Good day, and welcome to the Innospec Inc. Fourth Quarter Results 2011 Conference Call. For your information, today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Williams. Please go ahead, sir.

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 2011 financial results conference call. Today's call is being recorded. As you know, late yesterday we reported our financial results for the quarter and full year ended December 31, 2011. 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 everyone 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 discussions 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 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.

Thanks very much, David. And thank you all for joining us today. Before Ian provides deeper detail on our reported numbers and metrics for the fourth quarter and year-end, I'd like to share with you some perspective on the operating performance of our three businesses and their markets and also give you our sense of near and immediate terms. Overall, we are generally pleased with our strong finish to the year with particularly notable contributions from both our Fuel Specialties and Octane Additives businesses. We have achieved growth in excess of our underlying markets due to our ongoing commitment to research and development enabling us to supply customers with differentiated and innovative products as well as our high standards of customer service. As you know, we have maintained a very close watch on the underlying market conditions that have impacted our margin performance and we are very pleased to report that the important actions we have taken throughout the year have resulted in sequential quarterly margin improvement in our Fuel Specialties business. Breaking back to the 30% gross margin barrier in this segment is an important milestone and we expect some continued relief in raw materials and crude pricing in 2012. That is assuming no additional political or economic crisis. Another milestone worth highlighting is that our Fuel Specialties business topped $500 million in annual sales for the first time ever, which represents a sustained five year compounded annual growth rate of 11%. However, we have seen some softening of activity at US refiners and while exports of fuel to both Europe and South America have been at all time highs, this level of growth is probably not sustainable. Refinery rationalization has already begun to impact the market, both in the US and in Europe. Yet despite continued uncertainty in…

Thanks, Patrick. Turning to Slide 7 in the presentation, the company's total revenues for the fourth quarter were $200.5 million, a 13% increase from $177.3 million a year ago. The overall gross profit percentage of 28.8% was down 1.7% percentage points from last year although Fuel Specialties broke back through the 30% gross margin barrier due to our overall cost improvement strategy. As Patrick noted, our GAAP earnings were down this quarter. We reported earnings per diluted share of $0.82. The period over period differentially reported net income is principally due to a $4.3 million swing in foreign exchange and a tax charge of $0.4 million this quarter compared to a $7.8 million tax credit a year ago. On an adjusted basis, our earnings per diluted share were $0.97 compared to $1.07 a year ago. EBITDA for the quarter was $24.5 million, a 13% increase from $21.6 million reported a year ago and operating income for the quarter was $24.4 million, a 53% increase from the year ago period. Moving on to Slide 8, revenues in Fuel Specialties rose 14% in the fourth quarter to record levels, exceeding $500 million in annual sales for the first time. The unit volume was up 2% and selling prices and product mix increased sales by approximately 12%. By region, revenues rose 7% in the Americas, 21% in EMEA and 17% in Asia Pacific. Although the recovery has been slow, margins have continued to recover in 2011 and breaking back through the 30% barrier is a significant milestone. Gross profit dollars increased by $4.6 million to $43.7 million. FAR costs were down $3.9 million from last year primarily due to lower personnel-related costs and tight cost control. Operating income was up $7.5 million to $27.2 million, a 38% increase from a year ago. For…

Thank you, Ian. Taking everything into consideration, including non-operating matters, economic difficulties and uncertainties around the world, Innospec fared well in 2011. That's principally due to the fact that we are a well managed business with quality innovative products and services. We are focused on delivering solutions to our customers and we know how to match our business to the economic conditions in our markets worldwide. But with the successful restructuring of our new $100 million credit facility, which also reflects our banking group's confidence in Innospec coupled with our strong highly liquid financial position, Innospec remains very well positioned for continued growth and expansion for the immediate term. We will continue a policy of pursuing organic growth as well as external growth through acquisitions but on an opportunistic basis. In addition, we will deploy cash through our buyback program when appropriate. Notably delivering on a commitment to our shareholders our share buyback program in 2011 repurchased and retired over one million shares at a cost of $26.2 million. We will continue to manage our business mix in accordance with the dictates of the market economies worldwide with compliance paramount through our organization. Once again, we thank you and all our shareholders and Innospec employees for your continued interest and support. We look forward to continuing our strategy of growth in 2012. And now I will turn the call back over the operator and we will take your questions.

[Operator Instructions] We take our first question from Christopher Butler with Sidoti & Co.

Just wanted to start on the Active Chemical business. It sounds like the outages were at least in part exacerbated by soft demand. Could you give me a little bit more color on that and to what degree that has extended into the first quarter thus far?

Yes. Sure, Chris. It's Patrick here. If you look at Active Chemicals and obviously you follow our company, you look it's broken down into three segments; aroma chemicals, polymers and personal care. Two of which are generally specialty chemicals businesses. The polymers business can be an up and down business, somewhat like Octane Additives. In a great market, non-recessionary market, steady financial climate it has very steady demand and high margins. We saw a little bit of softness in Q4 so it was a; a good time to work on some maintenance on the plant at that time and really take down some of our inventory as well as betting on the [indiscernible] that ethylene prices are going to be moving forward on the downward trend. We don't expect to see that, Chris, moving forward into 2012. I think we're starting to see some stabilization in that market right now. The personal care did very well and fragrances did very well in the quarter.

And looking at your SG&A costs here in the quarter, one of the things you pointed out was legal and professional with some of the settlements that have been made. Can we expect that those costs are going to go away as we move into 2012 and to what degree can you quantify those for us?

Yes, Chris. It's Ian. We expect those costs to go away in 2012 and I think you can really expect that to be pretty much zero on a go-forward basis.

And could you give us an idea of what that was for the year?

In terms of the various different items that we were dealing with?

Please.

Yes. In total, we've probably done about across all our legal cases, probably about $10 million.

And just finally and then I'll go back into the queue. With the repurchases that you made in the quarter, I did notice that sequentially the share count increased. Was that just a factor of timing of these repurchases?

Yes. Chris, as you know it's an average that we took over the quarter and over the full year so it's just a matter of timing.

We take our next question from Chris Shaw with Monness, Crespi.

Just a follow-up on Active Chemicals, so it sounds like you're fairly confident that the fourth quarter issue was somewhat your own doing in taking the plant down. But do you believe - do you see this business growing at sort of the historic rates? You view all these long-term growths you said maybe high single-digits and getting gross margins get back over the 25% level this year?

Yes. That's the target, Chris. I would look at Active Chemicals business in the - for sales revenue growth in the high single-digits, very low double-digits. And again between that 23% to 25% range on a GP basis.

Okay. Great. And then I look at Fuel Specialties and I guess you alluded a little bit to you think there might be some additional raw material moderation but where do you see gross margins, is this 30.2%? Is there more upside to that? What was maybe the run rate at the end of the quarter and is there more pricing to come along with the raw material reductions?

Yes. Historically we've run that business in the 33% to 35% range. But we will struggle to get there. I think you're probably looking, Chris, in the low 30s, that 30%, 31% range until we get some relief and there's a lot of capacity that was taken out of the market. Crude prices ran high. You're starting to see crude come down significantly. Hopefully there's some capacity coming on the market, which will obviously drive raw materials down. So if we get those separate issues in play, you could see gross margins come back up a little bit more than where they are right now.

Okay. And then talking about using your cash and you've been buying back shares. But I believe before you said there might have been - you were sort of looking at the $30 share price as where - underneath of which you would buy and now that we're above $30, what do you do with your cash then? Is there a chance to increase the buyback and loosen it up even more this year? And I know you're looking at M&A but if you could just tell me how you're thinking about that going forward.

Sure. Last year we talked about beginning of the year specifically in the first quarter of 2011 and last quarter of 2010, we discussed the need for acquisitions in our business and to grow this business moving forward. And then we'd rather put our cash in growing the business versus buying back shares but we could balance it out if need be. We looked at a large acquisition in 2011. It did not happen. Obviously, we returned money back to the shareholders by repurchasing shares. We felt like the shares were undervalued. But we also sat on a lot of cash and we don't believe in sitting on cash. We believe in putting it to work. Whether it is buy backs or acquisitions that will remain to be seen in 2012. But I think our corporate view is we can balance out buybacks and acquisitions in 2012 and that is our plan. We have not sat down and looked at a price. We have not valued a price. But I do think you'll see us do something obviously in 2012.

I assume you still believe the shares are undervalued here, right?

Yes. That's correct.

We take our next question from Gregg Hillman with First Wilshire Securities Management.

Number one, for diesel fuel consumption in the quarter. What was the diesel fuel consumption like in Europe and the United States year-over-year? Did it increase or go down?

Diesel fuel consumption went up. Gasoline consumption went down.

Okay. And how dependent - how are your earnings dependent upon either of those things going up -

We're more of a diesel company. We don't play in the gasoline. We're everything outside of diesel.

What percentage up was it?

I don't have those on me, Gregg. You could probably call me and I'll have those handy here within the hour.

Okay. And then on the regulatory front, could you comment upon any regulatory actions, important ones that happened in 2011? Or any ones you expect to happen in 2012 either in America, Europe or Asia Pacific for that matter?

Sure. There's constant regulatory around all countries. The fact is we won't see anything big until you see some of the growth countries stick to some of the standards that we expect from Europe and USA.

Okay. I mean for tighter emission standards from vehicles.

That’s correct.

Okay. Do you expect that to - is something pending right there?

I think it's, Gregg, I think it's economies of scale. I think we're in some financial uncertainty in a global market and until we - until those filter out I think the intent is to keep price of fuel as low as you can. And so where countries had the thought process of getting down to a low sulfur number or some CO2 number or PM number or whatever it might be, they're going to sit tight until basically the financial markets are more stable.

Okay. I know just something for the Clean Air Act for - do you sell anything that goes - that affects utility like industrial plants or electric power utilities for like PPM?

If they're burning fuel, yes. A lot of power plants are burning fuel to run their power plants.

But they're burning diesels.

Yes. Diesel, heavy oil, whatever it might be.

Okay. I thought there was a lower like PPM that's coming in place right now in the United States and would that affect you?

There is, but it's not going to be a significant jump in sales, Gregg.

Okay. Fine. And then just finally, for the States - in California, the state emission - is anything going to affect you there in the diesel? I know that TxLED affected you a little bit.

Yes. But you've got TxLED. You've got carb diesel. You've obviously got CAFE limits now. Those typically as we state in our business that any time the government gets involved and pushes regulatory standards in our market, it's good for our business. So we've just been watching the trends and we've positioned ourselves properly in the marketplace.

[Operator Instructions] And we take our next question from Jay Garrett with Ahab Capital.

Just wondering if there are any startup costs associated with your plant shutdowns?

Jay, no there's not.

And we have a follow-up question from Christopher Butler.

Could you give us the volume growth on Fuel Specialties by geographic region please?

Chris, we don't give it by geographic region. We never have and we just prefer not to.

Could you comment then on the impact of weather in Europe on the quarter? Was there something meaningful there?

I think what we saw in EMEA for the quarter was a [indiscernible] rise in sales. Obviously, we do get a little bit of an increase due to the colder weather in quarter four. And we saw the benefit of the heating market and cold flow improve the market as well. The guys just had a great quarter and knocked it out of the park.

And looking at the Octane Additives business over a longer term, any change to the two year perspective that you have there?

No. We've been talking about two years for probably the last 10 years. So it's still the same old story. We're in an uncertain environment right now in the specific markets that we play in for the Octane Additives business. So I think it's, Chris, probably safe to say I'd still keep the two years as a note.

And the acquisition pipeline? My understanding was that after going through the process last year you're filling the pipeline now. Is that still the case? Are you closer to having a number of interesting deals that you're looking at?

Still fill the pipeline. We have some interesting deals that we're looking at. And we will proceed forward with those as long as they make sense to our company and our strategy and the cost structure that we're looking for.

And we have a follow-up question also from Chris Shaw with Monness, Crespi.

Yes. I think Chris asked most of my follow-ups. But just quickly on Brazil and Russia, is that generating revenues at this point? And how much is it? And what's kind of the growth rate or it is really just a small number and you don't want - we won't see any real impact in the overall company's numbers for any time soon?

No. It's generating revenues and really, the reason why we put the offices out there is for the future growth of the company. It's there to support the current customers we have in place and grow the business. So both those countries and areas of regions are generating revenue as we speak.

So those offices are open? We could expect to see some acceleration from there hopefully?

That's our expectations. But both offices are open that is correct.

And a follow-up from Gregg Hillman.

Yes, Patrick. I wanted to ask you a question about the weather. It's been an abnormally warm winter in the United States and I was wondering if that would hurt like coal[ph] flow, improve your sales or whether the people who have inventory just won't buy it more in subsequent period.

Yes. Gregg. We really haven't seen and we're a little dumbfounded ourselves. We have not seen a pull back in our CFI sales. Now, we monitor that on a constant basis. But typically, what you see is you have to use coal flow coming out of terminals. If you get a cold snap, you could be caught with tank[ph] because it doesn’t have coal[ph] flow in it and obviously, you have the issue that you have with fuel freezing. So I think it's been more of a responsible market where they're using coal[ph] flow whether they need it or now just due to the fact, they don't want to get caught in a situation where you have cold air coming from Canada and you can't get fuel out of your tank. Because you can't just run around and put additives in tanks on a constant basis. So they're treating it on a more normalized basis than they ever have.

Even the tanks that leave the tankers and go to the gasoline stations. Is that what you're talking about?

I'm sorry?

You mean the tanks of the trucks that go around and leave refineries to go to the individual gasoline stations.

If you take the infrastructure for diesel, it goes all over the place. It goes from refineries to a pipeline to a terminal. From a terminal, it goes out to filling stations, truck stops, farmers, agricultural market, over the road trucks. It's a wide, wide array of really markets that it hits. So in certain markets you have a lot of turnover. In certain markets you don’t. You just have to have coal[ph] flow in those products.

[Operator Instructions] And as we have no further questions at this time, I would now like to turn the call back over to you, Mr. Williams, for any additional or closing remarks.

Thanks again for joining us today. We are committed to transparency and to maintain an open dialogue with our shareholders and perspective investors. On this note, I am pleased with many inquiries we have received from investors seeking to learn more about the company and our prospects. We have participated in a number of worthwhile investor conferences throughout the year and intend to continue this practice. Our share price closed on December 31 at $28.07 with a market capitalization of $651 million. This is up 16% over the quarter and represents a 38% increase in value since the end of 2010. Our stock has continued to outperform the market in these early weeks of 2012. We are very conscious of the difficult trading conditions facing our customers in the current economic climate. We will continue our strategy of supporting our customers with innovative new products and the high levels of customer service they have come to expect from Innospec. If you have any further questions about Innospec or our discussion here today, please give us a call. In the meantime, we look forward to visiting with you again next quarter. Have a great day.

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