David Williams - VP, General Counsel and Chief Compliance Officer Patrick Williams - President and Chief Executive Officer Ian Cleminson - EVP and Chief Financial Officer.

Ivan Marcuse - KeyBanc Capital Markets Jon Tanwanteng - CJS Securities Sean Milligan - Coker Palmer Chris Shaw - Monness Crespi Dustin Henderson - Eagle Asset Bill Dezellem - Tieton Capital Management Gregg Hillman - First Wilshire Securities Management.

Good day and welcome to the Q2 2016 Innospec Inc. Earnings Conference Call. Today's conference is being recorded. At this time I would like to turn the conference over to Mr. David Williams, General Counsel, please go ahead sir..

Thank you and good day, everyone. My name is David Williams. I'm Vice President, General Counsel and Chief Compliance Officer at Innospec. Thanks for joining our second quarter 2016 financial results conference call. Today's call is being recorded. As you know, late yesterday, we reported our financial results for the quarter ended June 30, 2016.

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, 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 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 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'll turn it over to you, Patrick..

Thank you, David. And welcome, everyone, to Innospec's second quarter 2016 conference call. We had another good quarter for Innospec. Our focus strategy has continued to deliver as anticipated and this is reflected in our results.

The feedback we are receiving from customers suggest that the underlying markets are more positive than they have been for some time.

Our cash generation for the quarter was strong, which continues to show that we're not only having excellent balance portfolio of businesses, but we're capable of converting a high percentage of our earnings into cash flow. Our GAAP EPS was $1.18 and our adjusted EPS was $1.03.

The adjusted EPS exceeded the performance in the second quarter of 2015 despite the inclusion of the divested Aroma Chemicals business in the comparative quarter. Adjusted for this divestment our EPS was up 8%.

Our model and management focus allows us to navigate through some soft market conditions and gives us the flexibility to react to changing customer needs.

We have continued to be very disciplined with our financial approach to our business and this has resulted in a further strengthening of our balance sheet to the point where we are almost net debt free. The performance in field specialties was pleasing as revenues improved.

Demand in this market is far from strong, but when combined with our new product offerings this has allowed us to continue to grow especially in EMEA and ASPAC regions. While the Americas revenues were below a strong comparative quarter we've seen a slight improvement in this region.

As CEO of the technology driven company, it gives me great pleasure to report that new product pipeline of the innovative technologies and performance chemicals has yet again delivered strong growth. Revenues are up over 9% with good margins.

Our investment in additional manufacturing capacity to meet the demand of our customers in skincare, hair care and sun care is coming on stream at just the right time.

We have signaled our intent to acquire in this market and earlier today, we announced that we had it committed to acquiring the European differentiated Surfactants Business of the Huntsman Corporation. The acquisition process is subject to a period of consultation with the employee representative bodies and clearance from the regulatory authorities.

The transaction is expected to close early in the fourth quarter. We are very excited about this opportunity. This would take our performance chemicals business to over $350 million sales revenue globally and our target is to position as a much more significant supplier to the customers in this market.

We expect to fund this acquisition with a new term loan which will be supported by our existing banking group and current Innospec cash. Conditions in Oilfield Services continue to be a quite a challenge.

While the business is heading in the right direction and there are certainly some signs of increased customer activity, it remains well below the prior year. We will need to see further improvement in commodity prices sustained over significant period before this business can resume its previous growth trend.

However, each month in the quarter was an improvement on the before indicating that there are positive trends in the oilfield market. While we have been undertaking a significant cost reduction program which is clear from our results, we are taking care to ensure we still maintain our technology development and outstanding customer service.

We also want to ensure that we will retain and build the skill base which will be needed for future growth as the market turns. In Octane Additives, we delivered the latest order as previously indicated, although the final portion will be shipped in the third quarter.

Our customer has indicated that they will potentially require further supplies through 2017, but we have no confirm orders at this stage. Overall, we are very well positioned for future organic and acquisition growth.

Now I will turn the call over to Ian Cleminson, who will review our results in more detail, then I will return with some further comments on the quarter and our outlook. After that we will take your questions.

Ian?.

Thanks, Patrick. Turning to Slide 6 in the presentation. The Company's total revenues for the second quarter were $228 million, a 6% decrease from $242.9 million a year ago. The overall gross margin increased by 1.5 percentage points from last year, 37.5% driven by good underlying performance in all our businesses and a favorable product mix.

EBITDA for the quarter was $44.3 million, a 28% increase over last year. Net income for the quarter was $28.9 million. It is worth noting that the comparative period included the Aroma Chemicals business which was divested in July 2015, which represented $11.6 million of sales revenue and $0.07 of EPS.

Our GAAP reported earnings per share of $1.18 included several special items, the net effect which increased our second quarter earnings by $0.15 per share. A year ago, we reported GAAP earnings per share of $1.40 but that include a positive impact from special items of $0.38.

Excluding special items in both years, our adjusted EPS was $1.03 slightly higher than the $1.02 reported in the second quarter of 2015 which also included $0.07 of earnings from the Aroma divestments.

As part of the Independence acquisition, we are required under GAAP to fair value the contingent consideration that we expect to pay in 2016 on a quarterly basis. Any adjustment to the fair value is charged to the income statement is non-cash and adjusted out for EPS purposes.

In this quarter, as a result of our expected lower payouts in 2016, the adjustment resulted in $2.4 million credit to the income statement and a $0.06 adjustment to EPS. Moving onto Slide 7, with a reference to previous results. Please remember that we've changed the reporting format.

The information covering the realignments of our results for 2015 and for the first quarter of 2016 were outlined in the Form 8-K which we filed with the SEC on May 13, 2016.

Revenues in field specialties for the second quarter were $129.3 million, 6% higher than the $121.8 million reported a year ago driven by a good performance in the core business and strong demand in aviation. Volume improvement of 8% and a positive currency impact of 1% was somewhat offset by the price mix reduction of 3%.

Sales performance was excellent in EMEA and Asia Pacific. In the Americas, the business was down against a very strong comparative quarter. As we predicted gross margins of 33.8% was similar to the first quarter of 2016 was led by 2.3 percentage points from last year due to weaker sales mix in the core business.

Operating income for the quarter was $24.2 million down slightly from $25.6 million a year ago. Turning to Slide 8, our comments on performance chemicals exclude from the comparative period the impact of the Aroma Chemicals business sold in July 2015 which had sales of $11.6 million and contributed $2.3 million of EBITDA.

Revenues in performance chemicals for the second quarter were of 9% against 2015 second quarter to $35.3 million. Volume growth of 11% was slightly upset by 1% lower pricing and an adverse currency impact of 1%.

Gross margins expanded over 4 percentage points 32% benefitting from a significantly richer sales mix and operating income of $4.7 million was of 81% on the same quarter last year. Revenues in the Americas grew by 6% from a year ago driven by excellent growth in personal care products, which also contributed to an increase in the gross margins.

In the rest of the world, sales grew by an impressive 17% of the impact of our new product development pipeline as rolled out. Turning to Slide 9, in oilfield services sales were down 34% on the second quarter of 2015 to $46.5 million driven by reduction in customer activity especially in well completion.

Overall volumes declined by 16% and there was an adverse price mix of 18%. However, as expected sales were up 28% sequentially over the first quarter of 2016.

Favorable sales mix held driving improvements of 3.6 percentage points in gross margins in the quarter and operating expenses in this business were down 8% compared to prior year driven by our cost reduction programs. The business made an operating loss of $1.6 million compared to $5 million profits in the same quarter last year.

However, as anticipated this represents good progress of the operating loss of $5.5 million reported in the first quarter of 2016. Moving onto Slide 10, as expected net sales in Octane Additives for the quarter was $16.9 million compared to $6.5 million a year ago. Gross margin was 62.7% benefiting from the increased production volumes.

The segment reported an operating income of $9.6 million during the quarter compared to $2.8 million in last year's second quarter. Turning to Slide 11, corporate costs for the quarter was $12.4 million compared to $7.4 million a year ago.

In the current quarter, there were $1 million of acquisition related cost therefore the underlying corporate cost were broadly within our expected range of $10 million to $11 million. The comparative quarter also included $2.4 million recovery of legal cost.

The effective tax rate for the quarter was 20.6% and expected tax rate for the full year remains at 20%. Moving onto Slide 12, we closed the quarter with net debt of just $4.7 million down from $41 million at the end of last quarter. Net cash in operations was again very strong at $50.4 million compared to $36.9 million a year ago.

As of June 30, 2016 Innospec had $153.3 million in cash and cash equivalents and total debt of $157.9 million. In the second quarter the company paid $8.1 million to shareholders as the semi-annual dividend. Now I'll turn back over to Patrick for some final comments..

Thanks, Ian. I'm very pleased to report that Innospec's strategy continues to deliver good results. And despite the continuing challenge in some of our markets, we've had another strong quarter. This performance reflects the benefit of having a range of businesses in a balanced portfolio.

Field specialties made good progress which performance chemicals continued to its excellent growth based on a further innovative product development in personal care. As we predicted oilfield services continued the improvement trend as we anticipated and have made a small profit for the end of the second quarter.

Conditions in this market remain difficult, but we believe the outlook is better than it has been for some time. We have maintained our focus on cost control, but we will be well prepared when customer activity improves. Our cash generation was excellent in the quarter which has further strengthened our balance sheet.

With net debt down to only $4.7 million, we consider ourselves to be well placed to continue to our balance capital management program. This will allow us to continue our strategy of managing buybacks, increasing our dividend and pursuing the pipeline of acquisition opportunities throughout the rest of the year.

The proposed acquisition of the Huntsman European Surfactants Business is progressing very well. And it is already in consultation with the employee representative bodies. We expect the transaction to close in the fourth quarter.

We anticipate that this acquisition will provide us with an excellent European footprint for our personal care and home care business further extending our product and technology offering to our customers globally. This acquisition would be accretive immediately and on a fully year basis, it would add $0.41 to EPS after funding cost.

We into the second half of the year with a very positive outlook and we believe there are clear signs that our strategy is right on track. Our continued focus on leading edge technology to support our customers development plans will deliver further growth and shareholder value. Now I would turn the call over to the operator.

Ian and I will take your questions..

[Operator Instructions] we'll now take our first question which comes from Ivan Marcuse of KeyBanc Capital Markets. Please go ahead..

The first one's in the fuel business.

You talked about Americas is showing some improvement and that's been down, where are you seeing improvements is it more in the trucking miles driven or is it just the comparisons will get easier as we move through the year and I guess in your outlook statement, you said that your markets are improving better than they've ever had or something to that effect.

Was that just generally in oilfields business or was that also talking towards your field specialities?.

I think it's generally all market. Ivan, it's Patrick. And if you look at specific to fuel specialities, it's been a difficult market due to the fact that you have higher cetane crude, which obviously has hit the fuels market and the application of such.

Our belief is that, you're seeing Americas at least settled, you're correct about on a comparative quarter basis, it will get better as well but I think you're starting to see some general improvement in the Americas market.

But overall if you look at oilfield, personal care and the fuels market we've seen general improvement at least in our specific applications to that market..

Okay and then if you, I guess touching on oilfield real quick, you know oils obviously taking a little bit of turn here to the down.

Is that an immediate impact on your business or have you seen general fundamentals as continue to sort of improve and sort of how should we think about where oil need to be before the thing sort of, before this business, can't consistently be in the black..

I think we've seen general improvements. Sometimes you look at some of the CapEx programs and oil starts to trend up over $45 and $50 range and everybody decided to start readdressing their programs. My view is that, I think we'll have a pretty good third quarter.

It wouldn't shock me to post a positive number in the third quarter in oilfield and I think we just have to be very cautious moving forward.

A lot of what's happened because drilling shutdown for quite some time and rig count dropped off quite significantly that there still has to be some drilling and I think we're starting to see it in this quarter due to the fact that, you have to HPP [ph] some of the properties that have not been HPP'ed [ph] and you don't want to lose lease.

So the outside of that, you know in some of the basins like the Midland where you got the Wolfcamp and the Spraberry, and you've got the SCOOP all the way up to probably the Niobrara, you're still in that $40 range where you can make money.

So we're seeing activity in that area and we're even seeing some activity in the Bakken which kind of surprise us quite frankly, but to know to where it gets stable. Ivan, I would probably say into the mid-50s would be a very good number where you would see the growth trends pick back up..

Okay, good and moving over to the acquisition. Congratulations in getting the deal done.

If you look, do you have any sort of manufacturing or is any sort of presence currently in your personal care business in Europe and do you see, is there any potential if there is, is there any synergies and sort of think about in terms of I understand it's going to be $24 million in EBITDA, but you know overtime you see an ability to add to that and I guess the second part of that question.

I'll jump back in the queue is, the margins and returns on this business and I would suggest that it's not as differentiated as your other business, just to probably about 500, 600 basis points below.

So do you improve that overtime or how to think about the returns and I guess the sort of EBITDA of this business going forward or I guess the strategic reasoning for it..

Yes, it's a good question. Let me start with the first one. If you look at our manufacturing footprint, we really didn't have a good manufacturing footprint in Europe and to be a global business, especially with our specialty products we had to have a global footprint.

If you recall in our strategy, which we've really stressed over the last three years and we've stucked [ph] to that strategy is to have a balance portfolio. This really balances our portfolios not only from a business perspective but I'd say from a products perspective specific to the personal care business.

Yes, moving along to your second question some of this business is quite commodity, but the fact is, the goal is to bring our non-commodity business that we have in the Americas and grow that in Europe.

And I think if you'll look at typically what happens and where we've been very successful is we've taken companies that are manufacturing driven with a sales force that is margin driven and we've been able to get margins up overtime.

So I do think a combination of synergies, a combination of new products, a combination of old products that we're bringing into the new manufacturing sites.

We'll bring those margins up overtime and I think this gives us the ability and the credibility with a lot of the major players over in Europe that we can supply them quite significant large amount of products in a large based product line..

How much are this, how much do you envision synergies being and do you need all three plants?.

No, we need all three plants. This was not purchased for a cost-cutting exercise this is more purchased for growth. So there won't be a lot of synergy cost. More synergies will come from technology and sales and marketing, that's where synergies will come from..

Great, thanks for taking my questions..

Thank you. Now we'll go to our next question which comes from Jon Tanwanteng of CJS Securities. Please go ahead sir..

Can you give us a little bit more detail on Huntsman, just the underlying growth rate of the business and is there any particular seasonality that we need to be aware of?.

Yes, there is not any seasonality Jon and if you look at personal care in general there is not any seasonality, it's pretty consistent business, and that's why we liked that portfolio, and if you look at the assets that we have, those assets go all the way through home care to even oilfield.

So as we've always said to you, a lot of our assets can make oilfield products, field products and personal care and home care products. There's a lot of cross generalization there. So I think it's a very strong, strong footprint for us and really builds where we needed to build in Europe.

If you look at growth rate, I would probably say it's a GDP business for where they sit today plus a little bit maybe 3% to 4%. I think when we get a hold of it and we start adding to that technology base and adding our technology in Europe, we are looking at getting that back up to 9% to 10% and that's our ultimate goal..

Okay great and just in the personal care business before Huntsman. You had a sequential decline call it $9 million to $10 million from $44 million to $30 million.

How should we think about that going forward just on a sequential seasonal basis as well?.

Yes, Jon this is Ian. That drop was actually just completely due to the disposal of the Aromas business, last year. And the comments we made on the call earlier, you see that we've actually been like-for-like it was a 9% growth year-over-year, so you just need to be mindful of the disposal last year..

Okay, got it and can you discuss what you think will happen in margins for field specialities given the input prices declining and do you think you'll see more tailwinds or is that mostly over?.

No, I think that's over. We always said in the last 2Q calls that, we expected our margins to come back down at 33% to 34% range and we're at about 34% and that's probably our expectations for the year..

Okay, great. Thank you very much..

Thank you. We'll now move to our next question from Sean Milligan of Coker Palmer. Please go ahead..

Within oilfield service what percent of that business is US based first international based?.

Yes, it's probably Sean I would probably put in about 90% US based, US and South America..

Okay, all right and then I guess one some of the frac companies or more specifically like the frac sand [ph] providers have talked about grow in volumes throughout 2Q in April trough [ph], is that sort of the same thing you were seeing within that business as it relates to the US in 2Q and maybe any commentary on kind of where exit rate volumes were for you all in the quarter will be helpful?.

Yes, we saw volumes increased towards the last two months of the quarter and I think as you said and as we said in our script, that we actually started posting a profit in the last two months of the quarter. So we've seen the general trend come upwards.

I think to add to that, one of the focuses that we have and if you look at, global markets obviously the shale is probably the biggest play in regards to chemicals.

If you look at the most stable market it's in Saudi and so we're looking at the potential expansions in oilfield into the Saudi market but I think for us, what we have seen as a company as a whole is that in the oilfield sector we've seen volumes come up lasted two months of the quarter and our expectation we'll see those come back as well in the third quarter as well..

Okay great and then, when we think about your oilfield service business and where shale rig counts are ramping, are there any specific plays that you're more levered to or we need to see more activity to really drive that business higher.

So are you stronger in Eagle Ford maybe the Mid-Con [ph] SCOOP's [ph] back then you're in the Permian just any sort of color, commentary there would be helpful also..

Yes, Sean as part of our strategy, when we looked at building oilfield it was to make sure that we were in the lowest [indiscernible] cost basins, just in case the market return like it did on commodities. So if you look at, we are properly positioned in all the low cost basins. We're in the Eagle Ford, we're in the Delaware, Wolfcamp, Midland areas.

So we're in Permian Basin. We're set up well for the SCOOP so, we're set up in every low cost basin there is in North America.

And that was part of our strategy when we look to go out and acquire and it's just the if and when and the when hit us and for us now, it's just the function when market comes back, we want to be in a great position to grow it..

Perfect and one more, if you don't mind and I'll stick within oilfield. One of themes within the space is been higher intensity frac jobs more sand for lateral foot, more fluid per lateral foot.

Can you address maybe how that or if that creates a tailwind for your business in terms of, it's my understanding that a lot of the chemicals you'll sell there sold on a concentration basis. So if you're getting more fluid per lateral foot in these jobs, it should translate into a higher ticket charge for you all.

Is that what you're seeing in the market and is that offsetting some of the kind of rig count, well count declines..

Yes, it is Sean and that's where we're seeing our growth as well. I mean you're starting to see more frac stages, you're starting to see more sand used therefore more liquid used. So yes, you're spot on that's the general trend right now..

Okay, perfect and then I guess within chemicals and oilfield I mean are you, the full suite at this point or is there a product that you think you might be able to expand into or you'd be looking to expand into or in that space?.

Yes, we continue to look at in a better technology and I think really that's what differentiated us and have led us post the growth from an EBITDA standpoint to last two months of the quarter. We're very technology driven in all of our businesses and that's where we're going to keep our focus.

So do we have one product that's coming out to market that's going to make a substantial increase, I would say no. What I would tell you is, we're consistently bringing out and modifying numerous products that will help us grow long-term..

Great, thank you..

Thank you. We'll take our next question which comes from Chris Shaw of Monness Crespi. Please go ahead..

Follow-on the sort of this questions that were just asked.

I'm trying to figure out in your oilfield services business, have you seen has your decline match sort of the declining volume wise or activity wise in drilling and the production or are customers not using products for some reasons or substituting in cheaper products or I haven't gotten real sense of how your growth matches up with the actual market?.

Yes I mean I think it's fairly well matched up. I think if you look at the specific businesses that we're in, if you look at drilling that's obviously at a standstill. If you look at frac stimulation, we've seen that pick up in the last two months as we said in the script and production chemicals has been fairly steady all the way through.

And so that's really as we anticipated what would happen, for us I think we're starting to pick up more business with technology that we've put on the marketplace. We're very customer focused and I think that's helping us and really positioned us well for when the market turns and hopefully we get into the $50 range of crude.

But I think if you look at from an EBITDA basis and you look at what we've posted in the last two months of the quarter, I'm not so sure that many companies in our sector can say that..

Interesting. Thanks and then, the Huntsman deal, it sounds actually very good.

I just wanted to confirm, did you say it was going to be accretive by $0.41 annually?.

That's correct..

And how are the - just what are you using for funding cost on the, I forget you said term loan I think it was that you'll be doing..

Yes, Chris we're going to take out $150 million term loan, it's broadly on the same terms and conditions our existing revolving credit facility on. And the broad rates will be about 220 basis points on that loan..

Okay and then, just this is also sort of asked and what before, but did you not have any role in personal care business in Europe prior to this deal..

We had personal care business Chris but a lot of that was being shipped from the US. This gives us the global expansion now to have margin improvement and really the product line to expand into our global customer base..

Great, congrats with the deal. Take care, thanks..

Thank you and now we'll move to our next question, which comes from Dustin Henderson of Eagle Asset. Please go ahead..

Thanks, I'm sorry. The last two callers just asked my questions..

Thanks, Dustin..

Thank you. We'll now move to our next question from Bill Dezellem of Tieton Capital Management. Please go ahead..

Thank you. I have a group of questions.

But first of all, relative to the $0.41 of EPS accretion, I just want to make sure if that's what you're anticipating in calendar 2017?.

Correct..

And so when I look at the consensus estimates which are showing 2017 to be roughly $0.35 below 2016 that doesn't make any sense at all because field specialties directionally will be up, you're going to continue most likely to have Octane business.

Oilfields go in the right way, even without the acquisition, personal care would directionally be up and then we add $0.41 on top of that. I mean, is there something I'm missing to sort of conceptual standpoint there..

No, I think you're broadly right about that Bill and I've no doubt that a lot of the analyst will be realigning the models with the acquisition and the current future growth and the positive statements that we've made on the call so far about how we see the markets developing over the next year, so..

That's helpful. Thank you and then let's move to the oilfield business for a moment. The rig count was down in the second quarter versus the first quarter, so my question is super straight forward.

How did you grow revenues 28% sequentially?.

Yes, if you look at it and we've talked about this Bill for quite some time and there's lot of wells that are behind pipe that have not been fracked. So they're going to frac those wells and complete those wells before they start the drilling program.

And so that's really what's going on right now, thousands of wells that are sitting behind pipe, that are now out fracking them..

So those uncompleted wells that you're benefitting from completions, how long do you see that process unfolding in benefiting you?.

I think as long as crude stays below $50, you're not going to see rig count obviously pick up much, you're going to see more people just fracking what the F, meaning what the F?.

All right, Patrick where I was going with that question, is at some point they will have fracked all the wells that were not completed.

How long do you think if at current rate, that this can continue?.

Oh, I think there is still a year or two years in this process Bill. There's quite a significant amount of wells that are sitting behind pipe..

Okay, that's helpful. I didn't appreciate that magnitude. And maybe you're starting to answer my next question which is how did oilfield maintained throughout this whole downturn, even the gross margins at the levels that you're talking about. I mean, this is - we follow other energy companies and this is somewhat unheard of..

We've always, one of the things that we've always focused as a company as a general management team and I would say as employees, globally is that we really focus on margin, and providing the best technology to our customer and obviously we can't get a good margin unless we have great technology, they both go hand in hand.

And we're constantly looking at cost. And so if you look at overall when you pull those three together we typically will outperform the markets in any general markets that we're in whether it's personal care, oilfield or fields.

So you know that's why if you take what I've said and if you look at the Huntsman acquisition and what we want to do with that margin profile, this is a great acquisition for us long-term.

But if you go back to oilfield, I think we've just, we have great technology Bill and we've really good people who service the heck out of our accounts and we get the benefit of that and we are very, very big into cost control..

Great. Well thank you very much it was certainly appreciated and have a good day..

Thank you. We'll now move to our next question which comes from Gregg Hillman of First Wilshire Securities Management. Please go ahead..

In the Huntsman European personal care home business, what was the R&D function, how many did they have in R&D and how many PhD's?.

Yes, I don't have the exact number but there is about 30 between R&D customer service etc. that sit in the Belgium office.

We were very impressed with basically all their employees that we met along the way and I think with our R&D and the focus that we have along with their PhD and the brains that they have and where their strategy is been going, it'll be a great combination long-term.

It will just take some time for us to blend in together but we're very happy with where we sit with R&D..

Okay and also just carrying along the human resources that you're getting with the acquisition.

Was there a Divisional Head of that company to begin with?.

Yes, there was..

Okay and are you going to - well basically was it being run in a heavy handed fashion by the corporate people at Huntsman or were you able to release lot of energy inside of the company by giving those people more authority?.

Well I think we always give our people authority as long as we have the correct strategy in place and everybody agrees upon it. For us, now that we're able to expand our product portfolio. I think they're going to naturally feel like they're getting a nice release. I think this over the next year is going to be an absolute fabulous acquisition for us.

What we're really good at, is I said is buying companies and putting our margin profile and our strategy on top of those and I think you're going to see the same with this business..

Okay, thanks Patrick..

Thank you. We'll now take our next question which comes from Paul [indiscernible], Private Investor. Please go ahead..

Actually my question has been answered but just to point a clarification and maybe a quick comment Patrick. This acquisition looks very attractive and a great step after having leveraged further your cash flow and it's a long way from the [indiscernible] business been spit out of Great Lakes Chemical. Doing a good job.

The question is and in Q4 when you closed you mentioned the $150 million in debt, what would be the cash impact and so on the gross sense, what would be the anticipated balance sheet in terms of cash and debt, when it closes..

Paul, this is Ian. I'll take that question. I mean very broadly we're going to take $150 million term loan of the additional debt onto the balance sheet.

I'm going to use our existing cash to pay the balance and from working capital within the acquisition itself and also to fund the acquisition and although capital management programs that we wanted to run in existing business, our expectation is that, when we close the deal we'll be round about 1.8 times to 1.9 times levered maybe and even little bit lower than that, we've got no concerns about leverage.

We'll deleverage quickly, we'll generate an awful lot of free cash flow. There is no reason why we won't continue to do that, both in our existing business and also within the Huntsman acquisition as well..

Yes, I mean to add to that Paul, if you look at the generation of free cash flow we had in the quarter, that tells you how fast we'll delever this. We've never been a levered company nor will we be.

We like to have a strong position in the market to be able to do dividends, increase dividends, do appropriate buybacks, organically grow our business, but not feel stifled if there is a market downturn.

And I think for us when we look at 1.8 time lever, which I think it will be probably lower than that by the end of the year, by the amount of free cash we kick out. I think for us, you could see how quick this delevers. It is a very quick deleverage business..

That's very clear and thank you..

Thank you. We'll now take the first of our follow-up question which comes from Jon Tanwanteng of CJS Securities. Please go ahead..

Just a quick follow-up on the $0.41 accretion that you mentioned before, which cost is that excluding or including and what is the tax rate you're using when you're calculating that?.

Yes, Jon I'll take that one. It includes the financing cost and the tax rate that we've [indiscernible] is about 24%..

Okay, got it. So it's the interest that you're going to pay on the term loan, is what you're talking about..

Right, yes and that doesn't include any GAAP adjustments or any of that sort [indiscernible] that will all be excluding our EPS when we report the business..

Got you.

Okay and then second, are you done with M&A at this point or is it more to do, is the focus going to shift more to share repurchases or dividends, what's the plan for I guess additional cash flow once you close the acquisition?.

You know again I'll go back to three years ago when we presented our strategy and we continue to do that.

we said we wanted a balanced portfolio and if you look at this acquisition and then you take [indiscernible] returns to mid-50s to 60s, you really got a very balanced portfolio anywhere from $350 million to $400 million in personal care, anywhere from $250 million to $400 million depending on the market changes in oilfield in a $500 million fields business.

Yes, it's a great balance portfolio with great technology. So for us, we don't really need to run out and acquire anymore. I think we've got very good strategy. We've got for us now, it's fun organic growth in technology and look at expansion of the dividend.

If something comes along, I don't think you'll see anything to this magnitude, if it is it might be a small geographic area where we have a technology or we need growth or an organic expansion. For instance something maybe in Saudi, but for us we're really well positioned now to really not go out and do much acquisitions..

Great, that's very helpful. Thank you and good luck..

Thank you. We'll now move to another follow-up question, which comes from Chris Shaw of Monness Crespi. Please go ahead..

Just following up on Jon there.

In the past you were suggesting there is a chance for maybe bottom feeding some oilfield service businesses, is that not part of the plan anymore or are they not are the multiples are valuations of the business just haven't come down enough to make it worthwhile?.

Multiples have come down, but I think what we've seen in the market is what has been for sale has not been a business that really does anything for us long-term. It might be a consolidation of assets and we really don't need more assets at this time.

I think for us, we'll continue to look at oilfield especially if it's geographic growth, and there probably will be some small either geographic expansions and/or product expansions, but we are probably positioned in the right growth areas in the US market specifically.

I think it's more so just general organic growth expansion whether it's putting more plant capacity and or personnel as we get the business, that's our focus right now..

Great, thanks..

Thank you. We'll now move to another follow-up question which comes from Sean Milligan Coker Palmer. Please go ahead..

On the oilfield service commentary that you made previously about the ducks [ph] and how that drove kind of quarter-over-quarter revenue growth.

I thought that, a big part of that was maybe a South American buyer or something that came back into the market for you also, could you address maybe how the US trended verse international quarter-over-quarter within that business..

Yes, good question. It was both, it was not only growth in the US market specific but again as we stayed in the last Q call that there is a customer that we started deliver to in South America and that's part of the growth as well and that should continue..

Okay, but just to kind of be clear US revenues were up quarter-over-quarter. If you back out the South America, okay..

Yes, it was..

All right, thank you..

Thank you. We'll now move to our final follow-up question which comes from Gregg Hillman of First Wilshire Securities Management. Please go ahead..

Patrick, just another question about the Huntsman acquisition.

Did you see basically just in terms of how cyclical it is and the pricing and volumes were, the various products that they have, has the pricing been stable over the last 20 years for their products or fairly variable and also, how about the capacity for some of the stuff that they sell, the worldwide capacity is it been increasing in Europe or is there new capacity coming online, that would affect in the future and how hard is it to bring capacity online in Europe in the way that we compete with that business..

If you look at the Huntsman business. Huntsman they run good plants, they have good people. They're very good operators which is good for us, we're not picking up the business that's been destroyed or in disarray, it's been very stable business for Huntsman. I think it's going to be a very stable business for us.

The same general competitors are out there, the good thing is, we don't have to put a lot of money of CapEx for expansion into these plants, we've got more than enough room and I think with the additional volume and technology that we're bringing to Europe from the US should help to grow that volume and those plants.

So I think overall as a competitive situation we're sitting in a good position along with all the other competitors. I think it's a pretty responsible market..

Yes, but you remember what you happened to your polymers business in Europe just recently there is pricing competition they're saying kind of deteriorated a little bit could that happen to the Huntsman business also..

No, it's apples and oranges and if you look at the polymers business it's been like that for the last 15 years up and down. This is the pretty stable business..

Okay, thanks..

Thank you. I would now like to turn the call back to Mr. Patrick Williams as there is no further questions, for any closing or additional remarks. Please go ahead sir..

Thank you all for joining us today and thanks to our shareholders, customers 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. We look forward to meeting up with you again later this year. Thank you..

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