Innospec, Inc. Q4 2008 Earnings Call Transcript

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 |  About: Innospec Inc. (IOSP)
by: SA Transcripts

Operator

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.

Kate Davison

Thank you and good morning everyone. My name is Kate Davison, Group Legal Advisor and Head of Investor Relations with 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’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 Managements’ belief, 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 the forward-looking statements. These risks and uncertainties are detailed in Innospec’s most recent 10-K report as well as the other filings we've with the SEC. We refer you to the SEC’s website or our site for these and other documents.

In our discussion today, we've 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'll turn it over to you, Paul.

Paul Jennings

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 approach in 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 then 18% increase in operating income for the fourth quarter. For the full year, Fuel Specialties revenues increased 18%, and its operating income rose by a 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 we have detailed in the appendices.

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'll turn it over to Ian Cleminson, our Chief Financial Officer.

Ian Cleminson

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 noticed 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 1.5 percentage points from a year ago. However, it was primarily due to the very weak margins of Active Chemicals.

Octane Additives gross margin was down just slightly whiles margins in 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, well a year ago, includes 4.4 million in expenses related to Oil-for-Food investigations. Excluding the item of share, operating income rose 15%.

On a GAAP basis, we've reported diluted earnings per share of $0.20 versus $0.45 a year ago. Well those include several special items in both periods, which are summarized in the appendices. 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 this full 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 reporting numbers, we get adjusted earnings per share of $0.64 for the fourth quarter compared to $0.65 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 6% negative impact from exchange rates. Once again this is an outstanding performance in the macro-environments we are facing in both the U.S. and Europe.

In addition, Fuel Specialties improved its overall gross profit percentage by 1-percentage points to 32.5%, which also was up sequentially from the third quarter margin of 31.8%. Improvement reflects lower raw material costs as well as increased sales of high margin products especially in Europe.

By region, revenues increased 18% in the Americas with particular strength in lubricant improvements and staff expenses. Gross margins also improved in this key region as raw material supply released on the start of the winter season with high margin products also helps.

Sales in the EMEA region were down 8% from an exceptionally strong performance a year ago, for the sales mix shifted away from the lower margin detergents and impacting margins significantly.

In the smaller Asia-Pacific business, sales increased 30% with strong sales and their gross 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 on to 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.

Moving to non-core polymers business. Our revenues were down 11% and our gross profit percentage was 12.6%, down to 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, we have seen growth from personal care, offset by lower sales in fragrances and crystal manufacturing. In the EMEA region, revenues declined 26% primarily reflecting the short drop in non-core polymers. In the Asia Pacific region were unchanged from a year ago to strong fragrance sales offsetting lower polymer volumes.

Turning to slide nine, as promised the Octane Additives segment delivered strong recovery on its operating results from the third quarter. But revenues were significantly affected by volumes higher expense levels among 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 to $7.3 million in the third quarter. The gross profit percentage for the quarter was solid at 46.2%, down only 0.7 percentage points from a year ago. The total 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%. Definitely segments will continue to be lumpy from quarter-to-quarter.

Moving on to slide ten, corporate costs in the quarter were $4.4 million down 29% from the year ago, while this is primarily due to the impact of the strengthening U.S. dollar on our predominantly U.K. sterling corporate cost base, both so reflects our continued tight controls in general and administrative expenses.

As you can see here the big item hit 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 U.S. GAAP to both mark-to-market losses on a forward currency contract positions. These positions were severely impacted by the above 18% of weakening during the quarter of U.K. sterling against the U.S. dollar, which both closed about the decline since middle August to 30%.

We also incurred $2.9 million in non-cash losses due to the translation of the net assets of our European businesses into U.S. 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 related to our United Kingdom Defined-Benefit Pension Plan down from $1.2 million in last year’s fourth quarter. Adjusted tax rate for the quarter was 26.7% and 28% for the full year reflecting the balance of the tax rate profits exceeds as lower rate for interest.

Turning to slide 11, the company’s cash position is stronger year-end, with $13.9 million in cash and cash equivalents. There was a free cash inflow for the quarter of $19.3 million, net of $2.3 million in capital expenditure. This was driven by our strong operating income of $22.7 million and $4.4 million improvements 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've probably seen in our press release last week, confirming we’ve recently completed a new three-year $150 million refinancing. This was particularly pleasing against a tough economic backdrop 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 [policy driven] at the time being preserving liquidity and maximizing cash flow to take precedence over stock repurchases.

Early in the year, the company repurchased approximately 484,000 shares for a total of $99.6 million. This way the Board maintained the semi-annual dividend at $0.05 a share.

And now I'll turn it back over to Paul for some concluding comments.

Paul Jennings

Thanks you, Ian. Moving on to slide 13, it shows Innospec’s ongoing operating profitability. This is a metric we used to backout the performance of our legacy Octane Additives business and demonstrate the progress in our ongoing Specialty Chemicals businesses. That is how we as management fundamentally looking in this way.

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 these spaces 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 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. It’s in the meantime there is not much flow we can say beyond the disclosures we've already made in our public filings with the SEC.

I should note that we have a Defined-Benefit Pension Scheme in the U.K. This is the legacy claim, 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 5 times our current market capitalization. Whereas the plan is broadly in the top decile of funded plans in the U.K., recent events in the bonds and equity markets together with improving mortality assumptions will impact the full valuation, which is based as of 31 December 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 in the FAS 158/87 was $0.5 million for the fourth quarter, down from $1.2 million a year ago. While, we are pleased with that we wanted to give everyone a heads-up for this line item is going to be increasing from the first quarter of 2009 onwards.

Lastly, we are very pleased on successfully completed the renegotiation of our credit facility. As detailed in our recent press release is a $150 million three-year facility. In the current credit market environment, we believe that inflexibility to secure funding speaks volumes about our credit quality and the quality of our management.

Along with the majority of other company's, we are not providing any guidance at this stage for 2009. While 2009 will clearly be another challenging year, we remain confident of our ongoing Fuel Specialties business is well positioned for the future and the Active Chemicals can recover and realized its growth potential over the longer-term.

And now we would like to turn the call back to the operator and take any questions you may have.

Question-and-Answer Session

Operator

(Operator instruction) We will take our first question from Jeff Zekauskas from JPMorgan.

Jeffrey Zekauskas – JPMorgan

Hi, good day. How are you?

Ian Cleminson

Hi, Jeff.

Paul Jennings

Hello, Jeff.

Jeffrey Zekauskas – JPMorgan

A couple of things, so in $9.9 million FX loss that you had, is that something that were versus in 2009 or increases or you can tell?

Paul Jennings

Hi, Jeff the mark-to-market losses that we have to book on the U.S. GAAP, on non-cash, and the position is at least taken out a number forward currency contracts to $7 and to buy sterling. And the reason we do that is that we generate more dollars than we actually required, but we don't generate enough sterling to satisfy our corporate cost base and our manufacturing sites based on the United Kingdom. So to get certainty of cash flow we’ve forward contract to buying dollars. However volume in 2009 is the upward points that we have from those contracts actually mature. We will be required to buy sterling at certain rates and not rate based on the year-end, it will be higher than the prevailing rates of let's say 144, which we call an experiencing. So the actually [combined] with that place probably the next six month Jeff, and it will take place in terms of the where we have to spend more dollars to buy a sterling.

Jeffrey Zekauskas – JPMorgan

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

Paul Jennings

No, Jeff, just fill the cash flow, the losses in books and what will happened is that we will actually spend more dollars buying a level of sterling when we have cash movements. And when you actually think about it Jeff, there is a little we can do, to influence the foreign exchange rates and we can’t predict how that move over the next quarter. Our business is naturally from a trading perspective tent to be hedged naturally, as a minimal impact on the operating income from foreign exchange. We look hard to keep it that way. And with regard to the forward contracts we'll continue to take them out to the prevailing rates and offer mark-to-market at a non-cash gains or losses we actually experienced at the time.

Jeffrey Zekauskas – JPMorgan

Okay. And second thing is in lead additive, you had a nice quarter. Is the blip side of that that probably you'll start the year relatively weak in lead additive?

Ian Cleminson

Jeff, this is Ian, and you can certainly assume that but obviously, if you look at any guidance in the press release and I am not going to give any guidance on the call here today, but certainly you will recognized more than those, that will be nature of the Octane Additives. So you could certainly see in that.

Jeffrey Zajkowski – JPMorgan

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

Paul Jennings

Jeff this is Paul. In this quarter we did see a drop in decline in volume et cetera. And we're also impacted by decline in currency that we actually picked up from the pricing perspective as we put pricing consistent into the marketplace. 2009 is very difficult first predicting that business, because it is a number of different markets in a number of different businesses. But I do feel that why that we talk about that parts that our business operating now is giving us the best chance to success. And we certainly are looking to try and develop that business to have a long-term future.

Jeffrey Zajkowski – JPMorgan

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

Paul Jennings

I mean that's your interpretation I've said, I mean what I'm actually saying is that if we come out of 2008, which was a difficult year, we took the decisions during the middle of the year to restructure it, to have in operating under different managements umbrella. And as we've stated that the biggest part of that business in the majority of the shortfalls is so important. We are delight it is a polymer side of the business, which as you know with ethylene process collapsing would have a large impact on profitability. But I'm confident that the way that we got that lot business positioned, how we now running that operation, and the focus that we have we're looking to try to ensure that has the much longer-term future with Innospec.

Jeffrey Zekauskas – J.P. Morgan

And just a couple of more things. How did your Fuel Additives business held up in January?

Paul Jennings

Jeff, this Paul, we're really pleased with the performance of Fuel Additives for quarter four. I’m showing that this is 8% growth year-over-year we've already pleased with. We are not prepared to discuss how the business is performing in 2009. We are thinking to start 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 superb job with it. But I’m not prepared at this stage to actually comments on any particular month or quarter.

Jeffrey Zekauskas – J.P. Morgan

Okay and 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 that stand now?

Ian Cleminson

Jeff this is Ian and what we actually got now is a small viability and our balance sheet is about $14 million. And this is from an accounting perspective only, and although we have a very well funded scheme, it is in the top 10t files Paul said earlier on. And we will flip from a small debt or small assets or small liability on our accounting basis. As Paul also mentioned, where we achieve our triennial valuation where we have a full actuarial valuation, the result of which around towards the end of this year and then we'll know, the true requirements of that fund and whether is in surplus or deficit.

Jeffrey Zekauskas – JP.Morgan

You have to make a pension contribution next year-end and how much will that be?

Ian Cleminson

At this stage Jeff we don’t know, and if we do have to make any contribution it will be agreed to the trustees of this team and management. And if we do need to make a contribution, that can be negotiated over 10-year period.

Jeffrey Zekauskas – JPMorgan

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

Ian Cleminson

You're welcome Jeff.

Operator

Next question comes from Jonathan Lichter from Sidoti & Company.

Jonathan Lichter – Sidoti & Company

Hi good morning.

Ian Cleminson

Hi, Jonathan.

Paul Jennings

Hi, Jonathan.

Jonathan Lichter – Sidoti & Company

Is there any indication that some of those polymer customers are returning and the prices have comedown?

Paul Jennings

I mean the only the I have said because the ethylene prices Jonathan as you know are published price, is giving a little increase in the price of ethylene through January. And I think what happened in the fourth quarter's customers were holding off, recognizing that the prices is going to fall, and then wait the thing to recover in the early parts of Q1. From our perspective we don’t really trust that business as a core business for us is always been relatively low profitability, and therefore that you would ask why we actually look at our operation. But at this stage we are not prepared to comment on how we see any individual quarter going in operation.

Jonathan Lichter – Sidoti & Company

Would it make sense at all to purchase the polymer from outside for your needs for the Fuel Specialist business as oppose to selling it and gaining perhaps losses there?

Paul Jennings

You are not helping with that question Jonathan. If you're looking at the polymer side then the OpEx material is ethylene, which goes directly to our facility in Germany, which is not limited tools Fuel Specialties business.

Jonathan Lichter – Sidoti & Company

I thought that the reason that you add this business was for the Fuel Specialties business that was some of the material that you use there?

Paul Jennings

I understand why you are coming for there. The principle reason for acquiring that business and this goes back long time it was five year's ago. It was actually trying to get into these specialty wax market, which they got some position to and that we discover, but it 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 it's still a very, very small percentage of the outlook of that particular metrics.

Jonathan Lichter – Sidoti & Company

Okay, and then in Active Chemicals are there are any new products that you are working on that you can talk about?

Paul Jennings

There are non-stop specific products at this particular stage, this were 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 customer acceptance of those products. I think what I would say on the general note is that our Fuel Specialties we put in a system three and half years or so go, where the pipeline for new products is very closely align for the market needs. And we have been very pleased with how that particular pipeline has works, and one of the 40% of what we've said in Fuel Specialties is new products was introduced in the last five years. We develop the same approach to our Active Chemical business and practicing that so we are really looking quite aggressively and seeing that is the process how we can grow that operation to give it along its own future with the company. So this stage that's where we stand with it.

Jonathan Lichter – Sidoti & Company

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 labilities before you are referring to there?

Paul Jennings

No I actually said liabilities, but the other parts of that particular equation is that we are in the top decile from the plan. So when we relating to there is actual growth size of the pension plant these are the Innospec predominantly because it's 95% pensioners and deferred pensioners because it is legacy from the all lead business. And there were only 5% of the people in that plan are Active employees. Another Active Chemicals Active employees of Innospec and really I’m just reiterating what we've always set on this plan, is very large for a company of our size today and it’s a legacy issue that we are trying to manage.

Jonathan Lichter – Sidoti & Company

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

Ian Cleminson

In negative point and we do triennial valuation and the valuations at the end of December 2008. If there is any from the end position that we believe along with the trustees needs to be tapered, then we have the ability to do that we're extended period of time and that’s the negotiation between the company and the trustees with the pension plan and that’s certainly what we’ve done in the past.

Jonathan Lichter – Sidoti & Company

And then just lastly, 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?

Ian Cleminson

And I mean I just 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 are aware of that, we will be communicating that promptly and we are cooperating fully with the investigations and the relevant authorities.

Jonathan Lichter – Sidoti & Company

Thank you.

Ian Cleminson

You're welcome.

Operator

Next question comes from Ali Motamed from Boston Partners.

Ali Motamed – Boston Partners

Hi, little detail on the pension please. So, you took a charge basically $50 million, I mean if I looked at the way you guys have funded your assets and liabilities it is very conservative going into what has happened. Now you are telling me that you have to go through a valuation exercise and I'm 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?

Ian Cleminson

Sure, and I think the way you need to think about that is and the year-end valuation and the movement from a small asset to a small liability actually flows through reserves and FAS 158/87 that probably comes in works. So 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 at the 2008. So, the way you would need to think about it that the asset has moved to slow liability and not moving as gone through reservers at year-end. The ongoing funding at this gain it does go through the income statements.

Ali Motamed – Boston Partners

So, I understand that aspect of it, but what is this exercise. So, I mean there is two aspects. So, what is the exercise I guess, the only variables that I can think of that will be something that is undeterminable or indeterminable at the end of the fiscal year is mortality assumption. And is that basically the only thing you are going to be looking at because you can determine the discount rate right? I mean you can look at the investments that you have. So, I mean you are basically plug-in a couple of numbers into a spreadsheet, you are coming up with the liabilities numbers. So what is this exercise that we're going? Try to understand sort of the dynamics of how accounting works? What I don’t understand is what we are going to be doing?

Ian Cleminson

Sure. Okay. I understand the question a little bit more fully now. So I covered up how things up in the year-end from the accounting perspective, so now answer the question around the actuarial evaluation. We required along with the trustees to carry out a full actuarial valuation every three years that is due at the year-end of 31 December 2008. That valuation is carried out by an actuarial firm appointed by the trustees. They have to agree a number of assumptions including inflation, pay inflation, mortality, discount rate and a whole heap of other assumptions and if only the world was as simple as the way you pointed out and I would look it to be as simple as probably a few numbers into a spreadsheet and coming out with a number. I would little bit figure out that, but unfortunately we are in the hands of actuaries here and they have to go through it a gene process and come out with the answer. Once the answer comes out, the company that enters into negotiation with the trustees over the level of funding and we estimate that process will take us a number of months to complete and we will have better visibility on that has towards the back end of this year.

Ali Motamed – Boston Partners

And so, I’m going to ask more questions because this five times the liability, liabilities are five times your market CapEx you mentioned, but it does not from my understanding of analyzing the way you were set up, it does not seem to be as bigger problem as you would think and so the more visibility, we can get here is the more comfort we could 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 that’s something you should be able to say right off the back. Is that true?

Ian Cleminson

From my perspective this is the investment we actually held by the trustees and not by the company at the balance of those asset it quite raise 70% in bonds and 30% in return seeking assets and that is designed to basically match the maturities that we see in the pension from itself. So it’s a very well balanced and a very well funded pension scheme. And I’m bit sure that the returns that we've seen and we expect to see on the pension scheme, probably are not dramatic for some other schemes will be because they will be much more focussed in equities, which has declined quite a lot over the last year. But at this stage, we do not have visibility and where those assets have performed.

Ali Motamed – Boston Partners

So, what was determined where do you take a charge?

Ian Cleminson

I think you got to really think about it in different ways and we do many valuations for accounting purposes, which is not we don’t here and we will then going to do a full evaluation over a period of time I know it’s a very detail process. So only at that point we will know from 2010 onwards, what our charge, or cash contributions will be over the number of years. As I said today, we know what we need to pay in 2009, and we know the accounting charge will be in 2009, and beyond that we are not yet in the positions to answer your question.

Ali Motamed – Boston Partners

And so okay. So, can you say what those two or and then what’s the chance that we are very far because I am very comfortable with being under funded by 15.20 - $50 million but when you sit on a $1 billion plan and that’s a potential you could be under funded by 20% that’s opening up the whole new variable that we need to consider but it doesn’t seem likely and so can you talk about that?

Ian Cleminson

Yeah, sure in 2009 we expect the accounting charge to about $6 million and in 2009.

Ali Motamed – Boston Partners

That after-tax I'm sorry.

Ian Cleminson

That’s before tax.

Ali Motamed – Boston Partners

Before tax, okay.

Ian Cleminson

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

Ali Motamed – Boston Partners

Okay, and so what's the chance that you think that your numbers are valid for us because the other. So they would put discount rate assumptions in their discount rate definitely moved upwards and that has a big impact on reducing the liabilities right. So, then they would have.

Ian Cleminson

Already answered the question really in many different ways I will given you one more goal. And nice to say that the detail process is underway we have not yet to complete today, I am assumes we do will be in position to actually explain to where that’s got to I am not yet able to answer that question for it.

Ali Motamed – Boston Partners

Are you comfortable I get that you went through somewhat of I mean how far as do you think you could potentially be? That’s a pretty because that’s a pretty big number, if you are even within a decent around then we are comfortable?

Paul Jennings

So this is Paul. The perfect structure mentioned in this first place is that as we always included within all our disclosures we have a U.K. design benefit plan. The point I mentioned which people may not picked up on it may have slip their money. Is that the defined benefit time in the U.K. relates to when this company was significantly launches than its today. So, you would not to expect the company that 250 to 300 U.K. employees to have a plan that has $500 million of liabilities and broad in the same number in terms of assets. So it’s a big deal in terms of how that’s managed and very correctly and they've clearly presented is an accounting aspect so it which we think to and we see at the numbers the funding aspects to a completely separate and they are being reviewed and they are been done by actually to the trustees without the company's involvement. So as soon as we’ve actually received those and gone through them, then we have the negotiations with the trustees, but this stage we’re just tracking up the size of the plant, which everybody seen before and it’s relativity to the actual company as soon as we know what those numbers are, then we will actually be in a position to share them. But this moment in time, that plan is broadly in the top decile of funded plants in the U.K.

Ali Motamed – Boston Partners

I’m sorry one more last followup and the reason I am asking this question is because you guys seem to be managing this in a much more conservative method the 90% of the company is in the United States, if you look at their asset and liability structure? So, when you talk about a huge plan like that, the risk profile of it is could potentially be and from reading the filings in details, it looks like the risk profile it's substantially less then if you were a typical American company? But when you look at that 70% bond mix, how much of that would say is in government type bonds and how much in corporate or was it? Can you answer that?

Paul Jennings

Thank you for saying that we are actually managing in a conservative way because as you would expect, where you got that relationship of pension isn’t deferred, pension is to active members, then you have the money manage in that sort of ways. So that you do not open to as much volatility and so that’s why we have the 70:30, we are not prepared to share, what that 70% is in because that 50 decided by the pension from trustees and the investment committee of that fund. And that’s not publically available information. While our rule say that having the conservative aspects of the plan is absolutely the right thing to do and I appreciate you are supporting that because with that balance, you have to manage the plan in that way.

Ali Motamed – Boston Partners

My last comment this will be a little lower hang on the stock hopefully you can appreciate that and 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.

Paul Jennings

Thank you for your question.

Ali Motamed – Boston Partners

Thank you.

Operator

Our next question comes from Levon von Redding from [Hockey Capital]. Please go ahead.

Levon von Redding – Hockey Capital

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

Ian Cleminson

My pleasure.

Levon von Redding – Hockey Capital

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?

Ian Cleminson

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

Levon von Redding – Hockey Capital

Okay. And I appreciate you not want to necessarily give guidance for '09 but specifically as it relates to the fuel specialty side of the business we've seen some decent growth in that area, maybe you kind of 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 and how people are purchasing perspective?

Ian Cleminson

Actually do would you like to just check it upside.

Paul Jennings

Yeah, no problem. I think obviously we're all entering uncharted waters in this market in today's environment that the key to us I think it’s also to key to Active Chemicals is our product pipeline, we're cautiously knew it, we're cautiously revitalizing it, and that’s going to be the key to '09 because you are seeing refinery utilization down, yield rates down to 80% we've seen in the America’s alone about a 15% classification of either bankruptcies, how we want to classify over the road five, six trucking industry. So you're seen a lot of fuel is probably down in the usage in gasoline about 15% and diesel 20%. So we've got to at some point in time, we are going to see some effect from the marketplace, but what we've in a pipeline today we are going to continuously push those percentages and try to keep 20%, 50% at a lower rate. So as Paul and I even said earlier, we're not going to give guidance moved into '09. We're continuously push our management group for new products because obviously with the usage rates down we are going to have some negative effect to our company.

Levon von Redding – Hockey Capital

Okay. That's all, thanks.

Ian Cleminson

Thank you.

Operator

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

Gregg Hillman – First Wilshire Securities

Good morning.

Ian Cleminson

Good morning, Gregg.

Gregg Hillman – First Wilshire Securities

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

Ian Cleminson

Greg this is Ian. We just don’t give that certain information on revenue source?

Gregg Hillman – First Wilshire Securities

Okay. Is Asia material to the company?

Ian Cleminson

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.

Gregg Hillman – First Wilshire Securities

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

Ian Cleminson

Greg, this is Ian again, the half sank when you actually that for a movement. Broadly our accounting assets of the plan around about $560 million and at the end of 2008.

Gregg Hillman – First Wilshire Securities

Okay, and moving onto to new products may be Patrick maybe you could talk a little bit about and assume new products that you expect to be introduce in 2009 and I guess maybe possibly new customers like and if you can talk about Texas much better if you just give us a sense of new products are coming to market?

Patrick Williams

It’s tough to tell you what new price we've introduce into the market obviously for two reasons we don’t want to expose ourselves to competition over telephone call.

Gregg Hillman – First Wilshire Securities

Right.

Patrick Williams

Secondly I will tell you that that is very important to our organization the key to our organization expressing Active Chemicals is our pipeline. And we continuously as Paul eluded to early in the conversation is to upgrade our product line and obviously have multiple products be in have reentering to 2009 and 2010 but that takes time within R&D. As you've just discussed, we can't talk about because we introduced a new product that we talked about earlier in the conference calls in Q1, and Q2, and Q3 was our Texas our lead product own 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 have this conversation early 2008 and all the conference call and that is a part that came out of the pipeline is now expertalized product. But the key to us moving forward in both segments, not only Active Chemicals but in Fuel Specialties is what we call compounded commercialization, and we will continuously push that and as them is key to our success.

Gregg Hillman – First Wilshire Securities Management

Okay, and just sort of one other note on Fuel Specialties, what about the explain, but I think it's been exceptionally cold winner in the Northern Latitudes in the United States and I was wondering, whether that would effect you in terms and it confirm prove our sales and then also value added could be comment on feed stock cost and whether that’s going to benefit you at all lower feed stock cost or whether you just have to reduce the price to your customer.

Patrick Williams

To answer your first question I think obviously we got a cold weather in the America’s we got assume my cold weather Europe as well and be there we are a big user of the VVAs to the end user that have benefited us in the Q4, as well as its benefitting us in Q1. And I think its seasonal if you have cold weathers you obviously that benefits our company and answering to your second question that's the top one to answer to you quite frankly I would probably prefer not to answer that at this time.

Gregg Hillman – First Wilshire Securities Management

Okay, thanks very much.

Patrick Williams

Thanks Gregg.

Operator

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

Paul Flex – Capital Flows

Yes I’m wondering one of the issues is the market penetration of the new offering, and on the Fuel Additives business and perhaps you could characterize about how far along we are with those products?

Ian Cleminson

Paul, you take that question?

Paul Jennings

Yes, I think I can. I don’t, that follow Patrick.

Patrick Williams

No problem. When you look at an R&D new program, you can just look at here today a products and tomorrow. We will look at some phrase year one to year five, little a year 10 and 15. And so some products you will have come into queue immediately that will have the immediate effect on your product line, your portfolio and some you’ll have that will be down the line. We’ve got multiple products and in Active Chemicals especially where we really never had a product pipeline, we’ve got multiple products that we should be introduced to the market in 2009 and 2010. Obviously, it's very tied to recession, especially Active Chemicals and more tied recession and what I think Fuel Specialties. But we continuously are filling that pipeline and some we drop and then we add new ones but it’s not a phase of just coming up with a compound and introducing to the marketplace. It was multiple testing you’ve got a good government regulations, you got to regulatory issues, specification issues but it’s a continuously speed of the pipeline and there will be some products coming into 2009 but both sides is Active and Fuel Specialties but again it’s a continuously see the pipeline. And that’s going to be success of our organization.

Ian Cleminson

Maybe I'll just continue as what Patrick said I mention only about the percentage of new products that are Fuel Specialties that eventually used in last five years. If you look at Fuel Specialties five year that will go it was probably around the $200 million business this year is around $450 million business. So, it's increased by 2.5 times in that time period and one of the 40% of that $440 million, $450 million comes from products we've introduced in the last five years. So, in the cost of sales has come from those new products a significant number and its very important to us because that's the future and that’s the growth of the company. And I think that what the things been able to do with that in terms of commercializing those and the product probably recognized it's own for the market needs. Is something were continue to do that exercises and we are going vault and expand in Active Chemicals.

Paul Flex – Capital Flows

The potential market for the products, which are presently being shift, are how big are those potential markets relative to the share that we have?

Ian Cleminson

There is a number of different markets that apply here particularly doing in Fuel Specialties we are selling to the marine market, the reaching over the market and then into a various degree of certain markets on the turbulent to regardlessly and there is lots of numbers that actually turn around in certain market share. Throughout, we believe our market share is certainly double-digit and probably the high-end real teams but there are many different numbers to calculate that and what we tend to do is and we are focused that the nature of the markets that we participate in.

Paul Flex – Capital Flows

Thank you.

Ian Cleminson

You're welcome. Operator shall we now move onto the final comments you think.

Operator

Just please go ahead.

Paul Jennings

Thank you for your questions. I just like to leave you with a few final thoughts. Our largest business, Fuel Specialties continues to perform well in a very difficult economic environment and we expect Active Chemicals profitability to improve some of the unusually depressed 2008 level. Our long-term strategy for driving growth in our core businesses and building the shareholder value remains essentially the same today as it was when we started this journey of just over three years ago. We want to continue running our ongoing businesses pattern investing in innovation and executing our proven service oriented marketing strategies. The Fuel Specialties and Active Chemicals are 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 review in early May. Thanks everybody and good bye.

Operator

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

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