work hard to maintain this level of profitability throughout the year.

Pulling all of this together, we are off to a great start in 2007. We are expanding our investments in research, moving into new global markets, and working to create positive acquisition opportunities. Perhaps most importantly, we remain committed to differentiating ourselves from our competitors by providing innovative products and services. With that, let me turn it over to John Steitz.

Thanks, Mark, and good morning, everyone. Polymer Additives' net sales for the first quarter of '07 were $214 million, down 3% from the first-quarter of '06 and down 7% from last quarter. Segment income was $35.7 million, a 14.4% increase over the first-quarter of 2006. Segment income margins were 16.7% -- our fourth quarter in a row with margins over 16%. Great job.

Our flame retardant portfolio had lower volumes and lower net sales year-over-year. As Mark discussed, we have seen lower volumes primarily in tetrabrom, which goes into printed wiring boards. We initially mentioned this on our last call and tetrabrom volumes did not recover during the quarter. A good metric for this product is the IPC book-to-bill ratio, which has been below 1.0 for over five months. The last reported data was from February, where the ratio climbed from 0.91to 0.96. Anytime the ratio is over 1.0, that is a good indicator for stronger growth in the future.

The impact of bromine pricing and healthy performance in our proprietary product lines helped offset volume weaknesses. Within our portfolio, phosphorus flame retardant volumes and net sales are down slightly year-over-year and sequentially, however. Mineral flame retardant volumes delivered a strong quarter, with net sales up 12% year-over-year. Overall, polymer additives had a slow first quarter on volumes, but pulled through with solid margins.

Catalysts net sales for the first quarter totaled $236 million, flat compared to the first-quarter of '06 and up almost 23% sequentially. Segment income for the first quarter was $39.4 million, a 55.6% improvement year-over-year. Overall, segment income margin is up 16.7%, or 590 basis points higher compared to the first-quarter of last year.

Joint-venture income from our unconsolidated investments was $4.8 million in the first quarter, up 8.5% from the first-quarter of 2006. Our HPC catalyst sales in the first quarter were down slightly from our first-quarter of 2006, albeit on a stronger mix platform, but up significantly from the fourth-quarter of 2006. FCC sales are up year-over-year and FCC segment income is significantly higher year-over-year.

Our polyolefin catalysts business again delivered strong results in the quarter, with net sales up 53% year-over-year. Profitability of this division increased, as we have had success improving the value of our aluminum alkyls business. Overall, our catalyst team did a tremendous job executing this business over the course of the quarter.

Our Fine Chemicals' net sales for the first-quarter totaled $139 million, a 7.4% decrease from the first-quarter of 2006 and a 14.7% decrease sequentially. Excluding the first-quarter '06 Thann, France PCC volumes, Fine Chemical sales are up 10% year-over-year. Segment income was $22.5 million, up 132% over the first-quarter of last year and flat sequentially. First-quarter segment margin came in at 16.2%, up almost 1000 basis points year-over-year and up 200 basis points sequentially. We are very proud to deliver these results, as we made considerable progress in meeting our margins in this segment and have exceeded our target margins right out of the box. Great work here.

Our Performance Chemicals business delivered strong profit results year-over-year and sequentially, driven by good pricing momentum in our bromine chain, a balanced portfolio, and strong execution. Fine Chemistry services and intermediates business continues to deliver higher profitability as well, with significant improvement in operating profit year-over-year and strong sequential growth. We replaced Tamiflu volumes -- Tamiflu intermediate volumes, if you will, with multiple other margin-bolstering new products from our pipeline. In addition, our South Haven acquisition contributed to margin expansion. Great job from our Fine Chemicals team, and now I would like to turn it over to Rich.

Thank you, John. As you just heard, we experienced excellent margin expansion in each of our businesses this quarter. This ability to realize value for our products more than compensated for the planned increase in R&D expenditures and higher SG&A costs in the quarter and resulted in a 500 basis point consolidated operating margin increase from 8.8% to 13.8% year-over-year.

As mentioned in the press release, Catalysts' earnings included $2.1 million pretax as a result of the reversal of an accrual for employee -- for an employee benefit plan. Our effective tax rate for the quarter and outlook for the year remains at 23%, consistent with what we communicated in January. This is 300 basis points lower than Q1 2006 principally due to the implementation of our European trading company in Q3 of last year. Our rate has increased from Q4 last year principally due to income mix, increased profits, and higher rate jurisdictions, partially offset by higher JVC profits.

Unallocated corporate expenses were $14.7 million and we would expect that 2007 quarterly run rate will be in the 14 to $15 million range this year. Turning to cash flow, EBITDA in the quarter was a record $111 million, up 28% over last year's Q1 and $4 million more than our prior record EBITDA in Q3 last year. We ended the quarter with cash and equivalents of $125 million. CapEx for the quarter was $26 million, slightly more than a quarter of our full-year CapEx expectations of approximately $100 million this year. Depreciation and amortization was $27.3 million and we expect full-year depreciation and amortization of $110 to $115 million.

During the quarter, we repurchased 448,000 shares of common stock for $18.6 million, at an average cost of $41.64. In addition, we received approximately $11 million in proceeds from the exercise of stock options.

Our preliminary rollup of cash flow from operations shows it down some $30 million versus Q1 '06. This is principally due to timing of quarterly revenues, some inventory build from year-end, and an increase in back receivables in our European trading company. We are working on process enhancements and redoubling efforts surrounding working capital improvements and expect to be able to report progress when we talk next in three months time.

Turning to the balance sheet, as of March 31, we have consolidated debt of $742 million, including $66.5 million of JBC joint-venture debt, of which $395 million is fixed and $347 million is floating, a 53/47 split. Our floating debt interest rate is 5.33% at quarter end. The weighted average interest rate for Q1 was 5.25%.

Net of $125 million cash on hand and excluding $36 million of nonguaranteed yet consolidated JBC debt, our net debt is $580 million, up $35 million from year-end, but down over $140 million from Q1 last year. Our quarter-end debt-to-cap ratio is 39.3%, down 100 basis points since year-end, and our net debt-to-cap ratio is 34.8%, comparable to year end.

During the quarter we completed a renewal of our senior bank facility. The renewal extends the facility for a new five-year period with improved pricing, additional liquidity, and flexibility. Before I turn it back to Nicole, I want to mention that we, like other year-end reporting companies, will be adopting FIN 48 accounting for uncertain tax positions this quarter, along with all the required disclosures. You will have to wait for our 10-Q filing for all the details, but our current view is that FIN 48 adoption will result in an immaterial adjustment to our equity. This result confirms our sense that Albemarle accounting for income taxes was already broadly aligned with the concept of FIN 48. Nicole?

Thanks, Rich. Okay, we'd like to go ahead and open it up for your questions.

Thank you. (OPERATOR INSTRUCTIONS). Robert Koort, Goldman Sachs.

Good morning.

Good morning.

This is Amy. I was sitting in for Rob Koort. I have a couple of quick questions. First one, with each of the three segments all achieve or exceeding 15% margins, and then, obviously, margin expansion over the past few quarters appeared to be very impressive, I was wondering whether you have [upped] your margin goals or where shall we expect segment margins to go by the end of this year.

Amy, this is John Steitz. Having achieved our targeted 15%, we certainly have raised the expectations on each of our businesses. So we certainly are looking more for the year, depending on the business, in the 16 to 16.5% range. So we feel we can continue to deliver at these rates of return going into the future.

Okay. So 16 and 16.5% for each segment, right?

Yes, depending on the segment.

Okay. And second question, can you provide some color on the magnitude of volume decline of tetrabrom product line in first quarter, and also with the completion of semi-inventory correction and expecting a rebound in the semiconductor demand beginning in April/May, do you expect a stronger second half for tetrabrom business?

Yes, thank you, Amy. I think that is kind of the core question, really, when it relates to flame retardants. As you point out, that is exactly right, our tetrabrom volumes were down. All other brominated flame retardants were pretty flat, so we did see that correction in the marketplace. And this was validated by -- Mark and myself went out, spent the majority of March visiting customers in Asia, really addressing this issue. Their indications are there that there will be a correction in the second half, but we can't sit here and guarantee that. But we are hopeful that that will happen.

Okay. And then the last question, it looks like the first quarter was still challenged by raw materials cost headwinds. Can you provide some color update on what you look for for the raw material cost trends going forward for the rest of three quarters this year?

Yes, Amy, this is Mark. As we mentioned, we are up roughly $10 million first-quarter to first-quarter in raw materials. As we look out for the year, we think that comparison on a quarterly basis can be pretty consistent. So for us for this year, we are $40 million or slightly north of $40 million of inflation year-over-year is what we forecast today for raw materials. And about $10 million per quarter.

Okay. Thank you.

Thank you, Amy.

David Begleiter, Deutsche Bank.

Thank you, good morning. Dave Begleiter.

Hi David, how are you?

Good, thank you. Mark, first, strategically, looking at potential growth, you have upped R&D spending. Can you discuss the balance between organic and inorganic growth going forward in your portfolio, and how does the M&A pipeline look going forward, and how long will it take -- will the R&D spending take to gain some traction in your system?

Yes, I think one of the interesting dynamics we have in place today, David, is that we are really working both those equations quite hard. I am real excited about the R&D pipeline. These guys of ours do a great job, but we have challenged them to get products to market faster. And in the polymer additives area, we have a family of products we are working on now and as this year ends, we are going to see those rolling out. They are going to be pretty exciting, I think.

In the Catalysts area, we have challenged those guys to cut their time-to-market in half. They are working hard to do that, so both on the FCC side and the HPC said, we have got new product opportunities in additives, we have new product opportunities. So we are putting a lot of energy and effort into organic growth.

Having said that, we have made changes in our business development team by putting John Dabkowski in the lead there. We have been very active the last six months looking at a number of acquisitions. Frankly, David, the price is real high now, and as we have always said, we won't do these things without finding a way to make them accretive in our business model in a short period of time. And at these prices, that is hard to do, but we are still very active there.

We have passed recently on a number that, in theory, would fit, but wouldn't meet that criteria I mentioned. We are now looking at opportunities to go in and extract pieces of businesses out there and perhaps those will those will serve as far -- so I think what you should have from a strategic perspective is we are going to be spending a lot of energy and effort on organic growth. At the same time, we're going to find a way to bring in a few acquisitions as we go forward this year and next.

That's very clear. And, John, can you update us on, a little more color on FCC pricing, both year-over-year, sequentially, and going forward?

You bet, David. We have spent -- I think this is probably the biggest opportunity we have in the Company and we have been working very, very hard around the globe to drive our FCC pricing to reflect, you know, the value that these products bring. We have really reinvigorated that effort, as we speak, from a leadership perspective. We are tracking this effort, as I said, around the world and you know it is breaking a lot of old idioms in cultures that have existed for a decade. So it does take a lot of work, takes a lot of discipline.

Year-over-year, we have seen some good success and we believe that we can continue to build on this success going forward. Year-on-year, I think prices are up in the 15% range, so as always in this industry, this effort takes a tremendous amount of work and discipline and you really have to stick to it. So hopefully that'll give you a little better feeling about it.

That's helpful. And, John, just in tetrabrom pricing, do you believe it will be able to be kept flat, given the weak volumes?

David, yes, that's a great question, David, and real key to our success going forward. We have been so successful in getting these prices up on tetrabrom. The current first quarter, we saw roughly a 13% improvement in pricing on tetrabrom. You know, I think one of the keys going forward is inflation on raw material side. We are beginning to see some inflation on BPA and BPA would do two things -- it would put pressure on, certainly, on all of tetrabrom suppliers, but it also creates inflation on the PC/ABS side, for which flame-retardant polystyrene would be more attractive solution for many of our customers. So I believe there has been good discipline in the marketplace and I think going forward, we are hopeful to maintain our current price levels.

Thank you very much.

Thank you.

Mike Sison, KeyBanc Capital Markets.

Hey, guys, congrats on another great quarter.

Thank you, Mike.

Thank you, Mike.

In terms of Fine Chemicals, I wanted to better understand the sharp improvement in profitability. It's a lot quicker than I had thought. Were all the business lines, did they all see similar trajectory improvement? I guess the way I look at is you have got the bromine franchise, you have got, sort of, the Fine Chemistry franchise, and ibuprofen, I suppose. Were the improvements all sharp across the board?

Yes, Mike. John Steitz, again. Yes, we had, you know, in the Fine Chemistry area, we had our throughput on new products helped really drive that business and helped us offset the profitability derived from the Tamiflu intermediate in the fourth quarter. So check there. We had good pharmaceutical volumes across the board, not only ibuprofen, but also the products that came along with the South Haven acquisition. We have got a good line of anti-inflammatories we have bought there, all niche products; good line of antifungals; diphenhydramine citrate, which is used in the sleep aid for Advil PM, is going well, so -- and overall, we have the positive mix effect from putting in the South Haven product line into the portfolio and year-over-year eliminating the potassium and chlorine business in Europe.

So then our, lastly, as you point out, the bromine portfolio did quite well. We had good volumes in our clear brine areas, which have continued into the second quarter, and price momentum on bromine for commercial sales has continued as well. So we feel, overall, it was -- each of the areas did quite well. We have been successful, as well, in turning around our amines business, which last year at this time was not making money. And I am especially proud of the team on that note.

Where was -- what was the organic growth rate for the fine chemistry services? Was it actually up year-over-year in the quarter?

Well, year-over-year, sales were about flat for that segment, but you have to take into account that we offset some declining ag intermediates business year-over-year.

Excluding ag, the pharma side was up?

Pharma side was up nicely. Now, sequentially it was down, but as we tried to explain last quarter, the Tamiflu intermediate included quite a sizable hole of some raw materials that went along with that. And that was just a pass-through on that raw material.

And sustainability in bromine pricing in that business, are we still in the early parts of the, sort of, curve there?

Well, early -- I hope so. I just think in the product lines that commercial bromine is sold into that the value of this product brings is pretty strong. We have been fairly aggressive raising the bromine Fine Chemicals prices when -- and that is a bit of a watch-out for us, because when we do that, we are inviting in some competition. So we have to watch out on that side of things, but for overall in the bromine side, good momentum and hopefully we can keep that going.

And last question on the fine chemistry, considering that you got a lot of the new products in, that is sort of a set of volume that is sustained throughout the year.

Yes, we think -- right, we needed the South Haven asset, because we were at capacity. And in particular, that plant will be filled out through the course of the year, as we filled that with products that are pretty encouraging. Now, we also just picked up, I think, a really great piece of new business for an HIV drug in Phase III. I don't know if you follow that market, but there is really a need for new HIV meds because of the resistance buildup over the last decade. And we are very encouraged about the commercial prospects for this particular product that we will be making in both Orangeburg and South Haven.

Great. Thank you.

Thanks, Mike.

You are welcome.

Dmitry Silversteyn, Longbow Research.

Good morning, gentlemen. Congratulations on the strong quarter and the good start to the year.

Thanks, Dimitri.

Thanks, Dimitri.

Most of my questions have been answered, but I do have a couple of more to follow up. There was something you said when you made a comment on HPC catalyst business. I think it referred to your -- I think it is backlog of business that was 20% higher than your current capacity. Can you just clarify that a little bit.

Yes, Dimitri. What I said was that the sales volume this year, the start of this year, the first quarter, is about 20% above our capacity to produce and I wanted to highlight that so folks would understand how much this business moves around quarter-to-quarter. So we actually had to operate at the end of last year, we have built some working capital, carried some of those products forward to let us make those sales. When we look at the quarter coming up, we are going to be down half of that level, so we will be down 20% below our capacity or so. And so that kind of volatility is what we deal with, and that is as much as maybe $10 million of profit quarter-to-quarter. So that is what we kind of deal with in that business and John's team works really hard to manage that, you know, to offset that, but I just want everybody to understand the level of volatility there.

Okay. That's good. Secondly, the profit or the profitability improvement in the Fine Chemicals business. Mike asked the question earlier. I am not as surprised, I guess, that you got to this level, I am just curious as to, you know, given the lumpiness of this business and maybe increased lumpiness with the South Haven plant, is this a sustainable level of profitability or do you expect it to fluctuate around 15%, being up a couple of percentages one quarter, being down the next?

Yes, Dimitri. John. We have tried to take a pretty hard drill-down on that question and our team feels very confident that we can continue to deliver this level through the course of the year. So the new products pipeline is robust, the bromine and derivatives of volumes remain, looking forward, looking pretty good. So we are hopeful to continue.

Is your South Haven plant getting to levels of utilization and profitability? In other words, if you are looking at where you want this plant to be and where it is now, how far away is it from being -- from meeting your expectations when you bought it?

That's a great question. Mark and I were up to visit this great group of people and just about, just a few weeks ago. And that question is a key one. We think the performance was good in the first quarter, but nowhere near its potential. And when we bought it, it was about half full. We're probably about two-thirds to 70% full today, and we anticipate it being fully-utilized before the end of the year. And then with that acquisition came a lot of really great spare equipment and they're just sitting out waiting to be more fully utilized. So we feel real good about that business model, and the synergy that is created by the new products pipeline, and it being fully cGMP, it came with a great product line to begin with, and we are pretty excited about that.

Just to make sure I understand, when you talk about fully-utilized plant, you mean it in a Fine Chemicals way of 80% to 85% utilization.

A little higher than that. I think in the 90, 95% range.

Okay. So you are looking at more of a chemical-type of utilization?

Yes.

Okay. All right.

One thing they do very, very well is validated cleanout, very robust discipline up there, and very quick turnarounds, so that is kind of best-in-class for us.

Okay. Very good. And then final question on higher SG&A that you mentioned in the first quarter, are we seeing the new level of SG&A expenditure here in terms of dollar terms, or was this kind of, I don't want to call it an aberration, but a short-term spike that you will come back down to your more normal SG&A levels?

This is Rich, Dmitry. What I would say is that this is kind of the run rate we would expect this year. And if we are more successful, you know, this is where some bonuses and stuff come through, so if we drive more success, it may go higher. But it would only be linked in with higher Company profitability.

I got you. All right. Thank you very much. That's all the questions I had.

Thanks Dmitry.

Thanks Dmitry.

Kevin McCarthy, Banc of America.

Good morning, everyone. Just to follow up on R&D, would you say that 2.7% of sales is an appropriate run rate to think about going forward or are you in the midst of an ongoing ramp, such that the year might finish higher than that? That is the first part. And then the second part, I was wondering if you could comment on how much of the incremental spend, or investment, rather, is going into Catalysts versus your other businesses?

Yes, Kevin, I think that level is a -- where we are today for this year is a good level. We are spending at a rate that we think is going to be sustained through the year. When I looked at the spend rate, it is two-thirds to Catalysts and one-third everywhere else. Most of that one third is Polymer Additives in terms of the increase. So most of it is going into new Catalyst opportunities. But we are putting a lot into Polymer Additives, as well.

Okay. And then shifting gears to HPC catalyst volumes, I think you have been a bit subpar last couple of quarters after a very robust surge last year. At what point, perhaps, in the back half of this year do you expect a resurgence there, given the necessity to recharge?

Yes, Kevin, they are -- and I know you know our business well enough to understand this, but others may not, so let me just say it. We have probably 50 HPC products and each of those 50 has a different netback, so there is a huge mix effect in this business. So we make conscious decisions at times to lower our volume as well. So you have got to take all the subtle movements in volumes and the subtle movements in sales and kind of flush through that little bit and look at this business more on a year-over-year basis. And if you look at it on a year-over-year basis, we have said that our business should be down year-over-year, as we ended last year, and now we feel good it is going to be flat, which is a Herculean accomplishment given the large amount of catalysts that was charged in 2006 as we rolled to the new ultra-low sulfur diesel specification.

Right.

As we looked at that cycle, we expect 2008 to be a very strong year. So broadly speaking, this year should be flat. We are going to be down a bit in the second quarter, as we have said. I think we will be stronger in the third and fourth as we build going into 2008 and we expect 2008 to be a good volume year, again, from a point of view of year-over-year growth.

Okay.

So does that answer your question?

Yes, it does. Thank you. And then, finally, I understand the issues with tetrabrom, I think, printed wiring board, but if we put tetrabrom on the side, how would you characterize the volume outlook for your remaining brominated flame retardants and other polymer additives in that segment?

Excluding brominated flame retardants, as I said earlier, volumes were pretty much flat and going forward we are still continuing to see some reasonable demands, so we believe it will be up at GDP levels or higher, primarily related to the enclosures market. Though we are seeing some pockets of weakness in the connectors market, again, related to the electronics piece. But, overall, we have the strongest portfolio in the industry and that has been a real competitive advantage for us.

Okay, thanks. And congratulations on the promotion, John.

Thank you. It's a real honor to work with such a great team. Thank you.

Laurence Alexander, Jefferies & Company.

Good morning.

Hey, Laurence.

I guess, first, just a question on FCC catalyst. What is the global industry utilization rate right now?

Laurence, all the indications that we are seeing, even before the strong summer driving months, where the gasoline refiners are going to be going absolutely as hard as they can, we see and hear and believe it is sold out.

For the catalyst producers?

Yes.

Okay. And what is your threshold for looking at additional capacity expansion?

Well, I think we're a long way from that. You are talking about pricing, I'm sure.

Pricing and at what point do you need to add capacity to maintain customer relationships?

Well, you know, I cannot see us adding capacity until we get the returns on this business up. I mean, it is going to be a significant investment, it is going to be a big tranche of capacity, and the returns have to be there. I look at our situation and I don't think it is much different than anyone else's, so that is why we are out traveling around the globe to seek that support from the customer base. And I think it is really paramount that they understand that.

And, secondly, on polyolefin catalysts, you had a very strong quarter. Can you walk us through the longer-term supply/demand dynamics and how that is feeding into pricing?

In polyolefin catalysts, yes, you have new catalysts, particularly in them metallocene area, but then you have the organometallics piece. So we break it out into two pieces and we are seeing, actually, in my mind, surprisingly strong volume indications across the board. And I think that that has helped our pricing effort, but these products bring such value. It doesn't even round in terms of cost.

There is tremendous challenges logistically. There is tremendous investments that have to be made to distribute these products, and it ties up -- in doing that, ties up a fair amount of working capital. So if you look at the net return on assets that that business is generating, in my mind, it is too low. And while we continue to drive price and improve profitability, that is a good thing, but you have to recognize this asset for us ties up a lot of capital. And we have got to continue to drive on the pricing front to get that return we need.

And for Q1, was it mostly price?

It was -- price was very strong, but volumes were up as well. I don't look at overall volumes in polyolefin catalysts, because we will have some that we sell in kilo quantities at very high price levels and we will have the organometallics, which are very large volumes. But the price year-over-year has been pretty significant improvement. But the metals and raw material side has been very high too, so that is not all flowing down to the bottom line.

And Mark, just to clarify two of your comments. Did you indicate that HPC profitability sequentially will be down $10 million and flame retardants should be flat sequentially --?

I am saying first right out of the box -- just what I really said and I just want you to appreciate is that as the cards stack, first quarter to second quarter, we see a $10 million swing on day one of the quarter, our view of profitability between the first and the second in HPC. And we have to work the deal with that and manage that. But that is the kind of volatility we are trying to just help you guys understand is a routine part of this business.

So it is not locked in? I mean -- just to be clear on that?

Well, we are paid to make sure it is not locked in. We work hard to overcome those kinds of things. So we feel good about the numbers that are out there for the year kind of process. But I would just caution folks not to take the $.60 and bake it in as a threshold for every quarter for this year.

And lastly, on FRs, your comment on that being flat -- was that sequential or was that year-over-year?

Would you say that again? I'm sorry.

I'm sorry. You made a comment on flame retardants being flat unless electronics improved. Was that sequentially or year-over-year, just to clarify?

That was sequentially.

Edward Yang, CIBC.

Thank you. Good morning.

Good morning, Edward.

Good morning.

A question on Catalysts. FCC is sold out. You have raised prices twice in two years. Are current prices -- was your last price increase, is that sticking and is another increase possible within the next year and what sort of magnitude?

Yes, the last price increase, we have achieved a portion of that, Ed, and we are working hard to execute on the majority of that in the second quarter. So we are not quite totally through the second announced price increase and we are working hard to achieve that. So second quarter will be pivotal in that effort.

Going forward, you know, we have got to take one step at a time here. If we can achieve the announced $2700 a ton increase -- $2700 a ton price across the portfolio in the second quarter, we would be delighted with that. So we will take it one step at a time as we look at the market going forward.

And John, is the uptake in price increase by the customers, is that consistent with the previous price hike that you had announced?

This would be more than that sequentially, Ed. So the first increase was $400 a ton and the second increase was more than that. But we haven't fully executed that yet. So that is year-over-year, it is a pretty strong performance; sequentially, we have got some more work to do.

And what was the margin breakout between FCC and HPC in the quarter?

You know, I don't have -- basically, if you look at year-over-year, most of our profit improvement was up from polyolefin catalysts and FCC. If you look at sequentially, most of our profit improvement was from HPC. So hopefully, that gives you a little bit of flavor on it.

And are FCC margins still less than half that of HPC?

Yes, we have a lot of work to do here, especially for the investment and the asset base for that product line. It also ties up a lot of working capital. So it is not where it needs to be.

And were HPC --?

We are really -- we are tracking every customer, every price, every tender. We are really managing this situation very closely, I want you to know that.

Okay, great. And on HPC orders, were any orders pulled forward or pushed out because of refinery outages?

No. No, it was pretty much as expected.

Okay.

We had some -- always have some logistical challenges, to make sure we meet these short turnaround times for our customer base. So that always kind of makes your heart skip a beat. But our team pulled through and made things happen.

Okay. And looking longer term on HPC, you mentioned the quarter-to-quarter volatility. But maybe looking at supply/demand over the next two to three years, do you need another expansion to meet demand above and beyond the Bayport upgrade?

Yes -- this is John again. Again, as Mark mentioned, '08 is looking pretty strong. We have got some of these large mega-refineries that will be gearing up towards the end of '08 and '09. And I think to continue meeting the demand, just the fundamentals in this marketplace, of lowering sulfur, pulling that out of the air, the greenness of this product line has got a lot of momentum behind it. So we are intent on continuing to stay ahead of that curve.

And just finally, on polymer additives, I was surprised that margins had remained strong versus demand. Is the current margin run rate, is that sustainable in flame retardants at the current revenue run rate, or do you need to see a pickup to maintain that margin? And if things do pick up, would margins expand?

Well, yes, we had the big drop in tetrabrom volumes, as I mentioned. We are hopeful that will turn around in the back half. And Mark mentioned we also have some new chemistry, some new technologies coming onstream in the back half of the year. We want to continue to fund those R&D investments going forward. So we are hopeful that the volume pickup in the back half of the year, which many of you really have baked into your forecasts for us, will hold as we gain a momentum. So we will have more to report certainly in the quarters ahead.

Thank you very much.

You are welcome.

Chris Shaw, UBS.

Yes. Hi. Good morning.

Morning, Chris.

Morning, Chris.

I think you addressed most things by now, but just a general question on sort of the Fine Chemistry area. Do you have any idea or feeling for just how much sort of -- I mean there was a lot of capacity in that industry for a long time. Is there still a lot of excess capacity or have you seen that sort of utilization rates for other people's plants or industry wide sort of creep up?

Well, there certainly had been a huge number of write-offs in that over the years -- I mean billions and billions. So while much of that capacity has kind of been financially reengineered, I think the addition of capacity, people are being very prudent in their decisions on that, which is a good thing.

So while I don't think a lot of that capacity has been mothballed, I think the utilizations are stronger, the outsourcing indications of some of the major pharmaceutical companies is stronger, and again, the fundamentals appear to be pretty strong with -- I think the industry has really learned that you just can't throw hundreds of millions of dollars at these assets and expect that -- a return to be made on that basis.

You also -- do you feel that you have been growing faster than maybe the industry as a whole, given you have sort of go over the niche strategy. Has that helped?

Well, we always felt really good about our pipeline and how we are muscling these new product opportunities through, which is the reason for the South Haven acquisition. So I think we do a better job than a lot of other folks, but that is just my opinion and I am kind of biased.

What did -- do you know what moly prices did for the quarter?

Yes, they were essentially flat sequentially. We are seeing some upside pressure on moly as we go through this year. A lot of inflation going on in cobalt and nickel and those kinds of areas, though, Chris.

And did you -- I might have missed this. Do you guys no longer provide the sales detail by segment? I only saw an overall --

No, it should all be posted on there.

All right. I will doublecheck back. Thanks.

Thanks, Chris.

Thanks, Chris.

PJ Juvekar, Citigroup.

Good morning.

Good morning, PJ.

Good morning, PJ.

You talked at length about tetrabrom. Can you comment on decabrom and what is going on there? And then a question for John. John, what are the bromine operating rates in Jordan and in Arkansas?

PJ, this is Mark. Let me start with the deca situation. If you look at it on a big basis, we could spend hours talking about this subject. Clearly, the concern over polybrominated diphenyl ethers has impacted the volume of this molecule, and we are seeing it continue to decrease in volume. So that is kind of what is happening there. Is it going to go away? I don't think so. But certainly the volumes are down in that product. And we have other products that are going into making up that volume for the most part. So we are a little bit indifferent about it.

Recently, the state of Washington came out and proposed a ban in 2011/2012 timeframe if a suitable alternative can be found. And of course, as you know, deca has been tested like no other product, so that is a pretty steep hurdle to overcome.

Sure.

So that is kind of what I would say with deca. So you should have a view that deca is slowly decreasing in volume and other, more unique molecules are taking its place. And let me turn it over to John for the other question.

Yes, PJ. Magnolia is running pretty high right now. I wouldn't say, you know, 90%, 95% range; but maybe in the 80% range. And that is primarily where we have the full portfolio is offsetting the tetrabrom weakness. So we have clear brines doing well. We have a product that we moved from Thann, France that requires bromine. We have moved that to Magnolia. That is doing well. So we have some other -- and the commercial bromine itself is doing fine.

So then if you shift to Jordan, we have there the same effect, tetrabrom and clear brines. Clear brines continues to do quite well, helping us offset some of the tetrabrom weakness out of Jordan. So overall, I would say Jordan is running at a lower utilization rate than that. But again, we really don't look at running these plants at capacity, especially with the specialty nature of the mix.

Right. And the second question is, if you look at your catalyst business, I guess the question I have is can the FCC strength offset HPC decline in 2007, in your mind?

If we assume for a minute that HPC will be flat, and -- if you assume that, which I think is what you are saying, will FCC and polyolefin catalysts help -- that increase help us grow that business? And we believe yes -- the answer to that question is yes.

Well, HPC is flat sequentially, but it is down year-over-year, right? So that is what I was talking about.

Yes, but overall for the year, volumes, we think, for the year will be flat.

Okay.

So, just to reiterate, PJ, so we see sequentially the second quarter will be more like the fourth quarter of last year. And then the third and fourth quarters will be more like a hybrid of the earned average of the first and second quarters.

Okay.

If that helps you understand --.

Yes, it does. And then you got off road diesel in 2008, Europe in 2009, all that stuff going on. So do you expect sort of the weak -- sort of softer 2007 and then volumes pick up in '08 and '09?

Yes, we have had that view for quite some time. That is exactly correct.

And lastly, can you give us an update on your new Bayport plant?

Yes, let me -- we are 70% to 75% complete with that plant, and right now it is scheduled to be completed in June-ish kind of time frame. We are fighting a lot of challenges with that to deal with the stress on contract employees down there that are doing this kind of construction work and inflated costs. So we are being pretty prudent with how we spend those dollars, PJ. But certainly the June/July timeframe, we expect to be complete, with the plant starting up after that.

Is that pushed out from your previous expectations?

Well, I think when we initially announced it, we were talking about April. And so last year -- middle of last year, we decided to slide it out a little bit. And we were doing that -- I mean, I would be happy for it to be running today, to be quite honest -- but we were doing that because the cost had inflated so much, the only way I could make that schedule was to expedite everything and that didn't make any sense at all. So we've tried to fit the schedule into the realities of doing construction work in the Houston ship channel these days.

Right. Plus you probably don't need the HPC volumes right now anyway.

Well, I mean, I am a little bit indifferent about whether it is June, July or August kind of startup on that.

Okay. Thank you.

Tom Brinkmann with Albemarle. Please proceed.

Good morning. Actually I'm with Davenport & Company.

Too bad, Tom. We (multiple speakers).

I am not on the payroll yet, right?

Get out there and start selling, buddy.

I would like to. That would be great. First of all, congratulations on a great quarter, guys.

Thank you.

And just was curious -- now I joined the call a little bit late, so I apologize if any of this has already been covered. But on the last quarterly earnings call, you had a question -- you received a question about an overall price hike sort of average -- and somebody was asking if you had achieved 10%, and you said well, that's pretty ambitious.

But I am just curious if you have a feel for what the overall average price hike was that you realized, whether, I mean, sequentially or year-over-year?

It's a pretty big number because you have got not only pricing going up, but you have some volumes down that have been (multiple speakers).

Yes, in our (multiple speakers). PCC is out. With PCC being out, that dramatically improves our mix. So Mark said it right -- our pricing year-over-year looks pretty impressive.

Okay. So are you saying mid single digits or high single digits, something like that, or --?

No, it's higher than that.

Higher than that.

Higher than that. Okay. So okay. And then also just in general if you could give us some any guidance, possibly, on CapEx for the year or tax rate interest and finance expenses.

This is a Rich, Tom. So tax rate was 23 in the first quarter. It's at 23 for the year. In terms of CapEx, we had 26-ish in the quarter; it's 100 for the year. SG&A, the amount we reported this quarter is pretty much the 15 to 16 range is going to be kind of the normalized run rate for the year also.

Okay. Okay. I was actually -- I was wondering about interest and financing expenses.

Interest and financing expenses, you know, it is what it is this quarter. That is a good run rate hopefully, obviously to generate cash and pay down debt. But if you model it based on this quarter and interest rates stay the same, you know, it's probably, give or take, a good number to have.

Okay. That's all I had for you. Thanks.

Thanks, Tom.

Dana Walker, Kalmar Investments.

We finally arrive with a shareholder.

You need to get up earlier, man.

It takes that long. Are you folks in a position to describe this new family of polymer additives that we might see by the tail end of this year?

I think next quarter we will talk more about that. So no, I would like to not do it today. But we just -- you know, you know us pretty well and you know the success we have had getting new products in the marketplace. And it takes a lot to get us excited, but we are pretty excited now about some innovative chemistry that is occurring. And so yes, we need a little bit more time.

Let me see if I can't tease something out of you. Would you describe it as incremental opportunity or a positive obsolescence of something you are already doing?

I think it is both. You know, when you look at the additives business, there's a fair amount of work that has to go on to get products speced into new products; so qualification period is pretty long. You need to think in terms of one year, 18 months kind of thing.

So if you look at our brominated polystyrene, which was a breakthrough technology, we went from idea to commercial sale was a year; and then from the first commercial sale to putting it into a world-class plant was a year. We have since doubled that capacity and we are getting ready to double it again; and all that has occurred within four years or so.

So that is what you kind of see in terms of the cycle. And we have a few products that we're looking at today that may have that potential. Initially, though, they are incremental. They are small volumes.

Mark, what was the reference you made earlier in the call about where we might see some serial charges related to capacity adjustment or exposure to particular businesses? I missed that.

Yes, well I think we have mentioned once before a few things. We have a few facilities, through no fault of their own, you know, struggle to maintain good profits in the world today. And so we are looking at -- and we are going to do this evaluation next month or so about some shutdown of one facility.

If we do that, we will have a charge in the second quarter of less than $5 million, Dana. And that is a book; cash is minimal. And it will immediately start adding profitability of a few million dollars per year.

There are a couple of those out there. And as we go through this year, we are going to be taking hard looks and trying to make those kinds of things happen.

On the topic of HPC, do you have a rough sense for what type of volume growth you would expect to see in the '08/'09 timeframe?

We have not set down and communicated that yet, but I think if you look back at conceptual volume growth we have had in the past when this business has done well, it has been in the order of magnitudes of 10%. And so I think we are going to enter that kind of period again; just as today, you know, we should be down a little bit, we are kind of holding it flat with our technology.

So this business has this wave that kind of goes through it with a positive slope. So I would think there is that kind of volume growth out there.

A thought or two, if you would, on the China effect on your flame retardant business, in that there is suggestion that increasingly they will be adopting Western standards.

Well, we are working -- as we have mentioned before, we are working with the regulatory authorities there to help them draft and craft improved flammability standards. The Chinese government is imposing those standards on hotels and things like that to make sure that everything is dress right dress for the Olympics and the surge in tourism they are expecting. So some of that is starting to happen out there.

You can get pretty -- you can be seduced by those numbers if you run the calculus on them, because you are talking about huge upticks in volume potentially as it happens, as much as doubling the volume in some FRs.

But that is in the early stages, and the Chinese government, while they are very well-intended, has trouble enforcing some of these laws. So I think you should expect to see growth in that region continue. We have had a great track record so far, albeit from a pretty low base. And I think as we go through this decade, you are going to see some pretty phenomenal growth out of that region.

Thank you for sharing your thoughts.

Great. Thanks, Dana

Thanks, Dana

There appears to be no additional questions at this time. I would now like to turn the call over to Nicole Daniel for any closing remarks.

Great. Thank you. I would like to thank everyone on the call today. If there are any further questions, you can contact me at the number indicated on the press release. Everyone have a great day.

Thank you for your participation in today's conference. This now concludes your presentation. You may now disconnect and have a wonderful day.