雅保公司 (ALB) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2013 Albemarle Corporation earnings conference call. My name is Darcella and I will be your operator for today. At this time all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions).

I would now like to turn the conference over to your host for today, Lorin Crenshaw, Director of Investor Relations and Communications. Please proceed.

Thank you and welcome, everyone, to Albemarle's first-quarter 2013 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 investor section at albemarle.com.

Joining me on the call today are Luke Kissam, Chief Executive Officer, and Scott Tozier, Chief Financial Officer.

As a reminder, some of the statements made during this conference call about the future performance of the Company may constitute forward-looking statements within the meaning of federal securities laws. Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call.

Please note that our comments today regarding our financial results exclude all non-operating or special items and reconciliations related to any non-GAAP financial measures discussed may be found in our press release or earnings presentation which are posted on our website. With that, I will turn the call over to Luke.

Thanks, Lorin, and good morning, everyone. We appreciate the opportunity to share our first-quarter results with you today. I will begin by commenting on the Company's these results for the quarter. Scott will review selected highlights related to business segment performance and financial results, and I will end by providing perspective on our outlook for the future.

As usual, at the end of our prepared remarks, we will open it up for your questions.

As I indicated in our January call, we expected the year to get off to a slower start with the first quarter being sequentially weaker than the fourth quarter of 2012. With the exception of some currency headwinds that Scott will discuss in more detail in a minute, the results that we are reporting today are in line with our expectations.

First-quarter net income was $83 million or $0.93 per share on net sales of $642 million. As expected, both were down year over year and versus the prior quarter. EBITDA was $139 million and profitability as measured by EBITDA margins was 22%.

Each of our segments performed largely as expected as well. Scott will go into more detail shortly about each segment, but at a high level, Catalyst results were impacted by cost headwinds related to starting up our new facilities, FCC customer turnaround and HPC mix and from a year-over-year basis accounting related to rare earth surcharges.

While there is certainly a short-term negative financial impact due to the start-ups, the long-term benefits of these projects are well worth the short-term pain. In Fine Chemistry, as expected, clear brine volumes continued to be strong this quarter and custom services was weaker due to lower volume requirements and project delays at our customers.

Favorable deep water drilling dynamics in the Gulf of Mexico as well as the Middle East and Asia are forecasted to continue and our production base in Magnolia and Jordan gives us a unique competitive advantage in servicing all of these geographic markets.

In Polymer Solutions, we saw the expected uptick in profitabilities sequentially driven largely by slightly higher brominated flame retardant volumes and operating rates.

Albemarle has always sought to deliver shareholder value and demonstrate a strong commitment to returning capital to shareholders. During the quarter, our Board announced a 20% increase in the quarterly dividend and approved the tripling of the shares we are authorized to repurchase. We also announced our intention to repurchase approximately 10% of our shares, funded through a combination of available cash, ongoing free cash flows and possibly debt. This reflects our confidence that the strength of our balance sheet and ongoing cash generating capability provides sufficient capacity to fund organic growth, pursue appropriate acquisitions, and accelerate the distribution of cash to our shareholders in a manner that is sustainable for the future.

Now let me update you on our major capital projects. As we announced earlier, Jordan Bromine Company, our joint venture located on the Dead Sea successfully commissioned the first phase of its expansion project, doubling the size production capacity of bromine. The second phase of the expansion would double the production capacity of HBr and clear completion fluids and is on schedule for commissioning in the second quarter.

This expansion positions us well to gain more than our fair share of the growth in the end markets served by these products, further strengthens our position as the world's low-cost bromine producer, and balances our bromine production capabilities nicely from a geographic perspective.

From a stewardship perspective, I am also proud of the innovation displayed by our employees dedicated to this project. That team has been able to double our bromine capacity while only increasing our water consumption by 8% at full production rates. The goal is to double capacity while actually reducing our water requirements and while we are not there quite yet, I have confidence in our ability to do so. This innovative and sustainable approach to our operations reduces our costs and our overall environmental footprint in Jordan which suffers from a lack of readily available freshwater resources.

Turning to Catalyst, I am happy to report that we have produced our first batch of on-spec TEA at our unit in the kingdom of Saudi Arabia, which is owned by our joint venture with SABIC. This is an important milestone for this site which positions us as the market leader in the Middle East polyolefins market.

As we have previously stated, this joint venture will be a headwind in 2013 since its baseload volume is largely coming from what has historically been Albemarle volume. However, it is the right strategic move to have this joint venture in the Middle East in collaboration with the world's largest consumer of TEA and we feel great about the progress we are making, long-term returns on capital and strategic benefits that this venture will yield.

Meanwhile, our Yeosu site in South Korea is currently in the middle of a very successful startup as well. Our lab in commercial development assets there have allowed us to rapidly develop qualification volumes and to work closely with our customers to develop unique catalytic solutions to meet their needs more rapidly than we ever could have done without this site. The fact that our test unit is booked for months in advance speaks well of the business potential of the site. The first half of 2013 will continue to see us principally engaged in qualification runs with little revenue from full-scale commercial operations until the latter part of the year, due to the amount of time needed for qualifications, resulting in a drag on earnings.

As commercialization occurs, however, the drag will diminish towards year end and we are excited about this strategic asset becoming a critical tool to solidify our position as a global leader in metallocene catalyst.

Finally, the Korean expansion we announced last August in support of our pure growth family of high purity metal organics for use in the LED market is on track for a fourth-quarter startup. New LED technologies continue to be introduced at progressively lower selling prices in both residential and commercial applications. These technologies are expected to drive double-digit annual growth of LEDs for the foreseeable future. The assets we are establishing and our backwards integration into key precursors will allow us to participate in this growth at a very competitive cost position.

I would like to give you all perspective on two developments that have been the subject of a number of questions we have received. The implications of the increase in tight oil in the US and the EPA's recent proposal to reduce US gasoline sulfur levels to 10 ppm by 2017. The tight oil resulting from the US sale boom is generally a lighter, sweeter crude and we are working closely with our customers to understand their developing needs associated with this crude slate. The net impact of this dynamic has been mutual thus far with somewhat higher demand for fluid cracking and hydro treating Catalyst.

This may seem counterintuitive given the relatively light nature of tight oil. However, the boost in volumes reflect the current reality that many customers' infrastructure is geared towards processing a particular blend of crudes, which limits the degrees of freedom within which to depart from the optimal crude diet for a particular unit.

As a result, to optimize profitability and take advantage of the cheaper source of light, sweet crude from shale fields, we are seeing refineries blend tight oil with higher amounts of heavier crude to minimize their crude costs which, in some instances, actually requires the use of more FCC catalyst.

There are some who believe that tight oil could result in the extension of the lifecycle of hydro treating catalyst which would delay change outs, but we have not seen that as of yet. How the pricing of the various crude slates evolve, combined with the design, output and economic of each refinery, may result in different dynamics over time in the US. We are monitoring this trend closely and working with our customers to focus a portion of our R&D spending on the development of more effective solutions for this lighter, sweeter crude.

It is worth noting that globally our FCC Catalyst continue to be the technology of choice for processing the heavier resid feed that many of the units in India, the Middle East and Southeast Asia used as feedstock. Over the next five to 10 years a disproportionate percentage of the growth and demand for Refinery Catalyst is projected to occur in developing regions such as the Middle East, Latin America and Asia where sulfur levels in transportation fuels are higher than in the US and Western Europe, but are projected to decline fairly dramatically.

However, the EPA's recent proposal to reduce the amount of sulfur in US gasoline to an average of 10 ppm from the current standard of 30 makes it clear that even in developed markets like the US, there remain attractive growth opportunities as the secular drive toward cleaner air continues to play out. Again, our sweet spot globally is in developing technologies that allow for upgrading crude with heavy sulfur content. Therefore, we are well-positioned to provide competitive solutions with a wide range of high-performing, hydro treating and FCC catalyst technologies to allow refiners to meet the regulatory challenge in the US and around the world.

I spoke earlier about our [war] of conservation efforts in Jordan. It is that sort of focus on sustainability which led corporate responsibility magazine to name us one of the 100 Best Corporate Citizens for 2013. We have been named this prestigious lead several times over the years which is widely accepted as the world's most respected corporate responsibility ranking and one of the top three most important business rankings in the United States.

This honor not only recognizes the Company as a positive force and responsible citizen in the communities where we operate, but it is also proof of our 4,000 plus employees' commitment to providing industry-leading products while also remaining selflessly committed to improving communities in which we live, work, and raise our families. Great job, to our employees, in doing it the right way.

And with that I'll turn the call over to Scott.

Thanks, Luke. I am going to start with a review of our business segments and then turn to the details on our P&L cash flow.

Before I get started, you should be aware that the divisions within Catalyst formally known as Refinery Catalyst is now called Refinery Catalyst Solutions and it will consist of the newly named Heavy Oil Upgrading division which includes the FCC Catalyst and the Clean Fuels Technologies division comprised of HPC Catalyst.

In the quarter, Catalyst reported net sales of $236 million, down 20% year-over-year, and segment income of $57 million, down 32% year over year, on segment margins of 24%. Just under half of a decline in sales relates to the impact of metal surcharges including rare earth on the heavy oil upgrading or FCC business. Excluding the impact of rare earth, heavy oil upgrading sales and operating profits were down 8% and 3%, respectively, on marginally higher volumes. Heavy customer turnarounds were the main cause of a less favorable mix which contributed to the decline in sales and profits.

We continue to expect turnarounds amounting to the order of 6,000 metric tons of product off-line through the next quarter to continue to impact results here.

Clean Fuel Technologies or HPC revenue was down 19% and operating profits were 26% lower on 12% lower volumes principally driven by less favorable product mix, given the large number of first [fields] in 2012 and higher sales of specialty products that occurred in the first-quarter of 2012.

Finally, Performance Catalyst Solutions revenue was down 6% on lower volumes and operating profits were down 38% year over year, most of which was attributable to the impact of start-up costs related to the new facilities coming online. Excluding the impact of these costs, which we still expect to amount to a full year drag of $20 million-$25 million, profits were slightly down year over year as customer operating rates remained relatively stable with the exception of pockets of weakness in Europe.

Sequentially, Catalyst net sales were down 20% and segment income was down 28%. Two thirds of this drop came from clean fuels where volume variances from the fourth quarter, mix effects from high levels of specialty product sales, and first fields in Q4 that were not repeated in Q1 drove profit levels down.

In addition, overall volume was down 13% on order timing. Heavy oil volumes were down 7%, nearly all of which was attributable to a higher number of customers with turnarounds in the quarter versus last quarter.

And finally, PCS saw its profitability drop due to the start-up costs from Yeosu, Korea, and a small amount of volume reduction caused by slower customer orders from Europe.

Polymer Solutions reported first-quarter net sales of $215 million, down 6% year over year and segment income of $45 million, down 18%. Importantly, on a sequential basis, revenue was up 6% and segment income was up 25%. The largest contributor to the sequential improvement was at our brominated flame retardant plants where higher utilization rates drove proved fixed cost absorption without resulting in a rise in inventory levels. Demand trends improved sequentially as brominated flame retardant sales, volumes and profits all rose in the range of 5% to 10% sequentially.

The connectors market experienced an improved tone that appears to be carrying over into the second quarter while HBCD, which is construction driven, and 8010, which is TV and PC enclosure driven, each remained relatively weak and also experienced varying degrees of pricing pressure.

Tetrabrome and printed wiring board market dynamics were somewhat better than construction and enclosures, showing sequential improvement.

And finally, [middle] flame retardant financial results continue to reflect very weak European construction in automotive end markets. Our stabilizers and curatives portfolio had a good quarter with revenue and operating profit up significantly year over year, driven mostly by antioxidants which continues to benefit from better volumes related to new customer wins, growing sales outside of China, and an improved cost position in a key raw material. We also saw better operating rates at our factories in this business.

Fine Chemistry reported first-quarter net sales of $191 million, up 1% versus the prior year and segment income of $31 million down 24% year over year. The year-over-year profit decline was mainly driven by the absence of several high margin, Fine Chemistry services contracts delivered in the year ago period. We were very pleased with the continued strong industrial bromides results, which established new revenue and operating profit records. Specifically, mobile deep water drilling climate remains very robust with healthy recounts driving all-time second-highest levels of clear completion fluids volumes and operating profits with volumes doubling year over year but down slightly sequentially from the record fourth-quarter pace.

Now to highlight a few other P&L items for the year and the quarter. SG&A expenses were $65 million during the quarter, down 13% year over year, principally driven by lower commissions and performance incentive compensation. As a percentage of sales, it is in line with year ago levels at 10%. R&D expenses were $20 million for the quarter, up 5% year over year and up 40 basis points as a percentage of revenue to 3.1%.

First-quarter free cash flow defined as cash flow from operations adding back pension and post retirement contributions and subtracting capital expenditures was $46 million, down $26 million year over year due mainly to lower earning levels. CAPEX was $55 million in line with the year ago period and for the full year is still expected to decline to somewhere between $150 million-$175 million.

Overall, our balance sheet remains strong with net debt of $246 million excluding nonguaranteed JV debt, up $31 million year over year, while net debt to EBITDA ended the period at 0.5 times.

Net debt is up primarily due to our share repurchases during the quarter reflecting a good start with regard to our buyback program under which we repurchased 1 million shares during the quarter.

Networking capital of $567 million ended the quarter roughly in line with year end as a percentage of sales at 21%, slightly above our 20% target for the full year.

Our effective tax rate for the quarter was 24.6%, down 140 basis points year over year, driven primarily by the geographic diversity of our income and profitability. At this time we expect our full-year rate to remain at that 24.6%.

Finally, as we all know, the Japanese yen depreciated significantly in the quarter against the US dollar averaging JPY89 to the $1 for the quarter down 14% year over year from [78] and down 12% versus the fourth quarter of last year. This impacted the P&L from a translation standpoint by about $3 million or $0.03 per share. From a transaction standpoint we also had a net loss of $4 million during the quarter, reported in other income and expense or approximately $0.03 per share which was mostly related to the volatility in the euro and the yen. This totals to a $6 million-$7 million headwind in the quarter from foreign exchange.

Assuming the current yen exchange rates persist for the balance of the year, we project a full year negative pretax impact of around $17 million-$22 million or $0.13 to $0.18 per share, relative to our expectation heading into the year. We estimate that a 1% change in the yen dollar exchange rate would impact earnings by approximately $0.01 per share.

With that I will turn the call back over to Luke to elaborate further on our outlook.

Thanks, Scott. As I look back at the first quarter, our operating results absent the currency and hedging impact Scott outlined were right in line with our expectations and we achieved key production milestones at each of our major capital projects. The long-run trends impacting our businesses continue to play out as expected. We continue to believe that 2013 will be a year during which we continue building a stronger foundation for sustainable long-term growth.

Looking forward in 2013, we still expect increased profitability in the second half of the year for the reasons we outlined in January but the increase may not be as robust as we originally expected.

I want to take a minute to update you on the prospects of each of our segments. Starting with Fine Chemistry, nothing much has changed. Demand in the overall backdrop for industrial bromides is expected to remain strong, which bodes well for our Performance Chemicals division. Drilling in the Gulf of Mexico increased during the first quarter from 47 to 50 average rigs in use and the average international offshore rig count year to date is up 4% to 315 versus the full year average for 2012.

The start up of our clear completion fluids expansion at Jordan Bromine Company, which is coming online in the second quarter, will allow us to meet this increasing demand. Custom services continues to expenses -- excuse me, custom services continues to experience lower forecast from some of its larger customers and will need to replace a number of expired and expiring contracts. Our product pipeline gives us confidence that we will be able to do so, but there will be a short-term dip in profitability through the first half of 2013. Overall, I would expect to see slight sequential improvement in the second quarter in this GBU.

Within Catalyst, our outlook for Refinery Catalyst Solutions has not changed materially for the year. We are still monitoring the timing of our customers turn arounds and start ups and there is always a danger that some volume slides into 2014. In Performance Catalyst Solutions, trends around LED adoption have been healthy year to date. Specifically we are seeing increased customer qualifications, purchase commitments and operating rates among many prospective customers ahead of a number of either government-mandated gradual phase-out or outright bans of incandescent bulbs projected to occur over the next 12 to 18 months in a number of countries in North America, Western Europe, and Asia. These trends give us confidence in our pure growth expansion at our Yeosu site.

However, we are seeing some downward pressure on pricing amid the current industry inventory overhang. We are also seeing some new market entrants into other areas that are causing limited market disruptions for some other parts of our portfolio. I would expect our second-quarter results in this GBU to be in line with what we saw in the first.

In Polymers we did see a recent uptick in the connectors' confidence indicator to the mid-60s and a corresponding improvement in our brominated polystyrene business. From a printed wiring board perspective, the most recent rigid IPC book-to-bill ratio is at 1.07. Although the book-to-bill ratio is now above 1 for the first time since August of last year, it has risen despite absolute wire board shipments remaining on a downward trend and leveling out at only 80% of 2010 levels, meaning the book-to-bill is off the lower overall base level.

Our tetrabrome order book was up sequentially and would appear to be similar in the second quarter.

With respect to the health of the global TV and PC markets, the most recent forecast from [GFK] calls for a reduction in global TV panel inventory levels at retail and set makers in the second quarter but for them to remain at historically high levels last seen in 2008 and mid-2010. The anticipated decline is mainly based on developing market sales where fire safety standards are not as prevalent, while sales in developed markets are projected to remain flat.

From a PC perspective, Gartner recently reported a steep first-quarter decline in global PC shipments, down 11% and revised their 2013 growth outlook to negative 8%, reflecting what appears to be a major extension in the duration of the PC replacement cycle at both commercial and retail levels. Both of these data points are consistent with the downward pressure we have seen in our brominated flame retardants that service these markets.

Finally, year to date, we have not seen any improvements in the European construction or wire and cable market. All of this data suggests that segment income in the second quarter is likely to be down sequentially, certainly weaker than we anticipated at the beginning of this year when we expected the second quarter to be stronger than the first in polymers.

For the full year, whereas in January our view was that Polymers income would likely be flat to slightly higher in 2013, given what we are seeing today, our current thinking is that Polymers will likely be down year over year absent a major positive inflection in the electronics demand at some point over the next three to six months.

So overall, we expect second quarter to look very similar to the first quarter with Polymers being weaker, Fine Chemistry been a little stronger and Catalyst being essentially flat.

From an annual guidance standpoint, in January we forecasted year-over-year earnings growth in the 0 to 6% range. The weaker yen and our current assumptions regarding the average US dollar to yen exchange rate for 2013 created a headwind of approximately $17 million-$20 million. That change alone modifies our annual earnings growth expectation to a range of negative 4% to up 3%. Given that headwind and a weakened second quarter than we'd originally forecasted, mainly in Polymers, today it appears that we would likely be at the low end of that range excluding any impact of our buyback program.

In closing, we entered 2013 convinced of our strategy and confident of our ability to execute against our strategic objectives. We knew we had to deal with a few headwinds in the near term as some of our major investments came online and we experienced a few unique short-term challenges. Yet even in this down quarter, we delivered 22% EBITDA margins and excellent cash flows and remain confident in the long-term fundamentals driving our businesses, our strengthening competitive position resulting from our recent investments and in the underlying earnings power of our business going forward.

With that I will turn the call back over to Lorin for questions and answers.

Operator, we are ready to open the lines for Q&A, but before you do so, I would just remind everyone to please limit your questions to two per person at one time so everyone has a chance, then feel free to get back into the queue for follow ons. Please proceed.

(Operator Instructions). Robert Koort, Goldman Sachs.

-- solutions business you mentioned varying degrees of price weakness and maybe gave a demand outlook that wasn't all that robust. I am trying to get a sense within those product lines. How much weakness was there and what is the prospect for that continuing?

We could only hear the second half of your question for some reason. Could you repeat it, please? I'm sorry.

Yes, just in the comments in your slide deck you talked about varying degrees of price weakness across Polymer Solutions, so I was wondering if you could be a little more granular on that and, again, the prospect for that continuing into the second quarter, given the somewhat [somber] demand trends you talked about.

Yes, if you look at that from a pricing standpoint where we really saw some weaknesses, tetrabrome held in there pretty good. If you look at our brominated polystyrenes it -- pricing held up fine. It was really more a mix issue. Where we saw the pricing was -- pricing pressure was really in our enclosure markets where we used that brominated flame retardants there as well as in construction with the HBCD. And then we saw minerals have some pressure in Europe because of a weaker construction market.

And on the Fine Chemistry side, I think you had mentioned there that there was some pricing on hydrobromide and elemental bromine in China and India. I guess the metric, your price was down 4%. I guess I didn't realize that those markets were that big for you. So could you help us figure out what has caused the weakness across that division?

Yes. I think as a general rule -- if you look at performance chemicals, it really had a good quarter, so it wasn't in the big completion fluids market. What we saw is whenever you see electronic demand starting to get weaker in the bromine in China, when they bring it out of China at a lower cost and export it, it usually goes to Southeast Asia and India and it usually comes out in the form of HBr and a little bit of elemental bromine. So when we see weakness in electronics, we generally see that. It hasn't accelerated any from what we saw at the end of last year. It is still roughly about the same from a basis sequentially so it is actually starting to strengthen a little bit towards the end of the quarter.

So I think it is a phenomenon related to the bromine coming out of China that is not being used for the electronics market there. And that is why they take it generally to India and Southeast Asia. So it has been consistent what we have seen over two quarters and we have seen it strengthen a little bit here at the end of the first quarter.

All right, I will respect Lorin's instructions and get back in queue. Thank you.

Jeff Zekauskas, JPMorgan.

Good morning. You talked about new entrants in Refinery Catalyst markets or in your Catalyst markets generally. Can you expand on those comments?

Yes, it wasn't in Refinery Catalyst, Jeff. If I said that, I apologize. It was really more in the Polymer -- in the polyethylene catalyst and the Polymer Catalyst Solutions there. We have seen some new entrants, [Sasall] and companies like that, from a TEA perspective. And other companies trying to follow the same strategy that we follow, how do you take what they have and move further downstream.

It hasn't caused a huge disruption, but it is one we are certainly watching to make sure that from our cost perspective and from our capacity as being the market leader, we ensure we understand what is going on there to ensure that there is not a lot of disruption there and that we manage it appropriately.

And then lastly, you bought back 1 million shares in the quarter. And I was puzzled as to why you bought back any in the sense that it's pretty clear that your first [taf] business dynamics are relatively weak. And so I was wondering why wouldn't you wait to report your weak earnings quarters and then repurchase shares. Why would you buy them in advance of reporting weak earnings?

That is a great (technical difficulty) quite frankly that there is equally a number of people who say, Luke (technical difficulty) confidence in your stock, why didn't you buy it back earlier? The approach that we have taken, rightly or wrongly, is the approach that we are going to do dollar cost averaging. And so we believe we cannot time the market. You have got our performance, but you have also got the performance of the stock market in general. What is going to happen in North Korea, what is going to happen in Europe.

So there's a whole lot of facets out there that we can't control. We are in the business of making specialty chemicals, not in end time and market. So we made a decision that we are going to do dollar cost averaging whenever we buy the stock back and that is why we did it this way.

Thank you very much.

Vincent Andrews, Morgan Stanley.

Good morning, everyone. Can we talk a bit about -- within Fine Chemistry the discussion around custom services and it sounds like there's some customers transitioning out and that led to part of the sequential decline in margins, but then you talked about confidence that you are going to be able to replace those as we move through the year. Can you just help us understand the dynamics of who is going in the door and who is coming out the door?

Yes. I don't want to get into specifics of the exact customers, obviously for confidentiality reasons, but I can tell you it is two dynamics really going on there. One is the volume from existing customers. Many customers in some instances maybe bought more last year than they needed for what the demand that they actually saw versus what they expected. So we are seeing some existing customers not taking the type of volume they took last year, but expect and have told us they expect to see that ramp-up over the second half of the year.

And additionally we have got some contracts that are ending. [Amras] being one of them that we won't have. So we have got to replace those.

And when you have the larger contracts like that, sometimes there is a gap. And what we are in right now is a gap between those expiring contracts and when the new ones are coming on line. And we are also seeing something from a timing of when some of our other customers need shipments whether it is the first quarter or the third quarter.

So it is a combination of things. I would love to be able to focus and tell you exactly what it is.

What I can tell you is this -- our pipeline is as robust as it has ever been. And I am confident that over the long term, custom services will get back to delivering the type of revenue and profit that we have enjoyed over the last 12 to 18 months.

And, separately, Luke, in your prepared comments you addressed the tight oil or the light slates issue. And one of the comments you made was that so far you haven't seen any sort -- you haven't seen enough evidence to conclude that the tight oil is going to equal a shorter lifecycle or longer lifecycle for the Catalyst. When do you think you are going to be able to definitively say that that is not the case?

It so much depends on -- it is an individual really refinery unit. So we are going to have to wait and see over the next cycle and know which ones are really using tight oil, how much they are taking that tight oil and blending it, what impact that has on their output. It is almost impossible to say.

So I think we are just going to have to let it play out and stay in front of it. I wish I had a better answer to give you, but I just don't.

Thanks very much. I'll pass it along.

Ben Kallo, Robert W. Baird.

Could you talk about the timing and the size of your price increase on the FCC side? I know one of your competitors announced a price increase also and what gives you confidence with some of the slippage you have seen that you could pass that through to customers? And then on Polymer Solutions, just maybe to revisit a question I am sure you get a lot, we get a lot, about any kind of secular downtrend you see in flame retardants and bromine-based flame retardants if that is what we are seeing right here?

Yes, so on FCC what I would say is we have announced it -- I don't expect there to be any real impact in 2013 from the nature of the contracts that we have. We have a lot of long-term contracts there. So the bulk of our business is under contract and we will certainly warrant to pass through the prices as appropriately, but I wouldn't see a whole much of impact in 2013. Not from an FCC standpoint.

But we, as a general rule, we sell in performance. So the performance -- if the performance of our catalyst is giving that value that the refineries are seeing, we will be able to pass it through. If not, it won't. So it has got to be a technological advantage for us to be able to do that and then we work hard every day to make that happen.

If you look at the secular trends in brominated flame retardants, what I think is fairly clear here is -- and I tried to address it a little bit is I think when you are looking at PCs, we are seeing a secular trend. And it is not just for brominated flame retardants, but it is a secular trend at the replacement cycle for PCs. It is spreading out both for our personal use as well as commercial use.

I think we are also seeing a secular trend away from PCs, at least in the developed world, over to the -- what do you call them the laptops? Not laptops, tablets, I'm sorry, tablets, smartphones and things like that. That is a very small percentage of our overall bromine sales.

And I also would say that, at the same time, we have actually seen a little uptick in tetrabrome for printed wiring boards. So it is not like the motherboards are going away. I think we are just into a cycle and if you go back and look over the last, we have really been in a trough for demand for electronics, really over about 18 months. And so, that is more what we are seeing is that macro demand, I think, across the rest of the portfolio and other than PCs.

Operator, please proceed to the next question.

David Begleiter, Deutsche Bank.

Luke can churn out some price increases this week, 20% across a bromine franchise. Talk about the potential you see for brominated flame retardant and other bromine price increases going forward.

Yes. Well, I think we always look at it. I think that -- and I want to say it is easy to issue a press release. When it comes down to it, same thing with us when we issue a press release, you have got to go up there and you have got to drive with the customers and provide the value and have the demand in order to make it through. So while it is great to issue a press release, and everybody loves it, you have got to see it in the marketplace or it doesn't do you any good. And that is what we really work hard to do.

So we are going to be looking consistently across our portfolio at opportunities. We have seen the increased costs. I mean, you have got the benzene cost, you have got great prices on shale, but we have got energy costs up here and we have got energy costs and labor cost increases at Jordan. So we have got to get back to those investment fundamentals in bromine.

So I am glad to see that other competitors are in the same boat that we are and looking to see what they can do to maximize their profitability. And we have got to take a look and do the same and we certainly -- we will certainly look, but our businesses, we need to go out there with innovation and capture our fair share of the market and that is what we try to do every day.

And, look, just on the Chinese exports, is there evidence of some stabilization and increase in Chinese capacity for bromine or just lack of Chinese demand internally for the country?

I think it is not. We have not seen any increase in demand. In fact, it is still at lower levels. We have still seen that continue to decline but I think it is more about the demand. And where, what they do with the existing bromine that they have.

Thank you very much.

Mike Ritzenthaler, Piper Jaffray.

Good morning. Within the clear brines and fine chemistry just so that we are clear, the second tower in SABIC, [or JBC] is expected to start supplying customers in 2Q after the second phase qualification. I just want to make sure that's correct. And how does that new supply factor into the qualitative guidance that you provided in your prepared remarks of flattish?

Yes, I think we will be commissioned in the second quarter where we are actually supplying customers. It can go one way or the other. I think if you go back and look over the last quarters, of our operations in clear brine fluids, we have sold everything we could make and then we have reduced our inventory levels to really historic lows. So it gives us a lot more flexibility, but obviously it will give us ability to service our customers better because we have optionality both in the Middle East and Southeast Asia as well as on the Gulf with what we have in Magnolia, Arkansas. So it gives us a lot of flexibility and should give us an advantage. But I don't necessarily -- you can add whatever capacity we are adding on there and immediately throw that into the equation for what we are going to sell in the quarter. It just doesn't work like that.

Yes, that makes sense. And on the tight oil comments, I appreciated that commentary. And one of the things we have been hearing from refiners is that the condensates bring a unique mix of contaminants with them that the refineries aren't really used to. Is that a similar -- is that something similar that you have heard from your customers as well and presenting some challenges for your R&D group to come up with new catalysts there, formulations?

Yes. I don't -- I can't say for certain that that is an exact comment that we have got with respect to tight oil. I wish I could tell you that, but I couldn't say that. You would have to talk to one of our technical sales reps.

What I would say is that we are working with the technical sales rep. Our business team, our sales team and our R&D focus to ensure that we are providing the solutions that they are going to need to handle this light sweet crude in any way that they choose to configure their refinery going forward.

All right. Thanks.

James [Sheenan], SunTrust.

Morning. On the price increase in Refinery Catalyst, could you just comment on do you expect higher prices to have any impact on demand as they are rolled in?

Yes, I don't think it will have a whole lot of impact on demand. And as I have said before, I don't expect there to be really any impact in 2013 based upon -- our minimal impact -- based upon the contracts that we have in place. So I don't think it will have the kind of increase and if you look at the value that FCC Catalyst bring and the cost of FCC to the refinery and you look at those economics, you look at, it didn't have any impact on demand when we were passing through that rare earth search order, so I can't imagine an increase that we have announced is going to have any impact on demand.

On your operating rates in bromine and derivatives and also on elemental bromine, can't you just update us on what the operating rates were in the quarter and what your outlook continues to be for the rest of the year?

Yes, are you talking about bromine or are you talking about our brominated derivatives plants or FRs or what?

The brominated derivatives -- plants, exactly.

All right, if you look at bromine, bromine was relative. It was up slightly in the first quarter and from last year it was in the low 80s. But whenever you look to the next quarter, you are adding -- you look to the second quarter you are adding additional capacity for bromine rates. So it will be a similar kind of volume we would expect or a little bit less volume. But the rates will drop down to about in the low 70s and probably would hang there for the remainder of the year from a bromine standpoint.

But you have to remember we doubled the capacity at Jordan Bromine Company and that comes into play in that lower percentage. Okay.

Then if you look at our brominated flame retardant plants, while last year we were operating them at the end of the year in the fourth quarter in the low 40%. In the first quarter we were in the 60% range and it will fluctuate between the low to mid 60s for the remainder of the year. Probably a little bit higher in the third, a little bit down in the second, a little higher in the third and down in the fourth is how you ought to look at it.

Kevin McCarthy, Bank of America Merrill Lynch.

Good morning. Luke, how would you characterize your appetite for acquisitions at this juncture? I guess I am thinking specifically of Catalyst, where it looks like there is at least one property on the block based on public commentary. Trying to get a feel for how you are weighing what you are seeing in the private market, relative to pace of execution on repurchases, for example.

First of all, I think that there's -- if you look at what is happening to us in the -- with the repurchases from a balance sheet standpoint, that won't be any impediment to do any of the types of deals that have been out there being pushed around today. So I have got -- really, the appetite hasn't changed as long as it meets the hurdles that we put in place and gives us a technical advantage to the able to push our businesses in the areas we are not and we specifically like Catalyst and we specifically are looking there on how to grow Catalyst. In the areas that we are not, we certainly would be very interested.

Clear enough. And second question if I may on FCC, are you still anticipating shipments of FCC to Abu Dhabi for the new business that you won within 2013? Or what is the latest update on timing there and is that included in your outlook for this year?

Right now the outlook for the year is still included in the fourth quarter and we get reports on a regular basis about -- I said -- if you listened to my remarks, I said we are watching those orders to see if they slip into 2014 and if they do it slips into 2014, it will cause an issue for the fourth quarter for us. But ultimately whether that goes in the fourth quarter this year or the first quarter of 2014, it is not going to materially impact the long-range bundle strength of the business.

So we feel really good about it. But right now to answer your direct question, we have got it in the fourth quarter.

Very good. Thank you.

Dmitry Silversteyn, Longbow Research.

Good morning. Just a couple of questions if I can follow up. You talked about increasing your share repurchase authorization and having about a 10% buyback envisioned. How quickly do you expect to execute that? You talked about the dollar cost averaging, but what will be the pace of execution? Is it a one-year or two-year program?

What we previously announced in February was we would look to do it within a 12 to 13 month period and that time period hasn't changed.

So this will be something in the course of a year or so.

Can you talk a little bit more granularly about the impact of a startup cost in the first quarter from the plants that you are starting up and what would those costs --? I mean, you talked about the overall being $20 million-$25 million just on the Polymer side of the business. You are also starting up some other plants. Can you talk about these start-up costs in 2013 and what we should not look for in 2014, then?

Yes, let me say one thing is -- I am going to turn it over to Scott here in a second to give you that, but you said it was in Polymers. It is really in Catalyst.

Yes, Polymers versus Catalyst, yes that is what I meant. I'm sorry.

With Performance Catalyst Solutions that we had there and I think that Scott can give you the details of the break ground. We have said it is around $20 million-$25 million for the full year and Scott can give a little more granularity.

Yes. And first quarter the biggest impact came from the Yeosu, Korea startup. And in a total for the quarter is roughly the $7 million-$8 million impact on the earnings. We would expect something similar, maybe slightly higher in the second quarter and then obviously the remainder as stocks starts to come online as we go into the rest of the year.

So now is that just for the Polymer Catalyst or is that for all five facilities you are starting up?

That is for Catalyst in total.

Is the level of the cost of about $20 million-$25 million, is that what we can think about as an order of magnitude for the other start-up costs?

No. No, we are saying -- I think we are getting confused on the question here, okay. Take JVC start-up out of that because that is number is not included in there. The site at Yeosu City, that for pure growth we that is all capital cost because we haven't had any startups there. The real start-up cost that we are talking about for that $20 million-$25 million relates to Yeosu City piece that has been commissioned now, our single site catalyst unit and our activators over there, that piece of it. It relates to the Saudi joint venture, the costs that we had there as well as some of the de-bottlenecks in Catalyst that -- in Polyolefin Catalyst that we have done in the US. So it is those three buckets that we are talking the $20 million-$25 million in 2013.

Got it. Thank you. Thanks for clarifying. I'll get back into queue. Thank you.

P.J. Juvekar, Citi.

Good morning. What was the impact of the -- in the quarter from changing ownership at JVC? I guess you have now a lower share of the joint venture.

Yes, Scott.

Yes, so remember on the fourth-quarter call we mentioned that the share for JVC changed from 70/30 last year to 60/40 this year. And in the quarter that caused approximately 1.5 million headwind for us. Right on track to what we said was going to be a full year impact around 6 million. And you will see about 1.2 million of that sitting in Fine Chemistry and a small amount in Polymers.

Okay, and then, in hydroprocessing Catalyst. You talked about a negative mix impact. Was that related to tighter oil and this tighter oil which is lighter oil, is it fair to say that long-term it may be a positive for HPC, but probably a negative for hydroprocessing business?

Yes. First of all the mix had nothing to do with tight oil. The mix related to really some specialty products and some first fills that we had in the first quarter that didn't repeat in the second quarter. So it had absolutely nothing to do with tight oil. In fact, I wouldn't even say that it was US sales that was a real mix impact. So it had nothing to do with tight oil.

I think it is too early to call, meaning intuitively if somebody is bringing a light sweet oil, you would think it would have -- it would spread out the turnarounds for HPC Catalyst, but you are also going to have on top of that sulfur regulations getting tighter and tighter. So how that is going to balance out over the long term remains to be seen. I think it is likely, globally, that the sulfur regs are going to drive more growth in HPC Catalyst than the tight oil in the US is going to reduce it. So I think net, net you have still got good growth in HPC.

Thank you.

Mike Sison, KeyBanc.

In terms of Catalyst, I think when you talked about guidance for 2Q, it sort of [pens] the first half in that $115 million range, I guess, and in order to hit the second half you would have to be in that $80 million-$90 million range per quarter, which you have done here and there, but doesn't seem like an easy task. Can you help us visualize how you get to this high 50s to the 80s and how much of it, let's say. is within your control as costs go away and so on and so forth?

That is a great question. We are still confident we can be flat for the full year. And it is really driven by, I think, a few things. One is resumption of demand from FCC customers who have been off-line in the first quarter. Remember, we've had about 6,000 going to be off-line in the first and second quarter. So that demand in FCC picks up.

We will have over the second half those costs that we are talking about from the start-up costs on qualification runs should it run their course and we ought to be operating and getting revenue on those news sites. So that drag from those start-up costs ought to go away in the second half of the year.

Secondly, from an HPC standpoint we ought to have an improved mix and good volumes over the second half of the year over what we have seen in the first quarter and expect for the second quarter.

And finally, it comes down to the adoption of LEDs and our growth associated with electronic materials growth in those areas. So those are the four. We feel good about our prospects to do that. It is a tough hill to climb. We have done it before. And we have got a plan in place to implement and do it.

Now the things that could change that are if we have orders slide from 2013 to 2014. But you always have that risk. And it -- we don't have the LED pickup in the second half that we are expecting, then we will have an issue we will have to deal with. But as of today, as the best forecast that we can look at, that's it. So I hope that answers your question.

That's great. And in terms of the range for EPS guidance this year, for 2013 versus 2012 excluding the stock buyback, it's -- the risk it sounds like from the low end to the high end is given, if you execute well in Catalyst and Fine Chemicals, seems to fit in Polymer Solutions depending on demand. Is that probably a good way to look at it? And then -- ?

I think that is a good way to look at it. I think we have got execution in Catalyst. We have got a plan there.

Now the one piece is that I can't see our drilling fluids tanking. But if drilling -- if we've got a problem, if we got a BP issue again like we saw in the Gulf that could cause some problems. But [spill light] does execute and it comes down to macro economics and what is happening in the market place with regard to pricing and polymers.

Got it. Thank you.

I would now like to turn the call over to Lorin for closing remarks.

Thanks, operator, and thanks everyone who participated on the call. We appreciate your support and encourage you to call with any further questions. Have a good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.