These Tetra-Ethyl Lead (TEL) related extracts were collated by Elizabeth O’Brien, The LEAD Group Inc. TEL is the octane enhancer that is added to fuel (motor fuel, aviation fuel) to turn it into leaded fuel.
Annual Report [URL: SEARCH BY FILING DATE AT: https://innospec.com/investors/sec-filings/ ; AT: https://innospec.ir.edgar-online.com/efxapi/EFX_dll/EDGARpro.dll?FetchFilingCONVPDF1?SessionID=PoCwkLyvC1opYHU&ID=14718040 ]
| Item 1 | Business |
When we use the terms “Innospec,” “the Corporation,” “the Company,” “Registrant,” “we,” “us” and “our,” we are referring to Innospec Inc. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.
General
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Our Octane Additives business previously manufactured a fuel additive for use in automotive gasoline until it ceased trading on June 30, 2020.
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Segment Information
The Company reports its financial performance based on the four reportable segments described as follows:
- Fuel Specialties
- Performance Chemicals
- Oilfield Services
- Octane Additives (ceased trading June 30, 2020)
The Fuel Specialties, Performance Chemicals and Oilfield Services segments operate in markets where we actively seek growth opportunities although their ultimate customers are different. The Octane Additives segment has ceased trading and is no longer a reporting segment from July 1, 2020, as reported in our Quarterly Report on Form10-Qfor the quarter ended June 30, 2020. [URL: SEARCH BY FILING DATE AT: https://innospec.com/investors/sec-filings/ ; AT: https://innospec.ir.edgar-online.com/efxapi/EFX_dll/EDGARpro.dll?FetchFilingCONVPDF1?SessionID=NoCwkdgtvwRCo6U&ID=14311304 ]
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Fuel Specialties
Our Fuel Specialties segment develops, manufactures, blends, markets and supplies a range of specialty chemical products used as additives to a wide range of fuels. These fuel additive products help improve fuel efficiency, boost engine performance and reduce harmful emissions; and are used in the efficient operation of automotive, marine and aviation engines, power station generators, and heating oil.
The segment has grown organically through our development of new products to address what we believe are the key drivers in demand for fuel additives. These drivers include increased demand for fuel, focus on fuel economy, changing engine technology and legislative developments. We have also devoted substantial resources towards the development of new and improved products that may be used to improve combustion efficiency.
Our customers in this segment include national oil companies, multinational oil companies and fuel retailers.
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Octane Additives
The Octane Additives segment has ceased trading and is no longer a reporting segment from July 1, 2020. Previously our Octane Additives segment produced tetra ethyl lead (“TEL”) for use in automotive gasoline and provided services in respect of environmental remediation to manage the cleanup of redundant TEL facilities as refineries completed the transition to unleaded gasoline. The expected activities to clean up redundant TEL facilities have been provided for in the second quarter of 2020.
Legacy costs related to these operations are now being recorded as operating expenses within corporate costs.
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Competition
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Fuel Specialties: Fuel Specialties is generally characterized by a small number of competitors, none of which hold a dominant position. We consider our competitive edge to be our proven technical development capacity, independence from major oil companies and strong long-term customer relationships. We believe we remain the world’s only producer of TEL for use in aviation gasoline, which we market as our AvTel product line.
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Octane Additives: Production and sales of TEL for use in automotive gasoline have ceased and therefore Octane Additives is no longer a reporting segment from July 1, 2020.
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| Item 1A | Risk Factors |
The factors described below represent the principal risks associated with our business.
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Decline in our TEL business
The Octane Additives business has ceased trading and is no longer a reporting segment from July 1, 2020 as the production of TEL for use in motor gasoline has finished. Legacy costs related to these operations are now being recorded as operating expenses within corporate costs.
The continued sales of TEL for use in aviation fuel (“AvTel”) are recorded within our Fuel Specialties business. The piston aviation industry has been, and is currently, researching a safe replacement fuel to replace leaded fuel. The Federal Aviation Administration program (Piston Aviation Fuels Initiative) has been established to identify a replacement and candidate fuels are at an early pre-screening stage. This process is currently suspended and anticipated to restart in 2021. The timescale beyond this stage is unclear, but the full testing program will, of necessity, be long and comprehensive.
While we expect that at some point in the future a replacement fuel will be identified, trialed and supplied to the industry, there is no currently available alternative. In addition, there is no clear timescale on the legislation of a replacement product. If a suitable product is identified and the use of leaded fuel is prohibited in piston aviation the Company’s future operating income and cash flows from operating activities would be adversely impacted.
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| Item 2 | Properties |
A summary of the Company’s principal properties is shown in the following table extract. Each of these properties is owned by the Company except where otherwise noted:
— Location: Ellesmere Port, United Kingdom
— Reporting Segment: Fuel Specialties, Performance Chemicals and Octane Additives
— Operations: European Headquarters
— Business Teams
— Sales/Manufacturing/Administration
— Research & Development
— Fuel Technology Center
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| Item 7 | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
This discussion should be read in conjunction with our consolidated financial statements and the notes thereto.
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Environmental Liabilities
We are subject to environmental laws in the countries in which we conduct business. Ellesmere Port in the United Kingdom is our principal site giving rise to environmental remediation liabilities associated with the production of TEL. There are also environmental remediation liabilities on a much smaller scale in respect of our other manufacturing sites in the U.S. and Europe. At Ellesmere Port there is a continuing asset retirement program related to certain manufacturing units that have been closed.
Remediation provisions at December 31, 2020 amounted to $58.5 million and relate principally to our Ellesmere Port site in the United Kingdom. We recognize environmental liabilities when they are probable and costs can be reasonably estimated, and asset retirement obligations when there is a legal obligation and costs can be reasonably estimated. The Company has to anticipate the program of work required and the associated future expected costs, and comply with environmental legislation in the countries in which it operates or has operated in. We develop these assumptions utilizing the latest information available together with recent costs. While we believe our assumptions for environmental liabilities are reasonable, they are subjective judgements and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported.
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RESULTS OF OPERATIONS
The following table provides operating income by reporting segment:
Results of Operations – Fiscal 2020 compared to Fiscal 2019:
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
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Note 5. Restructuring
During 2020, the Company recordeda charge of $21.3 million for the restructuring of its Octane Additives segment in line with the end of the manufacturing and sale of TEL for use in motor gasoline. As a result, the Octane Additives segment ceased trading and is no longer a reporting segment from July 1, 2020. Production of TEL will continue for sales to the aviation market (“AvTel”), as reported within our Fuel Specialties segment.
The restructuring charge comprises the future committed costs of environmental monitoring of $2.0 million, remediation of facilities of $7.5 million, contract termination costs of$7.2 million, impairment of tangible assets of $2.0 million and costs of redundancy due to the down-sizing of the TEL operations of $2.6 million. During the year ended December 31, 2020 the utilization and the unwinding of the discounting was not material.