雅保公司 (ALB) 2011 Q4 法說會逐字稿

Good day ladies and gentlemen and welcome to the fourth quarter 2011 Albemarle Corp earnings conference call. My name is Tawanda and I will be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Mr Lorin Crenshaw, Director - Investor Relations and Communications. Please proceed.

Thank you Tawanda and welcome everyone to Albemarle's fourth quarter 2011 earnings conference call. Our earnings were released after the close of the market yesterday and you'll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investors section at Albemarle.com. Joining me on the call today are -- Luke Kissam, President and Chief Executive Officer; John Steitz, Chief Operating Officer; and Scott Tozier, Chief Financial Officer. Before we get started, I'd like to ask everyone to please save the date for Albemarle's 2012 Investor Day, which will be held in New York City on Tuesday, May 22. Registration and event details will be emailed in the coming weeks and we look forward to seeing many of you there.

As a reminder, some of the matters discussed during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call. Also, to the extent that we discuss any non-GAAP financial measures, you will find reconciliations in our press release, which is posted on our website at Albemarle.com. With that I'll turn the call over to Luke.

Thank you Lorin and good morning everyone. We appreciate the opportunity to share our fourth quarter and full-year results with you today. I will begin today by commenting on the Company's quarterly and full-year results and will share a few highlights of some of the major initiatives that we have previously discussed with you. John Steitz will then walk you through business segment performance before Scott Tozier reviews financial highlights. As usual, at the end of our prepared remarks, we will open it up for your questions.

I'm delighted to report that despite a challenging global operating environment in the fourth quarter, Albemarle closed 2011 on a strong note with fourth quarter net income of $99 million or $1.11 per share. Up 21% year over year. This marks the ninth consecutive quarter of year over year profitability improvement for us. Net sales of $707 million were up 17% year over year, while operating profits of $136 million were up 22%. Fourth quarter operations generated $209 million of cash flow and we ended the quarter at targeted inventory levels and better than expected working capital levels.

Great results. In fact, from an earnings standpoint, it was the best fourth quarter in our history and prior to 2011, would have been the best quarter in our history. These strong results capped a great 2011 for Albemarle. Full-year 2011 earnings were a record $436 million or $4.77 per share compared to $3.56 per share in 2010. Net sales for the year totaled $2.9 billion up 21% year over year. Full-year EBITDA was a record $701 million and was up 29% year over year. Profitability as measured by either operating margins of 20% or segment margins of 24% respectively achieved new highs.

A great year and a great first step towards Vision 2015. Scott will talk more in a moment about our financial results in detail. However, I want to highlight that we generated around $0.5 billion of cash this year. That allowed us to increase our capital expenditures and plan for future growth, fund our pension liabilities, repurchase 3 million shares of stock and increase dividends to shareholders for the 17th straight year. Even with those cash expenditures, we ended the year with the strongest balance sheet in our history and the financial flexibility to fund the many opportunities that we have before us to grow our business and provide reasonable returns to our shareholders.

2011 was not only an exceptional year from a financial standpoint, but I'm also very proud of how we went about delivering these results. From an operations standpoint, our Safety and Stewardship performance was one of our best ever. From an innovation standpoint, we were excited to announce the development of a proprietary technology for lithium extraction from our Magnolia brines. We proved the technology is commercially viable and competitive, set up our pilot plant in Magnolia and are well along in the development and design phase of a commercial unit. As a further testament to our innovation, 31% of our sales were from products that were commercialized within the last five years. That type of innovation has helped us continue to expand our margins over the years. I am very proud of our 4,000 employees around the world, whose talents and discipline allowed us to deliver such outstanding results.

As I look to 2012 and beyond, there's many reasons to be optimistic about our business prospects. I'm happy to report that we have met each of the critical milestones that we outlined for our major capital projects. We broke ground and are proceeding on schedule with our TEA joint venture with SABIC in Saudi Arabia and our wholly-owned Polyolefin catalyst center in Korea. We are on schedule in the design and development stage of our HPC project with Petrobras in Brazil and are well under construction on the doubling of our bromine and derivatives capacity in Jordan. All of these investments are required to address the needs of the marketplace and we look forward to bringing them online over the next few years. Specifically bromine and clear completion fluids in Jordan are expected to be operational in mid to late 2012 with [Tetrabone] to follow in 2013. The Saudi and Korean sites should be operational in late 2012, early 2013. And the timing of Brazil, which we currently project to be operational in 2015 will be largely dependent upon Petrobras' demand forecast.

The recent release of the EPA Mercury and Air Toxic Standards which require power plants to limit their emissions of toxic air pollutants including mercury should also be positive for us. We began positioning ourselves for this opportunity when we acquired Sorbent Technologies in 2008 and that business now forms the core of our environmental division, which is well situated to assist the power industry to comply with these multi-pollutant standards through our portfolio of products and services. In particular, we offer state of the art demonstration services to provide air emissions monitoring and mitigation feasibility and engineering expertise to the market. This service allows prospective clients to evaluate various strategies for compliance before making significant capital outlays. As a result, we remain optimistic about our ability to capitalize on this growth opportunity in our Vision 2015 timeframe.

Another example of how we are expanding our existing technology into adjacent markets is in the area of organometallics. For many years, Albemarle has been the market leader in organometallics with leading positions in TEA, MAO and TMA. TEA is a co-catalyst for Polyolefin and other growing markets. MAO is the leading activator for the production of single-side polyolefins and TMA is an essential building block in the production of single-side activators serving the polyolefin market and of ultra-high purity organometallics serving the LED and electronics markets. In recent months, we have completed capital projects that will enable us to increase production of our pure growth family of products to serve these growing markets. In 2012, we expect to add additional production capacity that will allow us to continue to maintain our leadership position in these markets for the foreseeable future. Additionally, the projected trends in crude slates and refining economics bode well for our refinery catalyst business.

We provide a wide range of over 60 different FCC catalysts and additive products and over 120 different HPC catalyst products. However, our strong suit is where refineries are looking to upgrade the heaviest, dirtiest, resid feeds in our generate maximum propylene yields. Given the fact that the sweetest, light crudes are expected to become pricier, it is becoming increasingly evident that for refiners to be profitable in the long run, they will need to invest in new units with the most advanced capabilities in processing cheaper, heavier crudes and still meet more stringent environmental standards such as lower sulfur specifications. We continue to invest in catalytic developments in this area to maintain our competitive advantage and are well-positioned to continue winning more than our fair share of installations and fills as the refiners continue to migrate to heavier and more [sourer] crude. While this calls for an optimistic view of our future, there are headwinds to deal with and 2012 will be no exception. Some we already know about and others will surely develop during the year.

For example, in 2011 we saw pension increase by $6 million to approximately $27 million. In 2012, pension expense will increase by approximately $20 million due to the combination of a decline in the discount rate used to measure our pension obligations and lower than forecasted asset performance in 2011. I would like to underscore that our funded status remains quite strong, nearly 100%. And we do not expect to need to make cash contributions to our plans until 2014 at the earliest. We are however exploring methods of restructuring our defined benefit plan such that are non-cash expense will be smaller and more predictable going forward. While at the same time, providing a competitive benefit plan to our employees. We'll share more on this topic in the coming quarters as we complete our assessment.

From a portfolio management standpoint, over the years, we have shown consistent discipline in addressing underperforming assets. Such actions, in fact, have accounted for a portion of the margin expansion we have experienced over the years. We are currently engaged in a portfolio review that could result in our weighing strategic alternatives for certain assets and businesses. As we have done in the past, we will keep you updated as our plans begin to take shape.

In closing, our businesses are healthy and we expect to perform well in 2012. Our best guess to date, is that our businesses will generate earnings during the first half of 2012 resembling levels achieved during the second half of 2011 and that the end markets we serve would begin to accelerate in the second half of 2012. If that recovery occurs, we would expect to grow our business in 2012 and continue to make progress toward the goals we outlined in Vision 2015. With that, I'll turn the call over to John to discuss our operational performance for the quarter.

Thanks Luke and good morning everyone. I will start with polymer solutions which reported fourth quarter net sales of $209 million and segment income of $37 million on a double-digit volume decline. Weak mineral flame retardant volumes and unfavorable fixed cost absorption were the key drivers. Polymers still achieved 18% segment margins, reflecting the impact of structural changes in the business and an overall healthy pricing environment. Mineral flame retardants profits fell by more than 50% year over year during the quarter on 37% lower volumes. Because Europe represents the majority of our mineral flame retardant revenues, results were directly impacted by progressively worse sentiment throughout the quarter. Brominated flame retardant volumes rose 10% year over year, but were down 8% sequentially as economic uncertainty prompted more conservative inventory management across the electronics supply chain.

Lower antioxidants and curative results also contributed to polymers quarterly performance. Segment income for this division was down, largely due to the absence of a major [DETA] production campaign supporting high speed rail orders and the timing of select antioxidant campaigns which will now occur in the first quarter. For the full-year, excellent pricing, reasonably strong demand through three-fourths of the year and structural initiatives allowed polymers to deliver full-year net sales in excess of $1 billion for the first time. Up 11% year over year. Record segment income of $238 million, up 20% and record segment margins of 24% and expansion of 180 basis points year over year.

Looking forward to 2012, January flame retardant order patterns are picking up. With enclosures, connectors and printed wiring board order patterns all reflecting more positive trends in recent weeks. We continue to monitor customer order patterns closely and remain focused on keeping our inventory levels in line with customer demand.

In catalysts, higher pricing and healthy global volume drove fourth quarter net sales of $290 million up 25% year over year. Segment income of $84 million, up 43% year over year and segment margins of 29%, up 400 basis points year over year. Refinery catalyst revenue and segment income growth of 30% and 53% year over year was largely driven by strong and balanced portfolio. For the full-year broad-based strength across each division resulted in sales exceeding $1 billion for the first time at $1.1 billion up 25% year over year. Catalysts also reported record segment income of $324 million, up 30% and all-time high segment margins of 29%, up 100 basis points.

Each division delivered excellent financial results with refinery catalyst sales and segment income rising 28% and 32% to all-time highs, as FCC and HPC both generated record income levels. Similarly performance catalyst solutions, sales and segment income rose 20% respectively to new records. Polymer catalysts results were driven by a combination of continued growth within the components business, where we have a long-standing leadership position, and excellent traction within the finished catalyst adjacency. Notably, the electronic materials division is an emerging growth driver. The successful introduction and acceptance within the marketplace of our pure growth family of products into the emerging LED market is having a positive impact.

Heading into 2012, the first quarter outlook for HPC is quite strong. FCC should generate modest growth as emerging market driven demand offsets developed economy sluggishness, where weaker miles driven remain apparent. Within performance catalyst solutions, long-running trends driving demand for specialty in both plastics should continue to support organometallics growth, supplemented by the impact of new technologies.

Fine chemistry had a superb quarter, setting a record for net sales which rose 36% year over year to $209 million. Segment income up 62% year over year to $43 million and profitability with segment margins rising 300 basis points year over year to 20%.

Results were driven by record performance chemicals and fine chemistry services revenue up 20% and 67% and record segment income at each division. The performance of this business unit reflects a diverse set of growth opportunities and the successful transformation of its product portfolio in recent years.

Performance chemicals growth was driven by completion fluids, which ended the year in a strong position to support higher growth levels in the Middle East and a rejuvenated Gulf of Mexico. However strong mercury control, water treatment and food safety growth also contributed handsomely to results.

Fine chemistry services growth was driven in part by a doubling of long-term programs in the specialty materials and AG sectors and our strategy of evolving this business towards becoming an enabler and partner in developing complex chemical processes is beginning to pay off. A year-on-year doubling in AG intermediates profits and good specialty pharmaceutical results were also important.

For the full-year, strong pricing and excellent volumes within each division drove record net sales of $750 million, up 32% year over year, and near doubling in segment income to a record $140 million and the highest profitability in segment history with segment margins of 19%. The performance of our clear brine fluids business was noteworthy. As the business is poised for a strong 2012.

Overall, fine chemistry is set for another excellent year of growth in 2012 with a great pipeline of custom projects within fine chemistry services and a healthy portfolio of exciting new advancements of bromine chemistry into food production, energy and stewardship of our environment. With that I will turn the call over to Scott to discuss some more financial results.

Thank you John and good morning everyone. It is tough to overstate how impressive the Company's 2011 financial results have been given the macro economic backdrop. I am pleased to confirm that on a full-year basis, we met each financial objective laid out in the Vision 2015 planning framework articulated at Investor Day. You will recall, that framework called for double-digit growth in revenue, earnings per share and cash flow, a focus on disciplined capital allocation and 20% returns on capital. Each year on our march towards 2015, will not be as robust as 2011. But it is nice to be off to a great start.

In the fourth quarter, we generated EBITDA of $153 million up 16% year over year and an EBITDA margin of 23%, roughly in line with the year ago period. Full-year EBITDA rose 29% to $701 million year over year to a new record with full-year EBITDA margins of 24.4%, up 140 basis points and also setting a new record. In terms of P&L items of note, R&D expense was $19 million during the quarter, up 29% and ended the year at $77 million, up 32%, as we continue to invest in a number of organic growth opportunities including the strategic adjacency initiatives we outlined as part of 2015. For the full-year, R&D costs as a percent of revenue were 2.7%, rising 20 basis points versus 2.5% in 2010. Fourth quarter SG&A expense rose 12% year over year and ended the full-year at $312 million, up 17% versus 2010. Driven principally by performance-based pay and higher pension expense. These costs were well contained for the year declining 30 basis points as a percentage of net sales to 10.9% versus 11.2% in 2010.

Our effective tax rate for the fourth quarter and full-year was 23.3% and 23.6% respectively, essentially flat versus the full-year 2010 rate of 23.6%. As the level and location of our income helped us to maintain our rate year over year.

Our Vision 2015 planning framework set forth an expectation of generating our cumulative $3 billion in cash from operations over five years. Fourth quarter and full-year 2011 results place us on target in this regard. Specifically, exceptional earnings results and our focus on cash generation during the quarter translated into cash flow from operations of $209 million excluding pension and post retirement contributions during the fourth quarter, which contributed to outstanding full-year cash from operations of $553 million, excluding $60 million of pension contributions, up 34% year over year.

We closed the year with net debt of $294 million, down 11% from year-end 2010. During a year when each business unit established new net sales records, maintaining working capital discipline was essential to our success at driving such strong cash flow generation. Specifically net working capital as a percentage of sales ended the year roughly 200 basis points lower, at 18% compared with 20% in 2010. In absolute dollars, net working capital only rose 7% year over year to $507 million, compared with a 21% net sales increase for the year, an extremely healthy 1,400 basis point gap between the two.

We are also on or ahead of target from a capital allocation standpoint as measured by CapEx, dividends and share repurchases. Specifically in 2011, we invested $198 million in CapEx of which $41 million was related to our joint venture Jordan Bromine Company or JBC as we made strategic investments essential to capitalize on opportunities we have identified and to deliver the organic growth strategy we are pursuing.

Regarding dividends, we raised our quarterly rate by a total of 25% this year and overall distributed $58 million in dividends to shareholders during the year. Notably, the total increase was much higher than the 10% to 15% average increase per annum guidance indicated in our planning framework. In terms of share repurchases in 2011, we returned $178 million to shareholders by purchasing 3 million shares, or roughly 3% of the total shares outstanding at the end of 2010. Given that our planning framework indicates that we intend to buy back between $200 million and $400 million by 2015, we are clearly ahead of plan on this measure as we nearly bought back the low-end of that range this year alone.

Looking forward to 2012, we expect CapEx to approach $300 million as we commence the expansion of bromine derivatives capacity at JBC in Jordan. Continued construction of the plant that we are building in Korea and expansion of our US metal alt fuels capability to name a few of the investments. Nearly all the projected $100 million year over year delta between projected 2012 CapEx versus 2011 is related to the expansion at JBC, a joint venture that is consolidated on our financial statements. It is worth noting that this will be entirely funded from JBCs cash from operations with no long-term incremental debt incurred.

From a foreign exchange standpoint, we foresee that the decline in the euro in recent months, if it persists near current levels through 2012, will represent a headwind at the average rate reflected in our 2011 financial results was approximately $1.40 per euro. We estimate that each $0.01 change in the dollar-euro exchange rate impacts earnings per share by approximately $0.01 due to translation. Today, the euro is trading a $1.30 which would result in an annualized headwind of roughly $0.10 per share. In terms of taxes, at this time, we expect our 2012 effective rate to be around 25%.

In 2012, we will continue to focus on generating excellent cash flows and making improvements in our working capital efficiency. Our ability to generate cash from earnings will give us the ability to fund our organic growth and acquisition opportunities and return cash to shareholders. With that, I'll turn the call back over to Lorin for Q&A.

Operator, at this time we will take questions.

Thank you. (Operator Instructions) David Begleiter, Deutsche Bank.

Thank you, good morning. John, you mentioned some order pattern improvements in Bromine as far as in January. Is that normal seasonality or is it something more from restocking or a pickup in market demand, do you think?

Yes David, normally we have a weaker December with inventory corrections. And I think that was a bit exaggerated at the end of 2011. So I think a bit of that is normal seasonality. And we have the Chinese New Year kicking in relatively early.

So we are still hoping for a bit of a boost in the first quarter here as customers restock. But I will add this, David. We saw more emergency orders in the brominated flame retardant chain than I think I can recall in the near-term history. So it is just another facet to consider. And there was a lot of destocking going on in the chain.

And just on HPC, you mentioned a strong Q1 order book. How does Q2 and even Q3 look in that product chain?

Well I would say overall, where, say six months ago, we thought very confident that we would have pretty high mid teens year-over-year volume growth. I would say we have mitigated that a little bit. But year-over-year we still see volume growth in the 7% to 10% range in HPC. So we're starting out very strong in the first quarter, as we said, sold out. And second quarter will dip a little bit from that level.

But generally, there is a lot of -- bit of seasonality there too. Because everyone is, at least in North America and Europe, preparing for the driving season. So we typically have stronger HPC volumes in the first quarter and then it mitigates a little bit in the second quarter. But overall for the year, we feel still very good about it.

And John just last on your JBC expansion, what will it take your bromine capacity to and where is it coming from?

Yes, David this is Luke. From a JBC expansion, it'll take JBC in the range of 120,000 net tons at JBC if we're running flat out.

P.J. Juvekar, Citigroup

Yes, hi. Good morning. In polymer additives, it is almost like two different segments with brominated flame retardants seem to be doing well and then you have the struggling portfolio of mineral flame retardants, antioxidants and curatives. I was wondering if you could size those two pieces and compare the profitability for us?

Well, yes, P.J., this is John. The real driver for us has always been brominated flame retardants in our polymers business. No question about it. So typically, we are talking about in the range of two-thirds of our profitability on brominated flame retardants. But one thing I would note for you, is what we saw in bromine in the fourth quarter was reasonably healthy buy-ins. We talked about 10%, up year-over-year, down a bit sequentially. But when we saw that, we really took some aggressive steps.

We had sales down sequentially 7% to 8%, but we did take production down over 20%. And we brought our inventories down very healthily to give us a good position for 2012. But anyway, hopefully that frames up the various pieces for you. The biggest issue we had in the fourth quarter in polymers was by far mineral flame retardants. With -- all of our -- the majority of our business being based in Europe, and every time Italy or Berlusconi or Greece was mentioned, we saw a decline in customer orders in that business. So the good news is, we see volumes picking back up in the first quarter, which is good.

And then secondly, you talked about lithium extraction in Arkansas. Can you tell us how much lithium is there in the brine compared to some other deposits? And what kind of operating earnings impact can expect from that? Thank you.

Yes from a standpoint of what lithium is in the brine, P.J., it is hard to tell until we get in there and actually start operating. We've got estimates based on what the brine is. And we think that we are going to have what I would say is a commercially viable process and volume. You obviously can't enter that market with too limited of volume or you can't really have a real play to be consistent for your customers. So we wouldn't be going in if we didn't think we could have a commercial scale product there. And I think that when we're looking at it when we get both of them done, both sides done, we would be in the range of 10% or so of the market is what we would hope to be able to capture from those lithium extraction technology that we have today.

But very cost competitive position, P.J., at the end of the day.

That's right.

Bob Koort, Goldman Sachs

Thanks very much. Good morning, guys. John, I was wondering if you could give us a little update on taking out the rare earths in your catalyst business? Obviously there was a strong need to do that, I guess 6, 9, 12 months ago and it looks like that need has moderated a bit. So has that sort of stifled the transition? Are you agnostic to that change? If you could just give us an update there?

Yes, you bet, Bob. Over the summer, rare earths were approaching $140,000 a ton. And now they are in the $50,000 a ton range. So it seems to me, from everything I have read, from customers around the globe, that pressure is mitigating. There is some definite relief there. We always inherently had lower rare earth levels.

We have got our rare earth level down to, on average about 1.5%. I think we are being helped a bit by the volatility in the crude slate that Luke mentioned. A very much heavier crudes being utilized globally. But anyway, to answer your question, it has mitigated a bit. But us and others, I think, have been reasonably successful in helping this broad slate of refiners globally achieve what they are trying to achieve with -- on rare earths.

Got it. Luke, you had mentioned something about maybe finding or combing through and finding some assets that you could do something with from an M&A standpoint. I guess maybe I wasn't paying attention closely enough. But is that separate and distinct from the 2015 plan? If so, why wouldn't that have been incorporated then?

No, when I was talking about M&A what I was looking at is some of our underperforming assets. So, we've got some assets that we look at from time to time. Are all of these assets going to encounter returns that we need? And you never want to surprise you guys with the fact that you're doing an evaluation on the day and maybe taking some action. So I wanted to highlight today that we've got that evaluation underway, which would result in possible divestiture or shutting down some assets or consolidating and we want to give you a heads up on that. We're still looking on the outlook for M&A that would still be included within that Vision 2015. We hadn't pulled the trigger on anything very meaningful today but that doesn't mean we have not been out there knocking on doors and looking and still think that is a critical piece of our Vision 2015.

So is it fair to say any assets you're considering would be modest in scale?

Yes.

Laurence Alexander, Jefferies & Company

Good morning. I guess, first of all a question across your bromine derivative portfolio, can you give us an update on pricing trends? And if there were no further price increases in 2012, how much of a tailwind you would expect, all else being equal?

Laurence, this is John. Overall, our pricing environment has remained very healthy across the bromine chain. If you look at brominated flame retardants and I strip out the mix affects, our brominated flame retardant pricing improved sequentially 3% and up over 25% year-over-year. That is a pretty significant driver for us.

In clear brines, that's, of course, fine chemistry, our pricing has remained pretty healthy there. And we are seeing some significant step up in volumes. So we will revisit that as we go forward. But overall, across bromine, brominated flame retardants, and some of our advanced bromine derivatives, remains very healthy from a pricing point of view. I would say the biggest impact going forward in 2012 is the improvement in brominated flame retardants beyond the first half. And that's going to be, I'd say the most significant issue that we are tracking from a price and volume point of view.

But is it fair to say just triangulating very roughly on the derivatives portfolio, it looks as if that will contribute about 2% to 4% to your total top line sales? Is that roughly the right order of magnitude?

On the entire bromine chain? Yes I would say that is a pretty good assumption.

And then for the custom chemistry that you are doing in fine chemistry for some of the new technology applications, do you have a rough sense for how much of a tailwind that could be?

Next year?

In 2012?

We have always said that some of these new products extended out a full-year would be in the $0.15-$0.20 per share range. So our fine chemistry model is really working well. We are very proud of it and a lot of new opportunities coming in.

And then just lastly. Can you give an update on mineral flame retardant pricing? Thank you.

Mineral flame retardant pricing in the fourth quarter held in there pretty well. So it was roughly flat sequentially, up 4% to 5% year-over-year. We got the euro going down year-over-year, that impacts our translation on pricing. The general, I think, view in Europe is with volumes softening in the fourth quarter, pricing discipline was awfully good. And now we are seeing volumes pick up. So overall, we are hanging in there.

Mike Sison, KeyBanc Capital Markets

Hi, good morning, guys. Nice quarter. Luke, in terms of 2012, you sort of gave us a couple headwinds to foreign currency, pension and it looks like tax rate, a teeny bit higher. Could you just help us frame up some of the positives that could offset those headwinds? And I think you sort of softly suggested earnings should grow in 2012 versus 2011?

Yes, I think what I'm trying to do, Mike is, right now we have got some good dynamics for our catalyst business. So catalysts ought to feel good. I think when we talked to you previously, we were talking about if we got an 80/80, 80/80 kind of four quarters from catalyst, strong quarters like that, we would feel good about that. And we still do and it could pop up there. In fine chemicals, John has outlined some of the things in fine chemistry services, clear completion fluids should be strong in 2012. Halliburton was pretty bullish on the Gulf. So that bodes well for us because we didn't in 2011 get a lot of clear completion fluids in the Gulf. Those were internationally. So fine chemical services should continue to build on that momentum and I think have a stronger year in 2012 than it did in 2011.

So both of those feel really good. It really comes down to polymers. And what is going to happen from a mineral flame retardant standpoint in Europe, how Europe is going to recover in that wire and cable market and how our mineral flame retardant will respond, as well as, are we going to see a pickup in the second half of the year on brominated flame retardants? And that's really keyed into that electronics market. So if we see the economy recover in the second half of the year, like we expect, we should be able to grow our business and continue on our path to Vision 2015, Mike.

Okay great. And then, John, in terms of the fourth quarter, where were your operating rates for bromine? And where are they tracking now?

Yes you bet, Mike. The derivatives, brominated flame retardants, are running about 70%. The overall bromine chain was pretty close to sold-out, Mike. I will tell you that the pickup in clear completion fluids, our mercury control business is doing much better, second half was really strong for us. We mentioned some of the new products in food protection and so our bromine chain was very tight. We'll call it 90% or 95%.

So the hit you had in the fourth quarter from sort of reducing your inventories, how big was that? That sort of comes back in the first in terms of profitability?

Yes. Well what I tried to indicate in their script was, we are going to keep an eye closely on inventories so we stay in line with customer demand. But we also believe that the fourth quarter of 2011 bottomed out from a profitability perspective and we are taking that number up in the first quarter. So that feels pretty good. So the impact of reducing production volumes in the brominated flame retardant chain was probably a $10 million to $15 million absorption issue for us in the fourth quarter of 2011. So we feel we got inventories in a good position right now.

Okay, great. And then last question on brominated flame retardant pricing. I mean you have some flow through don't you heading into this year? Any expectations on further price increases depending on, I guess, how demand unfolds in the second half?

Yes Mike. We're just going to keep a real close eye on that. If you are really positive about it and we get a nice correction and the political environment calms down a bit and we get a pop, those kind of volume trends all help the pricing environment.

Jeff Zekauskas, JPMorgan.

Hi, good morning. So in the first quarter, just to clarify, you expect your average prices to be higher than they were in the year-ago period?

Yes that's correct, Jeff.

Okay.

With the pricing across polymers probably up mid-single digit year-over-year. Excluding any mix affects.

Secondly, can you talk about your -- I guess maybe your three or four major raw materials and how you expect them to fare for 2012? And what might be the affect on your income statement?

Jeff, let me give a shot at it. I mean if you look at it from a dollar standpoint on the spend, it is the metals that go into our catalyst business. The moly and the nickel and the metals as well as the rare earths. So we have talked in detail about rare earths, where that is gone from, the $140,000 a net ton down to $55,000 a net ton. The key on that is going to be how the pricing in the contracts that we pass through that rare earth and the cost that we acquire the rare earths for, and what that spread does and how we are able to manage that.

The metals for the HPC, those seem to be fairly stable, John, across 2012, so you wouldn't see that. The other impact is where we buy our biggest volume of products would be aluminum tri-hydrate in our mineral and flammatory business. And there are a limited number of suppliers there and we finalized some negotiations of those contracts and should have a little bit of a headwind there. But we are working to mitigate that and trying to find a way to find some alternative sources that would allow us to do better there. So from a volume standpoint, the biggest is ATH. From a dollar standpoint, we've got the metals in the rare earths that we have talked about previously.

And then you have the benzene phenol BPA [sulfonic] chain and the volatility associated with that, Jeff. So we always try to work to get that passed through. As Luke mentioned rare earths and metals. And over time, that should really have no impact on the P&L.

Do you get some benefits from lower natural gas prices or from lower chlorine costs?

Yes, chlorine is pretty stable. We do get -- we're in a bit of a tailwind situation now on natural gas. Natural gas consumption is based on production levels. But that could be a little bit of a help. Every buck is call it, a nickel on gas.

Steve Schwartz, First Analysis.

Good morning, guys. John, if you could at least help us with the year-over-year volume change for HPC and FCC in the fourth quarter? Give us an idea of how those changed?

Yes, it was -- HPC was flat year-over-year and up just a hair sequentially, Steve.

Okay, so that was HPC and FCC?

Yes, FCC was up a little bit sequentially, call it between 7% and 8%, and really flat year-over-year. No real impact there. Although I will say the mix really improved and, as this crude slate is getting more difficult to deal with, we are seeing more heavy resid FCC catalyst sales than we did a year ago.

Okay. And as you are going through the first quarter here in the order book for HPC is strong, doesn't that usually have a negative impact on FCC volumes?

Yes, there is that seasonal impact, Steve, for sure. So we will probably start at the gate, a little bit slower on FCC volumes but picking up through the course of the summer -- spring and summer. That's right.

So you're coming off a quarter, the fourth quarter where the operating margin in that business was pretty strong. What impact would you expect that to have on first half margin, in the catalyst business?

For the whole year, we think we can hold this margin. So we had that really nice spike in the third quarter. Longer-term, to get our margins at that level is our real goal. But we feel pretty confident about holding onto the margin level of what we achieved in the fourth quarter.

Would you say you had a bit of a tailwind in the fourth quarter as a result of declining costs and rare earths and moly versus pricing?

Right. We have talked about that in the past. And that impacts that business by 150 -- depending on the mix -- 150 to call it 250 basis point margin issue.

Okay. And then just one last one for Scott. You guys mentioned the higher pension expense. Should we just assume then corporate expense for 2012 will be about $20 million to $25 million higher than it was in 2011?

Yes that's about right from the pension impact. Although some of it gets absorbed into the businesses as well.

Edward Yang, Oppenheimer.

Hi, good morning. Just piggy backing on the part -- previous question on catalysts. Catalyst volumes in the fourth quarter were marginally negative. You mentioned HPC and FCC were basically flat. Could you just elaborate why the volumes were flat there?

Yes, Ed, that is a good pick. And yes, you are right. In fourth quarter of 2011, volumes were down a bit. In the last quarter of 2010, there was a lot of what I call experimentation going on. And we did sell some regenerated catalysts in FCC, which is a little bit unusual for us. And that happened in fourth quarter 2010. So the year on year volume comparison is a little bit awkward, if you will, because of that volume spike last year.

Okay. But your expectation for 2012 catalyst volumes -- what would that be?

I'm sorry, Ed. I was talking over you. Could you repeat?

Overall expectation for catalyst volume, you mentioned HPC up mid-single digits? FCC, you expect to be up positively as well?

Yes we do. Yes, mid -- I'd call it mid-single digits as well. So overall our volume outlook right now is reasonably healthy.

Okay. And fine chemistry volumes were very strong. They were up 24%. Was that more -- you had mentioned custom projects in both clear and bulk brines. Which was the larger contributor and your expectation for 2012 volumes?

Yes, the fine chemistry, AG intermediates and new materials was probably about 60% of the total. 40% was clear brines, mercury control, food safety. So hopefully that will give you a little feel there.

And what is a good run rate for growth in 2012? Because I know in fine chemistry, it could be somewhat lumpy in terms of the volumes.

Yes because of the nature of those products. We will sell some products in gram quantities that could drive a dime a share for us, right? But I would say overall a projection -- yes, we will grow volumes in fine chemistry, the SBU in total year-over-year. And we're seeing a pretty strong tailwind right now in clear brine fluids activity. Especially with the product slate that we play into; deeper exploration and uses the heavier brines.

Okay. Just finally on polymer solutions volume. Could you just talk a little bit on the volatility you are seeing there? Your guidance for fourth quarter volumes were more flattish. It came in below that. And you had indicated you are seeing some improvement there. But in the prior quarter, you saw some improvement as well. So what happened from November to December to lead to the sequential volume decline you saw?

Yes, right Ed. That is a good question. So, I'd say the biggest volume driver for us was clearly mineral flame retardants. And we saw a weaker back half of October. We saw a weak November. And really running on fumes in December. Matter of fact, I remember our biggest US customer -- we actually had a delivery scheduled on a Saturday, just to give you an idea of inventory levels. And it didn't arrive until the following Monday and it shut a plant down. This is a raw material, the entire shipment was probably $30,000 or $40,000. So, it just gives you a feel of how low our customer base is running their inventory levels to, it is just crazy.

The mineral flame retardant volumes have, as I said, appear to be picking up now in the first quarter. In brominated, we had a pretty good September, which we talked about. We were feeling pretty good going into the fourth quarter. We also saw it really slowdown in November which surprised us. A lot of destocking there. And as I mentioned, we saw more emergency orders than we can recall in near-term history in December. And volumes appear to be picking back up. So overall, we don't want to get carried away with our polymer view for the first quarter, but we believe our profit level will improve in the first quarter of 2012.

Ed, this is Luke. To give you a little bit of an idea, if you look at mineral flame retardants, our volumes in mineral flame retardants in the fourth quarter were lower than the volumes that we saw in the first quarter of 2009. So we hit an all-time low from a volume standpoint in mineral flame retardants. Bromine, like John said, was up. But that is a big volume over there. We move a lot of volume and then it was down to that level. So remember when we talked in the third quarter, or in October we talked to you about how we strengthened this business over the years taking these hard steps with pricing, with asset consolidations, with some efficiencies that we have got.

I think the fourth quarter, we're sitting here talking about how we had a sluggish quarter. If you really look -- overall from an Albemarle standpoint, it would have been the best quarter in the history of the Company before 2011. So we had some real challenges that we've overcame and I hope that people understand what this means for the strength of our business. We've got a strong business and we feel good about 2012. If we can get some help from that economy in the second half, we are going to grow the business, but it's going to be a second half year in 2012.

(Operator Instructions) Dmitry Silversteyn, Longbow Research.

Good morning, guys, and congratulations on finishing the year on such a strong note. A couple questions that I have and one of them you sort of answered on the kind of discrepancies that we're seeing in the growth of volumes in the fine chemical division and in the polymer services division or solutions division. But it sounds like the majority of the volume growth was attributed to the custom synthesis part of the business.

On the catalyst margins, if you kind of take what Luke has said about sort of $80 million a quarter run rate, roughly speaking in terms of profitability, it looks like your year-over-year profitability will be similar in 2012 to what you delivered in 2011, about 26%, 27%. You had quite a bit of a step up in the last couple of years. With metal prices declining, with rare earth prices declining, with all of these projects that you have going on stream in 2012 in South Korea and in Saudi Arabia with the maturation of the polymer catalyst business, why would we not expect to see more meaningful margin expansion and profit growth in the catalyst division in 2012 versus 2011?

Yes, let me take a crack at that Dmitry. Just to clarify, what Luke said is we see a new base load in catalysts that -- call it $80 million a quarter with one quarter that it's likely to pop up for us. Maybe in the heavier driving season. We don't know if it's going to be second quarter or third quarter at this point. But we see that and we believe we will grow our catalyst business. Let me be really clear about that. And margins, managing margins with raw materials and, like you said, rare earths, is all part of that equation. So some of the larger projects you highlighted, which we are really excited about in our performance catalyst solutions business, which is our polyolefin catalyst business, we are very excited about.

We're very excited about the growth in LED in our Korean plant. But those are not really positioned to have an impact on 2012. I would say that and our SOCC joint venture with SABIC on organometallics in Saudi Arabia. Those are all 2013. And so we really feel good about being positioned for the long-term. And lithium falls into that bale too. So we believe we can just summarize. We believe we can grow our catalyst business in 2012 and we are positioning it for some exciting growth in 2013 and onward.

Okay. All right. Thanks for that color, John. Then a question on polymer solutions margins. I understand that when you are running your flame retardant business at 70% utilization rate, it is hard to get good margin. On the other hand, mineral flame retardants which sounds like the area where you suffered the most volume declines, also happens to be, I believe, one of your lower margin businesses. So why wouldn't you have a positive mix impact on margins? I was just expecting to see a mid teens operating margin out of polymer additives. So I guess I'm just looking for some clarification of what happened there in terms of under absorption versus pricing and declining raw materials and improving mix.

Yes, so I think the overriding point that I would like to make is that, year-over-year, and sequentially for that matter in the fourth quarter, we had probably $15 million in under absorption in brominated flame retardants. And it was probably in mineral flame retardants, in the $5 million to $8 million range. So that gives you a feel. If it had not been for that, we would have been in it right in the box of where our profitability was at the end of 2010. So it was really -- I would say, we kind of had the luxury of two really strong businesses performing very well. And we saw that midway through the quarter and we decided to get more aggressive in terms of our inventory levels in the flame retardant chain, and, for that matter, curatives and antioxidants.

Okay. So it sounded like the slightly positive volume year-over-year comp that you had in brominated flame retardant that you talked about was mostly an inventory liquidation rather than manufacturing. So your under absorption was over emphasized, if you will, relative to the numbers that you have delivered.

Yes. Just to state. In brominated flame retardants, our sales sequentially were down about 7%. We took production down 20%. And we took inventories down between 15% and 20% in polymers. So, I mean it was, I thought really good cash management. And you saw some really strong cash generation from the Company. So I mean that all has kind of played in to trying to position ourselves to grow the Company in 2012.

Todd Vencil, Sterne Agee.

Thanks very much and good morning. Most of my questions have been knocked out. But you mentioned expansion of the US polyolefin catalysts capacity this year. Can you remind us of what is going on there and how much you are adding?

Yes, I mean what we are trying to do is, a lot of these new -- we talked about our organometallics with TEA and MAO and TMA, that supply that, all fall into that market for plastics as well as the LED in electronics chains. We're doing some fairly significant debottlenecking so that we can make sure that we are ready to supply that growing demand going forward. So that is a big growth area for us. We are excited about it and we want to make sure that we have got the capacity there to serve the customers what they need around the globe.

Yes, and in our plant here in Baton Rouge, Todd, where we make our active cat line of products which is a total catalyst solution for polyolefin producers, we expanded that plant during the downturn. And it was sold out almost immediately. So that is an additional debottlenecking we are doing here, right in town.

So broadly speaking, I mean are you sort of super tight and generally sold out across the polyolefin catalysts in the US in addition to the active cat recently?

As a general rule, that's a very broad statement, but as a general rule, yes. It is very tight and we feel we need to take these steps to expand around the globe in addition to what we are doing in Korea and in addition to what we are doing in Saudi to able to service the customers and be there with the solutions that they need, when they need it.

And broadly speaking how much do you feel like you're going to be able to get out of these debottlenecking?

In terms of revenue?

Percentage-wise.

Oh boy --

Or revenue. Either way.

15%, 20% on return.

Aleks Yefremov, Bank of America.

Good morning. I just wanted to double check on elemental bromine chain -- on bromine chain. In elemental bromine, John, I think you mentioned your utilization was about 90%, 95% in the quarter.

Right, Aleks. Does that mean that you might be at capacity constraints in the first half of 2012 before Jordan expansion kicks in?

Yes, this is Luke on that. We do not foresee where we are going to have any situation where we are capacity constrained. There are some debottlenecks that we can do. We have expanded some wells in Magnolia that will be coming online. And we feel great about the capacity that we need to be able to service it.

And when we bring it online, there been a lot of questions about this, so -- when we bring that capacity in Jordan online, remember we are going to bring it on as needed to meet the demand that we see out there. It is not such that we have got to have it running 100% on day one. We will be very good stewards of that bromine and bring it online as needed. So I don't see either an under supply in the short-term or an oversupply in the long-term.

Okay that makes sense. And then just a quick follow-up on antioxidants campaign that spilled over into Q1. What is the approximate impact on sales or earnings?

All these things add up. When we run one of those DETA campaigns for our curatives business, it is usually absorbed, call it $4 million to $5 million. So we are continuing to manage inventories very tightly as we mentioned, Aleks. So broadly speaking, we view that our polymers business is going to pick up in the first quarter. But we are managing it very closely and we don't want anybody to get carried away with the expectation here. But we feel, we have been through the worst in the fourth quarter.

With no further questions I would now like to turn the conference over to Mr Lorin Crenshaw for closing remarks.

Well, we thank you for your time and your questions. And look forward to seeing you at Investor Day and certainly give me a call with any further questions.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect and have a great day.