Innospec Inc (IOSP) 2006 Q2 法說會逐字稿

Good day and welcome everyone to the Innospec, Inc. second quarter earnings results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Ms. Kate Davison, please go ahead, ma'am.

Thank you. Good day everyone. My name is Kate Davison and I'm Group Legal Advisor and Head of Investor Relations at Innospec. Thanks for joining our second quarter 2006 financial results conference call. Today's call is being recorded.

As you know, last night, we reported our second quarter 2006 earnings. The press release is posted on the company's website at www.innospecinc.com. And audio webcast of the call and a slide presentation on the results are also now available and will be archived on the website.

Before we start, I'd like to remind everybody that certain comments made during this call might be characterized as forward looking statements, under the Private Securities and Litigation Reform Act of 1995. Generally speaking, any comments regarding management's beliefs, expectations, targets or other predictions of the future are forward looking statements. These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by those forward looking statements. These risks and uncertainties are detailed in Innospec's most recent 10K report as well as other filings we have with the SEC. We refer you to the SEC's website or our site at innospecinc.com for these and other documents.

In our discussion today, we have also included some non-GAAP financial measures. A reconciliation to the directly comparable GAAP financial measures are contained in our earnings release and in the presentation that follows, acopy of which is available on the innospecinc.com website. With us today from Innospec are Paul Jennings, President and Chief Executive Officer and Ian Cleminson, Executive Vice President and Chief Financial Officer. And with that I'll turn it over to Paul.

Thank you, Kate. And thanks to everyone on the call for taking the time to join us. I'd like to make a few high level observations about our performance before Ian takes us through the numbers.

First, our GAAP results again, were positive for the quarter with earnings per share on a diluted basis of $0.08 compared with a large loss a year ago. Included within the results are goodwill impairments, a restructuring charge and pre-paid disposal costs which total $10.2 million or $0.80 per diluted share, compared with $114 million or $9.20 per diluted share in last year's second quarter.

Our EBITDA for the quarter was 19.8 million, a threefold increase over 2005. I want to emphasize that we are achieving these results in the face of a significant decline in our legacy octane additive business. We're able to report these results because of the very strong performance in fuel specialties, which more than doubled its operating income year-over-year, and because of our sharp reductions in corporate costs over the past year. In fact, these results signal that we have reached a turning point where earnings growth in our ongoing specialty chemicals businesses, of fuel specialties and performance chemicals, is more than offsetting the decline in octane additives. And those businesses are now generating over 80% of our sales and well over half of the company's total operating income.

Now I'd like to introduce Ian Cleminson, Executive Vice President and Chief Financial Officer, who we named as our new CFO just last month. Ian was financial controller of our performance chemicals and fuel specialties divisions for four years. So, he knows our business extremely well and he also played a key role in our corporate re-grounding project over the past year. Earlier in his career, Ian was with BASS and before that KPMG. We were particularly pleased to have been able to promote from within to fill this key executive position. Ian will now review the financial results in greater detail.

Thank you, Paul. First housekeeping notes, if you've been with us on prior calls, you may notice that we have streamlined the data presented in the main part of our presentation. However, the detail we have presented in the past overall and for each of three business segments is still available as an appendix to our formal presentation. We hope this will enable us all to focus on the most important metrics without eliminating any information you may have found useful.

Overall, we are pleased with the results of the quarter. Total net sales were $112.9 million, a 10% decline from a year ago, reflecting the large drop in our octane additive business. Our ongoing growth businesses, fuel specialties and performance chemicals reported a combined sales increase of 16%. The company's overall gross profit percentage was 36.3% for the quarter, down just slightly from 36.4% a year ago.

Improved gross profit percentage in fuel specialties and octane additives were just about exactly offset by a lower gross profit percentage in performance chemicals, mainly reflecting higher raw material costs.

Operating income, excluding goodwill impairments, restructuring charges and pre-paid disposal costs was $14.1 million, down 5% from 14.8 million a year ago. As Paul noted, EBITDA was up over threefold at $19.8 million, compared with $6.2 million in last year's second quarter.

Turning to individual business segments, field specialties, which is now our largest business by a substantial margin, had an outstanding second quarter. Its sales rose 20% to $62.8 million and its gross profit percentage was 38.2%, up 3.5 percentage points from 34.7% a year ago. As a result, its operating income more than doubled to 10.9 million from 5.2 million a year ago. Of the overall 20% sales increase in fuel specialties, approximately one-third came from unit volume, another third from price and the remainder from a richer product mix.

Our business in the U.S. is benefiting from the phased implementation this year of new regulations that require much lower sulfur content in automotive diesel fuel. Under our Legal Diesel marketing umbrella, we have a superior product offering to help out companies with the new regulations. Our innovation in this area is the primary factor driving our strong revenue growth in the Americas, which was 18.8% the second quarter. Underpinning this, we have seen strong performances across all our product ranges.

In the Asia Pacific region, we are enjoying exceptional growth, albeit at a small base, with revenues u[ 136.8% from a year ago for the quarter. This reflects the addition of major new accounts, such as Petronas in Malaysia where we've helped them develop a market in industry leading gasoline additive. We've also added K Line international shipping of Japan to our marine accounts and continue to see excellent growth in China.

Earlier in the year, we had projected that fuel specialties would generate revenue growth of 5 to 10% for 2006, with a gross margin in the range of 32 to 37%. We now believe this segment's results will be at or slightly above the high end of those ranges for the full-year.

Performance chemicals reported a 6% sales increase to 28.5 million, however, the segments two largest businesses, Aroma fine chemicals and Finetex which account for about 50% of the segments total sales both grew faster than the segments overall with double digit percentage increases. We experienced some pressure on this segment's growth profit percentage which fell to 13.6% from 14.5% last year, largely because of pressure on raw material costs due to higher oil prices, which mainly affected the aroma business, but we have taken in price increases is appropriate and expect improved results in the second half of 2006.

Overall, we still expect performance chemicals to perform in line with our guidance earlier in the year which forecast for 8 to 10% sales increase and a gross margin of 18 to 22% for 2006.

In octane additives, results again were down significantly, reflecting the loss of South Africa as a major customer in 2005. The second's reported sales and operating income were both down more than 50% from a year ago. The gross profit percentage actually rose significantly to 60.6% from 50.9% a year ago. This is primarily a function of the mix of customers and their margin profiles this year versus last. While the longer term pattern of decline is not going to change, we do believe that shipments in octane additives so far this year have been affected by climate issues, which should benefit to our results on a sequential basis in the second half.

Overall, we remain comfortable with our earlier guidance that the segments sales will drop approximately 40 to 50% for the full-year with a gross profit percentage of 45 to 50%. We continue to expect the decline in octane additives sales to moderate to 20 to 30% range in 2007.

Corporate costs were 4.7 million for the quarter, down 36% from 7.3 million a year ago. This reflects the relocation of our corporate headquarters and the downsizing of our corporate staff to more closely match the size of our ongoing businesses. The restructuring charge for the quarter of 2.1 million compared with 12.1 million a year ago, relates to remediation provisions at our Finetex manufacturing site at Elmwood Park, New Jersey and a number of small items relating to the work force and onerous lease provisions in the U.K.

The charge for goodwill impairment in octane additives were 7.7 million, much lower than the 101.9 million charge a year ago, which reflected Venezuela's decision to go lead free and exit the octane additive market.

The prepaid disposal costs, of 0.4 million relates to the planned disposal of our Elmwood Park site in New Jersey, which I referred to earlier.

Other income for the quarter was 1.6 million compared with 3 million in other expenses last year due to movements in currency contracts.

Turning to the balance sheet, our liquidity position remains excellent as of June 30th. With cash and cash equivalence including restricted cash of 68.1 million down just slightly from 73.2 million at the year end. Total debt was 147.4 million compared 144.6 million at December 31st. Our net debt at June 30th was 79.3 million.

As you may have noticed, we expanded our total borrowing capacity under our credit facilities during the quarter to 200 million with the addition of Royal Bank of Scotland and National Australia Bank to the lenders group. At June 30th, approximately 56 million of the credit facilities were unused and available to finance organic growth, potential acquisitions or for other corporate purposes.

Stockholders' equity at the end of June was 314.9 million essentially unchanged from the year-end level. And now, I'd like to turn it back over to Paul for some concluding comments.

Thanks, Ian. I had a few more topics I wanted to address and then we'll be happy to take your questions. During the quarter, we announced significant capacity expansions for two key products that will be becoming on stream by the end of 2006. In performance chemicals, we're expanding production capacity for Lilestralis by 15% at our Aroma Fine chemicals plant at Widnes in the UK. Lilestralis is usd extensively in many different perfumery applications especially in fabric softeners, soaps and other personal care products. We are one of only two manufacturers in the world for this product and we currently are producing at capacity.

In addition, our fuel specialties business is expanding production capacity for its high purity Ferrocene by up to 50% at the plants in Herne, Germany. The Herne plant is the only of its type in the world producing unique high-purity products based on Ferrocene chemistry, which creates products that improve combustion and reduce emissions from gasoline, diesel and other fuels.

During the quarter, we announced a streamlined reporting structure for performance chemicals in which each of the segments business units are now reporting directly to me. Simplifying the reporting lines within the company will improve the speed, decisiveness and quality of our decision making in these businesses and enable me to focus more directly on them. As Ian mentioned, we do expect our results in performance chemicals to improve in the second half.

As I noted at the start of our call, our second quarter financial results signal a key turning point in the evolution of Innospec. To put this in a different perspective, I would urge you to look at the combined operating income for the first half of our year from our two ongoing businesses, fuel specialties and performance chemicals, relative to our corporate costs. A year ago, we had operating income of $13.7 million and $16.5 million in corporate costs, which meant that these two businesses fell $2.1 million short of covering our overhead, not a sustainable ongoing proposition.

For the six months of 2006, we have 25.2 million in operating income against 10.6 million in corporate costs. So the difference swung to a positive 14.6 million. I believe this really highlights the progress we have made over the last 12 months in defining and executing our strategy while at the same time establishing a cost base that has fit the purpose.

Earlier this year, we outlined our new proactive strategy to improve shareholder value. The first and most important strategy was to enhance the fundamental performance of the business. As I have just described, we have clearly done that by refocusing on our chosen growth businesses and delivering improved financial results. Our ongoing businesses are positioned as leaders in their industry sectors with high margins and strong growth prospects. At the same time, we've managed to -- we continue to manage the decline in the octane additives business to optimize cash flows over its remaining life. We also have right-sized our corporate infrastructure so we can deliver profits to our stockholders, yet our operations still have the support they really need.

Secondly, we have increased the visibility and understanding of the company. We've changed the company's name to Innospec, making a sharp break with the past and highlighting our future as an innovative specialty chemicals company. We completed the rollout of our new branding across all our global businesses in early June, four months ahead of our original schedule.

In March, we switched our exchange listing from the New York Stock Exchange to NASDAQ to help broaden awareness of the company and to underscore our new strategic direction. We have launched a more proactive media relations effort and are already seeing increased coverage in our key trade publications. During the second quarter, for example, Innospec was added to Chemical Week's CW75 index encompassing the 75 largest chemical companies in the world.

Our third key strategy was improved capital management. Earlier this year, we announced our quarterly dividend, up by 14% to $0.08 per share. During the first quarter, we announced our expanded stock repurchase program or 10B51, which we have extended into the second quarter and for the year-to-date have spent $10.2 million on repurchases, retiring approximately 418,000 shares. As Ian noted, we also expanded our credit facilities during the quarter increasing our flexibility to grow organically and to have the flexibility to consider potential acquisition opportunities.

The results to date as reflected in the stock price have been very good. As I'm sure most of you are aware, Innospec shares have been one of the chemical industry's best performers in 2006. Through June 30th, our stock was up 56% for the year-to-date, out performing the Chemical Weeks 75 index by 47.9%. And now, we'll take any questions you may have and I'll hand you back to Pam our operator.

[Operator Instructions] And we will go to Gregg Hillman, First Wilshire Securities Management.

Yes. Good morning, gentlemen.

Hello, Greg.

Hi, Greg.

Hey. Could you - just a couple things. Number one, I understand you have a product, an emulsifier, that increases recovery from heavy oil in oil wells, by something like 20%. Could you comment on that and whether you think anything will become of that, if it could become a large product for you?

Greg, this is Paul. That's one of the products that we have within our range and one of the new products that we're developing, so at the moment, we don't tend to quote the individual sales numbers or market potential for any of those particular individual products. All I would say on that is we believe that we've found quite a unique position. We believe that it is something that the market is very keen on and quite supportive of, but I think it will take a little while before it gets to a meaningful size.

Okay. And then, if I could ask another question. In the whole area of the development of diesel fuel additives in the United States for both the passenger cars and also commercial vehicles, could you comment on that, where you think it's going and how you think it will effect the fuel additives?

Sure. It's a very good question, Greg. As you know, we consider - we are the leading supplier of fuel additives and dedicated fuel additives, in particular, with regards to diesel. And to our Legal Diesel program that's been run quite successfully by our team in the U.S., we've been able to really take a very substantial market position in that particular area and to support the customer base as they try and deal with the changes in the legislation in the U.S.

Just to reiterate for the people on the call, the legislation is reducing the sulfur content down to 15 parts per million. At the refinery at the beginning of June and at the pump at the beginning of October, this year. And our range of diesel additives have either little or no sulfur content, and therefore, provide exactly the sort of support that our customers need. So, we've been very pleased with that.

I think the overall developments of the diesel market is actually quite exciting because if you compare the U.S. market vis-a-vis the European market, for example, well over 50% of the European car fleet, now, is based on diesel. It's a well accepted fuel in Europe, it's very economic, you get much better mileage per gallon on a self-driver diesel truck and get over 30 miles per gallon from that particular vehicle. Whereas, in the U.S., you're looking at less than 5% of the market is based on diesel, diesel-engine cars, or small trucks.

So, we see that there's a great opportunity there for growth. Obviously, the infrastructure needs to develop, as well, in terms of accessibility of pumps on the forecourt for people to use diesel but it's great potential because the old stigma diesel fuel is tending to disappear, now, and people are seeing it's quite a clean, economic, environmentally-sound fuel and our additives can actually support its position. So, we believe that our position in diesel is actually quite a strong one and it's helping fuel some of the growth that we've seen in Fuel Specialties.

Okay. Thanks very much. I'll get back in queue.

You're welcome, Greg.

We'll take our next question from [Sam Nichols], [inaudible] Securities.

Good morning.

Good morning.

And good afternoon in the UK.

Thank you.

Two questions, if I may. The first one, regarding Fuel Specialties. You're expecting 5% to 10% growth, year-over-year, for this year. So far, as to the first six months, you're up 15%. In the second quarter, there was a slight decline, sequentially, from the first quarter so that would imply you see further decline. So, I was wondering if you might be able to enlighten me a little bit more on what's going on there and at what point you'd expect year-over-year growth to level off. And second question was - I was wondering if you could share your CapEx plans for '06 and '07 in terms of dollar expenditures.

This is Paul. Let me answer the first question, then I'll pass it over to Ian to just talk a little bit about CapEx, if I may.

If you look at the sales growth on Fuel Specialties, we have just over 11% in sales growth in quarter one, we have 20% sales growth in quarter two, year-over-year. So, overall, for the year, as you quite rightly say, it's just over 15% growth. What we've said for the full year, previously, is that we expected between 5% and 10%. What we're now saying is that we fully expect to be at the high end, or even slightly above that range, for the full year. So, we do expect to see growth, year-over-year, for the remaining quarters of 2006. And at this stage, I don't see that business leveling out at all. We see the ability to grow within all the different markets that we have and that's why we feel confident about increasing the expectation of growth in that business for 2006.

What I'll now do is pass you over to Ian and he could just make a few comments about capital expenditure.

Thanks, Paul. In the first half of the year, to date, we've spent $3.3 million on CapEx. As Paul alluded to in the presentation, that will accelerate in the second half of this year with the announced plans at Aroma and Herne. On our bridge, broadly speaking, we expect to spend between $8 million to $10 million, this year, on CapEx. And we'll be reviewing our forward plans in September for 2007 and beyond when we get into our budget round.

Thank you very much.

You're welcome.

We'll take our next question from Rich Murphy, Cross River Partners.

How you doing, guys?

Great, Rich. Good morning.

Hi, Rich.

The capacity additions - you said late, this year, they'll be up and going. When will the revenue come in for them?

On those particular additions, the addition of the Aroma business, the Lilestralis expansion, we expect to be operational by the beginning of December. So, we might see one month of it in 2006 but then, sequentially, you should see a full year of that in 2007.

Okay.

As far as the Ferrocene expansion is concerned, that's going to take us until the end of the year, so it's going to be some time during the early part of the first quarter when we start to see a ramp up in that particular product.

And were those decisions, those capital decisions, made because you're turning business away? Or is it something that you're kind of looking at and seeing greater revenue demand?

Maybe, if I could cover them as two separate answers if that's okay, Rich? On the Aroma business, we can sell everything that we can make. So, in a way, you could say that we aren't - certain business, we aren't actually going for at the moment. So, we believe that by the addition of this capacity, we can actually further support the customer base for that particular product.

With the Ferrocene, it's really looking further out, particularly as we look into Asia-Pacific and the ability to grow that particular market, and we've got inquiries and in some cases, firm orders in there. So, we believe that we needed to put the capacity in, now, to support it. And I'm really pleased to see that because that shows that we can invest organically in our business and really drive some velocity in the top line, which is a much safer investment than any other type of investment, and I'm pleased that we've been able to do it in our two growth businesses.

Well, agree with those statements. I'd rather you guys invest in your own business at this point, but, the second one is on the seasonality of the Fuel Specialties. I think Sam, prior caller, was asking about. The 2005 quarter, June was the weakest quarter, then you saw a spike up in revenues in September and December. Is that seasonally a slower quarter for Fuel Specialties?

Yes, Rich. This is Ian. We traditionally have a strong quarter one and quarter four in Fuel Specialties.

Okay.

It's mainly driven by our heating products and cold-flow improvers. And what we have seen, this year, is that the second quarter looks stronger than we would normally expect, so we're very pleased with that.

Okay, so I guess I'm with Sam. I don't see how you guys get - the high end is - I'm having a hard time even staying at the high end on Fuel Specialties. But I guess you guys - you're being conservative on that.

Well, you know me by now, Rich. I'm going to be conservative because I want to make sure we can deliver it. But from my perspective, what we said is the high end or probably at both the high end of that for the full-year period.

Okay.

We just want to make sure that we're giving people our fair assessments at this time.

Okay. And my final question is on the TEL. The first two quarters, gross margin was 61% and 60%. You guys have got it between 45% to 50%. Where - what am I missing? Are we going to see - what is the margin in TEL? My understanding of TEL is it's pretty stable margin.

The situation there, Richard, if you remember in quarter one, we had the release of an un-required provision which bolstered the gross margin. So, what we're looking at is saying it's going to be in the 45% to 50% by the end of the year, because obviously, the sales are reducing, we've taking capacity out. So, we expect just a one or two point drop before the end of the year. But, overall, I think you can safely say it's going to be in that high 40s, low 50s, in terms of percentage gross margin for 2006.

Great. And just as a comment - congratulations on the stock going up 40%, 50%, but as you know, Paul, it's still only 5 times enterprise value EBITDA. You keep performing you're going to be 2 times enterprise value EBITDA, though. Keep it up. Take care.

Thank you, Rich.

Bye.

We'll go next to [David Wilson], Smith Barney.

Good morning, guys.

Hi, David.

Hi, David.

Pretty decent quarter. Congratulations.

Thank you.

Could you talk a little bit more about your raw material costs coming up and you talked in your aroma area, you can raise prices. Can you raise prices in other areas? TEL, particularly, have you been able to make higher prices stick?

Yes, what we've done across the board, David, and maybe if I just comment on it by the businesses because it's a little bit different in each of the areas. If we take octane additives, which is at the [inaudible] gas side or use of tetra ethyl lead for gas, we have put price increases through. In most places, they've actually stuck. It's obviously a situation where you don't want to put the price up too much and therefore lose the volume. But prices, generally, are 5% to 10% higher in that particular part of the business.

If you look in Fuel Specialties, one of the key rationale from behind acquiring the mainly 50% of the joint venture in the Americas business, just over two years ago now, was to use that business model, which is around managing the raw material situation and also looking quite aggressively to develop pricing where they could but not doing it at the expense of a customer base. So, that model has actually been rolled out across the rest of the world and we've been able to get some reasonable price increases in that business, which has helped improve the margin. And, as Ian mentioned, roughly a third of the growth that we have there has come from pricing.

If you look at the businesses within Performance Chemicals, again, there's different stories within there. In the Aroma business, yes, we have put prices up. And probably 18 months ago, we maybe missed a little bit of a trick, because we didn't foresee the raw material costs going up at the same level as they should have, as they did. And we were tied into some 12-month pricing contracts but we've dealt with that, now. We have put prices up and that's why we feel we can justify saying that business will improve in the second half of the year.

Within the Finetex business, really it's just about passing on raw material increases in that business because there are no other dynamics there, influencing it. But we have some nice volume growth in that business so it's fairly a long answer to your question. I've covered the four or five main businesses, David, in that answer.

Thanks. And second question, your strategy for the last year or so has been to consolidate the businesses and run them and make them more efficient and keep your costs down and get the sales up. Will that continue? And are we out of acquisition game and into the consolidation game for a while?

Well, I think we haven't made an acquisition since the beginning of January 2005, which was the Finetex acquisition. And as I said when I became CEO, just 12 months ago, I strongly believed in the sort of three-part strategy that we had of running our businesses better, helping people understand the company better, and managing our capital better. And I think that, certainly, over the last 12 months, I think we've been able to deliver on all of that. There's still a ways to go in terms of improving the performance, particularly in our Performance Chemicals business, which is why I'm taking a much closer look at it. But, equally, what I want to do is to make sure we don't miss opportunities that could help support the growth of our other businesses.

So, I believe that yes, we need to continue to run our businesses efficiently and if there are opportunities out there, then we'll take a close look at them but it will not be the same as what happened with the company in the past. Any opportunities will have to show significant shareholder value before we'd even consider it and it would have to really support the business that we have, today. We would not be looking at going into new and different areas that the company did in the past. I don't think that's the right strategy. I'd rather invest organically or in areas where we know the business extensively. So, that's how we look to take the company forward over the next few years.

Okay. And your share buyback, you said you're going to buy shares back and you did. Where do you stand on that? How much money do you have left to buy back shares?

David, this is Ian. We were sanctioned by the Board for $15 million. As of yesterday, we bought back approximately 530,000 shares and spent about $13 million. So, we have some capacity. The 10- 5B plan is now finished and we will look to go back to the Board meeting in August and report back to them and we'll consider the share buyback program from then on.

Okay. And just on bookkeeping for the Octel impairment charges, how much do we have left there to do? And will the rest of the year be about like the first half of the year?

Yes, we have about 42 million left at the midpoint of the year and we expect the full year to reflect the first half.

Okay. And do you think sales and general administration costs will stay about the same, going forward, as the first part of the year? Or do you still have more work to do there and maybe have a little bit less, next year?

I think we've always got work to do around our SG&A costs. And we expect it to reflect the first half of the year, but we will be looking during the budget round again where we can take out any excess we've got.

Maybe, David, if I could just add to Ian's comments and all I would say is that I see that as an ongoing process and really something that we need to do, continually. And I'm pleased about to see that there's been a fundamental shift in the business with a lower corporate cost base and higher profits, and that's something that we need to continue to drive. So, we won't be letting up on that situation at all.

Thank you very much, guys.

You're welcome.

Thanks, David.

[OPERATOR INSTRUCTIONS]. We'll take a follow up from Gregg Hillman, First Wilshire Securities Management.

Hi. Yes, I have two follow ups. One was just on your SG&A, going forward - have you made any comments on that, whether you're going to be able to reduce it or whether it's going to be just flattish?

What we've done on that one, in the presentation, the results that we showed, we said that SAR costs - sales, administration, and research - were going to be, I think, below 22% for the full year. I used a percentage of sales and that's the only statement that we've made, Greg. We haven't quoted an absolute number. We just quoted it as a percentage of revenue.

Okay. And then, Paul, I wanted to ask you, also, about Asia-Pacific, where legislatures are implementing higher emission standards. Could you talk about some of the big countries - I think you're involved in the Philippines and Indonesia. Are you sole source for those countries for doing customized fuel additives for their refineries there?

I'll come back to that last point as the part of the answer, if I may, Greg. Asia-Pacific is a relatively small region for us. It accounts for about 12% to 15% of what we sell in Fuel Specialties. But it is growing very, very rapidly and the strategy that we have in that region is to focus on the major accounts. We would probably call it the three Ps, which is Petronas in Malaysia, Petron in the Philippines, and Pertamina in Indonesia. But, also, we're looking at expanding our product line out there. As Ian mentioned in his comments, we've been able to attract some good marine business, which is quite profitable for us. And we can see some pretty aggressive growth in that area.

For example, we just recently developed an additive to work with Petronas in Malaysia as they brought out a new fuel and that was extensively covered in the press. And that's a partnership that we have with them that we hope will continue for some time. We have a good strong position with them. I won't say we're sole source on any of them, but we have a good strong position with regards to our particular additives and we're looking to support them if they look for growth, as well. And a lot of their growth can actually come from outside of the region because they're developing and expanding their business outside of Asia-Pacific.

Okay. That's interesting. And speaking of the marine business, could you talk about - well, number one, whether your additives for marine bunker fuel, whether that actually improves efficiency, well, approves like fuel economy for the boats? Because I know that's a big issue with shippers, right now. And also, could you talk about the Holy Grail? Whether you could actually improve fuel economy for, let's say, diesel trucks.

Well, two very different things there. First of all, if you look at the marine business, I mean, obviously, we supply a fairly broad range of products into that area, which is a difficult sell that you see looking at very small percentage improvements in the fuel efficiency or the emissions reduction in that particular vessel but that can add up to significant dollars over a longer period of time. A lot of the work is really helping to keep the fuel system clean, to reduce the maintenance costs, and also reduce the emissions that come from the vessels. And as we develop our program and sit down with the ship owners, the fleet management team, etc., then we believe that we've got an opportunity to develop that business. It's intensive because obviously, you're selling in all different parts of the world. You eat up the right distribution system in place. But we think that we're in a good position to support that.

Moving onto the diesel trucks, which is a different situation - I mean, obviously, as you know, diesel additives, you need between nine and a dozen additives just to get the diesel to operate in certain types of climate and a lot of these are improving the efficiency at which the engine performs. And yes, you will see a little bit of fuel efficiency improvement. But the principle, there, is that diesel is extensively a more economic fuel to run anyway and what we need to do is just reduce the emission content and allow the fuel to actually operate within the engines of the vehicles so that people can buy into that and use it.

As I mentioned to you, earlier on in the call, over here, in Europe, we use diesel cars extensively because you can get between 35 to 55 MPGs out of a diesel-engine vehicle and it feels and runs and sounds just like any other car. And that's just the - and we believe that's an opportunity for us to grow in other parts of the world, as well.

Just one last question about diesel fuel additives - I know in the United States, in cold climates, it's hard to get diesel cars to start because the fuel is too viscous. Do your additives improve that so people don't have to put like electric heaters in their cars at night for diesel cars?

Yes, but that's where the product called cold flow improvers comes in, in diesel. And that was one of the reasons that we actually purchased the [Loina] business, which is - part of it's in our Performance Chemicals business, part of it's in Fuel Specialties - and that's where it provides - it's an additive that enables - it stops the waxing or the gelling of the fuel and it enables it to perform at much lower temperatures. And that's sold, obviously, at different parts of the world, depending on their climatic conditions. And that's an area that we're looking to develop, we're looking to grow, and we're investing in. And that's one of the key parts of our recipe, or our offering to our customers. At Cold Flow, we see the potential for some reasonable growth, there.

Okay. Thanks, Paul.

You're welcome.

And at this time, we're standing by with no further questions. Mr. Jennings, I'll turn the conference back over to you for any additional or closing comments.

Thank you, Pam. I would like to make just a couple of final comments. We truly believe we've transformed this company over this past year by sharpening the focus on our chosen growth businesses in Specialty Chemicals and cutting corporate costs to match the scale of our ongoing operations. This transformation is now becoming clear in our financial results, as well.

It's difficult to convey on a conference call like this, but there's a new sense of excitement throughout Innospec, and the optimism among our employees about our future together as part of an innovative specialty chemicals company. You can't quantify that, which makes a big difference in our business. Analysts and investors who take the time to look closely at Innospec tend to agree that we have an exciting story to tell, just certainly born out by the performance of our stock, so far, this year.

If you have any additional questions, please give Kate, Ian, or myself a call. In any case, we look forward to sharing our third quarter results with you in October. Thanks, again, for being with us, today, and goodbye.

Thank you. And once again, this does conclude today's conference. We do appreciate your participation. You may now disconnect.