雅保公司 (ALB) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the third quarter 2009 Albemarle Corporation earnings conference call. I will be your operator for today's call. At this time, all participants are in a listen only mode. We will conduct a question-and-answer session toward 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 Sandra Rodriguez, Director of Investor Relations. Please proceed, ma'am.

Thanks, Leticia. Good morning, everyone. Thank you for joining us today for a review of Albemarle's third quarter results, which were released after the market close yesterday. Our press release contains preliminary results for the quarter, which are as you know subject to further review by the company and our auditors as part of our quarter end review process. Please note we have posted supplemental sales information as well as reconciliations for [net debt] and EBITDA on the Investor Information section at Albemarle.com.

I would also like to caution that remarks today contain forward-looking statements. Factors that could cause results to differ from expectations are listed in our annual report on Form 10-K.

Participating with me on the call this morning are Mark Rohr, Chairman and Chief Executive Officer; Luke Kissam, Executive Vice President; John Steitz, Chief Operating Officer; and Rich Diemer, Chief Financial Officer. At this time, I'll turn the call over to Mark.

Thanks, Sandra. Good morning, everyone, and thank you for joining our third quarter conference call. I'll begin today with a few opening remarks on the company's quarterly results and our current view of how improving market trends impacted our business in the third quarter and how these trends continue to show signs of further improvement. Luke will follow with a brief update on the company's productivity and cost reduction efforts, John will cover the segment performance sharing his insight on each business, and Rich will wrap-up with the financial highlights.

As you have seen from many reports, the case is being built that the United States economy bottomed in the second quarter and we are experiencing early stages of recovery. We have certainly seen this in our markets. Activity in all sectors has stabilized. The sense of freefall we have been living with has diminished and volume improvements in virtually every sector are underway. Perhaps most noticeable, the year end warning signals from some Asian customers we spoke about on the last call have yet to materialize, which bodes well for Albemarle as we wrap-up this year.

Before moving on to quarterly results, let me take a few minutes to highlight some of the strategic initiatives underway. First I'm pleased to announce Barry Perry will join our board effective January 1. Barry has served as Chairman and Chief Executive Officer of Engelhard from 2001 to 2006, which is now part of BASF, and prior to that, he had a distinguished career with General Electric and Rhone-Poulenc. He brings a wealth of experience in polymer science and global leadership that will be a strong addition to our board. We look forward to Barry's contributions and welcome him to the Albemarle team.

I hope you had a chance to see our press release this morning, where we announced the formation of a joint venture between Albemarle and Saudi Basic Industries Corporation. Through this venture, the two parties will build a world scale organometallics production facility in Al-Jubail, Saudi Arabia. Our polyolefin catalyst business has grown nicely over the past two years and has become a strategic component of the company. The polyolefins market has substantial needs for catalysts that can help customers differentiate their product lines. Albemarle, the leading provider of advanced technical solutions for this market, with this joint venture will become the first manufacturer of these components in the Middle East. We are obviously very excited about this joint venture and expect it to be the foundation for other opportunities in the region.

Early this month, the American Chemical Society jointly recognized Albemarle and its consortium partners Lummus Technology and Neste Oil with the Award For Affordable Green Chemistry 2010 award for affordable green chemistry, for our AlkyClean technology. This is another great example of our commitment to sustainable value added solutions. AlkyClean's solid acid alkylation process significantly improves the safety of the refinery processes. Besides this environmental advantage, the technology also improves operational economics. While this business is generating very modest earnings at this time, it has good potential as a green solution for the refinery industry.

With that, let me now address the company results. On an extremely challenging first half of 2009, I'm very pleased with the advances we made in a number of our businesses this quarter. The positive momentum we gained across the portfolio drove earnings of $0.57 per share for the third quarter. Sales revenue was $515 million versus $660 million the same quarter of 2008. But compared to $445 million last quarter, our sales increased 16%, driven by sequential volume improvement of nearly 22%.

Net income for the quarter was $52.1 million, down 7% from the third quarter 2008, but up 35% from last quarter. Segment margins increased 90 basis points year over year and 140 basis points sequentially to 14.3%. This level of profitability highlights the progress we have made in lowering our breakeven point. A number of end markets are gaining traction, including consumer electronics, where our flame retardants are used. Manufacturers are restocking depleted inventories and haven't seen the slowdown we anticipated earlier in the second half. Better demand coupled with our continued cost management efforts led to top and bottom line sequential improvements in our Polymer segment. Stated another way, Polymer's profitability for the third quarter more than tripled the combined profitability of the prior three quarters.

Following a tough second quarter in Fine Chemicals, the segment rebounded nicely on improved sales volume. New product sales, improving demand across our bromine chain, and increased cost absorption all contributed to Fine Chemicals's segment income of $14.2 million, which exceeds segment income for the first half of 2009. Lagging volume recovery in the completion fluids business was a drag on earnings this quarter, and I expect that will continue until joint activity improves.

Our Catalyst business performed well in the quarter, with sequential volume improvements across-the-board. The business delivered impressive profits of $33.4 million, and were it not for unfavorable variances in polyolefins catalysts in one of our joint ventures, we would have done better. We have included several new product offerings over the last few months, such as our new nickel-molybdenum catalyst that enhances hydrocracking performance, and FCC Ultra Catalyst, which [boosts] cracking yields. These new technologies are taking hold and will be a key enabler for continued growth in the refinery business in the quarters ahead.

Turning now to input costs, for the third quarter, gross raw material and energy costs were roughly $58 million below the third quarter last year, with approximately 60% of this in metals. Excluding metals, we currently full year raw materials to be roughly $60 million lower than 2008. That said, petroleum-based [B] stocks continued to rides on a sequential basis and energy is following similar trends. Natural gas prices are expected to climb in the fourth quarter to a level near those we experienced last year. We expect total year over year energy costs to be down $20 million, and all together we're looking at year over year input costs roughly $200 million below 2008, reflecting both price and volume. Taking metals out of that estimate, we are looking at about an $80 million year over year variance.

Cash and equivalents as of September 30 was $260.4 million, exceeding our year end level despite paying off over $100 million of debt. Inventories were lower than they were at June 30, despite the continued pickup in the pace of business. Our balance sheet gives us the financial flexibility to capitalize on these opportunities and I would like to salute the tremendous effort on achieved in working capital and cash generation in this quarter.

Looking forward, while the rebalancing of the global economic landscape is still a work in progress, we expect strong growth in Brazil, China, and Korea to support lower levels of growth in the United States and Europe. The good news is we are talking about growth in all regions. Fourth quarter should show sequential growth on the back of improved volumes in Fine Chemicals and Catalysts. HPC and polyolefins catalyst should both grow sequentially, as will Fine Chemistry services and bromine volumes. Demand for our flame retardants has started to rebound nicely, and this indication suggests a steady and sustained recovery in printed circuit board and connectors market. Based on what we are seeing in October, and assuming the world doesn't come to an end after Thanksgiving, Albemarle should deliver solid fourth quarter results in what is typically a seasonally soft quarter.

Taking an early look at 2010, volume growth will be augmented by a number of new product offerings across our portfolio. Year to date, new products introductions account for about 33% of total net sales. A large portion of that is in Catalyst, where we launched several new products over the last year. We are soon going to introduce breakthrough technology of eco-friendly Polymer products that promote sustainable and improved performance for our electronics customers. Additionally, our Fine Chemistry service pipeline has a very healthy composition of farm suitable ag and other product development projects.

With that, let me ask Luke to comment on our progress with productivity initiatives.

Thanks, Mark. Good morning, everyone. We talked before about the restructuring efforts we have embarked upon in the US and Asia and have planned in Europe to reduce our operating costs by $160 million versus 2008 costs. These actions will reinforce the company's ability to deliver quality earnings due to slow or robust economy.

I would like to give you an update where we are to date on these efforts. For the first nine months of 2009, our costs are about $85 million lower than for the same period in 2008. That figure excludes the one time accrual reversal of $8 million in the first quarter of 2009 and the favorable currency impact we are experiencing year to date. We are also working hard to change the way we operate to make sure that we keep these costs out, even as volumes return.

In the third quarter, we took some additional steps that are critical to the success of this restructuring. In September, we initiated the consultation process with our employees at our EU headquarters in Brussels, and with the respective [work] councils at our Martinswerk mineral flame retardant plant in Germany and our refinery catalyst center in the Netherlands. These consultations are required under local laws prior to any restructuring at those sites. At this stage in the process, it is not possible to predict the timing or amount of any special charges related to any restructurings. But our best guess is that we will incur special charges totaling in the range of $10 million to $15 million over the next few quarters. The goal of the consultation process and ensuing restructuring actions is to have the right processes, procedures, and controls in place to achieve operational efficiencies and create a more flexible and cost effective operating structure.

As part of the restructuring process, we are looking to establish a global center of excellence for transactional processes in Budapest, Hungary. The center will consolidate our transactions across Europe and in some instances across the globe. This new center, which is a part of the Project I Albemarle we have talked about with you before, will lower our costs and make us more efficient, creating a stronger and more sustainable business model for Albemarle.

In addition to cost reductions, we continue to focus on working capital. Even as demand and production rates have increased throughout the year, we have kept our inventory levels at historically low levels while still meeting the demands of the customers. Rich will talk more about our results to date a little later, but the important aspect is that we have fundamentally changed the way we forecast, produce, and deliver products so we can keep our inventory levels down.

In closing, our year to date results continue ahead of schedule with regard to our cost reduction initiatives. There remains a lot of work to do, but we have plans in place that make us comfortable that our target is achievable. We will continue to update you on our progress over the coming quarters. With that, I'll turn it over to John.

Thanks, Luke and good morning, everyone, and let me start with catalysts. Catalyst business saw sequential increases in volumes and revenues in the third quarter. HPC, FCC, and polyolefin catalyst delivered on sequential top line growth. Sales revenues were $189 million, down 18% compared to same quarter last year, but up 12% sequentially. The majority of the year over year decline is lower metal costs passed through to customers. Molybdenum pricing alone diluted revenue by nearly $40 million. Segment income was $33.4 million for the quarter, driving a healthy 18% segment margin, 190 basis point improvement over the third quarter of 2008. However, lower joint venture income and royalty income negatively impacted profitability in the quarter, and I'm sure we'll talk more about that later.

We have a lot of moving parts in Catalysts that on the whole create a very solid business. October volumes are off to a robust start and pricing across our business is holding steady. DOT's latest release on traffic volume trends showed miles driven increased over the past few months following negative trends since January. We look at this as one indicator of FCC catalyst demand, but we also believe miles driven is an important indicator of the healthy economy in general. Our strong Catalyst technology base and broad range of high performance products strengthen our market position to deliver real value at a critical time for the industry.

In Fine Chemicals, net sales for the third quarter increased 25% sequentially to $130 million. Fine Chemicals segment income for the quarter was $14.2 million, a healthy rebound from last quarter's level with segment margins coming in at 11%. Obviously, Fine Chemicals business made great strides. Nearly every division of our performance chemicals sector showed operating profit growth compared to the second quarter. This includes completion fluids, which had strong sequential volume improvement outside of the Gulf of Mexico. However, these volumes were primarily of our lighter grade products, reflecting the nature of the more easily extracted crude oil production. While US rig counts are still at low levels, we expect completion fluids demand to be modestly better in the fourth quarter, and albeit with a better mix.

We turned up production in our bromine assets to meet demand requirements. This resulted in improved fixed cost absorption. Utilization was approximately 65% as we continued to avoid any inventory build. Our Sorbent business also had a nice uptick this quarter. Our biosite treatments business in the food supply chain are gaining traction. This business has good, long-term growth potential as the beef and poultry industries look for more effective food safety solutions.

Our Fine Chemistry services, sales, and profitability also showed good sequential improvement. Results benefited from our seasonal ag intermediate sales and also from new pharmaceutical and crop protection business. We are hopeful our proven success with the Tamiflu intermediate will lead to broader opportunities among our customer base. All in all, the team executed very well on the opportunities we talked about last quarter, and we feel confident of continuing improvement in Fine Chemicals.

Turning now to Polymers, our Polymer segment delivered another quarter of sequential double digit volume growth. Revenue of $197 million was 25% below the third quarter of last year, but increased 14% sequentially. Third quarter segment income was slightly lower than third quarter 2008, but surpassed the second quarter by $11 million or nearly 78%. Polymer segment margins of 13.2% are the highest they have been since mid 2007 -- great execution by the team. Better flame retardant volumes and lower unabsorbed manufacturing costs drove the sequential profit improvement and margin expansion in the quarter. We did not see the sudden spike in demand in flame retardants like last quarter. It was more of a steady increase each month, with September being the strongest.

October is off to a good start, especially in our brominated flame retardants business. Mineral flame retardants are showing a modest uptick. Improving market demand coupled with successful cost reduction efforts that Luke described should start fueling improved profitability in our mineral based flame retardant business in 2010. We feel good about where we stand at this point, thanks in large part to the hard work and can-do spirit of our employees around the globe. The strategic actions we have taken to control our own destiny during and after the economic challenges make us stronger operationally and financially.

With that, I'll turn it over to Rich.

Thanks, John. I will cover the following financial matters on today's call. Taxes, corporate expense, CapEx, our quarter end balance sheet and financial position, and lastly working capital and cash generation.

We have lowered our estimate for our full year effective tax rate on an operational basis -- that is ex one time items -- to 12%, down approximately 2% from our prior view. As a result, our Q3 effective tax rate was just under 10% as we recorded a true up for the full year. The lower full year rate is due principally to higher actual and forecast level and mix of income, principally from JVC, our Jordanian venture that is not subject to tax. Our 2010 effective tax rate for planning purposes is 20%. So clearly, our current tax rate is a short-term consequence of various factors, including our current level and mix of income. We will update our view of our 2010 effective tax rate during our year end earnings call.

Unallocated corporate expense in Q3 was $10.1 million, at expected levels for the quarter. My best estimate for Q4 corporate expense is a range of $11 million to $12 million. Our EBITDA in the quarter was $88 million, down 15% from prior year, but up almost 20% from last quarter. As we start to lap the economic turmoil that hit late last year, we anticipate positive year over year EBITDA comps for the foreseeable future.

CapEx for the quarter was $23 million. We expect full year CapEx will now be in the range of $95 million to $100 million. Depreciation and amortization in Q3 was $24 million, and our best estimate for full year D&A is $100 million.

Including $49 million of debt at JVC, our Jordanian venture, our quarter end consolidated debt was $821 million, down $27 million from last quarter and $111 million from year end. $442 million of our debt is floating rate, and $379 million is fixed rate, roughly a 55/45 ratio. Our floating rate interest rate was 0.8% at quarter end. The weighted average interest rate for Q3 was 2.6%. Net of $260 million cash on hand and excluding $27 million of unguaranteed yet consolidated JVC debt, our net debt decreased $115 million in the quarter to $533 million, its lowest quarter end balance since June 2004, just prior to our refinery catalyst acquisition. Our debt to cap ratio is just below 40%, our net debt cap is now 31%, and our debt to EBITDA ratio is approximately 2.9 times. We expect our debt to EBITDA ratio to decrease in future quarters from this level.

Cash flow from ops was $152 million in the quarter and $259 million year to date. We have reduced net working capital by $113 million year to date, with a significant contribution coming from our efforts to move to a made to order model. Inventories are down $175 million since year end, and decreased $22 million in this quarter despite the increasing pace of business.

With that, I will hand it back to Sandra.

Thanks, Rich. Okay, we'd like to open it up for your questions at this time.

(Operator Instructions). Your first question comes from the line of Kevin McCarthy of Bank of America Merrill Lynch. Please proceed.

Yes, good morning, Mark, congratulations on inking the organometallic joint venture in the Middle East. I was wondering if you could common on how the 6,000 tons of TEA equivalents there compares to your current capacity? And what the capital expenditures are associated with this expansion?

Well, the capital in rough numbers would be about $80 million, we think, Kevin, total. And of course this is a joint venture, and it will have its own financing. So that's our best estimate right now in that.

As of a percent of the total, I don't know if I want to give that kind of specific numbers of the, but in -- if you look at the growth in that region, and you look at the diversification of our business, we are really not adding any material capacity to the mix here, as we see it anyway going forward. So I wouldn't look at this as an industrywide capacity addition. It is more satisfying a huge growing demand in that region and existing capacity is being converted to other products this time as we go forward.

Okay. And then a follow-up, if I may, for John on catalysts. I heard you mentioned the 12% sequential sales increase in terms of profit. There was a sequential decline at the operating level. I was wondering if you could help us understand why there would have been a negative contribution margin there?

Thanks, Kevin. That's an obvious and very good observation on the business, because we've worked hard to get a good understanding of that. So if you look at the business sequentially, first we mentioned the mix impact in polyolefin catalyst. As the quarter developed, we kept a very close eye on inventory levels of the Basic business, and we reduced volume production volume sequentially, which resulted in between $4 million to $5 million negative variation in polyolefin catalyst. That is the biggest impact.

We also had some other smaller impacts. One of the JVs had a major customer who had an unscheduled shutdown, and in the FCC area in South America, that was about $1 million. Then we actually -- our, for the last couple of years, our regenerated catalyst business, as you can imagine, has been quite strong. And this is the reference to royalty income, and sequentially our JV partner did not get a couple of fairly large orders out at the end of the quarter. And that reduced income and royalties which is not in minority interest. That is accounted for in our base business. That was just a hair over $3 million impact there.

Finally, if I may, on HPC catalyst, what were the volumes in 3Q? And what would your outlook be for that business volumetrically in the fourth quarter?

That is always the $60 million question, right? But the volumes grew sequentially year over year, and nicely sequentially. They were handily over 4,000 tons. And we are hoping to beat that number again in the fourth quarter. We are off to a good start, and we still have strong projections for 2010 as well, Kevin. We are getting more and more what I'd say emergency type of requests. Because as you know, the industry is quite stressed now.

Okay. Thank you very much.

Thanks, Kevin.

Your next question comes from the line of PJ Juvekar of Citi. Please proceed.

Yes, hi. Good morning.

Good morning.

Wanted to go back to HPC volume question. Do you say your volumes are up year over year?

Yes, you bet.

You guys said before earlier that refineries were pushing out these catalyst changes. Can you talk about that? And is that still happening? And I have a follow-up question on heavy versus light crude.

Let me clarify. Year over year, the sales number is down. And that is mostly the molybdenum impact as year over year that was significantly down, okay? But yes, the condition of the refining industry is really difficult right now. And the customer base is really doing almost anything they can to delay these types of expenditures. But as we look at the total business, we really have a lot of options for our customer base -- from regenerated and rejuvenated catalysts to topping off reactor fills just to keep it going a little longer, to a whole range of different life cycle options for the customer base. But at the end of the day, these things have to be replaced at some point. And I think that's what we saw in the third quarter is the beginning of that trend.

And shifting more toward lighter crude, is that having an impact on these changeouts and all that?

I think directionally the changes in refineries are -- on a comparable basis, does yield longer catalyst life. Yes, so we are also seeing as they have shifted [the life] for bulk average sulfur in the pool has gone down a little bit from where it was a few years ago. I won't say it's all comp now. To build now what John talked about is we are seeing volume growth in HPC. But you need to appreciate that the absolute volume level is lower than we thought it would be a few years ago when we forecast where we would be at the end of this year, by maybe 40% or so. So we have got a ways to go to get that back up. The refineries have been pushing out now for well over a year. Maybe as much as 17 to 18 months. And we are seeing signs of that weakening. We are seeing some stronger order patterns, so I think we are going to be in a period of pretty decent HPC growth for the next year or so as we overcome the situation we are currently in.

Finally a quick question on your tax rate. How do you get there? Are you running [full-out] out in Jordan because there is no tax and Arkansas is curtailed? Is that how you get to that lower tax rate?

Yes. It's pretty simple. We run everything we can in Jordan and unfortunately, we are not making a lot of money in the US.

Okay. Thank you.

Yes.

Next question comes from the line of David Begleiter of Deutsche Bank. Please proceed.

Thank you, good morning. John, in bromine thus far, given the improvement in management, are we getting close to a price increase?

Well, we are keeping a close eye on it, David. And in some selected products, we are going through with price increases on some of the niche specialties. I think you need to keep in mind that the trend now, what we are seeing is a raw material base, especially in bromide flame retardants, related to benzene, phenol, and BPA type raw materials is going up, too. So that's an offset to any price increase effort. But we are keeping an eye on China --

Ladies and gentlemen, please stand by. Your call will resume shortly. (Operator Instructions). Thank you for your patience in standing by. We will resume with the question and answer session. (Operator Instructions). Next question comes from the line of Steve Schuman with Lafayette Research.

Good morning, guys. I have noticed, hello -- ? Guys,

Yes, we are here.

I'm sorry. Having some problems here.

I have noticed this year we have had pretty good builds for new HPC units and FCC also. Are you guys hearing from your business unit it's mainly these guys pushing back on existing units as far as new fills? Or are you getting new business, actually new fills for new units?

Okay. Yes, who is this?

I'm sorry, Steve Schuman.

Hi, Steve. We got disconnected. Apologize to everyone for that. Not quite sure what happened. But if I could, I might just wrap-up David Begleiter's question.

Yes, of course.

Then, Steve, I'll go into your question. But bromine pricing -- we have seen in flame retardants, we have seen a fairly lot of inflationary trends out of China. And this certainly helps the competitive balance. And we are just going to keep a close eye on that at the turn of the year, and solid volume growth is always a good foundation for driving pricing, especially in what we see as a potential inflationary environment on some of the key raw materials in flame retardants. So with that, Steve, maybe you can repeat your question and we'll get back on track here.

Absolutely. I think contrary to perception, refineries have actually built a number of hydro treatment units at very good growth this year and also are starting to pick up actually building new FCC units. Are you seeing them bring these into operation? Are they holding off on these yet using their existing units right now? So are you getting new business or mainly refilling the existing units?

Thanks Steve. Most of these are refills. We haven't seen a lot of the new units come onstream yet, with the exception of India. There's been some activity in India. But we are hopeful as the economy improves, that fuel demand growth will improve and we'll see some of those new refineries kick in, in probably the 2011 timeframe and beyond. So it is mostly refills, to answer your question.

Thank you.

Thank you.

We will now continue with the line of David Begleiter of Deutsche Bank. Please proceed sir.

Thank you. John, just one more question on FCC pricing has been stable for awhile now. What is the next move in FCC pricing? Do you think up or down and when might it move?

David, we always study that. The volumes have been, I'd say recessed, not depressed, but -- and mostly due to US volume trends, we are starting to see an uptick. As we mentioned, we had a lot of seasonal help in the third quarter. Our fourth quarter volumes looked good. Raw material costs there are what I'd say a bit inflationary going forward, with ATH and some of the base fillers like rare earths and things. So we are keeping a close eye on that and I'd say we'd have better direction on future FCC pricing at the turn of the year. So we are going to keep a close eye on it.

Thank you very much.

Thank you.

Your next question comes from the line of Mike Sison from KeyBanc. Please proceed.

Hey guys, good quarter.

Thank you.

Can you give us a little bit of background on -- I'm not sure if somebody asked this, on Tamiflu? How that's ramped up this quarter and what the potential for that business heading into the fourth and 2010 would be?

I'll take a crack at that, Mike. We had really solid execution by our team, both on the business side and especially the manufacturing side. It probably helped us in the tune in the quarter about $0.02 to $0.03 and probably had the same impact in the fourth quarter. It is really too early to tell what our customer will do there next year. But there's a lot of noise about very low vaccine yields for the swine flu, and Tamiflu is just a great alternative to that solution. So I think we're fairly bullish on it -- not only for increasing Tamiflu volumes next year, but also ibuprofen. I mean ibuprofen is an excellent pain and fever reducer, and we're starting to see some -- I'd say finally on ibuprofen some nice volume trends here in the fourth quarter on ibuprofen.

Right. Mark, longer term when you think about Polymer [additives], flat in this quarter as the incrementals improvement in profitability continues to come in pretty good, relative to what you saw historically. So if you think about recouping a good portions of volume declines this year at some point in time, next couple of years, can you walk us through what the new incremental margins for Polymer additives would be as the economic environment improves?

We actually do a lot of hard work on the part of manufacturing and business. We have lowered the break even in that business, pretty materially, so you are seeing profit levels -- frankly we are seeing higher profit at low volume levels we didn't think we could quite get there. And that's been really good performance. As we look out, Mike, we have a host of new products there. I know I promised this last quarter, but we are not quite ready to introduce them -- we'll introduce them shortly -- that we think will bode well. We think some of the trends will reinforce the various components of this business. We delayed the antioxidant plan for a while in China and have restarted that capital project, and frankly held back too long, as that business is doing very well in growing. And we are seeing opportunities even in some areas like phosphorus that are big for us.

So when you combine all those things together, we're bullish on our ability to get back to where we were in that business in the next year. Now if you look at it longer term there, what we are hopeful for is that that business will press those margin levels we have advertised in the past. We believe that should be a high teen margin business. If you look at the value add we've got there, there is no reason we shouldn't get there. What I'm not sure is whether we'll get there in 2010 or not. Probably 2011. But I think we'll be getting there.

Right. Last question on HPC, is there a way to help us understand maybe if refinery margins improved to a certain level, or if customer profitability improves to a certain level, how do you absorb all the expansion capacity that you have had and really get the benefit of all of the earnings potential in HPC? Give us some of the metrics of what you need to see from customers to start to see some of the volumes pick up?

Mike, what we are, what this industry has been about is delivering high value technology. And then the high value technology enhances throughput, enhances yield, and in the low margin scenario, cost has been a bigger factor for refineries than yields. That is a broad generation. We need to see these margins get enhanced a little bit. We need to see throughput pick up a little bit.

John commented on some of the trends we are seeing some fuel demand, which is all positive relative to the volumes picking up. You have also seen announcements of refineries shutting down, which is unprecedented in this industry, and that's going to afford some additional consolidation. I think the gasoline being moved from Europe, where they are long on gasoline to the East Coast, is having a pretty dramatic impact and that's going to run its course over the next year to 18 months. And that's going to relieve some of the pressure the East Coast refineries feel as you go forward. In the Middle East and India, we are seeing a lot of build out there that's going to be coming in. We originally thought they would be coming in in the 2011 timeframe. Probably 2012 now. It is still happening, but it's been slowed a bit.

So whether we roll all those things together, we see this business restarting -- I'll say that in many ways we are back to where we were in the early 2003 to 2004 timeframe. We see a restarting. We expect to see this nice, gradual volume growth that we saw actually in 2004, 2005, and 2006 through this business. So I guess what I would say to you, Mike, is that our expectations are that we'll be able to achieve the higher level of profit even at lower HPC volumes than we have in the past been able to because of our breakeven point. And by the time we get to the 2011 timeframe, we'll have this business where we thought it would be in 2009.

Okay, great. Thank you.

Thanks, Mike.

Next question comes from the line of Bob Koort of Goldman Sachs. Please proceed.

Thanks. Wondering if you guys could help me out on the Fine Chemicals side. You gave a bridge for each segment in terms of year over year sales. Can you talk about the operating income? You had a $10 million hole year over year? How much of that was from price, volume, fixed costs? Trying to get a sense -- I know you have talked in the past about the utilization rates through bromine are affecting that business. But I want to try to put it in context and think about what might happen if life gets better in that bromine division?

Bob, I'll take a crack at that. Just to answer your question, the year over year impact in Fine Chemicals was really all bromine. And it all comes down to what we classify as industrial bromides, which is primarily clear brine fluids. So that is the big volume impact. And then you have the year over year volume variance around the bromine related assets that impact fine chemicals. So that, roughly $10 million decline, yes, it is all related to bromine.

And John, I think you have made some comments about having some optimism for Catalysts next year. Mark, I'm wondering if you look broadly across the company, I know your friends over at Celanese gave some pretty powerful comments about how much better 2010 could be than 2009, even without a lot of economic help. Could you give us some sense of how you look at that? If we don't get a pickup in your context of the self-help initiatives and anniversarying that black hole early in the year, what numbers we might be thinking about?

Well, we'll do a call here in 1.5 months or so, as we do a mid quarter call, and we'll be in a better position. But let me build on that just a little bit. We set out with the objective of pulling out $160 million of cost. And you recall we talked to the Street about that, Bob. We said we wanted to get back to -- absent volume growth, we wanted to get back to the earnings level we had prior to the falloff, the recession had occurred. And Luke gave you an update on that and we are on track with that. We have still got more work to do next year. So we feel pretty good about our ability to deliver that base level of business.

Now we are already starting to see some volume improvement, and we are starting to demonstrate the value of that productivity improvement with our break even there. So, I am bullish on 2010. I feel good about 2010 the way it is stacking up today. Year over year, I think we are going to see some strong profitability growth and we'll see it across all segments is my expectation.

The laggers that we still worry about, to be honest -- our bromine as John mentioned, a lot of that goes into the oil business. And that business is down probably half year over year, and it's hard to imagine if that's going to immediately return in that segment. So those guys have a lot of work to do to overcome some of their shortfall. But I hope we can make it up in another area. So we are pretty bullish on next year. And I'd just like to hold off on giving any view on the numbers just yet.

Can you talk a little bit about Catalyst? I think from the outside we have been pregnant with this recovery from a long long time, this refill cycle, and it seems to keep missing you a little bit. Some of your competitors posted more robust results recently. Should we worry about market share issues here?

No, I don't think you should. This business as you know has a lot of moving parts to it. And John just talked about one, which is royalty income. So some of that shortfall in volume we make up in other ways with our proprietary technology. I think if I could say anything, when we purchased this business, there was a lot of attention being placed on HPC and doing this deal for HPC and perhaps we even supported that with our belief system as well. The reality is that portfolio is a hell of a lot more diversified than you would be led to believe if you looked at that HPC volume. So between the technology we were moving in alternative fuels, between advances we have got FCC and between HPC and what we are doing this, and polyolefin catalyst -- it is just a piece, Bob. I would not hang the future of this corporation on that segment. It is going to do well, but that business is going to do a hell of a lot better because of all the things going on.

One last one -- I appreciate the time. Last quarter you had the polyolefin business. It seemed to have produced outsized margin. Was that a one quarter blip? Or can you give us more color? You mentioned it is not all HPC or catalyst, so what is the trend or outlook in that part of the business?

Bob, this is John. I'll take a crack at that. Year over year, polyolefin catalyst again had extraordinary results, and as I outlined to one question earlier, it was a lot of volume variation in the quarter. And that looks like it's coming back and the quarter's going forward. So I think you can count on that business generating the kind of margins it had last quarter on a pretty routine basis. And this announcement of our joint venture with [SABIC] really cements some future growth in my mind in that segment for literally decades to come. So this announcement this morning we are really excited about, and I think that that will really preserve, help preserve the growth of this business for a long time to come. Thanks, Bob.

Thank you.

Next question comes from the line of Laurence Alexander of Jefferies, please proceed.

Hi, this is Lucy Watson sitting in for Laurence. Just a couple of quick ones. Did consumer and market demand improve sequentially just in electronics? Or did you see stabilization in other Polymer solutions consumer end markets as well?

Well, that is the biggest. That is certainly the all in market we tend to look at, Lucy. So within that component for us, if you look, if you think about automobiles production is certainly up and we have seen increased demand for our products that go into some of the automotive solutions that are there. And we have not seen very much in construction, although it has not fallen off as dramatically in Europe in Asia as it has in the US. The big story really is consumer electronics, but we did also see uptick on that.

Can you provide an update on customer trials for your environmentally friendly offerings?

Let me let John answer that.

We have had some success in customer trials early on. Customers like what they see. And these are primarily enclosure or large television producers. Also, this would aid the PC market, and we are planning a more significant production trial in the first quarter to continue to satisfy that demand. But this was really a longer-term play for us. This, I think, will really help preserve our brominated flame retardant business for a long time to come, and that is why we are so excited about it because these products have such a fantastic safety profile, great health profile. They are polymeric in nature so they are not biocumulative, and they are recyclable as well. We'll work with our customers over the long haul to keep these products out of our environment that can really help us for long-term in this business. So we are excited about it. Thank you.

Thank you.

Next question comes from the line Dmitry Silversteyn of Longbow Research. Please proceed.

Good morning. I just want to follow-up on the comment you made in your prepared remarks that you talked about expecting sequential growth to continue. Were you talking about all the business in general or one particular area? Because sequentially, typically your Polymer additive business can have a little bit of a downside. But you are looking for sequential growth across all your divisions in the fourth quarter, it sounds like?

We are looking for corporate growth and [funding] Catalyst growth. I think it is impossible for us to call it on Polymer additives. Normally, we would see a little bit of a dip there. I think we could well see that dip here a little bit. So I was really commenting on the corporation as a whole. And specificity, I would give is we feel good about Fine and we feel pretty good about Catalyst, and it is hard to call Polymer solutions given the still remaining anxiety in that market with inventories and things like that.

Sure. Secondly, I understand your position on pricing and FCC -- obviously in an environment of volume declines, it is difficult to push pricing through. But with raw material costs going up, are you seeing a little bit more resolve from the market and your peers in the market to push through higher pricing? Or are you still like carrying the water for the most part in that endeavor?

I'd say generally we are seeing some positive trends there, Dmitry, with some concerns, still in Europe. But generally, yes. Positive trends, to confirm what you just described. Thank you.

And then, just finally, you talked about the brominated FR polymerized version being a longer-term development as it is going through alpha or beta testing. But the new FCC catalyst is supposed to enhance gasoline yields in the area where you haven't played much before ,and the HPC catalyst you talked about during your investor day that lowers operating pressures and temperatures. Are those making their way into the market? I just remember going back to one of your competitors a few years ago when they launched their gasoline enhancing FCC catalyst, they seem to have really picked up a lot of share over the course of several years. When should we start to see the benefits of your new catalyst products making into the market? Or is this also a still years off before it becomes visible?

This is John again. I think one statistic that Mark talked about in his prepared remarks was our new products growth. And it's exceptional in our catalyst business. And that's being driven by some of our new polyolefin catalysts, our active [catalyst line] of products, and our new HPC high activity catalysts, which are quite attractive to the customer base. And the third, the high gasoline yield in Go Ultra product line we call it, is getting a lot of interest from customers. A lot of trials. And that is paying some dividends for us. We had just short of - just in the range of double digit of sequential volume growth in FCC, and it looks like we are off to a good start in fourth quarter as well. So no, I don't think those are years at all. I think they are in play as we speak. And we measure that vitality through that new products index that Mark mentioned.

So that should have a positive impact both on your top line and margin -- I would assume these are higher margin products?

Yes, offset by the raw material pressures you described, because those are real.

Okay. Okay. And then one final question on the Sorbent Technologies business. We have heard China at least publicly at a very high government level talk about becoming a better corporate citizen, so to speak, in terms of pollution and emission. Is their rhetoric turning into any regulations or directives or some kind of a program internally that you can point to and look at mercury removal being closer to being a mandated or at least a strongly suggested endeavor in China? Or are we still climbing uphill here a little bit and trying to get that product into Chinese markets that may not necessarily be looking for them?

Let me start with the US. I think we are seeing broad support in the US for mercury specific legislation, both in the House and the Senate. And were it not for all the oxygen being sucked out of the room on healthcare and other debates there, I think we'd already see that legislation passed in the US. So I'm hopeful as we move forward in the months ahead, we'll get bills introduced in the US and get something done this year or early next.

China is interested in this technology. We've heard rumblings they would like to see the US take the lead here. I'm not sure how sincere that is. I'm not sure that is a stumbling block for them, but that is relatively here currently. We are spending a lot of time in China trying to promote this technology, and it is getting attention, but we've yet to see legislative action yet. I'm hopeful that as the administration spends more time talking with China about ways that we can work together cooperatively in environmental areas, this is one topic that will be surfaced as a good example of things we can do.

Okay, I'm sorry, one final thing. On the HPC side, you talked about new units that are going up in India as they are going to those [wholesale] routes. Is there anything on the horizon in terms of US, Europe, and Japan as far as new regulations that will become a catalyst, pardon the pun for the growth of that business?

Well, I think longer term, the trend would be non automotive or transportation fuels. I think that could be a distinct possibility in the US in the coming years.

Off road diesel?

Yes, right, and bunker fuels. Ships docked at large major piers.

You may have seen, Dmitry, that there was some press going on in the Great Lakes to make that a clean fuel region for all shipping, as an example, which would be pretty meaningful.

Similar issues in California. And I think that could -- typically these trends start in either the US or Europe and go to the other continent. So I think the bigger trend in that area is in some of these emerging economies, where you will really see a tightening of that self respect. South America for example, Brazil. They have got fairly significant issues there from pollution perspective. When you get into the Middle East, India, of course, and beyond into Asia. I think that would be the more significant trend where they have made very little progress over the last few years.

Is that something that could be served from existing refineries that have some excess capacity? Or would that necessitate refineries and new catalyst units in the region that you just mentioned?

No, I think it is combination effective. I'd say both.

Okay. Thank you.

Thank you.

Next question comes from the line of Ed Yang with Oppenheimer. Please proceed.

Good afternoon. On Polymer additives, sounds like bromine is leading in the minerals and phosphorus is lagging relative to bromine. I would like to better understand that.

Ed, John Steitz here. No question bromine and related products were the workhorse in the third quarter. We've got a lot of work around mineral to do. There is a lot of competition, we have a high cost structure, and as Luke described we've really got to work with our employee base in Europe to get that cost down. I think that is really a sustainability issue for us. So with that, I think we can fix this mineral business by next year that will help us get margins back on track and in business for sure.

It's been several months since one of your competitors filed for bankruptcy. I was wondering if you are seeing any benefit now. Are customers switching to Albemarle? Or at least evaluating Albemarle as a second source supplier?

I think what we are seeing in the market is pretty responsible activity by the parties. And so no, we are not seeing a lot of market activity because of that bankruptcy.

I don't think there is any material market share shift at all.

Mark, usually you give some comfort level with relative to consensus EPS expectations out there. How do you feel about that $0.56 number for the fourth quarter and $2.39 for 2010?

I think your buddy Bob Koort asked about next year, and we feel comfortable about the number next year and will give more clarity on that as time goes forward. I tried to iterate in two of our business segments, we've got some tailwinds as we enter the fourth quarter, and in one we feel pretty good about how this started, which is polymer assets. So I would certainly think we feel good about consensus as we wrap up this year and feel good about the number in next year.

Thank you for your help.

Thanks, Ed.

Your final question comes from the line of Steve Schwartz with First Analysis. Please proceed.

Your caution in Polymer additives -- is that factoring in the fact that a lot of forecasters are saying wafer starts are going to slow down in the fourth and first quarter? And at the conclusion of Cash For Clunkers, I think auto inventories in terms of days have nearly doubled. Is that what's behind your caution?

Well, it's maybe not that specific. One, Nanya Printed Circuit Board Group puts out data. One of the things they have noted was some concern about some slowing post Thanksgiving as they end the year and start the next, and it has been good sequential growth over the last couple of months. So I think we are just a bit cautious that, like there's been perhaps an overreaction in cutting inventories, there may be an overreaction on the upside as business starts to come down. It's just caution we are putting out there. We have been told the market -- confidence to predict the market, by some of these folks like The Circuit Board we have talked about, they used to put that in terms of a couple month and they pulled it back to a 30 day window. So just general uncertainty about what's going to happen there.

To what extent do you think the Cash For Clunkers helped your connectors business?

I don't think it was that material on connectors. I think connectors primarily for us is driven by broad electronics uses and durable goods -- some durable goods like refrigerators and washing machines, things like that in China.

Okay. And then just in terms of pricing, outside of Catalyst, because we know all about the metals effect there -- but in both Polymer additives and Fine Chemicals, is it the lack of new pricing that led to the negative numbers? Or are you actually having to give some price back in certain areas?

Well, Tetrabrom in polymers, Steve -- Tetrabrom is our biggest volume product. So when you look at it, there is a bit of a mix effect on the revenue there, because we are, as year over year, related to the entire business, Tetrabrom is a higher percentage. So there is a bit of a mix effect. And much of our Tetrabrom pricing does have BPA tied to it, and year over year BPA is down, though the trend is certainly up over say the last 30 days, with the change in oil pricing and related petrochemical products.

So it's kind of a mixed bag year over year. We have seen it go down. We are concerned going forward on raw materials and energy as Mark mentioned, and natural gas is raising its ugly head now in the fourth quarter as well. There is a fair amount of APH -- aluminum trihydrate -- that we buy. That trend has been up. Overall, chlorine has been tight, so that is creating a bit of a pricing issue for us, too. But there's a lot of moving parts to that issue. But generally, pricing is holding up, I'd say, especially sequentially, very well.

Okay. So in Polymer additives, then it sounds like it was maybe a little more mix than price.

Yes.

That drove the negative number?

Yes, primarily driven by larger Tetrabrom volumes as a percentage of the total business.

Okay. Helpful. Thank you.

Thank you.

At this time, there are no further questions.

Great. I'd like to thank everyone for participating on the call today. If there are any further questions, you can contact me at the number indicated on our press release. Have a great day.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Good day.