Innospec Inc (IOSP) 2008 Q4 法說會逐字稿

Good day and welcome to the Innospec Q4 conference call. Today's conference is being recorded.

At this time I will turn the conference over to Kate Davison. Please go ahead, Madam.

Thank you and good morning, everyone. My name is Kate Davison, (inaudible) Legal Adviser and Head of Investor Relations at Innospec. Thanks for joining our fourth quarter 2008 financial results conference call. Today's call is being recorded. As you know, last night we reported our fourth quarter and full year 2008 financial results. The press release is posted on the company's website at Innospecinc.com. An audio webcast of the call and the 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 may join 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 to you the SEC's website or our site for these and other documents.

In our discussions 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 Innospec 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 of Fuel Specialties. And with that I will turn it over to you, Paul.

Thank you, Kate, and thanks to everyone on the call for taking the time to join us today. Turning to slide four in the presentation, I have a few summary comments before Ian takes us through the numbers in greater detail. We are pleased with the solid overall operating income Innospec is generating in this extremely challenging economic environment. The results continue to be driven primarily by our Fuel Specialties segment which now accounts for approximately 70% of the company's total revenues. Fuel Specialties delivered 8% revenue growth and an 18% increase in operating income for the fourth quarter.

For the full year Fuel Specialties revenues increased 18% and its operating income rose by very impressive 26%. Octane Additives, as we expected, also turned in a solid fourth quarter with sales approximately three times its third quarter level. These positives were partially offset by poor performance in Active Chemicals parts of which are feeling the effects of the global economic downturn more than any of our other businesses.

In particular, its non-core polymers business has been hit hard by the weak demand in its cyclical end markets and a collapse in base ethylene pricing which has encouraged many of its customers to delay purchases in the expectation of buying later at lower prices. The weakness in polymers accounts for most of the decline in Active Chemicals reported results. As a relatively small public company, one off items can have a substantial impact on our reported consolidated results. As a result, we often highlight these areas to provide clarity on the true operating performance of the company.

This quarter was no exception, and there are a number of special items that is we have detailed in the appendixes. The most significant of these was a large non-cash foreign exchange loss primarily reflecting the strength of the dollar during the quarter against Sterling and to a lesser extent the euro. Ian will have the details, but if you exclude all of these items from both periods, our adjusted earnings per share for the quarter were up about 16% from a year ago. And with that, I will turn the call over to Ian Cleminson, our Chief Financial Officer.

Thank you, Paul. Turning to slide six on a consolidated basis revenues for the quarter were down 3% reflecting the year-over-year declines in both Active Chemicals and Octane Additives. However, as Paul noted, Fuel Specialties our largest and most important business delivered a solid 8% sales increase. Our overall gross profit percentage was 29.9%, a decline of one half percentage points from a year ago.

However, this was primarily due to the very weak margins in Active Chemicals. Octane Additives gross margin was down just slightly while margins and Fuel Specialties improved significantly from a year ago as well as sequentially from the third quarter. Operating income was up 47% on a reported basis, but the Q4 figure a year ago includes $4.4 million in expenses related to the oil for food investigations. Excluding the items last year operating income rose 15%. As you know, on a GAAP basis we reported diluted earnings per share of $0.20 versus $0.45 a year ago. Those numbers include several special items in both periods which are summarized in the appendixes. The largest of these was $0.41 per share in non-cash foreign exchange losses. We also have $0.02 in Octane Additives goodwill impairment and $0.01 in restructuring charges, so the total negative impact in our fourth quarter EPS was $0.44. A year ago we had a much smaller net impact of $0.10 from similar items. Backing these out of the reported numbers, we get adjusted earnings per share of $0.64 for the fourth quarter compared to $0.55 a year ago.

Turning to slide seven, in Fuel Specialties revenues increased 8% in the fourth quarter driven by 6% additional volumes and 8% due to price and product mix partially offset by a 6% negative impact from exchange rates. Once again, this is an outstanding performance in view of the macro environments we are facing in both the US and Europe. In addition, Fuel Specialties improved its overall gross profit percentage by 1 percentage point to 32.5% which also was up sequentially from the third quarter margin of 31.8%. The improvement reflects lower raw material costs as well as increased sales of higher margin products especially in Europe. By region revenues increased 18% in the Americas with particular strength in (inaudible) improvers and static dissipaters. Gross margins also improved in this key region as raw material supply issues eased and start of the winter season with higher margin products also helped. Sales in the EMEA region were down 8% from an exceptionally strong performance a year ago, but the sales mix shifted away from the lower margin detergents benefiting margins significantly. In the smaller Asia Pacific business sales increased 30% with strong sales and robust margins across most of the product line. Fuel Specialties operating income for the quarter was $22 million or 18% from last year's fourth quarter.

Moving onto slide eight, in Active Chemicals, revenues declined 15% as we reported an operating loss of $2.4 million compared with operating income of $1 million a year ago. Our gross profit percentage was 5.7% down sharply from 16.8% a year ago. We experienced a virtual collapse in polymer sales due to weakened market demand and pricing pressures in cyclical sectors such as automotive and housing industries. This was magnified by destocking in late November and December as many customers decided to wait for even lower prices expected in the first quarter of 2009. Excluding the non-core polymers business our revenues were down 11%, and our gross profit percentage was 12.6%, down a more manageable 2.3 points from a year ago. While gross profit dollars were up only about $800,000. By region sales were down 2% in the Americas with some growth in Personal Care offset by lower sales in fragrances and cost of manufacturing. In the EMEA region revenues declined 26% primarily reflecting the sharp drop in non-coal polymers. Sales in the Asia Pacific region were unchanged from a year ago with strong fragrance sales offsetting lower polymer volumes.

Turning to slide nine, as promised, the Octane Additives segment delivered strong recovery in its operating results from the third quarter when revenues were significantly affected by high inventory levels at its key customers causing them to delay shipments. Revenues for the quarter were $22.3 million, down 28% from a year ago but more than three times the $7.3 million in the third quarter. The gross profit percentage for the quarter was solid at 46.2% down only (inaudible) 0.7 percentage points from a year ago. Reported operating income more than doubled. However, excluding $4.4 million in expenses related to the oil for food investigations a year ago, operating income was up about 5%. The Octane Additives segments will continue to be lumpy from quarter-to-quarter.

Moving onto slide ten, corporate costs for the quarter were $4.4 million, down 29% from a year ago. While this is primarily due to the impact of the strengthening US dollar on our predominantly UK steel and corporate cost base, it also reflects our continued tight controls in general and administrative expenses. As you can see, the other (inaudible) from here also reflects the dollar strength. We incurred non-cash foreign exchange losses of $13.5 million before taxes compared to a $3.9 million gain a year ago. About $10.7 million of that loss is driven by the requirements on the US GAAP to both mark-to-market losses on our forward currency contract positions. These positions were severely impacted by the further 18% of weakening during the quarter of UK Sterling against the US dollar which brought about the decline since mid-August to 30%. We also incurred $2.9 million in non-cash losses due to the translation of net assets of our European businesses into US dollars. As expected, the Octane Additives impairment charge was again down significantly at ($0.5) million compared with $2 million a year ago. In addition, we've recorded another non-cash charge of $0.5 million dollars related to our United Kingdom defined benefit pension plan down from $1.2 million in last year's fourth quarter. The adjusted tax rate for the quarter was 26.7% and 28% for the full year reflecting the balance of taxable profits skewed towards lower rate countries.

Turning to slide 11, the company's cash position was strong at year end with $13.9 million in cash and cash equivalents. There was a free cash in-flow for the quarter of $19.3 million net of $2.3 million in capital expenditures. This was driven by our strong operating income of $22.7 million and a $4.4 million improvement in working capital. Total debt at year end was $73 million, down $19 million from Q3 and down $8 million from a year ago. Net debt was $59.1 million, up slightly from $56.7 million a year ago. You have probably seen in our press release last week confirming we have recently completed a new three-year $150 million refinancing.

This was particularly pleasing against a tough economic back drop and a difficult credit market. The new facilities will provide us with additional flexibility and the borrowing capacity we need to execute our long-term growth strategy. We did not repurchase any additional Innospec shares during the quarter. As we mentioned on our third quarter conference call, the board has determined that for the time being preserving liquidity and maximizing cash flow should take precedence over stock repurchases. Earlier in the year the company repurchased approximately 484,000 shares for a total of $9.6 million. This week the board maintained the semi-annual dividend at $0.05 a share, and now I will turn it back over to Paul for concluding comments.

Thank you, Ian, and moving on to slide 13, which shows Innospec's ongoing operating profitability. This is a metric we use to back out the performance of our legacy Octane Additives business and demonstrate the progress in our ongoing specialty chemicals businesses. This is how we as management fundamentally look at Innospec. It is the future of the business and one which is the best barometer of our performance. Despite the softness in Active Chemicals our ongoing operating profitability for the fourth quarter was up 13% from a year ago and for the full year it's also increased 13%. Just three years ago we were losing money on this basis as our operating income from Fuel Specialties and Active Chemicals did not cover our corporate costs.

Turning to slide 15, I would like to make a few more points before we take your questions. Regarding the oil for food investigations, we continue to cooperate fully with the investigations. We still don't know how much longer they will take or what the ultimate results will be. When we do, we will communicate that promptly which in the meantime there is not much more we can say beyond the disclosures we've already made in our public filings with the SEC. As you know, we have a defined benefit pension scheme in the UK. This is a legacy plan which predominantly covered all our Octane Additives employees. Given the significant decline in this business, we are now left with a plan whose population is 95% pensioners and deferred pensioners, with only 5% active members. The total liability of the plan is approximately five times our current market capitalization. While the plan is broadly in the top decile of funded plans in the UK, recent events in the bonds and equity markets together with improving mortality assumptions will impact the full evaluation which is based as of the of December 31, 2008. We do not expect to see the results of this valuation exercise until later this year. On an accounting basis our non-cash charge into FAS 158/87 was ($0.5) million for the fourth quarter, down from $1.2 million a year ago. While we're pleased with that, we wanted to give everyone a head's up that this line item is going to be increasing from the first quarter of 2009 onwards.

Lastly, we are very pleased to have successfully completed the renegotiation of our credit facility. As detailed in our recent press release, its $150 million three-year facility. In the current credit markets environment, we believe that Innospec's ability to secure funding speaks volumes about our credit quality and the quality of our management. Along with the majority of other companies, we are not providing any guidance at this stage for 2009. While 2009 will clearly be another challenging year, we remain confident that our ongoing Fuel Specialties business is well-positioned for the future and that Active Chemicals can recover and realize its growth potential over the longer term. And now, we'd like to turn the call back to the operator and take any questions you may have.

Thank you. (Operator Instructions) We'll take our first question from Jeff Zekauskas from JP Morgan.

Hi. Good day. How are you?

Hi, Jeff.

Hello, Jeff.

A couple of things. So, in the $9.9 million FX loss that you had, is that something that reverses in 2009 or increases or you can't tell?

Hi, Jeff, this is Ian, and the mark-to-market losses that we have to book on the US GAAP are non-cash and the position is that we've taken out a number of forward currency contracts to sell dollars and to buy Sterling. And the reason we do that, is because we generate more dollars than we actually require, but we don't generate enough Sterling to satisfy our corporate cost base and our manufacturing side is based here in the United Kingdom. So, to get certainty of cash flow, we forward contracts to buy dollars. How it will unwind in 2009 is that at the point that we actually -- those contracts actually mature, we will be required to buy Sterling at certain rates and that rate based on the year end, will be higher than the prevailing rates of that's say 144 when we -- which we're currently experiencing.

So, the actual unwind will take place over probably the next six months, Jeff, and it will take place in terms of the -- we'll actually have to spend more dollars to buy Sterling.

So, if I understand what you just said to me, you expect to book more losses in 2009 in this area?

No, Jeff, its just purely cash-flow. The loss has been booked, and what will happen is that we'll actually spend more dollars buying a level of Sterling so it will be a cash movement. When you actually think about it, Jeff, there's little we can do to influence the foreign exchange rates, and we can't predict how they'll move over the next quarter. Our business is naturally, from a trading perspective, tends to be hedged naturally, and there is a minimal impact on the operating income from foreign exchange, and we work hard to keep it that way. And with regard to the forward contracts, we'll continue to take them out at the prevailing rates offer mark-to-market any non-cash gains or losses we actually experience at the time.

Okay. Second thing is in Lead Additives, you had a nice quarter. Is the flip side of that that probably you'll start the year relatively weak in Lead Additives?

Jeff, this is Ian. You could certainly assume that, but obviously, you know, we've not given any guidance in the press release, and we're not going to give any guidance on the call here today. But certainly you recognize more than most the lumpy nature of Octane Additives, so you could certainly assume that.

Okay. In terms of your Active Chemicals, there was a very, very large swing in 2008 vis-a-vis 2007. Is that one, all things being equal, where you expect to continue to book losses through 2009 or can you fundamentally restructure that business or change it to stop that?

Jeff, this is Paul. In the quarter we did see a drop in -- a decline in volume, et cetera, and we're also impacted by declining currency that we actually picked up from the pricing perspective as we put price increases through into the marketplace. 2009 is very difficult for us to predict in that business because it is a number of different markets and a number of different businesses. But I do feel the way that we've got that part of our business operating now is giving it the best chance of success, and we're certainly looking to try and develop that business to have a longer term future.

So, if I understand what you said, it's still going to be pretty tough going for 2009?

I mean, that's your interpretation of what I've said. I mean what I'm actually saying is that you know, we've come out of 2008 which was a difficult year, we took the decisions during the middle of the year to restructure it to have it operating under a different management umbrella, and as we've stated, that the biggest part of that business and the majority of the shortfall is so (inaudible) to (inaudible), related to the polymer side of the business. which as you know with ethylene prices collapsing, would have a marked impact on profitability. But I am confident that the way that we've got that business positioned, how we're now running that operation, and the focus that is we have, we're looking to try and ensure that that has a much longer term future within Innospec.

Okay. Just a couple of more things. How did your Fuel Additives business hold up in January?

Jeff, it's Paul. We're really pleased with the performance of Fuel Additives to quarter four and showing the sort of, 8% growth year-over-year, we're very pleased with. We're not prepared to discuss how the business is performing in 2009. We think it is far too early to try and give any guidance for that particular area, but we do think that the business that we have in Fuel Specialties is in a very strong position. It's exceptionally well-positioned for the future, and I think Patrick and his team are doing a super job with it, but I'm not prepared at this stage to actually comment on any particular month or quarter.

Okay. I guess lastly, if I remember correctly, you had an over funded pension plan at the end of 2007. I think your assets were above your projected benefit obligation? Where does all of that stand now?

Jeff, this is Ian, and what we've actually got now is a small liability, and our balance sheet of about $14 million, and this is from an accounting perspective only, and what we -- although we have a very well funded scheme, its in the top decile, as Paul said earlier on, and we will flip from a small asset to a small liability on an accounting basis. As Paul also mentioned, we'll due our tri-annual evaluation where we have a full actuarial evaluation. The results of which are out towards the end of this year and then we'll know the true requirements of that (inaudible) whether it's in surplus or deficit.

Will you have to make a pension contribution next year and how much will that be?

At this stage, Jeff, we don't know. If we do have to make any contribution, it will be agreed with the trustees of the scheme and management and if we do need to make a contribution, that can be negotiated over a ten-year period.

Okay, good. Thank you very much for taking so many questions.

You're welcome, Jeff.

Next question comes from Jonathan Lichter from Sidoti and Company.

Good morning.

Hello, Jonathan.

Hello, Jonathan.

Is there any indication that some of those polymer customers are returning now that prices have come down?

We've seen -- I mean the only thing I've said the ethylene prices, Jonathan, as you know, are a published price. There's (inaudible) a little increase in the price of ethylene through January, and I think what happened in the fourth quarter was customers were holding off recognizing that the price was going to fall and then wait for things to recover in the early part of Q1. From our perspective we don't really class that business as a core business for us. It's always been relatively low profitability, and therefore that -- you know, that's the way we actually looked at that operation, but you know, at this stage we're not prepared to comment on how we see any individual quarter going to that operation.

Would it make sense at all to purchase the polymer from outside for your needs for the Fuel Specialties business as opposed to selling it and incurring perhaps losses here?

You're going to have to help me with that question, Jonathan. Because, if you're look at the polymer side, I mean, our base material is ethylene which goes directly to our facility in Germany which is not linked towards our Fuel Specialties business.

I thought that the reason that you had this business was for the Fuel Specialties business -- it was some of the material that's used there?

I understand where you're coming from now. The principle reason for acquiring that business, and this goes back a long time age -- five years ago -- was to actually try to get into the specialty wax market which they've got some positions in. And then we discovered that it's actually got some small (cold) flow properties that we can actually sell in the open market. And that's something that we've been trying to develop but still a very, very small percentage at the output of that particular factory.

Okay. And then in Active Chemicals are there any new products that you're working on that you can talk about?

There are no specific products at this particular stage. Because we're still working through them in terms of making sure that we can manufacture them and then making sure we've got the right testing and custom acceptance of those products. I think what I would say on a general note is that on Fuel Specialties we put in a system 3.5 years or so ago, where the pipeline for new products was very closely aligned to the market needs, and we've been very pleased with how that particular pipeline has worked, and well over 40% of what we sell in Fuel Specialties comes from products we've introduced in the last five years. We've developed the same approach to our Active Chemicals business, and Patrick and the team are really looking quite aggressively to see -- and seeing that as part of how we can grow that operation to give it a longer term future with the company, so at this stage that's where we stand with it.

Okay, can you just clarify one thing? I may have missed, you said something about was it that the pension assets were five times your market cap? Was it assets or liabilities? What were you referring to there?

No, I actually meant -- I actually said liabilities. But the other part of that particular equation is that we're in the top decile of funded plans. So, (inaudible) we're relating to there is actual overall size of the pension plan, vis-a-vis Innospec, predominantly because it's 95% pensioners and deferred pensioners. Because it's a legacy from the old (inaudible) business and there are only 5% of the people in that plan that are actually their employees. And I don't mean Active Chemicals, I mean actually the employees of Innospec. And really, I'm just reiterating what we've always said on this plan, is that it's very large for a company of our size today and it's a legacy issue that we're trying to manage.

Okay, so if you had to make anything up, let's say it was a large number, it would still -- you'd likely have ten years to make that up?

Ian made a good point and we do a tri-annual evaluation, and the evaluation is at the end of December 2008. If there is any funding position that we believe along with the trustees needs to be recovered, then we have the ability to do that over an extended period of time, and that's a negotiation between the company and the trustees of the pension plan, and that's certainly what we've done in the past.

Okay. And then just lastly, I know you haven't given much detail on the oil for food issue, but do you have any kind of timeline? Do you think it will be settled this year, next year?

As I said earlier on, Jonathan, I understand the question. We actually don't know how much longer it will take or what the results will be, but as soon as we're aware of that, we will be communicating that promptly, and we are cooperating fully with the investigations and the relevant authorities.

Thank you.

You're welcome.

Next question comes from Allie Mohammed from Boston Partners.

Hello. Little detail on the pension please. So, you took a charge basically of $50 million. I mean, if I looked at the way you guys were funded, your assets and liabilities, it was very conservative going into what has happened. Now, you're telling me that you have to go through evaluation exercise, and I am wondering what was the exercise that you went through to decide that you needed to take the equivalent of, effectively, a $50 million charge? So, that's my first question.

Sure. And I'll tell you what you need to think about all this is the year end evaluation and the movement from a small asset to a small liability, and it actually flows through reserves on the FAS 158 and 87. That's how the accounting works. There is actually no income statement impact. The impact on the income statement is the accounting charge which flows through, and we've disclosed in the quarter what that charge will be after 2008. So, the way you need to think about it is that the asset has moved to a small liability and (inaudible) has gone through reserves at year end. The ongoing funding of the scheme does go through the income statements.

So, now -- I mean I understand that aspect of it, but what is this exercise, so I mean there's two aspects. So, what is the exercise, I guess? The only variable that I can think of that will be something that is undeterminable or in-determinable at the end of the fiscal year is mortality assumptions. And is that basically the only thing you're going to be looking at because you can determine a discount rate, right? I mean you can look at the investments that you have. So, I mean you're basically plugging a couple of numbers into a spreadsheet and you're coming up with a liability number, so what is this exercise that we're going through? I understand sort of the dynamics of how accounting works, but what I don't understand is what we're going to be doing?

Sure. Okay. I understand your question a little bit more fully now. So, I've covered up how things happen at the year end from the accounting perspective. So, I'll now answer the question around the actuarial valuation. We're required, along with the trustees, to carry out full actuarial evaluation every three years, that is due at the year end of December 31, 2008. That valuation is carried out by an actuarial firm appointed by the trustees. They have to agree a number of assumptions with the company, including inflation, pay inflation, mortality, discounted rates, and a whole heap of other assumptions, and if only the world was as simple as the way you pointed it out and I would love it to be as simple as plugging a few numbers into a spread sheet and coming out with a number -- I would love it to be like that.

Unfortunately we're in the house of actuaries here, and they have to go through a due process and come out with the answer. Once the answer comes out the company then enters into a negotiation with the trustees over the level of funding. And we estimate that process will take a number of months to complete and we'll have better visibility on that towards the back end of this year.

And so, I am going to ask more questions because this is five times the liability -- liabilities are five times your market cap like you mentioned. But its not -- it does not from my understanding of analyzing the way you were set up, it does not seem to be as big a problem as you would think, and so the more visibility we can get here, the more comfort we can get with that. So, what happened with the assets? Because you had like -- a huge proportion of these assets were in very, very safe investments and much more in the bond markets and government bond markets, so what happened to the asset number? That's something that you should be able to say right off the bat. Is that true?

From my perspective this is -- the investments are actually held by the trustees and not by the company, and the balance of those assets you're quite right is 70% in bonds and 30% in return seeking assets. And that is designed to basically match the maturities that we see in the pension fund itself, so it's a very well balanced and a very well funded pension scheme, and because of that the returns that we've seen and we expect to see on the pension scheme probably are not as dramatic fall as some other schemes we'll see because they will be much more focused equities, which has declined quite a lot over the last year. But at this stage we do not have visibility on where those assets have performed.

So, what would determine whether you take a charge?

I think you've got to really think about this in two different ways. We do a mini valuation for accounting purposes which is what we've done at year end, and we'll then go on to do a full valuation over a period of time, and that is a very detailed process. So, only at that point will we know from 2010 onwards what our charge and what our cash contributions will be over the next number of years. As it stands here today, we know what we need to pay in 2009 and we know what the accounting charge will be in 2009. Beyond that, we're not yet in a position to be able to answer your question.

And so, okay -- so can you say what those two are? And then whats the chance that we're very far off? Because I'm very comfortable with being underfunded by $15, $20, $50 million, you know. But when you're sitting on a billion dollar plan and there's a potential you could be underfunded by 20%, that's opening up a whole new variable that we need to consider, but it doesn't seem likely, and so can you talk about that?

Yeah. Sure. In 2009 we expect the accounting charge to be about $6 million, and in 2009 we --

Is that after tax? I am sorry.

That's before tax.

Before tax. Okay.

And we expect the cash contribution to be about the same.

Okay. And so what's the chance that you think that your numbers are very far off? Because the other -- I mean, so they would put discount rate assumptions in there, discounted rate definitely moves upwards and that has a big impact on reducing the liabilities, right? So, then they would have -- ?

I've already answered the question really in many different ways. I will give it one more go. And that is to say that the detailed process is under way. We have not yet completed it. And as soon as we do, we'll be in a position to actually explain to you where that's got to. But I'm not yet able to answer that question for you.

Are you comfortable I guess that you went through somewhat of a -- I mean, how far off do you think you could potentially be? That's a pretty -- because thats a pretty big number, you know, if you're even if within a decent realm, then we're comfortable?

This is Paul. The purpose for actually mentioning this in the first place is that as we've always included, within all of our disclosures, we have a UK defined benefit plan. The point for mentioning it which people may have not have picked up on or it may have slipped their minds, is that the defined benefit plan in the UK relates to when this company was significantly larger than it is today.

So, you would not expect a company that has 250 to 300 UK employees, to have a plan that has 5$00 million of liabilities and broadly the same number in terms of assets. So, it's a big deal in terms of how that is managed and in -- very correctly and very clearly present is an accounting aspect to it which we've been through and we've shared the numbers. The funding aspects to it are completely separate, and they're being reviewed and they're being done by actuaries through the trustees without the company's involvement. So, as soon as we've actually received those and gone through them, then we will have the negotiations with the trustees. But at this stage were just (inaudible) at the size of the plan, which everybody has seen before, and it's relativity to the actual company, and as soon as we know what those numbers are, then we will actually be in a position it share them, but at this moment in time that plan is broadly in the top decile of funded plans in the UK.

I am sorry. One more last follow-up, and the reason I am asking and pushing is because you guys seem to be managing this in a much more conservative method than 90% of the companies in the United States if you look at their asset and liability structure.

(Inaudible)

So, when you talk about a huge plan like that, the risk profile of it is -- it could potentially be and from reading the filings in detail, it looks like the risk profile is substantially less, than if you were a typical American company. But when you look at that 70% bond mix, how much would you say is in government type bonds and how much in corporates? Or was it?

I appreciate that and thank you for saying that we're managing it in a conservative way. Because as you would expect where you've got that relationship of pensioners and deferred pensioners to active members, then you have to manage it in that sort of way, so that you're not open to as much volatility. So, that's why we have the 70/30. We're not prepared to share what that 70% is in because that is decided by the pension fund trustees and the investment committee of that fund, and that's not publicly available information. What I will say is that having the conservative aspect of the plan is absolutely the right thing to do and I appreciate you supporting that because with that balance we have to manage the plan in that way.

My last comment, this will be a little over hang on the stock. Hopefully you can appreciate that and that as soon as you do get this behind you -- because I think it's going to be a bigger over hang than it is a real issue, that you can make that public as soon as possible, please.

Thank you for your question.

Thank you.

Our next question comes from (Lavin VonRidden) from Hockey Capital. Please go ahead.

Good morning. Good afternoon, guys, and thanks for the accounting lesson on pension.

Its my pleasure.

A couple of questions. In terms of the oil for food issue, how much money was spent on that from a legal perspective in the year?

This is Ian. We've spent $50.5 million -- or we booked $50.5 million in 2008.

Okay. And I appreciate you not wanting to necessarily give guidance for '09, but specifically as it relates to the Fuel Specialties side of the business, we've seen some decent growth in that area. Maybe you can talk to some of the issues that might be either impacting or -- positively or negatively how that business might grow or not grow in '09, without necessarily being overly specific but things that I should be focused on either from a volume or change in how people are purchasing perspective.

Patrick, would you like to just chip into that stage?

Yes, no problem. You know, I think obviously we're all entering unchartered waters in this market in today's environment. The key to us and I think it's also the key to Active Chemicals, is our product pipeline. We're constantly renewing it. We're constantly revitalizing it. And that's going to be the key to '09 because you're seeing refinery utilization down, yield rates down to 80%, we're seeing -- you know, we've seen in the Americas alone about a 15% classification of either bankruptcies. You know, however you want to classify the over the road class six trucking industry, so you're seeing a lot of the fuel is probably down in usage in gasoline about 15% and diesel 20% so we've got to -- at some point in time, we're going to see some effect from the marketplace, but with what we have in the pipeline today, we're going to continuously push those percentages and try to keep the 20% and 15% at a lower rate. So, as Paul and Ian have said earlier, we're not going to give guidance moving into '09, but we're going to continuously push our management group for new products because obviously with the usage rates down, we're going to have some negative effect to our company.

Okay. That's fine. Thanks.

Thank you.

(Operator Instructions) We'll take our next question from Gregg Hillman from First Wilshire Securities Management. Please go ahead.

Good morning.

Hi, Greg.

Good morning.

Good morning, Greg.

A couple of things about the Fuel Specialties for the fourth quarter. You mentioned three geographies, one grew a lot, you know Asia, do you know what the base was for that in '07?

Gregg, this is Ian. We don't -- we just don't give that sort of information out (inaudible) unfortunately.

Okay. But is Asia material to the company?

It's an important region for us, Gregg, but it is the smallest of the three regions in Fuel Specialties, and its rates of growth reflect that.

Okay. And just one other question about the pension situation which I think you might have asked, but just the last time it was public, what was the amount of assets in the pension plan? The value of the assets the last time it was public?

Gregg, this is Ian again. My heart sunk when you mentioned the word pensions there for a moment. Broadly our accounting asset of the plan around about $560 million and at the end of 2008.

Okay. And moving onto new products, maybe Patrick, maybe you could talk a little bit about you know, some new products that you expect to be introduced in 2009 and I guess maybe possibly new customers like -- I don't know if you can talk about Texas much, but if you could just give us a sense of a new products that are coming to market?

Yes, it is tough to tell you what new products will be introduced into the market, obviously for two reasons. We don't want to -- we don't want to expose ourselves to competition over our telephone call.

Right.

But I think secondly, I will tell you that that is very important to our organization. The key to our organization, especially in Active Chemicals is our pipeline. And we continuously, as Paul alluded to earlier in the conversation, is to upgrade our product line and obviously have multiple products being -- having re-entering into 2009 and 2010, but that takes time within R&D.

As you've just discussed, we can talk about it because we have introduced a new product that we talked about earlier in the conference calls in Q1 and Q2 and Q3 was our Texlead product going into the Texas market. We have introduced it. It did come into play in Q4, and obviously we'll get sales going through Q1 and Q2 of 2009 as well. But that is a product that we had in play, and I believe we had this conversation early 2008, on the conference call and that is a part that came out of the pipeline and is now a commercialized product.

But the key to us moving forward in both segments, not only Active Chemicals but in Fuel Specialties, is what we call compound commercialization, and we will continuously push that and that is going to be the key to our success.

Okay. And just one other note on Fuel Specialties. What about climate? I think it's been an exceptionally cold winter in the northern latitudes, you know, the United States, and I was wondering whether that would affect you in terms of, I don't know, (inaudible) flow improver sales? And then also while you're at it, could you comment on feed stock costs and whether that's going to benefit you at all -- lower feed stock costs or whether have you just have to reduce the price to your customer?

Yes. To answer your first question, I think obviously we've had a cold winter in the Americas. We've had a semi-cold winter in Europe as well and being that we are a big user of EVAs to the end-user, that has benefited us in the -- in Q4, as well as it's benefiting us in Q1. And I think its seasonal. If you have cold winters, you obviously -- it benefits our company. In answering your second question, we -- that's a tough one to answer quite frankly. I would probably defer not to answer that at this time.

Okay. Thanks very much.

Yes.

Thanks, Greg.

(Operator Instructions) We have a question from Paul Fritz from Capital Flows. Please go ahead.

Yes. I'm wondering -- one of the issues is the penetration, the market penetration of the new offerings in the Fuel Additives business and perhaps you could characterize about how far along we are with those products?

Paul, do you want me to take that question?

Yes you can take it and I will wrap that one up, Patrick.

No problem. It -- you know, when you look at an R&D program, you can't just look at here today products and tomorrow. We look at it from phases of year one through year five through year -- through literally year 10 and 15. And so, some products you will have coming to queue immediately that will have immediate effect on your product line and your portfolio and some you'll have that will be down the line. We've got multi products, and in Active Chemicals especially, where we've really have never had a product pipeline, we've got multiple products that we should be introducing into the market in 2009 and 2010.

Obviously it's very tied to the recession, especially Active Chemicals is more tied to the recession than I think Fuel Specialties is, but we continuously are filling that pipeline and some we drop, and then we add new ones. But this is -- its not a phase of just coming up with a compound and introducing to the marketplace. There's multiple testing. You've got to go through government regulations.

You've got to go through regulatory issues, specification issues, but it's a continuously feed to the pipeline and there will be some products coming into 2009 for both sides of the business, active and Fuel Specialties, but again it's a continuously feed to the pipeline, and that's going to be the success of our organization.

Maybe I'll just complement what Patrick said. I mentioned early on about the percentage of new products that now form our sales in Fuel Specialties that we've introduced in the last five years. If you look at Fuel Specialties five years ago, it was probably around a $200 million business. This year it's around $450 million business.

So, it's increased by 2.5 times within that time period, and well over 40% of that $440 million, $450 million comes from products we've introduced in the last five years. So, in essence you're saying that half the sales and it's come from those new products. Now, that's a significant number and it's very important to us because that's the future and that's the growth of the company, and I think that what the team has been able to do with that, in terms of commercializing those and more importantly recognizing what the market needs, is something that we're going to continue to do in Fuel Specialties and we're going to develop and expand on in Active Chemicals.

The potential markets for the products which are presently being shipped are -- how big are those potential markets relative to the share that you have?

There's a number of different markets that play here, particularly within Fuel Specialties. Because we sell into the marine market, the heat and oil market, and then into a various degree of (cert) markets on detergents and gasoline, and there's lots of numbers that are actually thrown around in terms of market share. Broadly we believe our market share is certainly double-digit, and probably at the high-end of the teens, but there are many different numbers to calculate that, and what we tend to do is look at it very focused -- in a focused way based on each of the markets that is we participate in.

Thank you.

You're welcome. Operator, shall we move -- now move on to final comments, do you think?

Yes, please go ahead.

Thank you. And thank you for your questions. I'd just like to leave with you a few final thoughts. I want to just (inaudible) that Fuel Specialties continues to perform well in a very difficult economic environment and we expect Active Chemicals profitability to improve from the unusually depressed 2008 level. Our long-term strategy for driving growth in our core businesses and building shareholder value remains essentially the same today as it was when we started this journey just over three years ago.

We want to continue running our ongoing businesses better, investing in innovation and executing our proven service oriented marketing strategies. Both Fuel Specialties and Active Chemicals are in strong positions in a variety of attractive markets that we know we can leverage in the years ahead. Thanks again for being with us on the call today. And we look forward to sharing our first quarter results with you in early May. Thanks, everybody and goodbye.

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