Innospec Inc (IOSP) 2006 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to today's Innospec Inc. Year-End Results 2006 Conference Call. For your information, this conference is being recorded. At this time, I would like to hand the call over to your host today, Ms. Kate Davison. Please go ahead.

Thank you. Good day, everyone. My name is Kate Davidson and I am Group Legal Advisor and Head of Investor Relations at Innospec. Thanks for joining our Fourth Quarter 2006 Financial Results Conference Call. Today's call is being recorded.

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

Before we start, I would like to remind everybody that certain comments made during this call might be characterized as forward-looking statements under the Private Securities 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 10-K 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 under the documents.

In our discussion today, we have also included some non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measures is contained in our earnings release and in the presentation that follows, a copy of which is available on the innospecinc.com website.

With us today from Innospec are Paul Jennings, President and Chief Executive Officer; Ian Cleminson, Executive Vice President and Chief Financial Officer; and Patrick Williams, Executive Vice President and President, Fuel Specialties.

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 would now like to move onto Slide 4 and to make a few summary comments about our performance before Ian takes us through the numbers in greater detail.

Most importantly, we are pleased with these results. Our ongoing growth businesses in Fuel Specialties and Performance Chemicals continue to perform well. The combined revenues of these two segments were up 24% in the fourth quarter and their operating income increased 69%. For the full year their combined operating income was up 89%, which really underscores the transformation of Innospec's operating and financial profile over the last 18 months.

Our GAAP results for the fourth quarter show a significant improvement from a year ago, with a net loss of $0.06 per share, compared with the loss of $0.61 in last year's fourth quarter. Reported earnings for the fourth quarter 2006, include non-cash goodwill impairments and restructuring charges totaling $0.67 per share, while the results a year ago include goodwill and restructuring charges of $1.20 per share. Adjusted earnings per share excluding these amounts, were up approximately 3% despite a substantial decline in operating increment Octane Additives which, as you all know, can be subject to volatility quarter-to-quarter.

EBITDA for the quarter was $19.5 million, a 48% increase from EBITDA of $13.2 million a year ago.

I would now like to turn it over to Ian Cleminson our Executive Vice President and Chief Financial Officer who will go through the numbers in more detail.

Thank you, Paul. I will now move on to Slide 6 and review the financial results. On a consolidated basis revenues for the quarter were 0.3%. This is in the face of significant headwinds from the continuing decline in our legacy Octane Additives business, where revenues were down 54%. Countering this, the strong growth in Fuel Specialties continued and the turnaround in Performance Chemicals is gathering momentum.

The Company's overall gross profits was down 9%. The consolidated gross profit percentage was 32.1%, still very healthy, was off 3.3 percentage points from a year ago. Gross profit percentage was actually higher for the quarter of both Performance Chemicals and Octane Additives with the gross profit percentage in Fuel Specialties, our largest business, was somewhat lower due to a temporary shift in its business mix.

Consolidated operating income, excluding goodwill impairments on restructuring charges, is 10 million for the quarter, down 37% from a year ago. However, this is entirely due to decline in Octane Additives. As Paul noted, the combined operating income in our two ongoing business segments was up 69% from a year ago, despite the one off charge of $7 million in the fourth quarter.

I'll now review the individual business segments and turn to Slide 7. Fuel Specialties is now by far, our biggest business unit accounting for well over half our revenues and operating income. We had another strong quarter with a 29% of revenue gained to $94.1 million. Total gross profits increased to 18%. However, as I noted, its gross profit percentage was somewhat lower at 31.1% compared to 34.1% a year ago. This was driven by the dilution effect of the one-off contract I referred to in the Q3 call and also increased raw material costs in one of our fixed price contracts. Together these two items accounted for a dip of 3 percentage points in the quarter. We have now completed the one-off contracts and have renegotiated the fixed contract. So these items are seen as Q4 specific only.

Segment's operating income increased 39% to $8.6 million. Moreover, this was impacted by $7 million for one-time professional fees and other potential costs, which we are working hard to recover in 2007. We did incur a similar level of one-off costs in the fourth quarter of 2005.

U.S. business continues to benefit from its strong market leading position in diesel fuel additives and the Government's adoption earlier in the year of its new Ultra Low Sulfur Diesel regulations. [Bales of wins] products such as Cold Flow Improvers were strong in the quarter, out in the Americas region there was a 21% revenue gain. In the Asia-Pacific region, revenues increased 28% as we continued to benefit from our new contract wins earlier in the year. Just after year end, we announced a significant expansion in our partnership with Petron, the Philippines' leading Oil Company. We still have [inaudible] business with them and positions us to win additional business throughout the region.

In the Europe, Middle East and Africa region, revenues were up 35% for the quarter. Fundamentally, it was a good performance of strength across the board. However, about half of the region's revenue increase came from a one-time contract with a single customer, which is unlikely to recur in 2007. For the full year, Fuel Specialties revenues were up 21% and its operating income increased 74%. The revenue increases above the guidance range we provided last November of 14 to 18%. The gross profit percentage for the year was 34.1% in line with our expectations of between 32% and 37% for the year.

I'll now turn to Slide 8 and review Performance Chemicals. In Performance Chemicals, revenues were up 10% for the quarter with particular strength to Aroma Fine Chemicals, a low-end in the business which makes EVI and PE waxes, and Prochem, also a manufacturing business. The segment's gross profit percentage was 19.1%, up nearly 6 points from 13.4% a year ago. Profitability improved dramatically at Aroma Fine Chemicals, which benefited from price increases and improvements in its manufacturing efficiency. The segment's operating income was $1.7 million compared with a loss of $0.1 million a year ago. For the full year, Performance Chemicals revenues were up 10% at the top end of our projected range of 8% to 10%. The gross profit percentage of 18.9% for the year was in line with our guidance of 18% to 22%. The segment's operating income for the year is $5.8 million up significantly from $1 million in 2005.

I'll now turn to Slide 9 and review Octane Additives. In Octane Additives, results were somewhat softer than we had projected. However, shipments in this segment tend to be rather lumpy and the good news is that some of the business was essentially deferred to 2007. So Octane Additives revenues may not be down as much this year as we previously expected.

For the fourth quarter, the segment's revenues were down 54%. The gross profit percentage actually improved again reflecting the mix and margin profile of the business with operating income of $5.9 million was down sharply from $14.9 million a year ago. The decline continues to reflect the loss of South Africa as a major customer in 2005. For the full year, Octane Additives revenues was down 49% and its operating income declined 50%. Its gross profit percentage for the year was 57.6%, above our expected range of 50% to 55%.

I will now turn to Slide 10. Corporate costs of $6.2 million for the quarter were up a little from $5.1 million a year ago, primarily reflecting the higher professional fees in the quarter. Restructuring charges totaled $1.1 million, down significantly from $6.2 million a year ago.

Our quarterly goodwill impairment charge remains substantial and was $7.3 million for the quarter, compared with $10.3 million a year ago. As you know these are non-cash charges, which we're required by GAAP to spread out over the remaining life of the Octane Additives business, which is probably another 5 years. There is only $25 million in Octane Additives goodwill remaining at the end of 2006.

Other income was $3.7 million for the quarter compared to $3.1 million in other expenses a year ago. This positive swing is primarily due to foreign exchange. We had a $4.3 million foreign exchange gains in the 2006 period, compared to the $2 million foreign exchange loss a year ago.

Turning to Slide 11, the balance sheet improved further during the fourth quarter. Cash and cash equivalents at the year end were $101.9 million, up $7.7 million from the end of the third quarter, and up $28.7 million for the full year. Freight and cash inflow was $16.1 million for the quarter and $36.4 million for the full year.

Net debt was reduced by approximately $25 million during the year. We have recently completed a restructuring of some of our corporate entities, which has enabled us to efficiently pay down our debt. At the end of January, we paid down our revolver by $58 million and our term loan by $15 million. This will not affect the funds available for potential acquisitions or organic growth. It will save the Company around $2 million on an annual basis, due to the difference between our cost of borrowing and the returns we earn on surplus cash investments.

Stockholders equity at the year end was $225 million, down about $90 million from a year ago. At the end of the year, like most U.S. companies, we adopted FAS 158 which mandates changes in the accounting to pension fund access. This resulted in a $116 million reduction in our assets on our balance sheet and a $97 million reduction in stockholders equity. However, there was no fundamental change in the fund spaces, which is very well funded and no change in our financial flexibility or overall borrowing capacity. We remain very well positioned to consider strategic acquisitions and to fund organic growth opportunities as they arise.

Capital expenditures for the year totaled $7.6 million, below our expectation of about $10 million. But the difference is primarily timing. As a result we now expect our 2007 capital spending to be above our previous projections at around $17 million.

And now, I would like to turn the call back over to Paul for some concluding comments.

Thanks, Ian and moving onto Slide 13. As we have discussed on previous calls, we took a hard look at ourselves in 2005 and realized that with Octane Additives gradually disappearing, we needed to get to a point where we were solidly profitable, even without its profit contribution. Our concept of ongoing operating profitability measures that and shows our progress in 2006.

In 2005 the combined operating profits of Fuel Specialties and Performance Chemicals were actually about a $1 million short of covering our corporate costs. With a significant improvement in operating income and the reduction of more than 20% in corporate costs, our ongoing profit for 2006 was nearly $30 million. On the same basis, for the fourth quarter, our ongoing operating profitability improved to $4.1 million from $1.0 million a year ago. This analysis underscores the progress we have made and the strong underlying earnings momentum of our core businesses.

On Slide 14 and as you have probably noted in our press release, we are providing for the first time today some specifics around our expectations for 2007. In Fuel Specialties, we expect revenue growth to be in the 8% to 12% range and we think gross margins will again be very attractive in a range between 32% and 36%.

In Performance Chemicals, we are expecting an acceleration in their growth to somewhere between 10% and 14% with a gross margin of 18% to 22%. And in Octane Additives, we expect revenues to be down 15% to 25%, a somewhat smaller decline then we previously expected.

Gross margin in this business is likely to be down significantly, to somewhere between 39% and 45%, as we experience the de-leveraging effect of our lower volumes against the fixed cost price in the plan.

Moving on to Slide 15, I had a few more points that I wanted to touch on. First, I wanted to make a key point about innovation and its role in driving our growth especially in Fuel Specialties. This segment had an unusually strong year in 2006, thanks to the new Ultra Low Sulfur Diesel regulations in the United States. But that wasn't the only reason. We again expect significant growth in this business in 2007 and one of the main reasons is our innovation. In 2006, for example, new products developed within the last 5 years, accounted for 38% of Fuel Specialties sales, of products developed in the last 2 years, generated 24% of the segment's sales. I think these figures really highlight our commitment to research and innovation at Innospec.

Second, I wanted to convey our excitement about our new agreements with Petron Corporation, the Philippines' largest oil company, which we announced in early January. The agreements expand our strategic partnership with Petron and will potentially open up many new opportunities for us to win additional business in the Asia-Pacific region, as well as to serve our existing customers more efficiently. Petron is going to build a new blending facility in Subic Bay Freeport and will essentially become Innospec's exclusive toll blender in the region. This brings our products and services closer to our customers. Innospec also will continue supplying Petron with custom fuel additives on an exclusive basis for the next 10 years, and both companies will leverage each other's strengths and capabilities to add new customers throughout the region.

Thirdly, we remain very pleased with the turnaround in Performance Chemicals. You may recall that we reorganized this business in the second quarter of 2006, with its business units now reporting directly to me. With improved sales and profitability for two quarters in a row now, we feel as though we really have turned the corner in this segment's key businesses, especially at Aroma Fine Chemicals. On the year-over-year basis, we are looking forward to particularly easy comparisons in the first half of 2007.

Fourth, I want to reiterate that we are beginning to explore various opportunities to accelerate the Company's growth. A year and a half ago, when I was named CEO, we realized that we have to improve the fundamental performance of our core businesses before we could consider additional acquisitions. Now we have done that and our Fuel Specialties and Performance Chemicals businesses are well positioned for future growth.

We've also deleveraged the business enhancing our financial flexibility. We are pursuing organic growth opportunities more aggressively, gradually stepping up capital spending where appropriate. In addition, we have started to look more closely at some potential acquisitions. But, we are going to be very selective and any deals we do will have to complement our existing businesses and be accretive for our shareholders. And we may not do anything if we don't see an acquisition that makes sense because we are certainly not under any pressure to do a deal.

Finally, as you know, we commenced arbitration proceedings against Ethyl Corporation on two fronts in the second half of last year in relation to disputes we have with them over their performance under our marketing and supply agreements for TEL. An initial hearing was heard in early January in respect to one of these proceedings. It is therefore not appropriate for me to provide an update at this time. Progress in respect to the other arbitration proceeding is consistent with our expectations though it is at a less advanced stage.

Moving on to Slide 16, I wanted to take a few minutes and remind you what we said we would do a year ago. We said we were going to deliver increased shareholder value by running our core businesses better, increasing awareness of the Company and improving our capital management. I believe we delivered in 2006 in each of these key areas. Our financial results clearly show that we have improved the performance of our core businesses. We sharpened our focus on our chosen markets in Fuel Specialties and Performance Chemicals. Most of the ongoing businesses in these segments are leaders in their market sectors with strong market shares, above average growth prospects and relatively high profit margins.

In Octane Additives, we are managing the long-term decline of the TEL business responsibly to continue serving our remaining customers and maximizing our cash flows. We also have significantly reduced corporate costs but without eliminating any support that our businesses really need. With our name change and switch to NASDAQ last spring, we have created a new brand and a new awareness of our Company. We have much more proactive Media and Investor Relation programs and they are working.

In terms of capital management, we expanded our credit facilities to enhance our financial flexibility. We increased our cash dividend to stockholders by 14%. And during the fourth quarter we repurchased approximately 25,000 additional shares of Innospec common stock, bringing total repurchases for the year to about 625,000 shares, at a cost of $15.6 million. And as you know, the results were apparent in the performance of our stock last year. At year end Innospec shares had risen a 186% from the end of 2005. In other words, our stock price nearly tripled. Innospec was the best performing stock in the Chemical Week 75 Index for the year and we were ranked 60 out of more than 5,500 stocks listed on U.S. exchanges with total return to investors in 2006.

And now, we'll be happy to take any questions that you may have.

Thank you. The question-and-answer session will be conducted electronically. [OPERATOR INSTRUCTIONS]. We take our first question from Jeff Zekauskas from JP Morgan. Please go ahead.

Hi. Good morning.

Hey, Jeff.

Hi, Jeff.

Couple of things. I noticed that your working capital is negative $40 million and that inventories had gone from $96 million to $120 and receivables from $64 to $78 year-over-year. What's behind that?

Yes, Jeff. This is Ian and I think if you have been checking our business over the last year, you have seen an acceleration in working capital certainly over the first half of the year.

Yes.

That slowed and stabilized in quarter three. And it's actually gone down a little in quarter four, pretty much in line with what we said. You are right with the inventories. The increase is driven by the need to support the tremendous growth we've seen in both in Fuel Specialties and Performance Chemicals.

Yes.

In addition, we've also had to leverage our manufacturing strategy in the U.K. at Ellesmere Port, through our Octane Additives business and what we've seen there is an increase in value in the stock as we've downsized the manufacturing facility there.

So, all things being equal, will you expect further uses in working capital in '07 or not?

I think at this stage we will have to increase working capital to take account of the growth in Fuel Specialties and Performance Chemicals. As regards Octane Additives we did not stabilize now.

Right. And second question is a question about your guidance. What you did is you gave very wide gross margin ranges for Fuel Specialties and Performance Chemicals, 400 basis points. Why so wide a range? Is the business that uncertain that you can't pinpoint it more precisely?

Jeff, it is Ian again. I think we have got very good handle on our business. I think what we have to be very clear about is that we want to give a range to people and things can happen in business. They can move up and down and weaken our ranges good.

Okay. So, last question is in your currency gain, was that some kind of translation or were these currency positions that you took, that you unwound, sort of what went on there?

Yes, we have been -- obviously the, as you know Jeff, we are a multi-international business and we did put across a number of currencies. And in the final course of this year we are seeing some pretty big gains against the dollar.

Yes.

As we translate some of our non-U.S. based balance sheet assets, we are seeing some currency gains. What we are trying to do is actually to lock some of those gains in, in 2007. So we are working hard to do that and obviously we have got some forward currency hedges which is very convertible as well.

I guess, maybe another way of putting it is the gains that you booked this quarter, how much of that was a cash gain and how much of it was a book gain?

I would say probably about half of it was cash.

Okay, thank you very much.

Thank you very much. Now we move to John Walthausen from Paradigm Capital Management. Please go ahead.

Yes, good morning. Or I guess it's not morning there but couple of questions-- one, following up on the prior question issue about the wide range of gross margins in the guidance. It seems to me simplistically that gross margin variance falls down into the impact of volume -- the impact of the prices or raw material and prices that you are selling it at and mix. Can you talk about where is the real sensitivity or uncertainty that causes you to have the wide guidance is?

Sure, John. This is Paul Jennings. If you look at the three different businesses, they are probably three different reasons for why -- why we would actually have such a wide range. If you look at Fuel Specialties, as we saw a little bit in quarter four, depending on the mix of business that we have in a particular quarter it can impact the gross margin position in that particular business. Equally there are certain times of the year where we're selling some more richer gross margin businesses than others. And we didn't think having a narrow range was actually helping people to really understand the business too much, when it could slip just outside of that range. And that's why we have the one for Fuel Specialties.

If you look at Performance Chemicals, as you know we delivered about just under 19% for 2006 and we have kept the same range for 2007 but we got the sales growth to above 10%, I think to between 10% and 14%. And that group of businesses are quite wide ranging in terms of their overall gross margin contributions. Some of them are in the high 20s or maybe low 30s. Some of them are in the low teens, and depending on the mix of those businesses that is why we have such an extensive range within Performance Chemical.

Finally, Octane Additives, as you have seen with the quarter four results, it gets quite lumpy quarter-to-quarter. I am sure you followed us for sometime as most people have, and often we see a situation where you can have a drop in one quarter and pick-up nicely in the quarter after, principally because the timing of shipments; and as the business gets smaller, they can be quite material. So that's why we have the range within our Octane Additives business as well. We didn't want to come out and say, it's going to be 30 X% and really be just about that very finite number there. We wanted to make sure that it was a range, so you could see how the business is going to perform on a quarter-to-quarter and also on a full year basis.

Okay. That's very helpful in trying to understand the businesses. When I look on that issue in Fuel Specialties is there a generalization that could be made about whether some of the newer products that you emphasized, that you have a heavy mix of new products in there are driving gross margins higher or is it that too simplistic a way of looking at it?

Hi. This is Patrick Williams. I think there's multiple ways to look at it. But really simplistically we have a map that we put together that really moves from what's happened from 1970 to 2005. And it was really a very stable set of price because you had a stable set of fuels. Moving forward from 2006 and beyond, you have a lot of different fuel applications. You have Renewable Fuels Act from Bush that push for Bio, the push for Ethanol, which constitutes different products that we have made over the last 5 years. I think the product mix is in one way in prior fuel usage has been somewhat stable. We think the new products we have coming out should not only enhance our profit margins but at least keep them where they are today. So, we feel very comfortable where we are on the market today.

Okay that's great and then the other question I had was on the operating expenses in Fuel Specialties in the fourth quarter, you commented about it but I didn't get the gist of it. It seemed to me very high and I didn't get whether there was some specific one-time events or ramp up expenses or what's involved there?

John, this is Ian Cleminson and what we have said on the call is it's a $7 million in one-off expenses relating to professional fees and some other one time costs.

Okay, okay good.

It's not an underlying ramp up in cost in that business.

Okay good that explains it a lot. And then finally you did some restatements in the fourth quarter. Will we have a more detailed restatement going backwards quarter-by-quarter and stuff like that at some point?

What we are doing to revise the classification of some shipping and handling and costs, all the numbers are comparable in the press release. So you are looking at like-for-like.

Yes, well okay. We like to have -- fill these big spread sheets so to really look at all the trends.

Thank you very much. Now we take the question from Greg Hillman from First Wilshire Securities. Please go ahead.

Yes. Good morning, gentlemen.

Hi, Greg.

Hey, couple of questions, number one about your Low Sulfur Diesel Additives, could you just talk about when exactly was that implemented by various governments in United States and whether it's rolled out and how big it is and how important this to you? What percentage of share do you-- what size of the market it's going to be in and what share do you expect to have?

No promise, this is Patrick. I can't talk about market share but what I can talk about is the rollout. In 2006 and prior to 2006, we were 500 PPM sulfur on highway on road applications. Going into 2006 we dropped it all the way to 15 PPM sulfur. Moving forward non-road applications will have to go to 500 PPM by 2007, marine applications by 2010 and rail by 2010. What you will see in non-road applications as well by 2010 we'll be going to 15 PPM sulfur. Primarily what you are seeing the marketplace is, when you are driving ultra low sulfur diesel fuel, you are taking out a lot of the other components, that the other operability issues within the fuel for instance, lubricity improvers. We feel like because of some of these other applications coming out in non-road, marine, rail our Ultra Low Sulfur Diesel Additives are very well placed to take on more of these opportunities moving forward.

And in the area of ultra car diesel fuel is that the mandate to your products in that area?

Yes, if you look at CARB, the California Resources Board and they have different mandates as well. They have a cap on CO2, a cap on PN and it's very similar to Ultra Low Sulfur Diesel. They are running both, carbane ultra low in California.

Is that just one product for you or does that present like more than one product opportunity?

No, it's multiple products. It's lubricity improvers, depending on where you are, Northern California could be cold flow improvers. It's definitely Cetane because you have a Cetane number of spec that you have to hit for car diesel. You have corrosion inhibitors, stability improvers; it's a variety of products.

And on a totally kind of different subject. Could you talk about in the whole lubricity improvers for oil recovery and also any catalyst you might be developing in the refinery area and how that's -- whether that could be material to your Company anytime soon?

We talked in the last conference call about potential a product that goes into the FCC units and it's to maximize yields when producing gasoline. When you are going into high temperature you have a lot of [fahlen] at 1400 degrees and we are looking at a potential anti-fahlen-- high temperature anti-fahlen that we are testing as we speak, that should open a very large market for us, if the product is what we think it is and not only in Asia-Pacific but also the Americas. I think not necessarily as large in Europe because it more for gasoline than it is diesel. We are looking at some down whole applications as we discussed last time. In getting a handle on really where the product goes and what it's intended for and that's still under review as well. As well as we have a program going for alternative fuels, primarily coal. And as you know we are heavily into ethanol and bio diesel.

When you say coal what do you mean by coal?

Well, you want to extend the burn time of coal so give more efficiencies and that's what we are trying to do is expand the burn time of coal so it's cleaner burning.

Okay, okay thanks very much.

Thank you. Now the next question is from David Wilson from Smith Barney. Please go ahead.

Hey, good morning guys.

Good morning, David.

Hi, David.

Could you tell me in TEL business, were there any shipment delays or was a ship not come in or did too many ships come in anything or was it -- what I am trying to get at is were the shipments kind of normal for the quarter?

Yes, David this is Paul. The TEL business and I don't say in Additives, we experienced a lower quarter than we would expect to see and as we said in the --earlier on, some of that business has actually essentially moved into quarter one or quarter two of 2007. So it was a particularly lumpy quarter as we might call in and I am sure you understand that term.

All right so you were lumpy on the downside this time?

Yes, correct.

And could you tell me in the ad gas business have volumes and prices held up in that business?

Generally speaking yes they have held up. We see volumes being relatively flat and pricing maybe a little bit on the up-tick, but overall it at where we expect it to be.

Thank you very much.

You are welcome.

Thank you very much. [OPERATOR INSTRUCTIONS]. Now we move to Paul Spence from Capital [Flows]. Please go ahead.

Thank you. Paul, I applaud the progress and discipline evident in this year's results. Thanks.

Thank you.

Listen just two questions, one I think you just partially answered for Dave, and that was relative for the outlook in TEL, the improvement relative to historic trends here. It looks like part of it was this business of shipping, moving things quarter-to-quarter but is there any change in your outlook for the rate of decline in the adaptation of the products?

That's a great question. This is Paul. I think just to reiterate what I said to David earlier, there is a little bit of lumpiness on the down side in quarter four and that moves into quarter one and potentially quarter two, but we hope quarter one. We don't expect to see any dramatic shifts during 2007 at this particular moment in time and as Ian mentioned where he was going through it, we can still see this business going on probably early into the next decade and that's something we are working very hard to try and protect for obvious reasons, as you well know. But that's why the decline that we see in 2007 is less than what we showed in 2006.

And the second question, Paul is relative and it's a qualitative question, really not a quantitative question. But there's lots of uncertainty in the rate of growth of the individual fuel additive markets that you have entered. But it seems to me that in our overall basis there is some arbitrage effects here in that, there will be demand for fuel and you are participating in a broad base of those markets and maybe the volatility you suggest is not quite as bad as the ranges would suggest. Maybe you can -- you or Pat can respond to that?

Yes sure. Let me cover Fuel Specialties and then Performance Chemicals and then Patrick can step in with any comments he might have on the Fuel Specialties side. What you have to understand as I am sure you do, with the Fuel Specialties market is that the rates that we are quoting in terms of our growth rate are significantly ahead of where the markets actually growing and we believe that can continue into 2007, which is why we've given the 8% to 12% and what's encouraging for us is the number I mentioned earlier on about the percentage of new products that are coming through and how great the percentage they are of our actual sales. So that's why we believe we can actually go ahead of market expectations in the Fuel Specialties area. I think also if you couple that with the growth we expect particularly in Asia-Pacific following the agreements we've signed with Petron, I think we are extremely well positioned in that business.

If you look at Performance Chemicals, again those -- the markets that we participate in are probably growing in the 4% to 6% range and we quoted to 10% to14% for our Performance Chemicals business, which quite frankly we didn't do a good job of running that business, up until about the middle of 2006. We've now been able to unlock some value. I am pleased with the progress that we've got there and it's up to us to make sure we can capitalize on it, which is why we feel a little bit more bullish in terms of giving more robust and greater projections for the Performance Chemicals numbers. And maybe Patrick, if there's any comments you have got on the Fuel Specialties side.

Yes, I think if you look at global product range and look at the push for renewable fuels i.e. ethanol and bio diesel. If you look at those products in specific, for instance you look at South America they are going E26 for ethanol. If you look at the big push in the Americas where they are looking at building 41 new ethanol plants, you look at bio diesel where they are going from B2 to B20 in different parts of the world. All those are products that we had in the queue 5 years ago, preparing for the new push for alternative fuels and I think if you look at as Paul alluded to you earlier in the conversation, if you look at our product mix, a lot of our market cap has been the push for these new products that we had and I think a vision that we had as a Company looking forward thinking on what products, what we should be looking at from an R&D standpoint and we continuously do that. And I think that only bodes well for us in the future.

Maybe if I can just make one final comment in this area just to bring it to what we have been saying during 2006. We've always seen three key growth drivers in the Fuel Specialties business-- one is energy price and availability, one is population affluence and one is legislation. And we believe that all those three are the key market drivers for what's happening within that business. And we don't see that changing and I like to think that we have got fairly good handle on those drivers and the ability to support that market.

Thank you, gentlemen. And once again thanks for the good job.

I appreciate it. Thank you.

Thank you very much. As we have no further questions I would like to turn the call back over to you, Mr. Paul Jennings, for any additional or closing remarks.

Thank you and moving onto our final slide, which is Slide 18. First of all thank you for all your questions.

I would like to leave you with some final thoughts. Our fourth quarter results show continued solid progress in our two growth businesses, Fuel Specialties and Performance Chemicals. Although the momentum is inevitably slowing somewhat in Fuel Specialties, we expect our own ongoing businesses again to have excellent year in 2007, stronger in their respective industry sectors. And these two segments accounted for the 60% of our operating income in 2006. So we are encouraged as we look forward to the future.

If you have any additional questions, please give either, Kate, Ian, Patrick or myself a call. In any case we look forward to sharing our first quarter results with you in early May. Thanks again for being with us today, and good bye.

Thank you. That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.