Innospec Inc (IOSP) 2007 Q1 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to today's Innospec, Incorporated Quarter One Earnings Conference Call. For your information, this conference is being recorded. At this time, I would like to turn the call over to your host today, Ms. Kate Davison. Please go ahead.

Thank you. Good day, everyone. My name's Kate Davison and I'm Group Legal Advisor and head of Investor Relations at Innospec. Thanks for joining our first quarter 2007 financial results conference call. Today's call is being recorded. As you know, last night we reported our first quarter earnings. The press release is posted on the company's website, www.innospecinc.com. An audio website 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 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 and other 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 have a few summary comments about our results before Ian takes us through the numbers in greater detail. First, and most importantly, we are very pleased with the operating metrics underlying the reported GAAP results. Our two ongoing business segments, fuel specialties and performance chemicals, posted a 21% revenue gain on a combined basis and the combined operating income was up 17%.

On a GAAP basis, diluted earnings per share was $0.47, compared with just $0.05 a year ago. The results include a smaller charge for octane additives goodwill impairment this year, but they also include non-cash charges related to our United Kingdom Pension Plan under FAS 158 for the first time. In addition, while EBITDA was up just slightly on a reported basis, the results a year ago included $4.5 million in operating income related to the reversal of a retrospective pricing rebate, which we fully described a year ago.

Overall, although the results are somewhat ahead of our expectations, we remain very comfortable with the guidance ranges for the three lines of business that we provided on our last call.

And with that, I'm going to pause and turn it over to Ian Cleminson, our Chief Financial Officer.

Thank you, Paul. Turning to slide six in the presentation, consolidated sales for the quarter were up 17% despite flat revenues on a reported basis in octane additives. As Paul noted, we saw continued strength in fuel specialties and performance chemicals. The company's overall gross profit percentage was lower, reflecting the expected decline in octane additives. We also saw some small margin pressure in fuel specialties, but its margins remained well within our target range.

As you can see, consolidated operating income and EBITDA were both relatively flat. However, a year ago, they included the benefit of a $4.5 million accrual reversal in octane additives, and this year, we are incurring a $1.1 million pension charge we did not have last year. If you back both of these actions out, you'll see that on an adjusted basis EBITDA was up 29% from a year ago, and operating income was up 36%. On an earnings per share basis, if we adjusted for the same items, then we would have an additional $0.31 per share of earnings growth.

I will now turn to the individual business segments starting on slide seven. In fuel specialties, our largest business unit, we had another very strong quarter with revenue growth of 22%. The basic story here is that we continue to leverage our innovation, especially our market-leading R&D efforts in ultra low sulfur diesel, with an aggressive sales and marketing support. Our Americas region led the way with a 41% revenue increase, driven by strong seasonal sales and a continued strengthening of our ultra low sulfur diesel products, including cetane.

Our business in Europe, the Middle East, and Africa is more mature, but posted a solid 6% revenue gain despite the mild winter. Our Asia Pacific fuel specialties business reported a somewhat smaller revenue increase than we would have expected at 8%, which is mainly due to timing. The segment's gross profit percentage was down 1.4 percentage points, reflecting some raw material cost increases, as well as higher manufacturing costs in the Avtel business, due to the lower volumes we are now running through our plants here in the United Kingdom.

Although we're substantially above our 2007 full year revenue target of 8 to 12% growth, we're not inclined to increase the target range at this time. As the year progresses, we continue to expect more challenging year-over-year comparisons as we cycle against the periods when ultra low sulfur diesel boosted our results. We also remain comfortable with our previous gross profit target for fuel specialties of 32 to 36% for the year.

Moving on to slide eight, in performance chemicals we reported our third quarter in a row of strong comparisons. Revenues increased 19% year-over-year. The gross profit percentage improved 1.9 percentage points, and operating income was up 44%. It was a balanced performance with solid growth across virtually all of the segment's key businesses. We had some benefits from the dollar's weakness, but most of the growth is due to our ability to leverage increased volume and strong pricing across our markets.

The biggest gains were in our U.K. business, where additional volumes and timings boosted our sales in detergent chelants and static dissipators. Aroma Fine Chemicals had another solid quarter. They are operating much more efficiently now that they have resolved their manufacturing issues and they have now also completed the plant expansion projects we announced last year.

In the U.S., we are benefiting from consolidating all of our performance chemicals business into one operating unit with two manufacturing sites in North Carolina and a sales and technology center in New Jersey.

Finally, our Leuna business, which makes EVA and PE waxes, also had a good quarter, benefiting from strength in the construction related market [success].

Overall, our quarterly results in performance chemicals were well ahead of our annual growth targets, but we would expect some tougher comparisons later in the year and remain comfortable with our previous guidance at this point.

Turning to slide nine, octane additives had its strongest quarter in some time, particularly if you adjust for the unusual [act] a year ago. On a reported basis, revenues were flat with last year, but the first quarter of 2006 included the release of a previous provision for a potential of retrospective pricing rebate, which was no longer necessary. This release benefited last year's financial results, adding 6.6 million to revenues, and 4.5 million to operating income. If you back those amounts out, you can see the octane additive sales and profitability from operations were actually up significantly this year.

However, as you may remember from our last conference call, some of the business we originally expected in the fourth quarter last year was deferred into the first quarter this year. In addition to this, some of our other customers ordered more than we expected. We believe this is mostly a matter of timing of shipments. While we are pleased to have the incremental sales and cash flow, this doesn't really change the fundamental outlook for octane additives.

Over the course of 2007, we still expect the business to continue declining in the range of 15 to 25% for the full year. Our gross profit percentage also should be down significantly from a year ago, and we've begun to see that in the first quarter as our gross margin fell nearly 12 percentage points to 48.6%. This primarily reflects a higher cost of goods as we [relever] unit volumes through our TEL manufacturing facility here in Ellesmere Ports.

Turning to slide 10, corporate costs for the quarter were 5 million, down 5.9 million a year ago. As you may recall, corporate costs were a little on the high side in the fourth quarter and we are pleased that they have now come back in line. The octane additives impairment charge was 4.4 million for the quarter, less than half the 11.3 million charge a year ago. We would remind you that these are non-cash charges, albeit, they are less significant to our results now.

Our remaining goodwill in octane additives is in the range of $20 million, and by the end of this year it should be around $10 million. Restructuring charges for the quarter were $700,000, down from $900,000 a year ago, and relate to mainly small decommissioning charges in the United Kingdom.

For the first time this quarter, we have recorded a non-cash charge related to our United Kingdom Pension Plan under FAS 87 and FAS 158, which we adopted at year end. This is based on a complex formula that incorporates the benefits our employees are accruing, the expected return on assets, and a number of other smaller factors. This will be a regular feature in our reported earnings going forward, but was not in our numbers last year.

Another regular feature in our results going forward will be the effective tax rate, which we have seen rise to 35% this quarter. As the mix in our taxable profits skews more towards the U.S. on the [back of the] outstanding fuel specialties performance, we will see mid to low 30s as the norm.

Unlike the last few quarters, we did not have a significant gain or loss on our currency exposure this quarter. While the dollar is down significantly versus the pound and the Euro, compared to the year ago, it was relatively stable compared to December 31 levels for most of the first quarter.

Turning to slide 11, while our balance sheet at the end of the quarter shows a substantial reduction in cash versus year end, this is entirely due to our decision to repay $73 million in debt, which we discussed on our call last time. This does not affect the funds available under our credit facilities for acquisition or internal growth. But on an annualized basis, due to the difference between our cost of borrowing and the returns we earn on our cash investments, we will make a healthy saving in our interest charges.

We actually generated $9 million in cash from operations during the quarter. Capital expenditure was 1.9 million, delivering free cash flow of 7.1 million. Net debt at March 31 was 40.3 million, down from 46.2 million at year-end, and continues to compare very favorably with stockholders equity and our strong EBITDA generation.

Our working capital was in good shape at the end of the quarter. [Indiscernible - accented] of 121 million were up only 1 million from year-end, and receivables were up about 5 million, in both cases reflecting the growth in our businesses.

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

Thank you, Ian. Moving on to slide 13, this is one of our favorites. It reflects our concept of ongoing operating profitability, which we developed to capture the idea that our two growth businesses, fuel specialties and performance chemicals, have to grow and our corporate costs have to be reduced in order for the company to be viable in the longer term.

Two years ago we were losing money by this measure. As you can see, with the solid growth in our price and income at fuel specialties and performance chemicals, which is up 17%, together with the decline in corporate costs, which are down 15%, our ongoing operating profitability in the first quarter improved by 38% from a year ago.

Slide 14 essentially restates our previous guidance ranges for the three business lines. We will revisit these projections as the year progresses, but at this point, we think it would be premature to change any of these targets for the full year.

Moving on to slide 15. I had a few more points that I wanted to make. First, innovation is not just something we pay lip service to. We incorporate it--incorporated it into the new name we adopted last year because it really is driving our growth. As we noted on the call last time, new products developed in the last two years accounted for 24% of fuel specialty sales. There aren't very many chemicals companies that can say that.

We are also supporting future innovation by investing in research and development. You may have noticed that our research and development expenses for the first quarter were up 28% from a year ago. And we are not just creating new products. We are leveraging them through aggressive sales and marketing support.

Secondly, we are increasingly optimistic about the outlook for many of our businesses within performance chemicals. This segment has been flying below the radar over the last year, pretty much overshadowed by the strength in fuel specialties. But we have some terrific businesses within performance chemicals, and we were particularly pleased with the across the board strength we saw in their results in the first quarter.

We also see clear opportunities to accelerate growth in performance chemicals. For example, in our personal care business, we are excited about the potential for geographic expansion and are looking forward to bringing that business to the U.K. market next quarter. And in Aroma Fine Chemicals, which is best known for its Lilestralis fragrance, there are a number of opportunities to leverage our manufacturing and marketing infrastructure by launching new products.

Another potential avenue for future growth in fuel specialties, as well as performance chemicals, is possible acquisitions. When I was named CEO almost two years ago, the last thing we needed was more acquisitions. So we took an extended breather while we improved the fundamental performance in our core businesses. Now, with those businesses much stronger and with plenty of borrowing capacity, we have begun taking a look at the few potential acquisitions. But we are going to be careful and any deals we do will have to complement our existing strategy and be accretive for our shareholders.

Lastly, as you know, we are involved in two arbitration proceedings against Ethyl Corporation, which commenced in the second half of last year in relation to disputes we have with them in respect to both our TEL marketing and supply agreements. As expected, hearings were held in respect to one of these proceedings earlier this year and again in late April, and we are awaiting the decision of the arbitrator. The [indiscernible - accented] arbitration is progressing consistent with our expectations, though it is at a less advanced stage. It is not appropriate for me to comment any further at this time.

Moving on to slide 16, we continue to execute successfully against the goals we set forth more than a year ago. We said we were going to improve the performance of Innospec's core businesses by sharpening our focus on the best businesses within fuel specialties and performance chemicals. After some initial pruning, most of our remaining operations in these segments are leaders in their markets with strong growth and relatively high profit margins.

These businesses again performed well in the first quarter. At the same time, we are managing the decline in our TEL business prudently, maintaining service to our existing customers, and generating as much cash flow as we can for the benefit of our shareholders. We've also significantly reduced corporate costs over the last two years. We're doing a much better job communicating with investors and the media and we've improved our capital management. We repurchased about 625,000 Innospec shares in 2006, and during the first quarter of 2007 we bought back another 55,000 shares.

We think the results of our hard work ultimately are reflected in our stock price and increase in shareholder value. After nearly tripling in 2006, Innospec shares as of the end of April have moved up by another 15% so far in 2007. And with that, we'd like to turn it over to the operator, and to take any questions that you may have.

Thank you. (Operator Instructions.) We will take the first question from Jeff Zekauskas from J.P. Morgan. Please go ahead.

Good morning. This is [Olga] sitting here for Jeff.

Good morning, Olga.

Just a few questions. First on fuel specialties. So your sales grew nicely in the quarter. Have you seen any pricing or it was mostly volume?

Yes. When we look at the majority of the 22% growth that we see in our fuel specialties performance, mostly it was volume--right about 16% of the 22 was volume, with price mix and exchange accounting for the remaining 6%. So we're really pleased with that performance in quarter one.

Well, so your margins were lower year-over-year and you said higher raw materials costs. But do you have any plans to recover these costs or you are happy with the [indiscernible - accented] pricings?

Well, what we've actually seen year over year is right about a 7% increase in our base raw material costs in fuel specialties. And I think we've handled that extremely well through the supply chain. What we've actually seen in quarter one is some very specific items relating to Asia Pacific and our Avtel products. But what we seek to do is mitigate the cost increases we suffer with corresponding price increases, and leverage the product range wherever we can. And we'll basically just continue to do that in future quarters, Olga.

Okay, thank you. And for performance chemicals, so your sales were up well above your guidance and the profit margin was on the higher end. Was there something unusual in the quarter in terms of mix or products, one-time contracts?

No, we're--again, we're very pleased with our quarter one performance in performance chemicals. The 19% sales growth spread fairly evenly across all our individual operations. We saw price and mix accounting for about 5 percentage points of growth. And very pleasingly, again, volumes around about 6 percentage points for us. So we just--we really benefited from the focus that we've brought to that business and it's started to pay dividends for us now.

So why then do you keep your guidance of like 10 to 15% driving your growth for the year? Do you [kind of] keep the same level of growth?

I think what we've said there, Olga, was that we expect the second half of the year [to be sort of a] comparison year over year. So, yes, we are very comfortable with the guidance that we've given. Obviously, we take a look at that in a very hard way each quarter. And if we feel it's appropriate to upgrade it, then we'll do so.

Olga, this is Paul. I think the other thing I would add to that is that we started to see the improvements in that group of businesses in the second half of 2006.

Right.

So this is the third good quarter I think we've had [after] those businesses. And really it was the first half of 2006 that was problematic. So we can see the growth over those two particular quarters. The [indiscernible - accented] is probably going to be more challenging. But we still expect to see some growth in the second half of the year.

Okay. And the last question, if I may. The--for octane additives business - shift in timing of--what does it mean? Does it mean that the prior quarter volumes were shifted to this quarter or we should expect lower volumes in the following quarters?

I think if you recall the quarter four conference call, Olga, and what we actually said, that the business can always be impacted by the timing of shipments. And you remember that we actually said in quarter four that we'd see some volumes deferred into quarter one this year, and that's exactly what we've seen. In quarter one the [indiscernible - accented] volumes were actually 25% higher than they were in 2006. So that relates to--sort of related to quarter four volumes tipping over, and so it relates to customers orders a little bit above our expectations. Fundamentally, we still see the same dynamics in that business going forward, which is declining in the 15 to 25% range at revenue.

Okay. And do you see any changes in terms of customers exiting business or it's still the same?

No, we don't. We've got a number of customers. We keep very close eyes on them. We are very close to them in terms of the commerciality. We don't see any of them exiting the market right now.

Thank you, and I'll get back in queue.

Thank you, Olga.

We will take the next question from [Greg Hillman] from [First Wilshire Securities]. Please go ahead.

Yes, good morning, gentlemen.

Hello, Greg.

Hi, Greg.

Good morning.

I had a couple questions I guess in the fuel specialties area. Number one, for the new products that were providing for some of the growth, what were the names of the new products?

Patrick, would you like to comment on that?

Sure. Some of the new products that were introduced into the market this year were magnesium soaps. We've also got new products that are going into--if you really want to look at it by market sector, I'd look at it new products going into rail and marine, new products going into--probably Q4 of this year will be going into Texlead into the Texas market. We've got new products going into the gasoline market in Asia Pacific. And we have got multiple products going into the biodiesel and ethanol markets, which of course, are heavy growth markets across the globe.

Greg, if I could just add to what Patrick said. I mean, that's why we've actually been quite keen to put a little bit more money in R&D because [getting that percent of sales with] our new products is really important to us. And we were pleased with that performance in '06 and it's continued into the first quarter of '07 as well.

Just real quick. By the way, what is the magnesium soap product? What is that?

It's a product that goes into power marine. And it's basically--it's a combustion improver. It basically cleans it up to keep--to get better yields, to maximize power and combustibility in the engines.

For bunker fuel--for like--?

--Yes, for heavy crude--for heavy oil, I should say, for bunker fuel, primarily. Now, the market's changing. And if you look at the market dynamics, there's a lot of push going away from bunker fuel into straight number two diesel. And that's only a benefit either way it goes--when the market shifts more towards ULSD, it's a benefit to our company as well. So we're positioned very well, depending on which way the regs go.

Okay. And then, as you get--just the ultra--just backing up. Did you break out your sales by region of the country?

No. We'll give growth rates on regions of the world, but we don't actually break the sales out geographically.

Okay. So we don't know what sales were for fuel specialties in the Americas then? You don't break it out.

No. We can tell you what the increase was. But we don't--we don't actually quote the number.

Right. Okay. And then, on the--just in terms of getting spec'd in for various states and having that ramp up, I mean, so that really won't happen? That's really more like an '08 story to get--for Texlead or to get into California?

Yes. I think there's different dynamics going on in each country. If you look at Asia Pacific, for example, if you look at what's going on in Europe, especially Eastern European, the former Soviet Union, everybody is coming to some type of either Euro spec or U.S. spec. And what we've done really is we've positioned ourselves for ULSD in '04--'03 and '04 for the specs to hit in '06, '07, '08. And we're doing the same in these other countries, because as they ship export finished fuels in these countries, they have to meet those specs as well.

So it's creating opportunities. I think as every year goes on, you're going to see new regs pop up in certain countries. And we have to have the customer intimacy and the right procedures in place to be in those countries and be prepared to ship the appropriate products into those countries. But I think you're seeing regs change across the globe. It's constant, and as long as we're on top of that, I think you're going to see good growth in fuel specialties.

And could you comment on the three P's--what's happening there, whether that's material to the company yet, or when's that going to really become material?

It's just starting to materialize. We just launched a new gasoline program with Petron. We're doing a lot of different things in the marketplace around gasoline in Asia Pacific. And as we get closer in the gasoline market, we're actually backward integrating into the refining market with a lot of these different companies, whether it's Asia Pacific or whether it's China, whether it's the Philippines. Anywhere in those areas where we have very good relationships, we're leveraging back in the refineries as well. But I think it's just starting to materialize. You'll see the growth. In our opinion, you're going to see higher growth in probably Q3 and Q4 in Asia Pacific than you did in Q1.

Okay. And when you say you integrate back in the refinery market as opposed to fuel additives, what do you mean by that? That you have--provide chemicals that are used--.

--That's correct--.

--When making gasoline?

Typically, we've been on the--after you crack a barrel of crude, we're typically at the end of the market where it goes into the fuel. Now we have a product that actually is used as an asphalting dispersant, or you can call it an antifoulant. And that's actually used at the crude units. And so, we are now looking to back into the refinery and looking at what we can do help to get the crude units as well.

And then, exactly what kind of benefit can you provide to a refinery?

Better yields. So if you keep things from fouling up at the heat exchanger, you can get better yields, which means longer run times. And so, you're looking to increase their yields. And so, what we've done is we're utilizing the relationships we have on the fuel additive side with a new product that we have. We're running some tests as we speak at the crude units to see if the product that we have works as they say it works. We've got to validate it technically before we put it out in the marketplace.

But you're not getting involved in catalysts, just antifoulants?

That's correct. Not catalysts.

Okay. And finally, if you could just talk about the underpinning--the regulations for the ultra low sulfur diesel in the United States and why that's growing. Where did that come from? What was the origin of that? And kind of where is that or, I mean, how did that get started, that whole business?

Sure. Typically, the U.S. is behind when it comes to fuel regulations, primarily diesel fuel, just due to the fact that we're more of a gasoline market. What we have done is we were the first ones to really institute a sulfur cap. And for on-road use, it's 15 PPM, as we've alluded to in previous conference calls. There's now caps coming in at 2010 and 2012 for off-road and rail. We see those caps coming in--as you see a 2010 spec, typically the year before, you'll see them move to that spec.

What you're seeing at the refinery though is they're primarily going to make ULSD and just dye it for the off-road use until it comes into spec. So we're going to see really a pretty clear line of growth through 2012. And I think that's just the Americas. Really, we haven't even talked about the former Soviet Union and China and those areas as well. But in each state in the Americas, specifically, you are seeing different regs come out in each state. California has their regs, Texas has their regs. Those are actually additional growth areas for us as well. But it's all driven by sulfur, NOx, and particulate matter.

Okay. Great. I'll get back in queue. Thank you.

(Operator Instructions.) And we'll now take a question from David Wilson from Smith Barney. Please go ahead.

Good morning, guys.

Hello, David.

Hi, David.

Could you give me an idea of what kind of price increase you were able to get in the octane additives market?

Yes. So far this year, David--this is Ian here, we've seen price increases ranging from somewhere between 5 to 20%. I think our objective for this business is really to manage the costs and the price and price the products to reflect its economic value to our customers. And for us, those objectives haven't changed for a number of years and that's what we drive towards.

And earlier--I'm not sure, I might have misheard. I thought you said that you thought revenues from this area were going to be down 15%.

Yes. What we said longer term for 2007 is that we expect the full year revenues to be down 15 to 25% over 2006.

So that means volumes are falling a little bit faster than that, since you have the price increases then?

That's right. Yes.

Okay. And how about in the other TEL market, the Avgas market? Are volumes holding about even in that?

Yes. I mean, volumes in our business are pretty static. And what we've actually seen there is an erosion of margin and due to the lower volumes we're pumping through our TEL facility here in Ellesmere Ports.

David, this is Paul. I think if you're listening, I'd add to that one [indiscernible - accented] that in the past we've been--we haven't been maybe as positive about what we intend to do with that business as we see it now. And what we are saying to our customers is that we're going to continue to supply that product into the marketplace as long as there's demand. And I think that that's encouraging people, and maybe giving them a warmer feeling about that product than maybe they had a couple of years ago.

And you're getting the same type of price increases there that you do on the other side of TEL?

In the markets that we directly sell into, yes. In some of the other markets, I mean, as you know, I mean, that's up to other people. But certainly, the direct sales that we make, we've seen that sort of increase, yes.

Thank you very much.

You're welcome, David.

Thank you, David.

(Operator Instructions.) We will now take a follow-up question from Greg Hillman from First Wilshire Securities. Please go ahead.

Yes, hello, again. Yes. I just had a follow-up question about ethanol, biodiesel, and the additives. In terms of the ethanol, I mean, how do you distribute the product--the--does it go to the individual ethanol plant where ethanol is being made or where's it added and how are you distributing it?

It's at the ethanol plants.

What kind of--.

--And so, it gets shipped directly to the ethanol plants and they apply it at the plants. It's just--it's a corrosion inhibitor.

Okay.

And the good thing about the ethanol market--everybody knows the growth in the ethanol market. But what's happened in the past is you have ethanol that's based off sugar cane made in South America typically haven't had to use corrosion inhibitors. But now that we're looking at expanding ethanol such--in such a large amount into the U.S., they're looking at using corrosion inhibitors because there could be a corrosion spec.

I didn't quite get that. You said the sugar cane based ethanol does not need corrosion inhibitors?

Yes. They had not been using corrosion inhibitors in South America typically because of the sugar cane, the way it's processed. But if they're going to ship into the states, they typically will have to hit a corrosion spec and we're looking at--we're in South America right now working with those markets.

Okay. Is that material, just the whole biodiesel/ethanol area to the--to that division fuel specialties, or is that a fairly minor thing?

It's--it's a growing market due to the fact that legislation is driving it that way. If you look at ethanol, it's corrosion inhibitors. If you look at biodiesel, bio has a very difficult time operating in wintertime under cold temperatures. So it's good for cold flow improvers and it's also good for stability. Bio is very unstable. So we really--it's all in fuel specialties. It's really a very large growth market for us, especially as we push towards alternative energies.

But in terms of just the volumes that you're using, I mean, how much--?

--Very small right now.

But just the volume that's required for like a gallon of ethanol or whatever. I mean, how much--how much literally has to be put in in terms of corrosion inhibitors for whatever is added?

It varies. It varies depending on what you're trying to accomplish. But out of a gallon, let's say, you have 100 gallons. You might treat it with a gallon.

100 gallons of ethanol?

Yes. Let's just use that as a point of stake. I would probably say if you have 100 gallons of ethanol, you might treat it with a half gallon to a gallon depending on what type of spec you have to hit and depending on what the ethanol looks like.

How much does this stuff cost that you're selling to them, the corrosion inhibitors?

It varies. But from a cost basis to the ethanol producers, it's not a lot. So you're not talking about pricing yourself out of the market. It's not a very large add-on cost to the end consumer.

Do you know what the cost--what the range is that you sell it to or to your wholesalers or to whatever--?

--Yes, I probably can't give that over the phone though.

Okay. Okay, fine. Okay. Then, that's fine. That's what I wanted to find out. Thanks very much.

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

Thank you, Monica, and thanks, everybody, for your questions and your support of Innospec. And I would like to leave you with some final thoughts. Our first quarter results show continued solid momentum in our two ongoing growth businesses for fuel specialties and performance chemicals. Although the pace is likely to slow a little on a year-over-year basis in fuel specialties, we continue to believe that both of these segments will again post strong results for the full year. And importantly, these segments now account for over 80% of our revenues. So we're very optimistic as we look ahead. And we've also continued our approach of being open about our business and communicating our views, so you can get a balanced approach on the future of Innospec.

If you have any additional questions, please give Kate, Ian, or myself a call. In any case, we'll look forward to sharing our second quarter results with you in early August. Thanks again for being with us today. Goodbye.

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