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Albemarle Corp. (NYSE:ALB)

Q4 2011 Earnings Call

January 24, 2012 08:00 am ET

Executives

Lorin Crenshaw - Director, IR and Communications

Luke Kissam - President & CEO

John Steitz - EVP & COO

Scott Tozier - SVP & CFO

Analysts

David Begleiter - Deutsche Bank

PJ Juvekar - Citigroup

Bob Koort - Goldman Sachs

Laurence Alexander - Jefferies & Company

Mike Sison - KeyBanc Capital Markets

Jeff Zekauskas - JPMorgan

Steve Schwartz - First Analysis

Edward Yang - Oppenheimer

Dimitry Silversteyn - Longbow Research

Todd Vencil - Sterne Agee

Aleksey Yefremov - Bank of America

Operator

Good day ladies and gentlemen, and welcome to the fourth quarter 2011 Albemarle Corp earnings conference call. My name is Suwanda and I’ll be your coordinator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

As a reminder this conference is being recorded for replay purposes. I would now like to turn the call over to Mr. Lorin Crenshaw, Director, Investor Relations and Communications. Please proceed.

Lorin Crenshaw

Thank you, Suwanda and welcome everyone to Albemarle’s fourth quarter 2011 earnings conference call. Our earnings were released after the close of market yesterday and you’ll find our press release, earnings presentation and non-GAAP reconciliations posted on our website under the Investor Section at albemarle.com.

Joining me on the call today; are Luke Kissam, President and Chief Executive Officer; John Steitz, Chief Operating Officer; and Scott Tozier, Chief Financial Officer. Before we get started, I would like to ask everyone to please save the date for Albemarle’s 2012 Investor Day which will be held in New York City on Tuesday May 22nd. Registration and event details will be e-mailed in the coming weeks and we look forward to seeing many of you there. As a reminder, some of the matters discussed during the call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Please note the cautionary language about our forward-looking statements contained in our press release. That same language applies to this call. Also, to the extent that we discuss any non-GAAP financial measures, you’ll find reconciliations in our press release we just posted on our website at albemarle.com.

With that, I’ll turn the call over to Luke.

Luke Kissam

Thank you Lorin and good morning everyone. We appreciate the opportunity to share our fourth quarter and full-year results with you today. I’ll begin today by commenting on the company’s quarterly and full-year results and we’ll share a few highlights of some of the major initiatives that we have previously discussed with you. John Steitz will then walk you through business segment performance before Scott Tozier reviews financial highlights.

As usual, at the end of our prepared remarks we will open it up for your questions. I am delighted to report that despite a challenging global operating environment in the fourth quarter, Albemarle closed 2011 on a strong note with fourth quarter net income of $99 million or $1.11 per share, up 21% year-over-year. This marks the ninth consecutive quarter of year-over-year profitability improvement for us.

Net sales of $707 million were up 17% year-over-year while operating profits of $136 million were up 22%. Fourth quarter operations generated $209 million of cash flow and we ended the quarter at targeted inventory levels and better than expected working capital levels. Great results. In fact, from an earnings standpoint, it was the best fourth quarter in our history and prior to 2011, would have been the best quarter in our history.

These strong results capped a great 2011 for Albemarle. Full-year 2011 earnings were a record $436 million or $4.77 per share compared to $3.56 per share in 2010. Net sales for the year totaled $2.9 billion, up 21% year-over-year. Full-year EBITDA was a record $701 million and was up 29% year-over-year. Profitability as measured by either operating margins of 20% or segment margins of 24% respectively achieved new highs.

Great year and a great first step towards Vision 2015.

Scott will talk more in a moment about our financial results in detail. However, I want to highlight that we generated around $0.5 billion of cash this year. That allowed us to increase our capital expenditures and plan for future growth, fund our pension liabilities, repurchase 3 million shares of stock and increase dividends to shareholders for the 17th straight year.

Even with those cash expenditures, we ended the year with the strongest balance sheet in our history and the financial flexibility to fund the many opportunities that we have before us to grow our business and provide reasonable returns to our shareholders. 2011 was not only an exceptional year from a financial standpoint, but I am also very proud of how we went about delivering these results. From an operation standpoint, our safety and stewardship performance was one of our best ever.

From an innovation standpoint, we were excited to announce the development of a proprietary technology for lithium extraction from our Magnolia branch. We proved the technology is commercially viable and competitive, set up our power plant in Magnolia and are well along in the development and design phase of our commercial unit.

As a further testament to our innovation, 31% of our sales were from products that were commercialized within the last five years. That type of innovation has helped us continue to expand our margins over the years. I am very proud of our 4000 employees around the world whose talents and discipline allowed us to deliver such outstanding results.

As I look to 2012 and beyond, there's many reasons to be optimistic about our business prospects. I am happy to report that we've met each of the critical milestones that we outlined for our major capital projects. We broke ground and are proceeding on schedule with our TEA joint venture with SABIC in Saudi Arabia and our wholly-owned poly-olefin catalyst center in Korea.

We are on schedule in the design and development stage of our HPC project with Petrobras in Brazil and are well on the construction on the doubling of our bromine and derivatives capacity in Jordan. All of these investments are required to address the needs of the marketplace and we look forward to bring them online over the next few years.

Specifically bromine and Clear Completion Fluids in Jordan are expected to be operational in mid to late 2012 with Tetrabrom to follow in 2013. The Saudi and Korean sites should be operational in late 2012, early 2013 and the timing of Brazil which we currently project to be operational in 2015 will be largely dependant upon Petrobras’ demand forecast.

The recent release of the EPA Mercury and Air Toxics Standards which require power plants to limit their emissions of toxic air pollutants including mercury should also be positive for us. We began positioning ourselves with this opportunity when we acquired Sorbent Technologies in 2008 and that business now forms the core of our environmental division which is well situated to assist the power industry to comply with this multi-pollutant standards through our portfolio of products and services.

In particular, we offer state-of-the-art demonstration services to provide air emissions monitoring and mitigation fees ability and engineering expertise to the market. This service allow prospective clients to evaluate various strategies for compliance before making significant capital outlays. As a result we remain optimistic about our ability to capitalize on this growth opportunity in our Vision 2015 timeframe.

Another example of how we are expanding our existing technology into adjacent markets is in the area of organometallics. For many years, Albemarle has been the market leader in organometallics with leading positions in TEA, MAO and TMA. TEA is the co-catalyst for poly-olefin and other growing markets. MAO is a leading activator for the production of single-side poly-olefins and TMA is an essential building block in the production of single-side activators serving the poly-olefin market and of ultra-high purity organometallics served in the LED and electronics markets. In recent months, we have completed capital projects that will enable us to increase production of our PureGrowth family of products to serve these growing markets. In 2012 we expect to add additional production capacity that will allow us to continue to maintain our leadership position in these markets for the foreseeable future.

Additionally, the projected trends in crude slates and refining economics bode well for our refinery catalyst business. We provide a wide range of over 60 different FCC catalysts and additive products and over a 120 different HPC catalyst products. However, our strong suite is where refineries are looking to upgrade the heaviest, dirtiest resist feeds that will generate maximum propylene yields. Given the fact, this is the sweetest light crudes are expected to become price year, it is becoming increasingly evident that we are poised to be profitable in the long run and need to invest in new units with the most advanced capabilities in processing cheaper, heavier crudes and still meet more stringent environmental standards such as lower sulfur specifications.

We continue to invest in catalyst developments in this area to maintain our competitive advantage and are well positioned to continue winning more than our bear share of installations and refills as refiners continue to migrate to heavier and more sour crude.

While this calls for an optimistic view of our future, there are headwinds to deal with and 2012 will be no exception. Some we already know about and others will surely develop during the year. For example, in 2011 we saw pension increase by $6 million to approximately $27 million.

In 2012, pension expense will increase by approximately $20 million due to the combination of a decline in the discount rate used to measure our pension obligations and lower than forecasted asset performance in 2011.

I like to underscore that our funded status remains quite strong. Nearly 100% and we do not expect to need to make cash contributions to our plans until 2014 at the earliest. We are however, sworn methods of restructuring our defined benefit plan such as our non cash expense will be smaller and more predictable going forward, while at the same time providing the competitive benefit plan to our employees. We will share more on this topic in the coming quarters as we complete our assessment.

From a portfolio management standpoint, over the years, we’ve shown consistent discipline in addressing underperforming assets. Such actions in fact have accounted for a portion of the margin expansion we’ve experienced over the years.

We’re currently engaged in a portfolio review that could result in our strategic alternatives for certain assets and businesses. As we’ve done in the past, we will keep you updated as our plans begin to take shape.

In closing, our businesses are healthy and we expect to perform well in 2012. Our best guess today is our businesses will generate earnings during the first half of 2012, resembling levels achieved during the second half of 2011 and that the end markets we serve, would begin to accelerate in the second half of 2012.

If that recovery occurs, we would expect to grow our business in 2012 and continue to make progress towards the goals we outlined in Vision 2015. With that I will turn the call over to John to discuss our operational performance for the quarter.

John Steitz

Thanks Luke and good morning everyone. I will start with Polymer Solutions, which reported fourth quarter net sales of $209 million and segment income of $37 million on a double-digit volume decline. Weak mineral flame retardant volumes and unfavorable fixed cost absorption were the key drivers.

Polymer still achieved 18% segment margins reflecting the impact of structural changes in the business and an overall healthy pricing environment. Mineral flame retardants profits fell by more than 50% year-over-year during the quarter on 37% lower volume. Because Europe represents majority of our mineral flame retardant revenues, results were directly impacted by progressively worse sentiment throughout the quarter.

Brominated flame retardant volumes rose 10% year-over-year or were down 8% sequentially as economic uncertainty prompted more conservative inventory management across the electronic supply chain. Lower anti-oxidants and curatives results also contributed to Polymer’s quarterly performance.

Segment income for this division was down largely due to absence of a major production campaigns supporting high speed rail orders and the timing of select anti oxidant campaigns, which will now occur in the first quarter.

For the full year excellent pricing, reasonably strong demands through three fourths of the year and structural initiatives allowed Polymers to deliver full year net sales in excess of $1 billion for the first time, up 11% year-over-year; a record segment income of $238 million up 20%, and record segment margins up 24% an expansion of 180 basis points year-over-year.

Looking forward to 2012, January flame retardants order patterns are picking up with enclosures, connectors and printed wiring board order patterns all reflecting more positive trends in recent weeks. We continue to monitor customer order patterns closely and remain focused on keeping our inventory levels in line with customer demand.

In catalyst, higher pricing and healthy global volume drove fourth quarter net sales of $290 million, up 25% year over year; segment income of $84 million, up 43% year over year and segment margins of 29%, up 400 basis points year-over-year. Refinery catalyst revenue and segment income growth of 30% and 53% year-over-year was largely driven by strong and balanced portfolio.

For the full year broad based strength across each division resulted in sales exceeding $1 billion for the first time at $1.1 billion, up 25% year-over-year. Catalyst also reported record segment income of $324 million, up 30%, and all time high segment margins of 29%, up 100 basis points.

Each division delivered excellent financial results with refinery catalyst sales and segment income rising 28% and 32% to all time highs as FCC and HPC both generated record income levels. Similarly the performance catalyst solutions sales and segment income rose 20% respectively to new records.

Polymer catalyst results were driven by combination of continued growth within the components business where we have a long standing leadership position and excellent traction within the finished catalyst adjacency.

Notably, the electronic materials divisions is an emerging growth driver. The successful introduction and acceptance within the market place of our PureGrowth family of products into the emerging LED markets is a having a positive impact.

Heading into 2012 the first quarter outlook for HPC is quite strong. FCC should generate modest growth, as emerging market driven demand offsets developed economy’s sluggishness where weaker miles driven remain apparent. Within Performance Catalyst Solutions, long running trends driving demand for specialty and bulk plastics should continue to support organometallics growth supplemented by the impact of new technologies.

Fine Chemistry had a superb quarter setting a record for net sales which rose 36% year-over-year to $209 million; segment income of 62% year-over-year to $43 million and profitability with segment margins rising 300 basis points year-over-year to 20%. Results were driven by record Performance Chemicals and Fine Chemistry Services revenue up 20% and 67% and record segment income at each division.

Performances business unit reflects a diverse net of growth opportunities and the successful transformation of its product portfolio in recent years. Performance Chemicals growth was driven by completion fluids which ended the year in a strong position to support higher growth levels in the Middle-East and rejuvenated Gulf of Mexico. However, strong market control, water treatment and food safety growth also contributed handsomely to results.

Fine Chemistry Services growth was driven in part by doubling of long-term programs in the Specialty Materials and Ag sectors and our strategy of evolving this business toward becoming an enabler and partner in developing complex chemical processes is beginning to payoff. A year-on-year doubling in Ag and remediates profits and good specialty pharmaceutical results were also important.

For the full year, strong pricing and excellent volumes within each division were a record net sales of $750 million, up 32% year-over-year and they are doubling in segment income to a record $140 million, and the highest profitability in segment history to segment margins of 19%. The performance of our quarter brine fluids business was noteworthy, as the business is poised for a strong 2012.

Overall, Fine Chemistry set for another excellent year of growth in 2012 with a great pipeline of custom projects within Fine Chemistry Services and a healthy portfolio of exciting new advancements of bromine chemistry into food protection, energy and stewardship of our environment.

With that, I’ll turn the call over to Scott to discuss some more financial results.

Scott Tozier

Thank you John and good morning everyone. It’s tough to overstate how impressive the company’s 2011 financial results have been given the macroeconomic backdrop. I am pleased to confirm that on a full year basis, we met each financial objective laid out in the Vision 2015 planning framework articulated at Investor Day. You will recall that framework cultured double-digit growth in revenue, earnings per share and cash flow, a focus on disciplined capital allocation and 20% returns on capital. Each year, on our march towards 2015, will not be as robust as 2011, but it’s nice to be off to a great start.

In the fourth quarter, we generated EBITDA of about $153 million [$163 million], up 16% year-over-year and an EBITDA margin of 23%, roughly in-line with the year ago period. Full year EBITDA rose 29% to $701 million, year-over-year to a new record with full year EBITDA margins of 24.4%, up 140 basis points and also setting a new record.

In terms of P&L items of note, R&D expense was $19 million during the quarter, up 29% and ended the year at $77 million up 32% as we continue to invest in a number of organic growth opportunities including the strategic adjacency initiatives we outlined as part of 2015. For the full-year R&D cost as a percent of revenue were 2.7%, rising 20 basis points versus 2.5% in 2010.

Fourth quarter SG&A expense rose 12% year-over-year and ended the full-year at $312 million, up 17% versus 2010 driven principally by performance-based pay and higher pension expense. These costs were well contained for the year declined 30 basis points as a percentage of net sales to 10.9% versus 11.2% in 2010.

Our effective tax rate for the fourth quarter and full-year was 23.3% and 23.6% respectively, essentially flat versus the full-year 2010 rate of 23.6%,as the level and location of our income helped us to maintain our rate year-over-year.

Our Vision 2015 planning framework set-forth an expectation of generating a cumulative $3 billion in cash from operations over five years. Fourth quarter and full-year 2011 results place us on target in this regard. Specifically, exceptional earnings results and our focus on cash generation during the quarter translated into cash flow from operations of $209 million excluding pension and post retirement contributions during the fourth quarter, which contributed to outstanding full-year cash from operations of $553 million excluding $60 million of pension contributions up 34% year-over-year. We closed the year with net debt of $294 million, down 11% from year-end 2010.

During the year when each business unit established new net sales records maintaining working capital discipline was essential to our success at driving such strong cash flow generation. Specifically, net working capital as a percentage of sales ended the year roughly 200 basis points lower at 18% compared with 20% in 2010. In absolute dollars, net working capital only rose 7% year-over-year to $507 million compared with a 21% net sales increase for the year, an extremely healthy 1,400 basis point gap between the two.

We are also on or ahead of target from a capital allocation standpoint as measured by CapEx, dividends and share repurchases. Specifically in 2011, we invested $198 million in CapEx of which $41 million was related to our joint-venture Jordan Bromine Company or JBC as we made strategic investments essential to capitalize on opportunities we have identified and just deliver the organic growth strategy we’re pursuing.

Regarding dividends, we raised our quarterly rate by a total of 25% this year and overall distributed $58 million in dividends to shareholders during the year. Notably, the total increase was much higher than the 10% to 15% average increase per annum guidance indicated in our planning framework.

In terms of share repurchases, in 2011 we returned $178 million to shareholders by purchasing 3 million shares or roughly 3% of the total shares outstanding at the end of 2010. Given that our planning framework indicates that we intend to buyback between $200 million and $400 million by 2015, we’re clearly ahead of plan on this measure as we nearly bought back the low end of that range this year alone.

Looking forward to 2012, we expect CapEx to approach $300 million as we commence the expansion of bromine derivatives capacity at JBC in Jordan. We continue construction of the plant that we are building in Korea and expansion of our U.S. metal [appeals] capability to name a few of the investments.

Nearly all the projected $100 million year-over-year delta between projected 2012 CapEx versus 2011 is related to the expansion at JBC, a joint venture that is consolidated on our financial statements. It’s worth noting that this will be entirely funded from JBC’s cash from operations with no long-term incremental debt preferred.

From a foreign exchange standpoint, we foresee that the decline in Euro in recent months if it persists near current levels through 2012 will represent a headwind at the average rate reflected in our 2011 financial results was approximately $1.40 per Euro. We estimate that each $0.01 change in the dollar-Euro exchange rate impacts earnings per share by approximately $0.01 due to translation. Today, the Euro is trading at $1.30 which will result in an annualized headwind of roughly $0.10 per share.

In terms of taxes, at this time, we expect our 2012 effective rate to be around 25%. In 2012, we will continue to focus on generating excellent cash flows and making improvements in our working capital efficiency. Our ability to generate cash from earnings will give us the ability to fund our organic growth and acquisition opportunities and return cash to shareholders.

With that I will turn the call back over to Lorin for Q&A

Lorin Crenshaw

Operator, at this time we will take questions.

Question-and-Answer Session

Operator

Thank you (Operator Instructions). Your first question comes from the line of David Begleiter with Deutsche Bank. Please proceed.

David Begleiter - Deutsche Bank

John, you mentioned some order in pattern improvements in bromine as far as in January, is that normal seasonality or is that something more from restocking or a pick up in market demand you think?

John Steitz

Yeah, David, normally we have a weaker December with inventory corrections and I think that was a bit exaggerated at the end of 2011. So I think a bit of that is normal seasonality and we have the Chinese New Year kicking in relatively early. So we are still hoping for a bit of a boost in the first quarter here as customers restock. But I will add this David. We saw more emergency orders in the brominated flame retardant chain than I think I can recall in near-term history.

So it’s just another asset to consider and there is a lot of destocking going on along in the chain.

David Begleiter - Deutsche Bank

And just on HPC, you mentioned a strong Q1 order book. How does Q2 and even Q3 look in that product chain?

John Steitz

Well, I would say overall where say six months ago, we thought very confident that we would have pretty high mid-teens year-over-year volume growth. I would say we have mitigated that a little bit, but year-over-year we still see volume growth in the 7% to 10% range in HPC. So we are starting out very strong in the first quarter. As we said sold out and second quarter, we will dip a little bit from that level.

But generally, I mean, there is a lot of better seasonality there too because everyone is at least in North America and Europe preparing for the driving season. So we typically have stronger HPC volumes in the first quarter and that mitigates a little bit in the second quarter, but overall for the year we feel still very good about it.

David Begleiter - Deutsche Bank

And John just last on your JBC expansion, what will take your bromine capacity to and where is it coming from?

Luke Kissam

From a JBC expansion, it will take JBC in the range of 120,000 met tons at JBC for running flat out.

Operator

Your next question comes from the line of PJ Juvekar with Citigroup. Please proceed.

PJ Juvekar - Citigroup

You know in polymer additives, it’s almost like two different segments with brominated flame retardant seems to be doing well and then you have the struggling portfolio of mineral flame retardants, antioxidants and curatives. I was wondering if you could slice those two pieces and compare the profitability for us?

John Steitz

The real driver for us has always been brominated flame retardants in our polymer’s business, no question about it. So typically we are talking about in the range of 2/3rds of our profitability on brominated flame retardants, but one thing I’d note for you is what we saw in bromine in the fourth quarter was reasonably healthy volumes, you know we talked about a 10% up year-over-year, down a bit sequentially. But when we saw that, we really took some aggressive steps, you know we had sales down sequentially 7% to 8%, but we did take production down over 20% and we brought our inventories down very healthily, so to give us a good position for 2012.

But anyway, hopefully that frames up the various pieces for you. The biggest issue we had in the fourth quarter in polymers was by far mineral flame retardants with all of our, majority of our business being based in Europe and every time Italy or Berlusconi or Greece was mentioned, you know, we saw a decline in customer orders in that business. So the good news is we see volumes picking back up in the first quarter which is good.

PJ Juvekar - Citigroup

And then secondly you talked about lithium extraction in Arkansas, can you tell us how much lithium is there in the brine compared to some other deposits and what kind of operating earnings impact can you expect from that?

Luke Kissam

Yeah, from a standpoint of what lithium is in the brine, PJ, it’s hard to tell until we get in there and actually start operating. We’ve got estimates based on what the brine is and we think that we’re going to have, what I would say is a commercially viable process and volume. You obviously can’t enter that market with too limited a volume where you can’t really have a real play to be consistent for your customer. So we wouldn’t be going in if we didn’t think we could have a commercial scale product there.

And I think that when we look in at it, when we get both of them done, both sides done we would be in the range of 10% or so of the market. It is what we would hope to be able to capture from those lithium extraction technology we have today.

John Steitz

But very cost competitive position, PJ, at the end of the day.

Operator

Your next question comes from the line of Bob Koort with Goldman Sachs. Please proceed.

Bob Koort - Goldman Sachs

I was wondering if you could give us a little update on taking out the rare earths in your catalyst business. Obviously there was a strong need to do that just six, nine, 12 months ago and looks like that need is moderated a bit, so has that sort of stifled the transition, are you agnostic to that change and just give us an update there.

John Steitz

Yeah, you bet, Bob. Bob you bet. I mean over the summer, rare earths were approaching a $140,000 a ton and now they are in the $50,000 ton range, so I mean it seems to me from everything I have read, from customers around the globe that that pressure you know is mitigating. There is some definite relief there. We always inherently had lower rare earths levels. We've got our rare earths level down to on average about 1.5%.

I think we are being helped a bit by the volatility in the crude slate as Luke mentioned, very much heavier crudes being utilized globally, but anyway to answer your question it has mitigated a bit, but us and others I think have been reasonably successful in helping this broad slate of refiners globally achieve what they are trying to achieve with on rare earths.

Bob Koort - Goldman Sachs

And Luke you mentioned something about maybe finding or coming through and finding some assets that you can do some with from an M&A standpoint. I guess maybe I wasn’t paying attention closely enough, but is that separate and distinct from the 2015 plan and if so why wouldn’t that have been incorporated then?

Luke Kissam

When I was talking about M&A, what I was looking at is some of our underperforming assets, so we have got some assets that we look at from time to time, are all these assets giving kind of returns that we need. And you know we want to surprise you guys with the fact that you are doing an evaluation today and maybe taking some actions. Well I want to highlight today that we have got that evaluation under way which should result in possible divestiture or shutdown some assets or consolidating and want to give you heads up on that.

We are still looking on the outlook for M&A that would be still be included within that Vision 2015, hadn’t pulled the trigger on anything, very meaningful today, but that don’t mean we haven’t been out there knocking on doors and looking and still think that’s a critical piece of our Vision 2015.

Bob Koort - Goldman Sachs

So is it fair any assets you are considering would be modest in scale?

Luke Kissam

Yes.

Operator

Your next question comes from the line of Laurence Alexander with Jefferies & Company. Please proceed.

Laurence Alexander - Jefferies & Company

I guess first of all a question across your bromine derivative portfolio. Can you give us updates on pricing trends and if there were no further price increases in 2012, how much of a tailwind, you'd expect all else being equal?

John Steitz

Overall, our price environment has remained very healthy across the bromine chain. If you look at brominated flame retardants and I strip out the mix effects, our brominated flame retardant pricing improved sequentially 3% and up over 25% year-over-year. That’s a pretty significant driver for us. In clear brines, that’s in course fine chemistry, you know our pricing has remained pretty healthy there and we’re seeing some significant step up in volumes.

So we will revisit that as we go forward, but overall very across bromine, brominated flame retardants and some of our advanced bromine derivatives remains very healthy from a pricing point of view. I say the biggest impact going forward in 2012 is the improvement brominated flame retardants beyond the first half and that’s going to be I’d say the most significant issue that they we are tracking from a pricing volume point of view.

Laurence Alexander - Jefferies & Company

But is it fair to say just triangulating very roughly on the derivatives portfolio, it looks as if that will contribute about 2% to 4% total topline sales? Is that roughly the right order of magnitude?

John Steitz

On the entire bromine chain, yeah I’d say that’s a pretty good assumption.

Laurence Alexander - Jefferies & Company

And then for the custom you know the custom chemistries that you are doing in fine chemistry for some of the new technology applications, do you have a rough sense for how much of the tailwind that could be?

John Steitz

Next year?

Laurence Alexander - Jefferies & Company

In 2012?

John Steitz

You know we’ve always said it you know some of these new products extended out of full year would be in the $0.15 to $0.20 per share range. So our fine chemistry model is really working well, very proud of it and a lot of new opportunities coming in.

Laurence Alexander - Jefferies & Company

And than just lastly, can you give an update on mineral flame retardant pricing?

Luke Kissam

Mineral flame retardant pricing in the fourth quarter held-in there pretty well. So it was roughly flat sequentially, up 4% to 5% year-over-year. We got the euro going down year-over-year. That impacts our translation on pricing. The general view in Europe is with volumes softening in the fourth quarter, pricing discipline was awfully good and now we are seeing volumes pick up. So overall we are hanging in there.

Operator

Your next question comes from the line of Mike Sison with KeyBanc Capital Markets. Please proceed.

Mike Sison - KeyBanc Capital Markets

In terms of 2012, you sort of gave us a couple of headwinds of foreign currency, pension, and looks like tax rate teeny bit higher. Could you help us frame up some of the positives that could offset those headwinds and I think you sort of softly suggested earnings should grow in ’12 versus ’11?

Scott Tozier

I think what I am trying to do Mike is, right now, we have got some good dynamics for our catalyst business. So catalyst, I feel good. I think when we talked to you previously, we were talking about if we got an 80, 80, 80, 80 kind of four quarters from catalyst, just kind of strong quarters like that, we would feel good about that and we’re still doing it, we could pop up there.

In fine chemicals, John had outlined some of the things in fine chemistry services. Clear completion fluids should be strong in 2012. Halliburton was pretty bullish, on the Gulf. So that bodes well for us because we did in 2011, did a lot of clear completion fluids in the Gulf. Those were internationally. So, fine chemical services should continue to build on that momentum and I think have a stronger year in 2012 than it did in 2011, so both of those feel really good.

It really comes down to polymers and what’s going to happen from a mineral flame retardant standpoint in Europe. How Europe is going to recover in that wire and cable market and how our mineral flame retardant will respond, as well as, are we going to see a pickup in the second half of the year on Brominated Flame retardants and actually key into that electronics markets. So, if we see the economy recover in the second half of the year, like we expect, we should be able to grow our business and continue on our path, the Vision 2015, Mike.

Mike Sison - KeyBanc Capital Markets

Okay, great, and then, John, in terms of the fourth quarter, where were your operating rates for bromine and where they are tracking now?

John Steitz

Mike. The derivatives from the flame retardants were running about 70%. The overall Bromine chain was pretty close to sold out, Mike. I would tell you the pick up in clear completion fluids our more controlled business is doing much better, second half was really strong for us. We mentioned some of the new products in food protection. And so our bromine chain was very tight, call it 98%, 95%.

Mike Sison - KeyBanc Capital Markets

So, these you had in the fourth quarter from, sort of, reducing your inventories. How big was that and that sort of comes back in the first in terms of profitability?

John Steitz

Yeah. The, well, what I tried to indicate in our script was we’re going to keep an eye closely on inventory. So, we stay in line with customer demand. But we also believe that the fourth quarter 2011 bottomed up from profitability perspective and we’re taking that number up in the first quarter. So, that feels pretty good. So the impact of reducing production volumes in the brominated flame retardant chain was probably $10 million to $15 million of absorption issue for us in the fourth quarter of ’11. So we feel we got inventories in a good position right now.

Mike Sison - KeyBanc Capital Markets

And then last question on brominated flame retardant pricing is, you have some flow through, don't you, heading into this year and any expectations on further price increases depending on I guess how demand unfolds in the second half?

John Steitz

Yeah, Mike we are just going to keep a real close eye on that. We feel really positive about it and we get a nice correction and political environment calms down a bit and we get on top, I mean those kind of volume trends all help the pricing environment.

Operator

Your next question comes from the line of Jeff Zekauskas of JPMorgan. Please proceed.

Jeff Zekauskas - JPMorgan

So in the first quarter to just to clarify, you expect your average prices to be higher than they were in the year ago period?

John Steitz

Yeah, that's correct, yeah. There would be pricing across polymers probably up mid-single digit year-over-year excluding any mix effects.

Jeff Zekauskas - JPMorgan

Secondly, can you talk about your, I guess maybe your three or four major raw materials and how you expect them to fair for 2012 and what might be the effect on your income statement?

Luke Kissam

Jeff, let me give you a shot on that. I mean if you look at that from a dollar stand point, I understand it's the metals that our going to our catalyst business, moly and the nickel and the metals as well as the rare earths. So we talked in detail about rare earths, where that's going from the 140,000 in that time to 55,000 in that time.

The key on that is this going to be how the pricing in the contracts that we passed through that rare earths and the cost that we acquired rare earths for and what that spread does and how we are able to manage that. The metals for HPC does seem to be fairly stable John, across 2012. So we wouldn't see that, John.

The other impact is where we’ve got our biggest volume of products would be due to a high rate in our mineral flame retardant business and there are limited numbers of suppliers there and we finalize on negotiation of those contracts and should have a little bit of headwind there but we are working to mitigate that and are trying to find a way to find some alternative sources that that will allow us to be better there. So from a volume standpoint I think it is 88 from a dollar standpoint we got the metals and the rare earths we talked about previously.

John Steitz

Okay and then you have the fencings and all, BPA and a change in the volatility associated with it Jeff. So we always try to work to get that passed through. As we mentioned rare earths and metals and overtime that should really have no impact on the P&L.

Jeff Zekauskas - JPMorgan

And do you get some benefits from lowering natural gas prices and from lower chlorine costs?

John Steitz

Chlorine is pretty stable. We’re in bit of tailwinds situation network on natural gas. Natural gas consumption is based on production levels. But that could be a little bit of better, every buck is call it a nickel.

Operator

Your next question comes from the line of Steve Schwartz with First Analysis. Please proceed.

Steve Schwartz - First Analysis

John if you could at least help us with the year-over-year volumes change for HPC and FCC in the fourth quarter give some idea how those changed?

John Steitz

Yeah, it was, HPC was flat year over year and up just year sequentially, Steve.

Steve Schwartz - First Analysis

Okay. So that was HPC and FCC?

John Steitz

Yeah, FCC was up little bit sequentially you know call it 27 and 8% and really flat year-over-year.

Steve Schwartz - First Analysis

Okay.

John Steitz

Really impact there. Though I will say that the mix really improved and as I have said this crude slate is getting more difficult to deal with. We’re seeing more heavy resist FCC catalyst sales than we did year ago.

Steve Schwartz - First Analysis

Okay. and as you are going to the first quarter here in the order book for HPC is strong. Doesn’t that usually have an impact to negative impact on FCC volume?

John Steitz

Yeah, there is that seasonal impact Steve for sure. So we probably start to get little bit slower on FCC volumes but picking up through the course the summer spring season.

Steve Schwartz - First Analysis

Yeah.

John Steitz

That’s right.

Steve Schwartz - First Analysis

And so you are coming off a quarter to fourth quarter where the operating margin in that business was pretty strong. What impact would you expect that to have on first half margin in that part of the business?

John Steitz

For the whole year, we think we can hold this margin. So, we had a really nice spike in the third quarter of longer term. To get our margins at that level is our real goal. But we feel pretty confident about holding onto the margin level of what we achieved in the fourth quarter.

Steve Schwartz - First Analysis

Would you feel you had a bit of a tailwind in the fourth quarter as a result of declining cost in rare earths versus pricing?

John Steitz

Right. We have talked about that in the past and that impacts that business by 150, depending on the mix 150 to call 250 basis point margin this year.

Steve Schwartz - First Analysis

Okay, and then just one last one for Scott. You guys mentioned the higher pension expense, should we just assume then corporate expense for 2012 would be about $20 million to $25 million higher than it was in ‘2011?

Scott Tozier

Yeah. Corporate expense, yeah. That’s about right from the pension impact, although some of it gets absorbed into the businesses as well.

Operator

Your next question comes from the line of Edward Yang with Oppenheimer. Please proceed.

Edward Yang - Oppenheimer

Just feed-backing on the previous question on catalyst volumes in the fourth quarter were marginally negative and you mentioned HPC and FCC were basically flat. Could you just elaborate why the volumes were flat there?

John Steitz

Yeah, yeah. That’s a good pick. Yeah, you are right. In fourth quarter 2011 volumes were down a bit. In the last quarter of ’10 there is a lot of, what I’d call, experimentation going on and we did sell some regenerated catalyst in FCC, which is a little bit unusual for us and that happened in fourth quarter of ’10. So the year-on-year volume comparison is a little bit awkward, if you will because of that, volume spike last year.

Edward Yang - Oppenheimer

Okay, and what are your expectations for 2012? Catalyst volumes what would that be?

John Steitz

I am sorry, Ed, I was talking over you.

Edward Yang - Oppenheimer

Overall expectations for catalyst volumes, you mentioned HPC up a mid-single digit, FCC you expect to be up positively as well?

John Steitz

Yes, we do, yeah. I would call mid-single digit as well. So overall our volume outlook right now is reasonably healthy.

Edward Yang - Oppenheimer

Okay. And Fine Chemistry, your volumes were very strong there, up 24%. Was that more, you mentioned, custom projects in both clear and [bulk] brines, which was the larger contributor and your expectation for 2012 volumes?

John Steitz

Yeah. The Fine Chemistry, [ag, intermediates] and the new materials was probably about 60% of the total 40% was clear brine’s mercury control and food safety. So hopefully I will give you a little feel there.

Edward Yang - Oppenheimer

I mean, what’s a good run-rate for growth in 2012 because I know, Fine Chemistry could be somewhat lumpy in terms of the growth.

John Steitz

Yeah, because of the nature of those products, and we sell some products in gram quantities that could drive down the share for us, right? But I would say overall, projection, we will grow volumes in Fine Chemistry, the [SBU] and total year-over-year and we’re seeing a pretty strong tailwind right now in Clear Brine fluid’s activity, especially with the products slate we play into, deeper exploration and usage of heavier brines.

Edward Yang - Oppenheimer

Okay, and just finally on Polymer Solutions volume could you just talk a little bit on the volatility you are seeing there; you know your guidance for fourth quarter volumes were more flattish, it came in below that and you had indicated you are seeing some improvement there, but in the prior quarter you saw some improvement as well. So what happened from November to December to lead to the sequential volume decline you saw?

John Steitz

So, you know I would say the biggest volume driver for us was clearly mineral flame retardants and we saw a weaker back half, the half of October, we saw a weak November and really running on thins in December. As a matter of fact, I remember our biggest US customer, we actually had a delivery scheduled on a Saturday just giving an idea of inventory levels and it didn’t arrive till the following Monday and it shut our plant down. This was the raw material of entire shipments probably $30,000 or $40,000.

So it just gives you a feel of how low our customer base is running their inventory levels to, but it’s just crazy. And it has the mineral flame retardant volumes have as I said, appear to be picking up now in the first quarter.

In brominated we had a pretty good September so we talked about we are feeling pretty good going into the fourth quarter. We also saw it really slowdown in November which surprised us; a lot of destocking there. And as I mentioned, we saw more emergency orders and we can recall in near term history in December and volumes appear to be picking back up. So overall, we don't want to get carried away with our polymer view for the first quarter, but we believe our profit level will improve in the first quarter of ’12.

Luke Kissam

Yeah, this is Luke. To give you a little bit of idea, if you look at mineral flame retardants, our volumes in mineral flame retardants in the fourth quarter will lower than the volumes that we saw in first quarter of 2009. So we had all time low from a volume standpoint in mineral flame retardants. Bromine like John said was up, but that’s a big volume over there; we’ve made a lot of volume in it and it was down to that level.

So remember when we talked in the third quarter or in autumn we talked to you about how we have strengthened this business over the years taking these hard steps with pricing, with asset consolidations, with some efficiencies’ that we've got. I think the fourth quarter, we’re sitting here talking about how we had a sluggish quarter, if you really look overall from an Albemarle standpoint, it would have been the best quarter in the history of the company before 2011.

So we had some real challenges that we have overcame and our hope that people understand what this means for the strength of our business. We’ve got strong business and we feel good about 2012; if we can get some help from that economy, in the second half we can grow this business; but it is going to be the second half here in 2012.

Operator

(Operator Instructions) Your next question comes from the line of Dimitry Silversteyn with Longbow research. Please proceed.

Dimitry Silversteyn - Longbow Research

A couple of questions that I have and one you sought of answered that on a couple of discrepancies that we are seeing in the growth of volumes in the Fine Chemicals division and in the Polymer Services division or solutions division. But it sounds like majority of the volume growth was attributed to the custom synthesis part of the business.

On the catalyst margins, if you kind of take what Luke has said about that sort of 80 million a year a quarter run-rate you know roughly speaking in terms of profitability, it looks like your year-over-year profitability will be similar 2012 to what you have delivered in 2011 about 26%, 27%.

You know you have quite a bit of step-up in the last couple of years; so what you know with metal price declining, with rare earth prices declining, with all of these projects that you have going on-stream in 2012 in South Korea and in Saudi Arabia with a much maturation of the Polymer Catalyst business, why would we not expect to see more meaningful margin expansion and profit growth in the Catalyst division in 2012 versus 2011?

John Steitz

Yeah, let me take a crack at that Dimitry; but just to clarify, you know what Luke said is, we see a new base in the catalyst call it 80 million a quarter with one quarter of that is likely to pop-up for us, you know maybe in the heavier driving season, we don’t know if its going to be second quarter or third quarter you know at this point, but we see that and we believe we will grow our catalyst business, I mean we’re really clear about that. And margins, managing margins with raw materials and like you said rare earth is all part of that equation.

So some of the larger projects you highlighted which we are really excited about and our Performance Catalyst Solutions business which is probably often Catalyst business, we’re very excited about, we’re very excited about the growth in LED in our Korean plant, but those aren’t really positioned to have an impact on 2012. I would say that and our SOCC joint venture SABIC on organometallics in Saudi Arabia, those are all 2013. And so we really feel good about being positioned for long-term and lithium falls into that too.

So, but we believe we can just summarize, and we’ve been to grow our Catalyst business 2012 and we’re positioning it for some exciting growth in 2013 and onward.

Dimitry Silversteyn - Longbow Research

Okay, alright. Thanks for that color John. And then a question about Polymer Solutions margins, I understand that when you are running your flame retardant business at 20% utilization rate, it’s hard to get good margin. On the other hand mineral flame retardants, which sounds like the area where you suffered the most volume decline; it also happens to be I believe, one of your lower margin businesses. So why wouldn’t you have a positive mix impact on margins and you know -- I mean, I would expect to see that at mid-teens operating margin out of the polymer additives. So, I guess I am just looking for some clarification of what happened there in terms of under-absorption versus pricing and declining raw materials and improving mix?

John Steitz

Yeah, so I think the overwriting point I like to make as year-over-year and sequentially for that matter in the fourth quarter, we had probably a 15 million in under-absorption in brominated flame retardants and it was probably in mineral flame retardants in the $5 million to $8 million range. So that gives you a feel, if it haven’t been for that we would have been right in the box of where our profitability was at the end of 2010.

So it’s really, I would say we kind of had the luxury of two really strong businesses performing very, very well and we saw that midway through the quarter. And we decided to get more aggressive in terms of our inventory levels in the flame retardant chain and for that matter curatives and anti-oxidants.

Dimitry Silversteyn - Longbow Research

Okay. So it sounded like that the slightly positive volume year-over-year account that you had in brominated flame retardants you talked about was mostly in inventory liquidation rather than manufacturing, so your under-absorption was over-emphasized if you will, relative to the numbers which you’ve delivered?

John Steitz

Yeah, just to state, in brominated flame retardants, our sales sequentially were down about 7%. We took production down 20%. And we took inventories down between 15% and 20%.

Dimitry Silversteyn - Longbow Research

Okay.

John Steitz

In polymers, so, I mean it was, I thought, really good cash management and you saw some really strong cash generation from the company. So I mean that all has kind of played into trying to position ourselves you know, to grow a company in 2012.

Operator

Your next question comes from the line of Todd Vencil with Sterne Agee. Please proceed.

Todd Vencil - Sterne Agee

Most of my questions have been knocked out, but you mentioned expansion in the U.S polyolefin catalyst capacity this year. Can you remind us of what’s going on there and how much you’re adding?

John Steitz

Yeah, I mean, what we’re trying to do is a lot of these new, we talked about organometallics with TEA and MAO and TMA. This apply that all fall into that market for plastics as well as the LED and electronics chains and we’re doing some fairly significant debottlenecking so that we can make sure that we are ready to supply that growing demand going forward. So, that’s a big growth area for us. We’re excited about it and we want to make sure that we’ve got the capacity there to serve the customers that what they need around the globe.

Luke Kissam

Yeah, and in our plant here in Baton Rouge where we make our active Cat line of products, which is a total catalyst solution for polyolefin producers. We expanded that plant during the downturn and it was sold out almost immediately. So that’s an additional debottlenecking we’re doing here right in town.

Todd Vencil - Sterne Agee

So broadly speaking, I mean are you sort of super tight and generally sold out across the polyolefin catalyst in the US you know in addition to the active Cat recently?

John Steitz

As the general rule, that's a very broad statement but as a general rule, yes, its been very tight and we feel we need to take the steps to expand around the globe in addition to what we are doing in Korea and in addition to what we are doing in Saudi to be able to service the customers and be there with the solutions that they need and when they need it.

Todd Vencil - Sterne Agee

And broadly speaking, how much do you feel like you are going to be able to get these debottlenecking?

Luke Kissam

In terms of revenue?

Todd Vencil - Sterne Agee

Percentage wise.

Luke Kissam

Oh boy.

Todd Vencil - Sterne Agee

Or revenue, either way.

Scott Tozier

15% to 18% to 20%.

Operator

Your next question comes from the line Aleksey Yefremov with Bank of America. Please proceed.

Aleksey Yefremov - Bank of America

I just wanted to double check on elemental bromine chain, on bromine chain. In elemental bromine, John I think you mentioned your utilization was about 95% in the quarter?

John Steitz

Right Aleksey.

Aleksey Yefremov - Bank of America

Does that mean that you might be capacity constrained in the first half of ’12 before Jordan expansion kicks in?

Luke Kissam

This is Luke. We do not fore say what we’re going to have any situation where we are capacity constrained. There are some debottlenecks that we can do, we’ve expanded some wells in Magnolia, that will becoming online and we feel great about the capacity that we need to be able to service it and when we bring it online there is going to be a lot of questions about this. So when we bring that capacity in Jordan online remember we’re going to bring it on an as needed to meet the demand that we see out there. Its not such that we've got a habit of running a 100% on day one, we will be very good at storage of that bromine and bringing online as needed. So I don’t say we’re in under supply in the short term or an over supply in the long term.

Aleksey Yefremov - Bank of America

And then just a quick follow-up on antioxidants campaign that has spilled over into Q1 what’s the approximate impact on sales or earnings?

John Steitz

You know that all these things said when we run one of these campaigns for our curatives business it usually absorbs, call it $4 million to $5 million. So we’re continuing to manage inventories very tightly as we mentioned Aleksey. So broadly speaking, we view that our polymers business is going to pick up in the first quarter, but we're managing it very closely and we don't want anybody to get carried away with the expectation here, but we feel, we've have been through the worst in the fourth quarter.

Operator

And with no further questions, I would now like to turn the conference over to Mr. Lorin Crenshaw for closing remarks.

Lorin Crenshaw

Well, we thank you for your time and your questions and look forward to seeing you at Investor Day and certainly give me a call with any further questions.

Operator

Thank you for joining today's conference. That concludes the presentation. You may now disconnect and have a great day.

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