Innospec's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.13.14 | About: Innospec Inc. (IOSP)

Innospec, Inc. (NASDAQ:IOSP)

Q4 2013 Earnings Conference Call

February 13, 2014 9:00 AM ET

Executives

David Williams – VP, General Counsel and Chief Compliance Officer

Patrick Williams – President and CEO

Ian Cleminson – EVP and CFO

Analysts

Ivan Marcuse – KeyBanc Capital Markets

Chris Shaw – Monness Crespi

Christopher Butler – Sidoti & Company

Gregg Hillman – First Wilshire Securities

Jon Tanwanteng – CJS Securities

Charles Hale – Polar Capital

Operator

Good day, and welcome to the Innospec Q4 2013 Earning Results Conference Call. For your information, today’s conference is being recorded. At this time, I would like to turn the conference over Mr. David Williams. Please go ahead, sir.

David Williams

Thank you, and good day everyone. My name is David Williams and I’m Vice President, General Counsel and Chief Compliance Officer at Innospec. Thanks for joining our fourth quarter and year-end 2013 financial results conference call. Today’s call is being recorded.

As you know, late yesterday we reported our financial results for the quarter ended December 31, 2013. The press release is posted on the company’s website www.innospecinc.com. An audio webcast of the call and the slide presentation on the results are also now available and will be archived on the website.

Before we start, I would like to remind everybody that certain comments made during this call might be characterized as forward-looking statements under the Private Securities Litigation Reform Act of 1995. Generally speaking, any comments regarding management’s beliefs, expectations, targets or other predictions of the future are forward-looking statements.

These statements involve a number of risks and uncertainties that could cause actual results to differ materially from the anticipated results implied by those forward-looking statements. These risks and uncertainties are detailed in Innospec’s most recent 10-K report as well as other filings we have with the SEC. We refer you to the SEC’s website or our site for these and other documents.

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

With us today from Innospec are Patrick Williams, President and Chief Executive Officer, and Ian Cleminson, Executive Vice President and Chief Financial Officer.

And with that, I will turn it over to you, Patrick.

Patrick Williams

Thank you, David, and welcome all of you to Innospec’s fourth quarter, and full year 2013 conference call. We are very pleased to report a record fourth quarter with our core businesses performing very much as we had expected despite a tough economic environment.

I’m pleased to note that all four acquisitions that we made during the last 12 months made important and positive contributions to both Fuel Specialties, and Performance Chemicals in both revenue and operating income.

We have been reasonably satisfied with the early phases of integration and management of our acquired companies.

This has been going to plan, and is particularly notable that our headcount has moved back up to nearly 1,100 people reflecting the transformation of the company since the last time we reached this level in 2012.

We will continue to watch our manpower and cost closely to ensure that they’re a good fit with our requirements and commitments.

We have also been able to realize the excellent strengths of our middle management team allowing us to promote within.

Where we have had to, we have augmented our team with a small number of high quality experienced individuals to build upon our professional skill base, and we look forward to their contribution to our growth.

For the near term, we will continue to concentrate on integrating these operations into our global platform while maintaining a watchful eye on external growth opportunities for future consideration.

Our Fuel Specialties business enjoyed record sales in the fourth quarter, with solid performance in all regions.

Our underlying business met our expectations with a good uphill performance and additional revenues of 12 million during the quarter, from our Bachman and Strata acquisitions.

Importantly, we maintain an excellent gross margin of over 31% during the quarter and closed the year at 31.9%. And 1.8 percentage point improvement to-date.

As we move towards critical mass, our Oilfield Specialties, we see good opportunities to leverage the synergies of technology as well as sales and operating strengths of our fuel specialties organization in the oil and gas markets.

As part of this focus, we opened up a sales office and support office in Houston, Texas during the quarter.

Our performance chemicals business grew 26% in the fourth quarter driven by excellent contributions from both Chemsil and Chemtec, two of our acquisitions we made in 2013.

We also enjoyed higher volumes on our underlying businesses primarily in our personal care and fragrance markets.

We also recorded good improvement in both gross margins, to 25.7% as well as operating income in our Performance Chemical segment.

Our Personal Care business continues to develop well and our product pipeline was particularly strong as we entered the New Year.

In Octane Additives, we recorded a strong quarter as we predicted with good volume carried over from the third quarter.

We have one remaining account in motor gasoline. And while we do expect business activity from this country in 2014, visibility beyond 2014 is still unclear at this time.

I will now turn the call over to Ian Cleminson, who’ll review our results in detail. And then I will return with some further comments on the year as well as the outlook and strategies moving forward. Then we will take your questions.

Ian Cleminson

Thanks, Patrick. Turning to slide 6 in the presentation, the company’s total revenues for the fourth quarter, were a record 241.6 million, a 13% increase from 213.7 million a year ago.

The overall gross margin increased from last year, to 30.9% driven by improved revenues in margins and Performance Chemicals, and the solid contributions from our recent acquisitions.

Our GAAP earnings were $1.17 per share, compared to the $0.47 per share reported in last year’s fourth quarter.

On an adjusted basis, our earnings per diluted share were $1.06 up from the $0.83 per share reported a year ago.

EBITDA for the quarter was 38.7 million, a 35% increase over last year. Net income for the quarter, was 28.7 million.

Moving on to slide 7, revenues in Fuels Specialties for the fourth quarter, were 163.8 million, a record high, and 6% higher than the 155 million reported a year-ago.

The increase was primarily driven by 2% higher volumes, a 2% favorable currency impact as the Euro strengthened, and 8% top-line from the acquisitions of Strata and Bachman offsetting a weaker sales mix of 6%.

By region, revenues increased 19% in the Americas driven by the acquisitions. Sales fell 4% in EMEA and 7% in Asia Pacific during the quarter. Both performances have improved over the full year. The Avtel business delivered a very good performance during the quarter.

Margins in this segment held strong during the fourth quarter. And on a full year basis, improved 31.9%. Gross profit was 51 million, or from last year’s 48.5 million, and operating income was 26.3 million.

For the full year, sales and fuel specialties increased 8% to 567.4 million, and operating income increased 6% to 92.7 million.

Turning to slide 8, revenues in Performance Chemicals for the fourth quarter, increased 26% to 52.2 million. With the acquisitions of Chemsil and Chemtec contributing 21% to revenues.

Excluding the acquisitions, underlying sales across performance chemicals grew by 5%, driven by improved volumes of 4% on a 2% favorable currency impact as the Euro strengthened, offsetting the lower pricing of 1%.

By region, sales increased by 34% in the Americas driven by the acquisitions and grew 2% in EMEA and 52% in Asia Pacific.

Gross margins improved to 25.7%, and operating income for the quarter was 6.5 million, up from 5.5 million reported a year ago.

Sales for the full year, rose by 7% to 192.4 million and the segment’s full year operating income was 23.6 million.

Moving on to slide 9, net sales in Octane Additives for the quarter, was 25.6 million, up significantly from 17.3 million a year ago as heavy volume carried over from the third quarter as we predicted.

The segment’s gross margin was 39.8%, an increase from the 36.4% in the last year’s fourth quarter. Gross profit was 10.2 million in the quarter, and operating income was 8.5 million, more than double the 4.1 million last year.

For the full year, the segment recorded net sales of 59 million, a 15% decrease from 2012 and its operating income was 21.5 million, a 17% decrease compared to last year.

For 2014, we expect to see a further decline in the Octane Additives revenues as the remaining countries continues to transition to unleaded gasoline.

As you are aware, visibility in this segment is often limited, and we will continue to update you each quarter.

Turning to slide 10, corporate cost for the quarter was 14 million, compared with 13 million a year ago. The increase was primarily due to high legal and enhanced compliance expenses, partially offset by lower acquisition related costs.

In the quarter, as expected, the pension charge was 0.7 million, however, there was a non-cash pension adjustment credits of 0.5 million. In 2014, we expect the pension charge to be broadly 0.8 million per quarter and the full year cash contribution to be 11.4 million.

The current year, full year effective tax rate, is 16.2% slightly lower than we had anticipated throughout the year, and lower than last year’s 28.3%. We expect the full year effective tax rate for 2014 to be broadly 23%.

Moving on to slide 11, we closed the quarter in a net debt position of 61.2 million, as an additional 54 million of revolving credit facility was drawn down in order to form the acquisition of Bachman. The annual dividend payments of $0.50 per common share and capital expenditures.

As of December 31st, we had cash and cash equivalents of 86.8 million, and debt of 148 million. And now, I’ll turn it back over to Patrick for some concluding comments.

Patrick Williams

In summary, although this has been a year of transition for Innospec, we are very proud of our performance in the fourth quarter and positive improvements they made throughout the year.

We have come a long way since our management team took over in 2009, and we have delivered on virtually every commitment we made at that time.

These commitments included our compliance program, management strength and depth, enabling a sustainable growth profile with strategic market expansion, contribute to our external growth through acquisitions, and providing real returns to our shareholders.

At a time of continued tough economic conditions, we delivered strong revenues in excess of $800 million. We maintained a very healthy gross margin of 31.2% and a 9% growth in EBITDA to 116 million.

Strategically, we have successfully closed four acquisitions since December 2012, and we instituted a regular dividend. We had an actual increase in working capital due to increase in sales revenue.

Once again, we generated strong cash flows from our businesses. We closed the year with a net debt position of 61.2 million, continuing to enjoy a very strong balance sheet, and positioning Innospec very well for opportunities ahead. We appreciate the fact that the market has recognized our performance.

We celebrated our 75th year anniversary in 2013 and we are very proud to have reached this milestone with the dedication of our employees and the loyalty of our customers. We are delighted that our Board chose to recognize this during the quarter.

We will continue to focus on our customers’ needs and invest in R&D that will help us enhance our competitive edge. We will also maintain the utmost vigilance on compliance as we welcome the opportunities ahead.

We entered 2014 in a very optimistic mode. With existing business and acquisitions working well together to provide future growth and very strong financial position from which we further expand. Our focus is to drive value through the integration of our acquired companies, but we will remain open to further acquisitions when attractive opportunity arise.

I will now turn the call over to the operator and Ian and I will answer any of your questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We will now take our first question from Ivan Marcuse of KeyBanc Capital Markets. Please go ahead.

Ivan Marcuse – KeyBanc Capital Markets

Hi guys, thanks for taking my questions. Nice quarter.

Patrick Williams

Good morning, Ivan.

Ian Cleminson

Good morning, Ivan.

Ivan Marcuse – KeyBanc Capital Markets

One question I have, to start off on the – on your corporate expense line, do these – the compliance that it costs, I think it was under 100 – understanding that these would decrease going to 2014. Is that still the expectation or do you expect corporate expense to sort of stay at this you know, $14 million level going forward or how should I think about that looking out 2014?

Ian Cleminson

Yes, you’re right, Ivan. We’ve been plugging this for a couple of quarters now. We’re through with the peak of enhanced compliance cost. And our expectation is that we’ll be in that 10 million to 11 million per quarter for corporate cost going into 2014.

Ivan Marcuse – KeyBanc Capital Markets

Okay, great. And then if you look at your – turning over to Fuel Specialties, it looks like you’re then void [ph] it looks like, it is. You got a pretty negative impact on mix. Is this related to the acquisitions coming in or a product change or how should we think about mix going forward or is this sort of a – just a one-time type of deal?

Patrick Williams

I think it’s a one-time type of deal. We saw – it was a general mix so it wasn’t really one thing specific. You were also doing a very hard comparison over very strong fourth quarter in 2012, and if you look at fuel specialties we’ve always said, GDP plus two to three and if you look year-over-year, we are about in line with that. So it really was about up to our expectations, but I do think it was probably a little awkward of a quarter in regards to mix.

Ivan Marcuse – KeyBanc Capital Markets

Now, turning to your oilfields business, so you’re opening an office in Houston. What’s sort of your expectations for growth for this business and are the acquisitions, how is that proceeding and integration, why is it – it looks like Strata maybe has had some bumps this year? Would you expect to regain those sales that you lost in the 2014 and how do you think about the growth rates of this business and the profitability?

Patrick Williams

Sure, good question. If you look at Strata, we really bought that for the technology. We knew that we would have to professionalize the business to really – to be able to put it in our global platform and have sustainability. So we knew that 2013 would be somewhat of a bump in the road to position ourselves very strong for 2014 and we’ve done that. I think if you look at overall, the oilfield business, you’re looking at, low double digits in that 10% to 12% range is kind of what we’re predicting with solid margins. Obviously, it’s a little higher than fuel specialties, but it’s a very strong business and I think the integration with all the acquisitions that we’ve made today [ph] have gone to plan and as expected.

Ivan Marcuse – KeyBanc Capital Markets

Great. And then two quick questions as more, I guess, first quarter type of – related. I know the octane business is from my perspective impossible model and from your perspective not much easier. How do you – how should I think about the first quarter in terms of EBIT contribution in that business and then the second part of that question, again, in fuel specialties, from what I understand, the weather has had an impact on a lot of companies. I know trucking had slowed a little bit due to weather. Would you expect any sort of impact at least in your North American business as a result of that?

Ian Cleminson

Yeah, Ivan, I’ll pick up the octane additives question then I’ll pass it over to Patrick to the fuels question. It’s always been tough to see very far forward in the octane additives business and nothing really has changed there. We’re in discussions right now with our final country [ph] to confirm 2014 supply. We’re confident that they’ll be concluded successfully. But overall, the timing of those deliveries, we don’t expect to see much in Q1 but we do expect to see more volume in Q2, 3 and 4, and possibly into ‘15 as well.

Ivan Marcuse – KeyBanc Capital Markets

So, first quarter – yeah, the first quarter, the octane, the contribution should be nil or same as the fourth quarter?

Ian Cleminson

It’s certainly not going to be like the fourth quarter. It could be nil or just a few hundred tons. At this point we haven’t got any more visibilities in that Ivan.

Ivan Marcuse – KeyBanc Capital Markets

Great. Thank you.

Patrick Williams

I think Ivan if you look at the fuel side of the business, our big months can be – there can be some sway in the cold weather months just due to operability, CFIs, four-point depressants [ph] et cetera. So we will see a little bit benefit of that going in to the first quarter of 2014. And so that should give us positive measures moving forward.

Ivan Marcuse – KeyBanc Capital Markets

Great. Thanks.

Operator

Our next question today comes from Chris Shaw from Monness Crespi. Please go ahead.

Chris Shaw – Monness Crespi

Hey, good morning, guys; how are you doing?

Patrick Williams

Good morning, Chris.

Ian Cleminson

Good morning, Chris.

Chris Shaw – Monness Crespi

I’d like to ask about the – well, dig into the performance chemicals. Can you sort of breakout – I know sometimes you do – I mean, how did polymers, how did fragrance perform, and I guess, the whole segment was a 5 [ph] and I’m not sure what to expect out of those probably weaker businesses, but maybe you breakdown some of the growth within the three sort of pieces of that business.

Ian Cleminson

Yeah, I’ll just pick up the polymers and fragrance picture, Chris, and I’ll let Patrick expand on the personal care side. As you know, polymers is more focused on the industrial markets particularly in Europe and that’s been a tough business for us. Year-over-year, it’s been flat and this quarter has been no exception to that.

On the fragrances side, we actually had quite a strong quarter in terms of volume, but again, over the full year, we expect a fairly flat business there. But the personal care business is completely different to that.

Patrick Williams

Yeah, and I think, Chris, just to add in to what Ian said, if you look at the personal care and with the acquisitions of Chemsil and Chemtec, personal care now constitutes just over 50% of our revenue in the performance chemicals market and you can see where we’re putting not only in our R&D dollars but also our focus in growth. It’s a higher margin business.

The silicone technology fits extremely well with our personal technology as well as, believe it or not, our oilfield technology. So, there’s a lot of synergies behind what we do in personal care and what we do in the oilfield, not only from an asset base but from a technology base. So we see a lot of growth coming forward in that personal care sector and obviously we’d like to get it to where it’s 75% of that performance chemicals market, and then you break out 12.5, 12.5 on the other two sectors.

Chris Shaw – Monness Crespi

Right. But, I guess, just trying to isolate the personal care growth, I mean, what do you see, I guess, going forward your sort of view on sort of the organic growth in that 50% that is personal care within that segment.

Patrick Williams

I think it’s very similar to oilfield. It’s right –

Chris Shaw – Monness Crespi

Double digits.

Patrick Williams

It’s right in that range.

Chris Shaw – Monness Crespi

All right, great. And just – you mentioned there was a 52% growth in Asia, was that acquisition driven or is that just – you opened an office there not too long ago. So I can’t remember what the – like it could be up [ph] 52% though.

Patrick Williams

No, that’s all product growth, Chris.

Chris Shaw – Monness Crespi

Oh, nice, good job. And then, just to further Ivan’s question on the octane additives, I mean, for the full year, should we be sort of thinking of it as results being a third of what they were, say, maybe two years ago in 2012 or half of what they were last year, just because you’re down to a third of the customers you had or half of the customers you had last year? Is that a broad way to look at it?

Ian Cleminson

Yeah, the way we think about it, Chris –

Chris Shaw – Monness Crespi

Right.

Ian Cleminson

Yeah, the way we think about it right now, Chris, is that we expect the operating income to be about half of what it was in 2013. We’ve not yet landed on what we think the volume is going to be exactly, but that’s our best expectations right now.

Chris Shaw – Monness Crespi

Okay. Then, last but final one, you still have a preload net debt level and I know you said you want to take a bit of a pause maybe on acquisitions that you can integrate and you already have the dividend out there. This could be sending [ph] more actions on buybacks possibly in ‘14?

Patrick Williams

I think, Chris, we’re still going to look at the markets. Our focus as we’ve said in the last two quarterly conference calls are integration and that’s what we’re doing, and to make sure we extract the global growth out of these companies that we have purchased, it doesn’t mean we haven’t stopped looking but we have definitely slowed it down and we’re not out hunting for acquisitions. If the right one comes along, we’ll obviously have to take a look at it, but as you know, that would probably put us into the latter part of the year before we did anything.

I would say our focus right now is just to really look at the proper capital structure we have with the new acquisitions that we have, continue to pay a dividend and we will review buybacks during the quarters as we always do with our capital management program and we’ll just get back to you guys as we go as we normally do.

Chris Shaw – Monness Crespi

Okay, great. Thanks.

Operator

We’re announcing our next from Christopher Butler from Sidoti. Please go ahead.

Christopher Butler – Sidoti & Company

Hi, good morning, guys.

Patrick Williams

Good morning, Chris.

David Williams

Good morning, Chris.

Christopher Butler – Sidoti & Company

Looking at the fuel specialties, do you have a sense of what the gross margin would have been in the quarter from just the legacy business separating out the acquisitions?

Patrick Williams

Yeah, it’s still right in that 30% to 31% margin. It’s very steady.

Christopher Butler – Sidoti & Company

And therefore the delta from last year would have been just because of the strong quarter that you had in 2012.

Patrick Williams

Yeah, that’s correct.

Christopher Butler – Sidoti & Company

And in the press release you had mentioned synergies from the acquisitions or I know that we had been looking for sales synergies, do you see any cost synergies available there now that you have the money [ph] to the fold [ph]?

Patrick Williams

As we go through the integration like we have been, we are starting to see stomp [ph] cost synergies but the reason why we bought these business, were not necessarily for cost synergies, they were for growth synergies, but as in anything you do, Chris, and you have – and you combine them with fuel specialties, you will have some cost synergies there. And I think you’ll see some of that come out in 2014.

Christopher Butler – Sidoti & Company

And on that note, could you give us a sense of what CapEx is going to be in 2014 as you try to grow these businesses out?

Ian Cleminson

Yeah, Chris, we’re probably aiming for – in terms of the core businesses, round about that sort of $10 million to $15 million of CapEx. But for the full year, we will also be continuing our AX [ph] expansion, so the full year CapEx spend will be in the $20 million to $25 million range.

Christopher Butler – Sidoti & Company

And should we be thinking of depreciation sort of in that same range, maybe a little bit higher I guess?

Ian Cleminson

You’ll probably be having depreciation and amortization round about the $20 million mark.

Christopher Butler – Sidoti & Company

And then going back to uses of cash, you’ve mentioned critical mass and it sounds like you’re holding on to cash a little bit for the next round of acquisitions maybe later this year or 2015. What do you need to get to critical mass? How much of that can you do on your own organically and where might you need additional acquisitions down the road?

Patrick Williams

Yeah, I think we’re close to getting critical mass not only from a customer base but from employees on the ground in the application and technology to help those employees be successful. I think we’ll always look at where we can better improve our weaknesses within our company in specific regions or specific areas of business.

I think we’re somewhat there, Chris, on critical mass. There’s obviously some areas that we can push [ph] at a later date. But in regards to cash, I think as we have, we’ve instituted a full time dividend now. You’ll see that coming out this year as well. I think that we want to just sit back and see if there are any other cash uses that we will need to put in to play as we go through 2014, and we’re not sure that there will be. But I think that, again, you just said it later on, there will be a point in time that we will start looking at acquiring again and I think it goes right to the realm of still acquiring companies that bring technology knowhow, application and feet on the ground in the specific markets we’re looking to grow which are fuel specialties oilfield and personal care.

Christopher Butler – Sidoti & Company

I appreciate your time.

Patrick Williams

Thank you, Chris.

Operator

(Operator instructions) Our next question comes from Gregg Hillman of First Wilshire Securities Management. Please go ahead.

Gregg Hillman – First Wilshire Securities

Yeah, hi, good morning.

Patrick Williams

Good morning, Gregg.

Gregg Hillman – First Wilshire Securities

Hey, good you talk about, number one, for the work you’re doing on gas additives, whether you’re coming up with a differentiated product and do you have any idea when the timing – a product might come out of the market?

Patrick Williams

Yeah, Gregg. I think it’s a continued process. I mean, we – we’ll always have a lot of products and processes going on in R&D, research and technology to continuously look at engine technology, future regulation, and the benefits of using our technologies.

We are still in this process with gasoline detergent. It does take time. When will that market entry be? I really couldn’t tell you at this time, but I can tell you there’s a lot of work going on behind the scenes.

Gregg Hillman – First Wilshire Securities

Okay. In oilfield services, what basins are you in right now or what’s your geographical footprint now and what’s the geographical footprint you would have two years from now.

Patrick Williams

Sure. We’re limited in a lot of the basins. We’re kind of in that mid-west area right now. We’re just starting to expand into the Eagle Ford, Marcellus Shale and up in the Bakken, some of the Mississippi lime play. We’re taking a lot of the Strata technology over to South America as well as a lot of trials going on right now in Europe and Asia Pacific.

So there’s a lot of trials that we have going on with some of our technologies well outside of the Americas territory.

Gregg Hillman – First Wilshire Securities

Okay. And then, just one question about the Avtel, you mentioned the one country going away but it will still be around for aviation for a while, won’t it?

Patrick Williams

Yeah, yeah, MOGAS, you’re talking about MOGAS has one country left, but yes, Avtel will be here for a while. There’s a lot of people coming saying they have an alternative product or they’ve looked into alternative fuel. It would be a blend pool fuel. It probably would not be an additive, Gregg. And the likelihood is you’re talking 2018 to 2020 at the earliest.

You’ve got to go through a lot of FAA. You’ve got to go through a lot of the industry test and to get valuations done and that’s just going to take time.

Gregg Hillman – First Wilshire Securities

So what would be the remaining annual contribution from Avtel then for the next couple of years per year?

Patrick Williams

It stays about as it has been. There’s really no downward growth, no upward growth in Avtel. It’s pretty flat.

Gregg Hillman – First Wilshire Securities

Where has it been?

Ian Cleminson

Yeah, Gregg, we don’t actually separately disclose the Avtel number; it forms as part of fuel specialties.

Gregg Hillman – First Wilshire Securities

Okay. Okay, that’s fine. Thanks guys.

Patrick Williams

Thanks, Gregg.

Operator

Our next question today comes from Jon Tanwanteng from CJS Securities. Please go ahead.

Jon Tanwanteng – CJS Securities

Good morning, guys.

Patrick Williams

Good morning, Jon.

Jon Tanwanteng – CJS Securities

Can you give a little bit more color – good morning. Can you give a little bit more color on the octane segment? It seems like you pulled on a bit of business for Q1 but margins were a bit lower than your usual run rate. What went in to that?

Ian Cleminson

Yeah, what we actually did, Jon, we actually pulled some volumes from Q3 of 2013 into Q4. I think if you recall back on our last conference call, we talked about how we’d miss some of the Q3 volume and how we expected to have a really strong finish to the year and that’s exactly what we did. The margins were just a little bit slower than we would have liked. Various issues in there but nothing of any major importance and as we go forward, we still expect to see those lower to mid-40s gross margins in our business.

Jon Tanwanteng – CJS Securities

Okay. And then just, again, on octane, I know you’re down to one country, but is there a possibility that one of the other countries comes back this year or next?

Patrick Williams

I would probably say no. Once you go to unleaded fuel, you stay there. But the countries we deal in, you just never know.

Jon Tanwanteng – CJS Securities

Okay, fair enough. And then, as you focus on growing the acquired businesses, what kind of SG&A or SAR impact do you expect to see over the course of 2014?

Ian Cleminson

Yeah, I think, we have now seen all the impact of the SG&A baked in to the fourth quarter now, Jon. We don’t need to add a huge of additional head count into those businesses. What we’re focused on is integrating them into our global footprint and taking that technology overseas into new markets. We don’t see a bit change in our SG&A from where we’ve finished the year.

Jon Tanwanteng – CJS Securities

Okay, great. And then, sorry if I missed this, but what went in to the low tax rate for Q4?

Ian Cleminson

Yeah, we got the final quarter, Jon, and we’ve taken advantage of some prior-year R&D tax credits and some foreign tax credits as well. We didn’t see that in the earlier part of the year and that’s what’s pushed the overall tax rate down to 16% of the full year. But as we look forward and as we said on the call earlier, we expect that to return to a more normalized rate around about 23% to 2014.

Jon Tanwanteng – CJS Securities

Okay, great. Thank you very much guys.

Patrick Williams

Thank you.

Operator

Our next question today comes from Charles Hale of Polar Capital. Please go ahead.

Charles Hale – Polar Capital

Yeah, congratulations Patrick and Ian on an excellent quarter.

Patrick Williams

Thanks, Charles.

Ian Cleminson

Thanks, Charles.

Charles Hale – Polar Capital

I wanted to ask you a very specific question. Do you see any rationale or likelihood that you will breakout the oilfield services revenues and earnings on a separate basis any time in the near future?

Patrick Williams

Yeah, Charles, this is Patrick. We’ve talked about that for a considerable amount of time. We talked about it going in to 2012. We talked about it early on in 2013. And I think as of right now we’re still seeing some synergy cost between sales, market to customers and technology.

As oilfield gets bigger and I think has a more complex business, that would be the appropriate time to break it out at that time. I think right now it’ll stay in fuels for a period of time now.

Charles Hale – Polar Capital

Yeah, thank you.

Patrick Williams

You’re very welcome.

Operator

At this time there are no further questions in the queue, therefore, I would like to turn the call back to Mr. Patrick Williams for any additional or closing remarks.

Patrick Williams

Thank you all for joining us today and thanks to our shareholders and Innospec employees for your interest and support. If you have any further questions about Innospec or matters discussed on this call, please give us a call at any time. We look forward to meeting up with you again next quarter. Take care, everybody.

Operator

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

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