Innospec Inc (IOSP) 2003 Q4 法說會逐字稿

Good day and welcome everyone to the Octel Corp.’s Fourth Quarter 2003 Financial Results Conference Call. Today's call is being recorded. Certain of the statements made herein constitute forward-looking statements that involve risks and uncertainties, including the risks associated with business plan, the affects of changing economic and competitive conditions and government regulations. Additional information may be obtained by reviewing the Company's report filed from time to time with the Securities and Exchange Commission.

With us today from the Company is the President and Chief Executive Officer, Mr. Dennis Kerrison and the Chief Financial Officer, Mr. Paul Jennings. At this time, I would like to turn the call over to Mr. Kerrison. Please go ahead, sir.

Thank you, Evelyn. Good morning, everyone. I would like to welcome you to Octel Corp.'s fourth quarter 2003 shareholder and analyst teleconference. Today, as usual, Paul Jennings, our CFO, will start this morning's conference call with a review and analysis of the financials results for the quarter and full year, which we issued last evening. Following Paul's comments, I'll make a few business points about what happened in 2003, and a little bit about the future trends.

I'm pleased to say that we believe this is commendable performance given where we were at the end of quarter one [inaudible] TEL customers which is outside our control. Following our comment, we will open up the call for your questions and comments. The views of our shareholders are key to us in formulating our long-term strategies. Now I'd like to pass you over to our CFO, Paul.

Thank you Dennis. Good morning everyone. I would now like to present the financial information for the fourth quarter and the full year 2003 for Octel Corp. The quarter has maintained the excellent progress this year in our Specialty Chemicals business and TEL has had another good quarter. Specialty Chemicals operating income was over 46% higher than last year for the quarter and ended the year 14.3% above 2002. Ongoing TEL income was well above the same quarter last year with improved cost control being the primary driver. In addition, restructuring charges of $4.5m were incurred in line with FAS 146.

Net income for the fourth quarter of 2003 was $12.9m or $1.02 per diluted share compared with a loss of $2.3m or 19 cents per diluted share in the comparable period last year. For the full year, net income is $51.8m or $4.13 per diluted share compared with the profit of 52.1m or $4.15 per diluted share in the same period last year, which is after to taking an 82 cents per diluted share after-tax charge for restructuring in 2003.

At the strategic business unit or SBU level, Specialty Chemicals maintained the improvement seen in previous quarters with sales of $54m, a 9.1% increase over the same period last year. As mentioned previously, 2002 numbers have been adjusted to reflect the closure of the loss-making Asian business highlighted in last quarter’s result. Gross profit for the quarter of $17.1m was 9.6% ahead of last year with the benefits from the restructuring activities that have been fully apparent in the normally strong fourth quarter.

Full year sales of a $195.9m are 9.6% up on 2002 with gross profits 7.8% higher at $63.9m. The improvement in operating performance is the direct result of the restructurings undertaken over the last 12 months and is fully reflected in the quarter’s numbers. 2004 will see the full year impact of these exchanges.

The excellent performance in TEL in 2003 continued into the fourth quarter. Sales were $73.9m for the quarter, 8.8% above the same period in 2002. Selling prices continued to be well managed which together with [inaudible] program managed to [inaudible] have reduced the impact of the global market volume declines. Profits were 56.2% of sales or $41.5m for the quarter. Full year sales of $266.3m were 3% higher than 2002 on volumes 11.1% down with none of our major customers exiting the market during 2003.

Overall operating expenses, which exclude restructuring costs and amortization of intangibles, of $80.8m for the full year was 7% above last years levels. We have incurred additional costs to ensure compliance with Sarbanes-Oxley and this work continues into 2004 as we prepare for Section 404. The weaker U.S. dollar against all the major European currencies had a mild translation impact on these costs as the bulk of our operating expenses are based in currencies other than the U.S. dollar. Over the equivalent time periods for 2002 and 2003, the dollar is on average 9.5% weaker. Without this impact, cost would have been lower in 2002.

Provisions for restructuring costs of a $4.5m were made in the quarter, all relating to the previously announced restructuring of Ellesmere Port site in the U.K. After tax, these amounted to 24 cents per diluted share for the quarter.

TEL downsizing originally planned for early 2004 will now take place much later this year in order to be able to meet customer demand. Aggregate further charges of around $6m are expected in 2004, principally the TEL operation. This treatment reflects the implementation of FAS 146 on the recent restructuring programs.

As we have mentioned during all of the conference calls this year, we have continued to monitor the value of TEL goodwill on a quarterly basis in line with FAS 142. As the [discount to] the future value of this business is in excess of the goodwill, we have not incurred any impairment in 2003. We do expect, however, for this position to change in 2004 and based on current assumptions, we are likely to have a non-cash charge of around $35m in 2004. This position will be further reviewed each quarter and non-cash charges taken accordingly. We will be including in our 10-K table to show the impact over the next few years.

Cash flow from operating activities was very good at $29.2m for the last quarter of the year bringing the year-to-date to an 85.2m cash inflow. For the full year, investing activity consumed $19.4m of the cash covering capital expenditure, the remaining payments under the earn out provisions of previous acquisitions, the conclusion of the Veritel agreement, and the closure and sale of two small, non-core businesses, which were identified earlier this year.

I am pleased to be able to announce that we have successfully concluded negotiations for our planned senior debt refinancing and entered into a new three and one-half year facility consisting of a $100m term loan and a $50m revolving line of credit. This agreement was negotiated without the requirement of general syndication and therefore we have been able to avoid any unnecessary risk in this area. This has, obviously, strengthened the long-term liquidity of the Company and per U.S. GAAP, we have fully reflected the refinancing in our December 31, 2003 balance sheet.

In accordance with the Company’s dividend policy, the Board of Directors has undertaken its semi-annual consideration of a dividend and has declared a dividend of 6 cents per share, a 20% increase over the previous dividend. The dividend is payable on April 1, 2004, to the holders of record of the common stock of the corporation on February 20, 2004.

The falling out gearing ratio of net debt to debt plus equity continues and it is now below 12%. Interest costs were high in the quarter as we completed the amortization of finance costs related to the previous refinancing in 2001 to the non-cash item. Our effective tax rate was 31% for the quarter and full year reflecting the mix of profits earned in the business and the timing of restructuring payments.

In summary, the improvements in Specialty Chemicals have continued. TEL had an excellent last quarter and full year 2003. Costs are being kept under control. Cash generation was strong and the Company now has the financing package in place to provide for it's longer-term capital requirements. Thank you for your continued support to the Company and your attention on this call and I will now hand you back to Dennis Kerrison for his report on the business.

Thank you, Paul. As Paul has given very clear detail on [inaudible] financials for some of the business drivers underpinning the figures, I will restrict myself to comments on major achievements and trends.

You will see that we have substantially improved our specialty chemical performance as forecasted; an increase in operating income of 14.3% year-on-year sales with almost $200m business is a very commendable result. We said that the integration several small geographically spread companies would take time. We expect to see the last integration benefits coming this year. We still have to address a few key areas in specialty chemicals; we can and will improve our manufacturing efficiency and reduce our cost base over the next two years. We also need to improve margins on our household construction business. At the same time our performance chemical business still lacks critical mass. We continue to consider acquisitions in this sector, which will add long-term shareholder value. Although some large chemical companies are shedding uncalled businesses we need to identify targets with both strategic fit and value. Octel moved away from several negotiations in 2003 mainly due to unrealistic price expectations from sellers.

Turning to TEL, I am pleased that we managed to generate revenues 4% higher than in 2002. This represents an exceptional performance by our lead business team given the political issues we faced in Q1. I realize [our] pleasing comments made last quarter; however, I think they do deserve reiterating. The dedication of the team in terms of productivity and commitment [inaudible] impact [inaudible] was controlled and the situation will return to normal as quickly as possible. We had to establish new relationships and in some cases [not only] suppliers. We were assisted; we can say that by volume for [inaudible] 11%, it's outside the 15-25% annual loan for TEL. This was the due to the no major country exited the market in the year. On [full change] this will not be triggering forward.

As Paul outlined, important changes started this year, we will be starting to amortize the TEL goodwill and current estimates of approximately $35m in 2004, prices have been increased across the board particularly in TEL. Costs were controlled and reduced at [inaudible], where we continue to have program of reducing infrastructure and the related costs. There were two uncontrollable negative hits. First, is the transaction -- a translation cost around the weak dollar and secondly escalating the plants costs relating to Sarbanes-Oxle and other new initiatives. I believe these comments have completed the financial data as given by Paul. With that, the lines are open up to you for the questions and comments.

Thank you. The question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the "*" followed by the digit "1" on your touchtone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in the order that you signal us and we will take as many questions as time permits. Once again please press "*" "1" now, if you have a question. We’ll pause for a moment to give everyone an opportunity [to poll]. We’ll take our first question from Rich Murphy (ph.) [inaudible]

How you doing guys? I was wondering of the financing, 100m, there has been no receipt of the money, so would that be in the cash next quarter?

Yes it will come -- this is Paul, Rich, that will come through in the first quarter. But what we have been able to do in the U.S. accounts is you actually treat the debt as long-term by the end [of its term] because we were close to finalizing the agreement.

Okay, so that would close cash would be around $8 a share of then, [1 cents] in there the cash would probably be rough $6m higher?

I don't know which way you looking at that, Rich. I mean obviously the cash flow that’s in here is the operating cash flow from the business. So, all what has done with any receipt the cash from the refinancing is that we built to pay off the existing finance.

Okay, I though of the repayment, you know, as far as [inaudible] okay the 51.9 came out of the [inaudible]

What you got there Rich is that compared to last year, the long-term has gone down 56.8 to 1.7, but the cash is [inaudible] we have made some scheduled repayments in 2003. For example, we made a 20m repayment in December.

Okay. And the next thing is the finished goods at 40.7, is that typical -- what's in that number seems to be?

The major point with the finished goods is it depends on timing of the year-end when we’d expect the shipments to go [around], principally on that TEL business, so we might have more raw material working process converted into finished goods and ready for shipments during quarter 1 and all of this shows that we got a reasonable portion of finished goods ready to shipment in quarter 1, that was all.

Okay.

As you can see the inventory number is principally the same as last year-end and really just reflects the mix.

Okay. And the last one which is on receivable -- on the cash [commencement] side, that seemed to impact cash a little bit this quarter, pardon, maybe not this quarter, but year-over-year, so that’s just a timing issue as well, if you can see that.

Well if you look at 2002 we were able to collect 40m on accounts receivable and in 2003 they dropped to -- it was $20m. I mean some of it, yes you are right, it can reflect the actual timing of receipts but generally speaking I mean this business is very good at been able to convert sale into cash relatively quickly and I think the cash flow reflects that.

Okay. Thanks and a great quarter you guys.

Thank you.

Moving on we will hear from David Walter (ph.), Smith Barney.

Good morning guys.

Good morning.

Very nice quarter, I agree with Rich -- and thank you also for release [inaudible] right after the close so that we could do the work yesterday. A follow-up on the question just asked are those inventories carried at your cost of production?

Yes, we carry those costs on first in first out basis.

Right. And there was some plan to start building inventory at some time as we start to decrease the production of TEL, but that hasn't started yet, doesn’t reflect that right?

That’s right, not yet David because as I mentioned earlier we delayed the downsizing of the facility based on demand in the TEL business and that’s when we do start to build inventories [inaudible] going to delayed to this year.

Could you give us a little guidance you mentioned that probably somebody is going to be exiting coming up, could you give us an idea, this year it was only 11% down until, you think next year is going to be more like 15 or 20 or what your guess in that area?

It’s going to be higher. It’s going to be in the normal range, [don’t] like to give an exact forecast, but it will be in the range 15-25 range as we said before. Remember a lot of countries are phasing out as the growth of analytic -- as the growth in [catalytic conversions of] [inaudible], so they go [for an actual phasing] out where they have use an analytic gasoline, the way that we did in Europe and United States over the number of years. Other countries are phasing out more quickly and for example the whole of Africa is phasing out, supposedly by the first of January 2006 and we brought that into our thinking [inaudible] it was slowing down and working towards that now. And other quite large countries like Indonesia choose to be phased out. Whether they hit their targets we can’t be absolutely sure right now, but we have to go, as we always have with conservative numbers [inaudible] from the government consent.

Okay.

So we don’t see as they are [normally] bad year this by the way.

Okay. And do you think you could be able to control your cost and pricing to make up for that?

I think, this is Paul, David. I think what we have shown in the past, I mean we are trying to manage the cost to deals [meaning size] actually trying to maintain the same level of gross profit. We've always felt that net gross profit on that business, we want to keep it at least 50% through a combination of controlling the cost of managing the pricing as well and you know, so far we have been deliver on that, you know, that’s what we would expect as a target for future.

Okay. And very good cash flow here again, could you give us an idea if we’ll be able to repeat this kind of year in cash flow next year, do you think?

I think the –- one of the key points in there I mean its obviously made up with a number of items in terms of profit and what we managed on working capital. You know, as announced earlier, you know based on our current assumptions we do expect to do the slow down in our plants probably towards the end of this year, which will mean we are going to have to invest something in cash in that particular side. I think Dennis has pointed out the decline in TEL, it is the valid one; it's going to be between 15 and 25% and obviously that will have some impact on cash flow for 2004.

Okay but in the same general area you think still for your guesses or --

I think that given the TEL still forms a nice chunk of the business and seeing a 15-25% decline in that, then obviously that’s going to be fully reflected in the cash generation of the company. So I mean it's very hard for me on this call to actually to go ahead and say it will be [inaudible], but I think you know the indication around what we have already talked about should help.

Okay and any guidance for specialty chemical and additive side for -- or what we can expect for growth of that side?

Yeah I think our positions haven’t changed. Its once of those areas where we have to inject some new management into the company with more global experience and there are still some benefits coming for the full year in terms of the integration benefits, but we do have one or two problem areas, we mentioned the household detergent business that we have got without [quest] where the margin is really not good enough, things to cash neutral is like to cost [inaudible] but really we want to try to get our business into good shape. We also think there are opportunities to improve our cost base in manufacturing of the specialties and the last one is that we think there is still some natural growth above market rates; above inflation because of new legislation coming in around the world to restrict the controls on emissions. So those gives us we think quite healthy growth over the next couple of years, but there is some [where] to happen, just got lot of work to do there.

Okay and that was the Section 404 you mentioned in the weekly, when you were speaking earlier?

No the Section 404 is on -- is Sarbanes-Oxley and the requirements under the Sarbanes-Oxley for reporting and governance where all [inaudible]. We have also done awful lot of work to prepare a company, document how we do control, testament and hence then have been externally attested to and obviously that's a tremendous amount of work for a small company like ours. But we are progressing with that well on track to make that happen.

Okay and lastly my question all the time, now that you have refinanced in the past you are speaking about buying back shares and dividends and possibly doing acquisitions. I didn’t see the buying back shares in the press release. Could you comment on that?

Sure. What we have said before is that we still [confess] into that we really see -- to seeing a fairly broad strategy of going ahead with the dividend policy, making that relatively progressive, buying back shares when, you know when that fits with the overall profile or making acquisitions as well. I mean we are still trying on the financing agreement and we have gone ahead and increased the dividend by 20% and we, you know, to get more structure into that program. And the buyback of stock is obviously an integral part of what we do. So, we are now in a position to consider that some more.

Alright. And I think that’s it for now. Thank you very much. Good quarter.

Thank you, David.

Moving on we will hear from [inaudible].

My question was related to TEL volume guidance and it's already been asked. Good. Thank you.

Okay. Thanks.

Thank you. And if you just find that your question has been answered you may press the "#" key to remove yourself from the queue. We will now go to Samuel Thorn (ph.) Dorn Trading (ph.).

Hi, Dennis a very good report, you know, what I am going to ask, I am going to amplify David's last question. I note that in your release yesterday, you talked about successful refinancing will provide for the long-term capital requirement of the company, we believe that this together with the progressive dividend policy and selective acquisitions provide the base, and so forth, and so on. And you also talked about critical mass in your verbal discussion and in neither area have you mentioned possible repurchase of stock. Is this a change in emphasis, the question has always been on my mind is when your stock is so cheep relatively to cash and what I assess its book value, isn’t that an awfully big challenge for going out and buying some other business with all the attendant integration cost and problems?

Yeah. I guess, you are absolutely right. I did realize what you actually say. I mean, in retrospect, I think the balance of the statement I should have said that there is been absolutely no change in our approach to buying back stock, its something we do when we get a chance, [when] we feel that the Board has supported us, we still got some outstanding there and we got a Board meeting next week and I’m sure it'll be on the agenda. But there is absolutely no change in that program towards this. However, if we want to build a long-term in specialty chemical business, we do have to balance that and I was sincere in what I said earlier in my introductory remarks that we have moved away from substantial opportunities this year, as we think people are repaying and we do not want to pay money that we can't get the right return to shareholders, much better the buy back stock will increase due to then whatever. So, what we might have emphasized a little bit looking at growth, we actually haven’t spent any money on acquisitions [inaudible] we did buy back some stocks. So, no our position hasn’t changed to and is positive on that matter.

Thank you sir and congratulations again.

Thank you.

We’ll take our next question from Paul Advent (ph.), Capital Flow (ph.)

Yes thank you. I have two questions; first, I would like to compliment management and the Board for the strategy they’ve taken in the execution of the establishment of the stable long-term credit facility has been important for a long time and the improvement share on the equity is very welcome and I support the dividend policy I think as business allows a consistent modest improvement in dividend for what we have in place support our investments as time and stock goes on and its especially valuable to us in or tax environment here in U.S.?

A couple of things one is I assume if the strength in the dollar continues as they have been in recent times it will significantly impact the expense line over the next couple of quarters?

First of all, this is Paul Jennings. Thank you for your comments about what we've been trying to do and that's extremely helpful. With regards to the dollar, the situation that we have is that because of the bulk of our operating expenses are in non-dollar currencies and obviously, when we translate those into U.S. dollars, they will be higher than what they actually are. So, if we do see a strengthening of the U.S. dollar over the next couple of quarters then you would expect to see those expense lines fall, which would show improved performance from the business.

The second thing is could you compare the ratio of the revenues and the net profits from specialty chemical business versus the TEL business in the quarter?

Sure. I think from a TEL perspective, what you have to -- that it is a business that has a very good quarter making it general gross profit goals of 50% plus, which allows to convert down into operating income. The margins that we seen in specialty chemicals are exactly in line with what you would expect to see in that type of business where you would be looking at gross profit in the region of 30-35% and you will be pushing for those to convert into between 10-12% return on sales on an ongoing basis and that’s really the sort of target that we have set for that particular operation and that’s what we expect to see. It’s a very different type of operation to the TEL business, but both of them -- really the specialty businesses anyway just in different parts of the market.

Thank you.

And we will now hear from Bob Varbadi (ph.) Varbadi (ph.) and Company.

Hi. One of the things you mentioned was during the year, you know, you are looking at the possibility of the write-down of the goodwill associated with the TEL business and you have given some guidance in, you know, order of magnitude maybe 35m, is that quarterly test that you will be doing and, you know, whether there is something that potentially you’re looking at -- even here at the end of the year? Of course, one of the positive statements you probably made is that because of customer demand, the scale back of the facility will be implemented as soon as possible, would it be later on in the year. So, that’s kind of factual test, it’s kind of when you do that scale back that will therefore reduce the volume of business you are fully anticipating, [therefore] you got a discounted cash flow and do you do that test on quarterly basis? And of that goodwill, how much of the goodwill is associated with TEL versus non-TEL?

Bob, thanks. There is probably a few questions in that. So, if I don’t quite get them all, you could just [pick them up] at the end, if that’s okay.

Sure.

As far as the goodwill comes and we have been doing that quarterly test of that number for the last couple of years. We refined the [level] and we actually do it now on a discounted after-tax basis on the future cash flows of the TEL operation. And so, when we did that test at the end of December, I did not expect it to have any impact in 2003 and we have been consistently mentioning that on earnings calls during 2003. [Frequently], I have been saying I do expect it to have an impact in 2004, it’s obviously a discount in future after-tax cash flow, so you have some view of what the business is likely to be over a period of time. Based on the model that we did, it’s just to support the goodwill value at the end of December, then that shows around about $35m non-cash impairment charge in 2004 and we will be publishing in the 10-K as I mentioned earlier what that number is likely to be over the next three years so that people can actually see what that charge is likely to be, but recognize it to non-cash. As far as the value of goodwill is concerned, it is around about $348.9m of goodwill on our balance sheet of which roughly 270 that relates to TEL, the rest of it relates to Specialty Chemicals where we see no impairment whatsoever and based on our calculations, we don’t expect any impairment in that one to some time to come.

Just I’d like to pick up one point that you picked up, which was positive. I think that the efforts made by the [lead team] in getting back on track in Venezuela and the fact that some of the countries which are moving towards unleaded position have moved a bit more slowly that we expected as opposed to the cutback down, but that’s now in our current figures and analysis, but yes, certainly that was good news and it’s carrying over into this year.

And the other intangible is 40m at the end of the year -- 40.8m, is that really all associated with the TEL acquisitions that were made in the recent years?

That’s correct and we have been amortizing that on a routine basis in the year.

And then lastly kind of a minor point, you have mentioned Sarbanes-Oxley has an additional impact in cost, of course, you know, in the segment reporting corporate line it’s, you know, 16.3m for the year, down from a 17.1 and for the quarter it’s 5.3, down from 6.7, so quarter and year, you know, the number is actually reduced on a corporate-wide basis. You are saying would have reduced even further had it not been for Sarbanes-Oxley cost, which are probably in that line, right?

That’s exactly right.

And -- I am sorry, I should know this, but interest expense, is that allocated to segments with that corporate cost line, is that no interest expense in there?

No, in the analysis of business units results; that’s before interest, it’s based on operating [expense only].

Al right.

But just a point on that one, Bob, for the clarification. The interest expense is 4.1m for the quarter look high. But remember, when we have to [inaudible] amortize the finance charges relating to the previous refinancing done two years ago, which again a non-cash, but that's where it appear in the [segment].

And you are saying that's completed, what was the actual amortization of interest in the 4.1, what was the actual interest rate?

We haven't -- what you are in essence looking at is probably between -- 2.5-2.7m of that number relates to amortization.

Thank you very much.

Thank you. Once again, if you do have a question, please press "*" "1". We'll now hear from Pete Tossig (ph.) Capital Bows (ph.).

Good morning guys.

Good morning.

When 10-K can be released?

The date for that is -- I think you will see 10 or 11 of March, but we are not entirely -- it's around that time.

Okay, so about a month. The sales mix going forward obviously is of interest and given your comments about your presumption about decay of TEL volumes this year and stuff like that, I am -- my quick math says that I guess for both the fourth quarter and 2003 that specialty chemicals was up about 42% of the sales mix, can you give us some kind of guidance going forward as to where do you see that going in 2004?

It depends very much on, obviously, on the decline of TEL over the next couple of years. I mean, we did forecast a couple of years ago that 2003 would be the year when the specialties balanced up with -- early 2004. We are not -- not because we have [been growing] the specialty, but because Octel has a robust last 18 months. I really don’t give a forecast specific on that. I think we have given you an indication on the decline of TEL and the fact that there is some quite steady growth in specialties. But I made in this [inaudible], I would rather don’t go much farther. But obviously, sometime in the next 18 months, specialties will become larger than TEL in term of revenue.

And the -- looking here – basically looks like specialty chemicals is up about 10% year-over-year against both the quarter and the year; in your best estimation, what do you see now, do you see that accelerating in 2004, is that true?

I think, what you have got -- this is Paul. As we mentioned, some of the impacts of the restructuring during 2003 came in into the quarter 2, 3, and 4, and quarter four showed more of an ongoing basic. I think in 2004 you are actually going to see the full benefit of that. So I think that the number that you see for the full year is probably a little bit undecided when you maybe starting to look at the impact in 2004.

So that somewhere in the teens is not a bad guess?

I think that makes reasonable sense, yes.

Okay. And Dennis, you been talking about the acquisition climate in this area, basically saying that more or less you started [getting] a look at over priced, what's going to make any different this year or in 2005 or at least until the -- we’ll start to experience some type of growth slowdown?

I think growth slowdown was there and I think two things have happened; the first one is that multiples of EBITDA came down to a reasonable level, they were running around 9-10% 3-4 years ago, it came down to around 6.5-7, but large companies when they spin off pieces tend to put [inaudible] with their bankers and try to [get] bidding against each other. I mean, [those are] meeting friends, you tend to get [inaudible] comes an ego thing and people start pushing prices up which is actually what [they are] trying to do for their clients. We try to avoid that situation because we do not want to overpay, and therefore the ways to do it is to build long-term relationships with companies, we’ve done this before, I’ve certainly done in other companies, best take the minority [statement] option and work together with these people so that we can get an exclusivity in the negotiation, and not get stuck into trying to bid up the price and if we have to wait, we’ll wait.

Can you give us any sense of who has -- who have been outbidding you?

No.

Or at least the region of domicile around the world or is it mostly U.S., is it sort of combination of companies around the world?

I’d say the U.S. still probably active more than anywhere else. The Europeans have really I think got [stung], there is quite a lot of blue-chip [inaudible] anymore I guess, okay. There are some very big companies that were considered blue-chip companies across Europe, particularly Continental Europe have really overplayed by 5 years or so ago and the downturn in the world economy they have really started to suffer -- having to sell assets. So I think the European companies are a little bit more cautious than the American companies.

So. In fact, in summary you are saying there is still plenty of possibilities coming on just because of some of the prior acquisitions now falling apart and [maybe just] coming back on the market again?

Yeah. That’s correct. What tends to happen though obviously the companies [remain] -- some of the large companies would love to sell off the bad assets, what we would like to do is buy the good assets. Our feeling is that if get into a right conversation as they have got to sell anyway they might as well sell the good ones. But we've got dialogues with a lot of major companies. We work with them to build a relationship, just as we look for opportunities, but as I said we don't want to get into a sort of bidding situation, we certainly don't want to pick up bad assets either. So, if we have to wait, we'll wait.

On that same subject, you kind of alluded to this earlier, is there anything really left in specialty chemical area for you to clean up relative to bad parts of assets or to many people picked up or is there a sort of socialistic nature of some of the countries you've been dealing with, is that pretty much done now or is there still a little bit more to go on that?

Could you just explain again, I thought I understood what you said, and then in the last minute I didn't think I could.

Well, more or less you have been saying for the last two years.

I got it. Yeah, this is [inaudible] we've got -- we've done quite a lot of cross sell and as I said I think I have said it for the last couple of years -- year and a half, it is not getting the cost down. It’s taking the time to do it properly within the laws, particularly the employment laws [inaudible] costs have come out. I believe certainly there are some more costs to come out and we will continue to work at it, so I think there are two things, first one is as Paul said, we’ll get full year benefits in 2004 as opposed to 2000 and 2003. And the second one is as time goes by, we still believe, as I said in my business summary that there are ways for improving the profitability of some of these businesses we have. And obviously if we can't get the most of them we shouldn't be buying them, so we are very pleased that the cost now are coming down and we are seeing the benefit on the bottom line.

Does that suggest a noticeable improvement in operating margins specialty chemicals we should look forward to this year?

I think it’s -- and I'll just echo what Paul said that we can see a good growth and there is no reason why the operating profit should suffer as result of top line growth.

Okay. All right. Back to the question one, are there any special payments to be made this year?

This is Paul. No, Pete.

Okay. And in your best estimation and this sort of up Venezuela question, given what you see around the world in terms of [political risk, anything else], one or two areas either of the business or geographical occasion concerning to get the most [inaudible] business win, all of them?

Now, the one thing about this that -- in the TEL business, anything could happen. I mean in 2003 we had a better than expected year, lot of effort by the guys, a lot of cost reduction, really push the prices very well and didn’t get any shocks, as well we had a very good year, but we are working countries let’s say that they haven't full democratic processes and things could happen at any time, both positively and negatively. Historically, they tend to be negatively, but sometimes as the business nurture in the system, so we are always on the look out for surprises unfortunately.

And let me just say one [inaudible], I think you mentioned that you expected all that [inaudible] phase out by 2006, [inaudible]

Yeah these numbers are without -- as we mentioned last year -- it was a crazy situation where I think the World Bank and the USEPA and a few other [inaudible] go and let it by [11'06] and a lot of people are trying to achieve that and it’s absolutely [inaudible] disaster for some of the smaller African countries whereby the cost of [inaudible] they basically had to close their refineries which would probably help the America oil companies importing on leaded fuel, but it won’t be very good for the economies. Some people just can't do it, they can't afford it, so we may see the refineries cut -- closing but at the moment most of the governments have signatures to this and we are assuming and have assumed that figures that will be total phased out by 11'06, if they don’t achieve it then that’s upside.

Okay thanks you very much, nicely done.

Okay. Thank you.

Thank you we’ll now hear from Robert Natheen (ph.) Private Investor.

Yes gentlemen you have sort of a very nice year thank you very much. Couple of, gentlemen prior to this had mentioned the buyback program, yet when looking at the numbers on a diluted basis I only see that the for the year ’03 versus ’02 that we are down 3000 shares but in the quarter we are up 859,000 shares on a diluted basis, could you expand on that a little bit and do you see that having been continuing in '04?

I think I mean what you obviously, don’t [need] within that all, we did repurchased some common stock during the year, which you can see in the cash flow. It was $1.2m and that was done probably in our announcements in August of 2003 and we were restricted in how much we could buy under the terms of the previous financing agreement, which again is not new news for anybody. I think what I will do is reiterate what Dennis has said, which he said, it is something that is high on our agenda; it is part of our overall strategy. Now that we have got some a good solid financing position in place, something that we can consider a lot more actively.

That’s fine but what has produced the increase in the 859,000 shares in last quarter, were those stock options over there?

Well no. There has been no stock options [granted] to say, I mean what you had -- if you look at the increase, if you look at 2003. I mean versus the last quarter it's gone up by 150,000 shares from the end of September through to the end of December and for the full year we are only at 12.5m. So there haven't been options granted or anything like that during that time period.

Okay. [Got you].

Anything further [inaudible].

No, thank you.

Thank you. We do have a follow-up question from Rich Murphy (ph.), [inaudible].

Yeah, what is the goodwill that’s going to be on the 235 at the end of this year? How much of that 235 is related to the TEL business or business that’s not going to go away based on your models?

Rich, what we -- you mentioned 235?

Yes.

Where does that number come from?

270s, you said about 270m is TEL related and you have a $35m this year.

No. In 2004.

2004, yes again in 2004.

Yeah.

You have done a 235m?

Yeah.

I am assuming that the whole write-off this year is TEL related?

There is no write-off in our company in 2003.

Yeah.

We are saying that there would be a write-off in 2004, of around $35m and it will be TEL relatively. And there won't be any write-off on the specialty chemical side.

Correct. I got you that $235m in TEL.

Correct. By December 2004.

Now that remaining $235m how much of that is, you know, that you have talked about in the past about TEL and some of the TEL business won't go away, how much of that is related to that?

Well, I mean obviously, all of these is related to the value of the TEL dismissed for and, you know, based on the discount in that [we don’t have gas], which is the aviation gasoline I think that you are referring to, and that obviously goes into the sort of tail of the business, as a lot of the major companies can ask the regular [TL] for gasoline enhancement. So you can't really say how much of the 235 is that, because that relates to the actual total business. What we are going to try and do in the 10-K is to get some indication of what those write-downs are likely to be in '05 and '06, so that gives everybody a chance to see, what is likely to happen to that number over that period.

Okay. Okay.

Thanks.

And we will take our last question, a follow-up question from Paul Smith (ph.), Capital Corp. (ph.)

Yes. Thank you. With limited transportation options in the coal business in the past quarters we've had, we had some times when a tanker got there late or was there early in the next quarter that sort of thing and had a big impact on the earning swings in TEL and I’m wondering what our position was in this last fourth quarter relative to that TEL transportation and second question is in the new credit line agreement are there any covenants restricting share buyback in the future?

This is Paul Jennings. With regards to the shipments with the relatively normal quarter, we didn’t have the situation that we had in quarter four of 2002 where we were only able to -- where we were not able to ship in Venezuela that really impacted our results. So, as far as shipments are concerned, it's still mostly on a quarterly basis and that’s something that we have to be very careful of, but generally speaking quarter four was relatively a straightforward quarter.

I think, just as a follow-up, I think if you worry that the good fourth quarter of 2003, [remains at] poor first quarter 2004, we don't see it like that, but this business is always be lumpy just purely because of the delivery.

With regards to your second question on buyback, there is no sort of dollar restriction within the actual agreement what we have to make sure if we do actually buyback any shares that they will not [effect] compliance with the two financial covenants that we have within the agreement, so obviously what we will be doing is testing that on a regular basis to make sure that we are in a position and we remain fully compliant with the financing agreement.

Well thank you gentlemen.

Thank you.

This time we have no further questions Mr. Kerrison, I'll turn the conference back over to you for any additional or closing remarks.

Okay, thank you Evelyn. More than 18 months ago, many of you were concerned and even critical of our plans to grow our specialty chemical businesses. We outlined several specific projects to be undertaken about the strategic business units and the size. This involved some tough decisions and a high level of experience and confidence. We identified during the period that to achieve this and hence to take the Company forward, we need to strengthen the senior team. This issue you'll recall was addressed and the new team was placed in early 2003. Generally, the projects that we took on we've spoken about it in terms of turning the business around to a successful direction were completed in 2003 and the projects closed off, although some benefits will flow through in 2004 as we have outlined during these discussions. We achieved the ambition of becoming a specialty chemical company around performance additives, which improved performance [necessitate] in industrial processes. In fact, TEL is a performance additive. If you think about it several products but no competitions, complex manufacturing process, [inaudible] has very high margins and unique customer benefits in my book is the specialty chemical. So, we are pleased that once again in 2003, we delivered an exceptional performance to our shareholders. We will strive to achieve the best possible result in 2004. Thank you again for your questions and your comments [inaudible]. Thank you.

That concludes today's conference. We do thank you all for your participation. You may now disconnect.