雅保公司 (ALB) 2012 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2012, Albemarle Corporation earnings conference call. My name is Kim, I'll be your Coordinator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session at the end of today's conference.

(Operator Instructions)

As a reminder, this call is being recorded. I will now turn the conference over to your host of today's call, Mr. Lorin Crenshaw, Director, Investor Relations and Communications. Please proceed, Sir.

Thank you, Kim, and welcome everyone to Albemarle's first quarter 2012 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, Chief Executive Officer; John Steitz, President and Chief Operating Officer and Scott Tozier, Chief Financial Officer. Before we get started, I'd like to ask everyone once again, 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 are available at our website under the Investor section, we look forward to seeing many of you there.

As a reminder, some of the matters discussed during this conference call and webcast 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 first quarter financial results with you today. I'll begin by commenting on the Company's quarterly results and sharing updates related to certain strategic initiatives we've commenced. John Steitz will then walk you through the business segment performance before Scott Tozier reviews select financial highlights. As usual, at the end of our prepared remarks we'll open it up for your questions.

I'm pleased to report first-quarter results that reflect an excellent start to 2012 across each of our segments. First-quarter net income of $108 million or $1.20 per share was up 4% year-over-year and net sales of $712 million was up 2% year-over-year. This marks the tenth consecutive quarter of year-over-year growth in our earnings. In addition, we continue to generate a healthy amount of cash with $124 million of cash generation for the first quarter, up 28% versus the prior year period, excluding the $50 million pension contribution we made in the first quarter of last year. Collectively, our businesses generated $176 million in EBITDA and achieved segment margins of 24%. Year-over-year earnings growth in Catalysts and Fine Chemistry reflected continued positive trends in those businesses while Polymer Solutions saw an increase in demand from the fourth quarter and a continuing strengthening of demand with each successive month in the quarter. Great results in a very good start to 2012.

The quarter also included two special items that I want to highlight. We had a gain of $8.1 million, $5.1 million after-tax or $0.06 per share from proceeds we received as a result of the settlement of a litigation matter net of related legal fees. We used this cash to make an $8 million charitable contribution to the Albemarle Foundation to begin the process of creating an endowment for that foundation. That contribution was a $5.1 million after-tax or $0.06 per share expense, which basically offset the special gain of the litigation settlement. The Albemarle Foundation is a nonprofit organization dedicated to making a positive difference in the communities in which we operate and to the nonprofit organizations in which our employees are involved. Since the Albemarle Foundation was established in 2007, its contributions to more than 100 partner agencies have steadily increased and I would expect that trend to continue. It's important that Albemarle does its part in trying to make our communities better places to live, work and raise a family and we are delighted to be able to start this endowment to ensure that The Albemarle Foundation's impact can continue to grow in both the good and challenged economic times that the future will surely bring.

On the strategic front, we mentioned back in January that we commenced a comprehensive portfolio review aimed at identifying opportunities to address underperforming assets. That process remains ongoing but I would expect to be in a position to provide more specific details in the second quarter. Our major capital projects are proceeding well. I was recently in Saudi Arabia and Jordan and was able to see firsthand the progress being made on the construction of those two sites. It's always good to see concrete being poured, steel being erected and projects beginning to take shape. With regards to our Performance Catalyst Solutions projects, we expect mechanical completion by the end of 2012 for both the 6,000 net ton TEA plant that we are building in Saudi Arabia with our partner, SABIC and for our wholly-owned Greenfield Polymer Catalyst Center in Yeosu, Korea. That would mean startups for both sites in late fourth quarter this year or early first quarter of next year. In some instances we're already sending samples to customers and getting good feedback.

In addition, we continue to invest in specialty organometallics capacity expansion at select domestic facilities to satisfy the growing market demand for these products. These expansions will be executed in stages and fully complete by the end of the year, allowing us to maintain our global leadership position in organometallics. Turning to our bromine expansion in Jordan. The first phase should be ready this summer when we expect mechanical completion for the additional bromine capacity. We expect the additional capacity for clear completion fluids to be completed in the October/November timeframe. The last phase, additional tetrabrome capacity should be operational next year in late second or early third quarter. Each of these stages roughly doubles the existing capacity and we plan to bring this additional capacity on in stages as market demands dictate. This capacity remains necessary to meet the needs of our customers and positions us well to capitalize on what remains an extremely attractive global demand outlook for bromine and bromine derivatives. We don't expect any meaningful overruns on any of these projects at this time.

One of the new uses for bromine that we highlighted in the past is control of Mercury emissions. In March, the US Trade Development Agency sponsored a China Reverse Trade Mission on Mercury control, hosting representatives from the Chinese Ministry of Environmental Protection and top Chinese power companies. The purpose of the mission was to showcase the most advanced US technologies using controlling Mercury emissions from coal-fired power plants. It also provided an opportunity for the Chinese Ministry of Environmental Protection to collaborate with the US TDA and US EPA on policy and rule making in the area of Mercury emission control. We were pleased to take part in the mission and be among the US companies the delegation chose to visit directly to review our emission abatement technologies. As environmental protection continues to rise higher on the agendas of governments around the world, Albemarle is well situated to assist the global power and cement industries, in particular, in reducing pollutants through our diverse portfolio of products and services.

Finally, as you know Albemarle has a long history of supporting our customers and evolving our technology in ways that anticipate their desire for the most sustainable solution. In that vein, we were excited to announce last week a new addition to our existing platform of polymeric flame retardant solutions. This new technology, licensed from a subsidiary of Dow Chemical Company, will be commercialized in 2014 and is expected to become the preferred choice for flame retarding both extruded and expanded polystyrene using foam insulation applications.

As we consider the outlook for the balance of the year, uncertainties clearly persists regarding the durability of the current global economic recovery. Though sentiment regarding the European debt crisis seems to have improved, concerns remain regarding the magnitude of the impact of austerity measures being implemented throughout that region. Nevertheless, the full-year outlook for Catalysts and Fine Chemistry remains favorable, supported by several positive industry trends and healthy new business opportunities. In addition, our interpretation of the end market patterns we're currently seeing is that they remain supportive of a continued acceleration of polymer solutions business trends into the second quarter and through the second half of 2012.

In closing, our businesses remain healthy and we expect to perform well in 2012. Our best guess remains that our businesses will generate earnings during the first half of 2012 resembling levels achieved during the second half of 2011. Assuming that a second-half recovery occurs, we continue to expect to grow our business for the full year and make further progress toward the goals we outlined in Vision 2015. This would set us up nicely for 2013, when the impact of the major investments I discussed earlier should become positive contributors in our financial results. With that, I will turn the call over to over to John to discuss our operational performance for the quarter.

Okay, thanks Luke and good morning everyone. I'll start with Polymer Solutions which reported first-quarter net sales of $228 million down 12% year-over-year but up 9% sequentially and segment income of $54 million, down 23% year-over-year but 46% higher sequentially on volumes that were up 20% quarter-on-quarter. Of course, year-over-year comparisons to the first half of 2012 will not show gains given the strength of the first half of last year. I would like to point out that the distinct improvement in Polymers performance versus the fourth quarter was very encouraging. From our advantage point it represents a turn in the cycle, but only time will tell if the ultimate extent of its strength and duration.

In terms of intraquarter color, demand began rising in late January following Chinese New Year and accelerated throughout the quarter with revenues and volumes rising with each successive month. Increase in demand combined with great cost management and execution to plan on the manufacturing side resulted in a 600 basis point sequential improvement in segment margins to 23.5%. Specifically, brominated flame retardant volumes and operating profits were down 19% and 12% year-over-year, respectively, but up 4% and 15%, sequentially, while mineral flame retardant volumes and operating profit showed similar strength versus the prior quarter up 34% and 77%, respectively. Improvement was widespread with the enclosure connector print wiring board and wire and cable end markets all picking up nicely, while the construction and automotive end markets also showed better trends.

Stabilizers and curatives also delivered sequential -- strong sequential performance with volumes up 30% and operating profits equally strong. The main drivers included an improved tone to North American infrastructure spending which benefited curatives, fuel and lubricant antioxidants trends and great execution from a manufacturing perspective in meeting the increased demand. Looking forward, among many indicators we monitor, the IPC book-to-bill report ticked up to 1.04 in February while global connector confidence, as published by the Bishop report, has shown four straight months of upward trends with March rising to 65.4 from 60.8 in February and up substantially versus 50.5 in December. Overall, our [read] has set the tone of fire safety end markets has improved and seems likely to strengthen further in coming months.

Moving onto Catalysts, which reported another great quarter as strong refinery catalyst volume growth and higher pricing drove net sales of $294 million, up 13% year-over-year. Segment income of $82 million up 13% year-over-year and segment margins of 28%, up 20 basis points versus the prior year. Operating results were strong at both divisions with refinery catalyst sales and operating profits up 13% and 5% year-over-year on a respective basis and performance catalyst solutions sales rising 10% and operating profits 29% higher on a year-over-year basis. It's worth noting that the earnings presentation indicates that the year-over-year Catalyst revenue increased attributable to volumes flat. However, excluding a large alternative fuels order from last year, volumes contributed a mid single-digit percentage to the year-over-year sales increase.

Within refinery catalysts, HPC results were outstanding, with operating profits up 20% year-over-year establishing a new all-time record on strong volumes and favorable mix. FCC performance was also strong with volumes and earnings achieving double-digit growth. The high-volume gains were attributable to a combination of improved operating rates among certain large customers in the United States versus the year ago period and higher year-over-year growth in emerging markets, while we're benefiting from the start up, also of a sizable new unit running on our technology. The PCS division's financial results were principally driven by core polymer catalyst group. Sales and operating profits in polymer catalysts rose 21% and 58% year-over-year, thanks to a solid organometallics volume growth reflecting encouraging global trends. Looking forward, second quarter HPC volumes will be lower sequentially and year-over-year but that is attributable to the expected order patterns and change-outs of our customers as opposed to any reduced demand. However, for the full year we continue to expect a nice HPC volume growth. Regarding FCC, while anecdotally certain refiners are challenged depending on geographic locale, access to heavier crude and conversion flexibility, the overall tone of our business is solid with growth expected from a combination of new units coming on using our technology and continued growth in developing markets.

Fine Chemistry delivered net sales of $190 million up 7% year-over-year and segment income of $39 million up 31% year-over-year. Segment income levels were the second highest of all time while segment margins of 20% remain at historically high levels and were up an impressive 340 basis points from last year. Both divisions reported excellent financial results with performance chemicals sales and operating profits up 4% and 5% year-over-year, respectively, while fine chemistry services sales and operating profits rose 21% and 121%, respectively, versus the prior year period. Performance chemicals drivers included higher pricing across the portfolio, historically high clear brine fluids volumes and excellent results across a diverse range of intermediates into a variety of industrial consumer end markets. The full-year outlook for clear brine fluids remains favorable with global drilling rates expected to match the outstanding 2011 levels, driven by continued strength in developing markets and the eventual tailwind provided by rejuvenated Gulf of Mexico though the impact in that region will likely be somewhat second half weighted.

The year-over-year doubling in our fine chemistry services profits reflected that business beginning to reap the benefits of a diverse pipeline of opportunities across the agricultural, lubricant, renewable chemistry and specialty pharma sectors we have targeted for growth. The impact of evolving our portfolio towards complex, higher margin, longer duration opportunities was evident during the quarter as operating margins rose impressively. Drivers included continued healthy growth in ag intermediates, positive trends within our pharmaceuticals portfolio and a growing contribution from several recent renewable chemistry business wins.

Notably, we believe that current Fine Chemistry profitability levels are at a new base, reflecting the collective impact of a number of structural and strategic initiatives including a transformation of the product portfolio through asset sales and selective pairing, the growing impact of several new bromine applications and an ongoing mix shift within a fine chemistry services towards increasingly complex longer duration higher margin businesses. An example -- excellent example of the direction this business is moving toward was a recent contract we were awarded to complete the Naval Air Warfare Center Weapons Division's first bio jet fuel production run based on bio n-butanol provided by Cobalt Technologies. Overall, fine chemistry is well positioned to continue delivering outstanding results this year and with that, I will turn the call over to Scott.

Thank you, John and good morning everyone. Albemarle first-quarter financial results were excellent on several measures including earnings, cash generation and overall profitability levels. Specifically, the business generated EBITDA of $176 million, up 3% year-over-year and achieved EBITDA margins of 24.8%, 20 basis points higher year-over-year and up 180 basis points from the fourth quarter trough. Our balance sheet remains in superb shape with excellent cash generation driving net-debt down $55 million during the quarter or 20% versus year-end levels to just $216 million excluding $22 million in non guaranteed debt from our JBC joint venture. As a result, leverage, as measured by net-debt to EBITDA, is at 0.3 times and our net-debt to capital ratio was 11% at quarter end. Our cash and leverage position continues to give us options and flexibility as we work towards Vision 2015.

Turning to some P&L details. SG&A expense rose 10% year-over-year, principally driven by a combination of higher selling commissions, personnel costs and pension related expenses. As a percentage of sales, this line item is up around 80 basis points to 11.3% versus 10.5% during the same period a year ago. In total, pension expense rose $3.5 million year-over-year to $10 million, due to a decline in the discount rate used to measure our pension obligations and lower than forecasted asset performance in 2011. As we noted in January, we expect pension expenses to rise roughly $20 million on an annualized basis this year. However, our funded status remains quite strong, nearly 100%, and we do not expect a need to make any meaningful cash contributions to our plans until 2014 at the earliest.

R&D expense is up 8% year-over-year as we continue investing in organic growth opportunities including the strategic adjacency initiatives we outlined as part of Vision 2015. R&D cost as a percent of revenue are up 20 basis points to 2.7% versus 2.5% for the comparable period in 2011. Our effective tax rate for the quarter was 25.5%, up 130 basis points versus the first quarter of 2011 rate of 24.2%, driven primarily by increased profitability in higher tax rate countries and changes in tax regulations, most notably in the US and Europe. At this time we expect our full-year rate to be around 25%.

Now onto cash flow trends. Free cash flow, defined as cash flow from operations, add back pension and post retirement contributions and subtract capital expenditures, was $71 million for the period up 7% year-over-year. Cash from operations was up 28% year-over-year to $124 million and that is excluding the $50 million pension contribution we made in the first quarter of 2011. This was driven by good profitability and lower working capital requirements. CapEx during the quarter was $55 million, reflecting continued investment in the major strategic projects we've commenced in South Korea, Jordan and selectively here in the US, as earlier updated by Luke. We expect CapEx for the quarter to rise through the balance of the year and approach approximately $300 million for 2012, with roughly $100 million of that attributable to our Jordanian expansion, which will be fully funded from operating cash flow of that joint venture. Net working capital was up $39 million from December 2011 or 8%, mainly due to receivables from higher quarter end business activity and as we built inventory levels modestly to meet future market demand. Overall, net working capital as a percent of revenue was a healthy 19%, down 311 basis point year-over-year and up 126 basis points from year end.

Finally, we made $60 million in dividend payments during the quarter, up 19% year-over-year and announced a 14% increase in our dividend to $0.20 from $0.175. The increase reflects our confidence in the cash generating capacity of our businesses. It represents the 18th consecutive year that we have raised the dividend. With that, I'll hand it back over to Lorin for Q&A.

Thanks, Scott. Operator, at this time we like to open the call for questions.

(Operator Instructions)

And your first question comes from the line of David Begleiter, Deutsche Bank. Please proceed.

Thank you, good morning.

Good morning.

John, Luke, on Bromine FR price you in mentioned the slides holding firm, any signs of any weakness anywhere in that chain and potential as the year improves for some price increases in brominated flame retardants?

Yes you bet, David, this is John. David, let me just give you a little more detail around that. If you look at the whole brominated flame retardant business, prices year-over-year were up about 7% to 8% and even sequentially were up a couple points. If you take out the mix effects, like if I pull out tetrabrome, for example, brominated flame retardants are up 20% year-over-year on a price basis, pure price basis.

So, right now, you know I'd say there is a growing concern about some of the raw materials. Benzene, phenol, is an issue in Europe related to a CDT. So, we are continuing to study that, but I think as supply and demand balances out with an improved volume scenario, we're keeping a strong eye out towards those kinds of opportunities. So, we'll stay right on top of that but it's -- overall it's been very encouraging especially through the volume declines over the last half of 2011 and everything appears to be lining up pretty well.

And John same question on Catalysts. Any more color on the pricing game and that segment or was it just mix? And what's happening specifically on FCC pricing?

Yes, David, FCC pricing, you know the big driver of course has been rare earth, and year-over-year, pricing is up pretty significantly and that is mostly a rare earth impact. Sequentially, prices were down in the order magnitude about 10%. Once again that is all rare earth. So, the way we look at it is over the course of the year, our rare earth situation will balance out for us. I think we have done a really good job with our Catalyst business of managing volatility around those kinds of metals. Now with that said, I think we are having some success of driving technology, driving some of the low rare earth alternatives and driving the heavier resid and higher propylene yielding FCC catalysts, which is resulting, so far this year, in between $100 and $200 improvement in base prices. So, we're hopeful that we continue to drive that kind of value with, especially with some of the global improvement volumes we are seeing.

And just last, Luke, is there an update on lithium you can provide?

Yes, I can give you an update. We continue to work on the technology and perfecting that technology. Now David, every time you learn a little bit more in dealing with chemists. They want it -- they got another question because they learned a little more and they want to ask a little more questions. So, that process it's still -- we are working well, we're producing lithium carbonates. We've got our pilot plant at Magnolia running on the high [brine] and we are in the design phase right now. I think that's more of a 2014, 2015 time of commercial launch than a 2013 because we've got to perfect it, design it and built it. So, but it still looks great still looking forward to getting into that market.

Thank you very much.

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

Good morning.

Hi, how are you doing PJ? (inaudible) PJ, this is Luke. I'm sorry, we are having a very hard time hearing you can you speak up please?

(inaudible)

PJ, I could not quite hear you. I think it has to do with volume issues around polymer solutions, especially in flame retardants. If that is the case, let me just kind of talk about volumes in general. In brominated flame retardants, in the first half of last year volumes were extraordinarily strong. We were sold out most of our units. Probably looking back now was an overcorrection from [brine] declines in 2010. After that we saw all the US political issues related to debt ceiling and a lot of the European issues related to Italy and Greece and Spain. We saw a pretty significant volume drop in the second half of last year. What we're seeing now is an improvement sequentially in volumes broadly and we've seen that in the first quarter. We believe we will see that in the second quarter. It will be still less than the first and second quarters year-over-year, but we believe all of the trends are positive.

In mineral flame retardant volumes were extraordinarily strong in the first half of last year as well. We saw them drop off precipitously in the fourth quarter but they've returned in a very robust fashion in the first quarter of this year and the second quarter also looks like improving volume trends. So hopefully that gives you a little color. Longer term we feel really good about fire safety in general and we can talk about that in greater detail at the Investor conference in May.

And just quickly, what is your utilization rate currently at JBC and in Arkansas?

Yes, they've improved from the back half of last year and we're probably running in the range of 80% to 85% now.

And PJ, I'd say that changes a little bit as you look to each one of those units. Some of the units on some of our products are sold out. We are running just as hard as we can and others are running a little bit more slowly and we are in a position in some instances where we are allocating bromine to the highest valued product. So, you've got to be careful, John's answer on that was accurate but we've got to be careful when looking at each specific unit operations and how they might be running because some of them, in fact, are sold out. So, when we're looking at pricing, looking at how we manage our portfolio bromine we obviously -- it's specific on a product by product basis for the application and how that market is doing today, but overall that's where we are.

And just quickly, John, you mentioned about certain refineries challenge you based on their geography.

Yes.

Just wondering if you can talk about the impact of the closure in the Northeast finally shutting down and what's the impact to you?

Yes. You know, basically that is the East to Northeast is really hampered from a refining point of view. But the real growth in this business is outside the United States and Europe, PJ, we are seeing strong trends in Asia excluding Japan and strong trends throughout the Middle East.

Thank you.

Thank you.

Your next question comes from the line of Bob Koort with Goldman Sachs. Please proceed.

Thank you very much, good morning.

Hi, Bob.

John, you'd mentioned that the monthly trends in Polymer Solutions. Was there anything atypical or is that sort of what you normally expect where February was better than January and March better than February?

Yes. Well, last year Bob, I would say it was real -- very unusual because everything from -- with the exception of January, once we came out of the Chinese New Year in 2011 our business was just, just strong. I mean, just really, really strong. And, so while going into this year we are hopeful that, that would be the trend. It's of course moderated from 2011, but it's been a nice uptick and we are getting a, I think, this quarter off to a good start too, so. And then all the underlying trends and indicators are positive too. So, it's all -- it just all gives us a lot more confidence from where we were six months ago.

Okay, and Luke, you've got an awful lot of cash on the balance sheet. I know your Vision 2015 acquisitions were probably one third of the growth. Can you give us a sense, are you getting closer there? I mean interest rates are low, you've got cash but I also know that your definitions of what makes great companies are pretty limited in terms of the financial profile. So, is there anything out there that's got you excited these days?

Yes. There are. We've look at a number of things that's got us excited and we just haven't been able to close. I can't, Bob, be in a position where we're going to do a deal that limits our ability for these wonderful organic opportunities we have but I would expect over the next 12 to 18 months, Bob, you will see us do a deal. We are kicking a lot of tires and we are taking some steps to develop some relationships that would allow someone to be more comfortable in doing a transaction with us over that time of time horizon. I mean it takes a little while to get people comfortable in doing that but we're out there talking about it, kicking tires and we active in the M&A market.

Great, thank you.

Thanks, Bob.

Your next question comes from the line of Laurence Alexander with Jefferies. Please proceed.

Good morning this is Rob Walker on for Laurence.

Hi, Rob.

Hi, guys. I guess, first up, can you comment on polyolefin volume trends in Q1 and kind of your outlook there?

Yes. On our whole polyolefin catalyst solutions business, volumes were up really nicely sequentially year-over-year flat, but our organometallic volumes are strong and we saw some nice sequential improvements, and overall, that fell to the bottom line for us. So it's a great start to the year and we are seeing our view for the year is double-digit volume growth year-over-year in that business. It's a much smaller volume-based business, you need to know that, Rob, but everything is very encouraging now. So, thank you.

Okay and then I guess in terms of the volumes and overall in Polymer Solutions, roughly what would you say the, you know, the volumes were for mineral flame retardants year-over-year? And I think you said brominated flame retardants were down 19% year-over-year? Then also kind of what about curatives and stabilizers, how much do those contribute?

Yes, like we said, brominated flame retardant volumes year-over-year last year, at the time, record profit start to record volumes which built into the second quarter all-time record volumes at that point and all-time record profit. So, that's the comparable period. But you are right, the volumes year-over-year were down about 15% to 20%. Mineral, which generally runs this quarter were equivalent volumes to BFRs but they were down about 10% year-over-year and stabilizers and curatives were down also year-over-year. So, that comparable situation year-over-year is very difficult. Now, we are starting to work through that, it becomes less impact in the second quarter. And we start to see more favorable comparables in the back half of the year and we are gaining confidence that will be a reality.

Great, thanks and just lastly for Luke, you mentioned briefly looking at some restructuring options. Guessing kind of what room do you have in your Europe operations if the outlook there remains sluggish?

Say that one more time?

You commented briefly about looking at some restructuring options, I think in your prepared remarks.

Yes.

How much room do you have to restructure your European operations?

In 2009 kind of timeframe when we went back and looked, when we did a restructuring that was pretty heavy based in Europe. What we are really looking at now from a restructuring standpoint is assets, I mean, how our business performed, do we have underperforming assets that we need to take action to. So, rather than a restructuring, anything we do from restructuring will be tied to what we would do with respect to any of these underperforming assets or businesses.

Okay, thank you.

Thanks, Rob.

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed.

Hi, good morning.

Hi, Jeff.

I think the last time you had a conference call you forecasted your CapEx to be $180 million to $200 million and now it's $300 million. What changed?

Yes, Jeff I think what we've always done is we try to talk to it in terms of two ways. One, exclusive of JBC Capital and two, inclusive of JBC because JBC, if you look, we consolidate JBC so we have to include the CapEx for JBC as a part of our overall when you report it from a GAAP standpoint. That's how we have to report it. JBC this year will be roughly $100 million. We are not putting any additional cash into JBC. That's all going to be funded from a standpoint of the JBC operations. So that's $100 million of it not cash that we are putting in, funded from JBC. Then if you look at our overall -- exclusive of JBC we still believe we are on track to spend that $180 million to $200 million in CapEx.

Okay. Second, there has been volatility in rare earths pricing and there are timing differences that sometimes positively affect you and sometimes negatively affect you. Can you talk about the year-over-year change from 2011to 2012 in terms of the timing of rare earth's price volatility and how that will affect your Catalyst operating income?

John?

Okay, let me just -- year-over-year in the first quarter, Jeff, in the FCC business we had nice volume uptick mostly due to a number of a couple of large US customers who really struggled to operate in the first quarter of last year. So, if you look at the revenue improvement year-over-year -- just give you a little color on that, about two-thirds of the sales increase was volume related and about another one-third was rare earth, okay? So, that hopefully frames that up for you. If you look at the sequential revenue decline, we've got a seasonal impact on FCC because when all of these HPC issues -- HPC turnarounds occurs they are not running the crackers. And so, the volume decline is on a similar basis about two-thirds of that revenue decline was volume and about another one-third was the rare earth decrease. So, hopefully that will give you a little more color so you can frame it up. But from -- over time I think we have done a good job of managing down inventories in FCC and where we can really manage this rare earth volatility much better. You might remember a few years ago we got caught with -- on the molybdenum issue with a weight to too high finished goods inventory's too high molybdenum and it became quite a striking event for us to handle. So, I think we've learned from those experiences.

Okay, and then lastly can you compare the pricing changes in HPC catalysts and FCC catalysts?

Oh boy, that -- you know there's, of course a big difference -- (multiple speakers.) I mean, prices in HPC tend to be between three and five times higher. So FCC pricing, call it, $5,000 a ton. HPC pricing would be $16,000 to $17,000 a ton. But we did see a little bit of sequential volume improve -- pricing improvement. But it was flat year-over-year.

It was flat year-over-year in which category? FCC or --

HPC.

HPC.

Year-over-year and FCC pricing was up year-over-year mostly due to rare earth. It's pricing was up 20% - 25% year-over-year, Jeff.

Okay, thank you very much.

Thank you.

Your next question comes from the line of Kevin McCarthy with Bank of America. Please proceed.

Yes, good morning. John, on slide five of your deck, in Fine Chemistry, you indicate that demand for bromine derivatives remains high with certain products in sold out positions. What products are sold out and why?

Yes. We've had just a couple of real specially bromine derivatives that have done really well. Dibromomethane is a brominated organic, obviously, used in water treatment applications and propyl bromide is a very high value brominated solvent used in cleaning precision equipment. That product is very niche oriented. That one is sold out. We're pushing our units to produce as much as possible. The big volume driver in our Fine Chemistry business, Kevin, is clear brine fluids.

Right.

So, let me just kind of talk about that. What I thought was really striking in our Fine Chemical business in the first quarter was that we were able to achieve this result with actual -- actually kind of mediocre results in our clear brine fluids business. So, while it was above average, if you look at the volumes over a multi-year period it was above the average. It was probably down 50% from last year and 50%, 40% to 50% sequentially. And we had a really strong start in our clear brines business in January, February. Almost record volumes, but It fell down in March almost to nothing. Now it's picking back up again. But I was really encouraged that we were able to do that without any significant upside in clear brine volumes. So hopefully that gives you a little better understanding of those issues.

Yes, it does. Just not sure whether that comment related to some of the drilling fluids essentially more nichier specialties. If I can switch gears to polymer additives, John, it sounds like you saw some momentum as the quarter progressed. If I think about that business in terms of product categories, maybe brominated flame retardant, other FRs, curatives, antioxidant stabilizers, et cetera. Where are you most encouraged on volume prospects and which product lines would you say remain most challenged volumetrically?

Just on a volume basis, we have been pretty delighted on the rebound and continuing improvement in our mineral flame retardants volumes primarily in Europe. Our pricing has held firm which is good. Minor year-over-year changes there due to the euro but I've been -- everything you read and hear about Europe you really think things are really going to be destructive but the volumes in our business are really encouraging there and that is continuing. Volumes sequentially continue to improve so that's good.

The brominated flame retardant business, Kevin overall, it is not one particular area we've seen a lot of strength. They have all been sequentially just good momentum building products. But, I tell you, I am encouraged by what we are seeing in some of the indications for enclosures on televisions. It looks like those volumes are going to continue throughout the course of the year to improve. So that is I'd say encouraging.

Okay and on the other side, what looks most challenged, would you say?

The next read is on tetrabrome. So, we haven't seen a significant uptick in tetrabrome volumes. And so I think our basic read on that is customers are really watching inventory levels because of just the general uncertainty in the economy.

Okay that's helpful, thank you John.

Thanks Kevin.

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

Hi, good morning guys. Nice start to the year.

Hi, thank you Mike.

Luke, when you sort of gave guidance for the first half would imply that second-quarter EPS would be generally in-line with the first quarter so can you sort of frame up -- is it something that Polymer Solutions just continue to improve sequentially, Fine Chemicals may be improved and you noted HPC catalysts being weaker, in 2Q causing the flatness?

Yes. I think you've summed it up pretty nicely, Mike. That's kind of how we look at it. If we felt a little bit better about tetrabrome volumes in the second quarter, that uncertainty out there kind of drives it to that. So, you could see a little bit of an upside one way or the other but that pretty well lines it out. The continued improvement over there, a little deterioration in Catalysts and Fine Chemistry kind of rocking along. So, that's what it feels like.

Okay. And then, I just want to spend a quick second on Polymer Solutions for the operating margin improvement sequentially for first versus fourth. I think you note it as part volume, part cost and manufacturing execution. Could you, John, maybe give us a feel, was it more volume, was it more the execution and maybe give us an idea what the execution was?

Yes, Mike, I'd say the volume increase and we came out of the fourth quarter really watching inventories, working capital, as you remember cash generation was superb. So, what we did is we saw volumes improve in polymers in January and February. I think our -- we were able to supply seamlessly that increase in demand. And we did that, albeit with a really, I'd say, great management of spending. And so our supply-chain really, I thought adapted extraordinarily well to the increase in volume demand in a way that generated some really nice margins considering year-over-year the lower volume level. So.

Okay great. Last question, FCC your rolled out a bunch of nice lower rare earth better margin products over the last year. With rare earth coming down, any push to go back to the old technology? Is the adoption for the new stuff holding pretty well?

Yes, you know Mike, we have inherently a lower rare earth level and awfully high-performing catalysts. I think just generally and this is just subjective, I think there's been less of a total push for rare earth, lower rare earth or zero rare earth catalysts with increasing emphasis on technology and what the products do. And I think that is overall really good for the catalyst industry in general.

Great, thank you.

Thank you.

Your next question comes from the line of Dmitry Silversteyn with Longbow Research. Please proceed.

Good morning guys and congratulations on a strong start to the year.

Thanks, Dmitry.

Couple of questions and I think you talked about them a little but I'm trying to -- there's a lot of moving parts here so I'm just trying to wrap my brain around this as simply as possible. In Polymer Solutions in year-over-year basis you had your sales up about $13 million it looks like and your EBIT was up about $9 million. That is a pretty strong contribution margin. So, can you talk about on the year-over-year basis what the drivers of the strong performance were on the operating profit line given that volumes were down significantly. Is it just a combination of pricing continuing to flow through while rare earth pricing is coming down -- I'm sorry, I'm talking about Polymer Solutions. Is this mineral retardants driving this improvement since they were kind of weak towards the second half of the year or what's going on there? Is it a mix issue?

Dmitry are you talking year-over-year?

I'm talking year-over- year, yes. If I'm looking at your slides, your presentation slides, you've got Polymer Solutions -- yes, Polymer Solutions going up. I'm sorry, Polymer Solutions did I mean?

Polymer Solutions is down.

Sorry, I'm talking about Fine Chemicals.

Oh, okay. All right that makes more sense.

Yes, you've got $13 million change in revenue and about a $9 million change in operating profit.

Okay. If I look at overall, Fine Chemistry we had a big uptick in performance chemicals. When I look at Fine Chemistry when you really look at the volume decline, it's clear brine fluids in our performance chemical business. And we also had a little bit of an issue related to our ag intermediates, Dmitry. Where one of our ag intermediates customer we [tolled] an organic product for them and we didn't have the availability of products. That costs us a couple of million dollars but --

This is just in '11 that you're talking about?

Yes, first quarter of '12 compared to first quarter of '11.

I got you.

So if you look at overall our operating profit increased nicely year-over-year built on just really terrific performance in our Fine Chemistry services business and I would say just average performance in performance chemicals.

Okay, so it's a mix issue. In other words, the volume that you lost was a much lower profit volume than the volume that you gained?

Yes, absolutely.

That's right, Dmitry. And Dmitry, I think one of the things, if you look at our Fine Chemistry services we talk about how that segment income doubled year-over-year. One of the reasons we were able to do that, I think you've got two effects. I think you've got a mix in both overall of that segment and you've also got a better mix within Fine Chemistry services. So as they -- as you have that churn that we've talked about what so much in Fine Chemistry services what we are doing is we're seeing -- we are training up to higher value, higher margin products that we are able to extract more value and the customer is happy with. So, it's almost a double mix effect if you understand what I am saying, Dmitry.

Got you, I got you. That's helpful, Luke, thank you. Switching gears to the Catalyst business. Again, there's a lot of things going on there with rare earths and surcharges and volumes and pricing. But if you just look at the business overall it was operating at a run rate of, I don't know, 15%, 16% operating profit prior to 2009 and we had a jump up in 2010 and on into the mid 20s.

I'm not as concerned with the sustainability of that level -- I think it is sustainable. I'm just trying to understand if you had to build a bridge between 15% and 25%, that 10 points of margin. Can you break it down for us? How much of it is maturation of organometallics in the polymer catalyst business? How much of it is the rare earth impact and delta between that and the surcharges you put in? How much of it is HPC volume growth? Can you give us an idea of -- I think it is sustainable but can you give me some confidence as to why it is sustainable I guess is what I'm asking.

Yes, Dmitry, let me try that for a second if you don't mind. The answer to your question is yes, it's all of that. I think the way I'd break it down is this. In 2009, when we had the downturn we took significant efforts to get our costs right, first of all. And we really maintained a focus on being the low-cost provider across that portfolio in HPC, FCC and particularly the polymer catalysts, polyolefin catalysts section.

So one, it's cost. We've managed our costs. Two, we've gone in from an operating efficiency standpoint and really increased our productivity without adding capital and without adding people, so from a lean manufacturing standpoint, from the way we operate our facilities we're a lot better than we were. Secondly, while the rare earth has contributed some, if you'll go back before we had any rare earth issue, we were hitting 30% margins in our businesses so, I wouldn't contribute it to the rare earth issue or lack of issue what there is. But I think that long-term, what you're going to see is from a pricing standpoint from the innovation standpoint that we have bringing new products to the market from our expanding into these high-value organometallics and electronic material businesses that you see from the catalyst standpoint, we firmly believe and we told you when we did Vision 2015 that we were going to bump around that high 20s and hopefully get up to 30%. So, we still think we've got some work to do there to drive up to those 30% margins and we think we can maintain the way we've got the margins in the high 20% going forward over the course of Vision 2015.

Okay. So, the 31% you delivered in September of 2011, I guess you're talking that being prior to the rare earth impact given that you kind of got to your 2015 level a quarter after you put out the 2015 level?

Dmitry? Dmitry, it was in 2010, if you go back and look in 2010 we were popping up even before we had rare earth we a couple of quarters where we had the right mix with HPC, FCC and Polyolefin catalysts and we had the right kind of mix within HBC and we were able to pop up around 30% before rare earths ever came in to being.

Okay, and then one final question on the nylon [twill] issue that may be developing in Europe, I understand that some of it at least is being used for the flame retardant business. Are you expecting to see any impact as far as your ability to get the material and supply the market or is it not an impactful chemical for you?

Yes. That is a raw material in a product called [HPCD] which goes into polyurethane construction foams, Dmitry. We feel pretty fortunate about our supply chain. But generally, I think it's going to be really tight on the product. So, we're continuing to evaluate that and how we react to that. Generally as a Company we handle problems and challenges like this very well. So, I think it could be a good opportunity for us, too.

Okay, thank you very much.

And I would now like to turn the conference back over to Mr. Lorin Crenshaw for closing remarks.

Well, I'd just like to thank everyone for participating and if there are any further questions, contact me at the number on the press release and have a great day.

Ladies and gentlemen that concludes todays conference. Thank you for your participation, you may now disconnect and have a great day.