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Item 7. Management’s Discussion and Analysis

2025-02-19 compared with 2024-02-14 · 130 added, 125 removed, 243 unchanged (51% of the section changed)

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EXECUTIVE OVERVIEW

In 2023 Innospec delivered strong results.

We again benefited from our balanced end-market exposure as the negative impact of customer destocking in Performance Chemicals was offset by significant growth in Oilfield Services, and steady results in Fuel Specialties.

In Performance Chemicals, full year sales and operating income declined, but we believe that destocking pressure peaked in the third quarter of 2023.

This combined with new contract awards contributed to significant sequential improvement in operating income and margins in the second half of 2023.

While the economic environment remains a challenge, we expect further improvement in this business in 2024 as activity levels return.

In addition, we acquired QGP which we believe will further strengthen our Performance Chemicals segment and add a manufacturing base in South America to compliment all of our end markets.

In Fuel Specialties, after adjusting for the non-recurring Brazil inventory charges in the first half of 2023, full-year operating income grew and operating margins improved to 18%.

Our target for operating margins continues to be 19-21%.

Sales growth combined with further margin improvement is a key focus and opportunity for the global Fuel Specialties team in 2024.

Oilfield Services had another excellent full year.

Operating income approximately doubled and operating margins improved above our 10% target.

While we expect production chemicals activity to remain at moderate levels in 2024, we continue to pursue further sales growth and margin improvement in our other segments.

In 2024 Innospec achieved another good set of results.

Strength in Performance Chemicals and Fuel Specialties offset lower results in Oilfield Services.

In Performance Chemicals, full year revenues were up 16 percent and operating income increased by 52 percent.

We have a balanced pipeline of growth opportunities across our global personal care, home care, agriculture, construction and other industrial markets.

In addition, the integration and performance of our recent QGP acquisition in Brazil is proceeding to plan and is supporting not only Performance Chemicals but also Fuel Specialties growth opportunities in the region.

Moving into 2025, we continue to target operating income and margin improvement to levels consistent with the full year 2022.

In Fuel Specialties, revenues were up 1 percent and operating income increased 18 percent.

Operating margin improved to just below our target of 19 to 21 percent.

We remain focused on further margin improvement in parallel with topline growth.

With our industry-leading innovation and customer service capabilities, we are well positioned to continue advancing our global customers’ initiatives.

Our technology will continue to focus on cleaner fuels, lowering emissions and improving efficiency in traditional, renewable and non-fuel applications.

In Oilfield Services, revenues were down 29 percent from last year and operating income decreased 51 percent on lower Latin America production activity.

Excluding this Latin America activity, our core business sales and operating income grew year over year.

Our expectation for 2025 is that we will see further sequential improvement in the core Oilfield business including U.S.

completions and production, DRA and the Middle East.

We currently do not expect the Latin America production activity to resume in the near term.

CRITICAL ACCOUNTING ESTIMATES

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We recognize environmental remediation liabilities when they are probable and costs can be reasonably estimated, and asset retirement obligations when there is a legal requirement, including those arising from a Company promise, and the 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.

The Company must 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 plant closure provisions are reasonable, they are subjective estimates and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported.

We are subject to income and other taxes in the U.S., the U.K.

and a number of other jurisdictions.

While we believe our assumptions for plant closure provisions are reasonable, they are subjective good faith estimates and it is possible that variations in any of the assumptions will result in materially different calculations to the liabilities we have reported.

We are subject to income and other taxes in the U.S., the U.K., and a number of other jurisdictions.

Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied.

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We also recognize tax benefits to the extent that it is more likely than not that our positions will be sustained, based on technical merits of the position, when challenged by the taxing authorities.

To the extent that we prevail in matters for which liabilities have been established or are required to pay amounts in excess of the liabilities recorded in our Consolidated Financial Statements, our effective tax rate in a given period may be materially affected.

To the extent that we prevail in matters for which liabilities have been established or are required to pay amounts in excess of the liabilities recorded in our financial statements, our effective tax rate in a given period may be materially affected.

An unfavorable tax settlement may require cash payments and result in an increase in our effective tax rate in the year of resolution.

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For additional information regarding uncertain income tax positions, see Note 11 of the Notes to the Consolidated Financial Statements.

The Company maintains a defined benefit pension plan covering certain current and former employees in the United Kingdom (“UK Plan”).

The UK Plan is closed to future service accrual but has a large number of deferred and current pensioners.

The Company also has other smaller pension arrangements in the U.S.

and overseas.

In May 2022, the Trustees of the UK Plan entered into an agreement with Legal and General Assurance Society Limited to acquire an insurance policy that operates as an investment asset, with the intent of matching the remaining uninsured part of the UK Plan’s future cash outflow arising from the accrued pension liabilities of members.

Such an arrangement is commonly termed as a “buy-in”.

The benefit obligation was not transferred to the insurer, and the Company remains responsible for paying pension benefits.

The initial value of the asset associated with this contract was equal to the premium paid to secure the contract and is adjusted each reporting period to reflect the estimated fair value of the premium that would be paid for such a contract at that time.

The buy-in reduces the UK Plan’s value at risk in relation to key risks associated with improved longevity, inflation and interest rate movements while improving the security to the UK Plan and its members.

The Company consequently benefits from the buy-in as it reduces the UK Plan’s potential reliance on the Company for future cash funding requirements.

Movements in the UK Plan’s Projected Benefit Obligation (“PBO”) are dependent on our assumptions in respect of the discount rate, annual member mortality rates, future return on assets and future inflation.

A change in any one of these assumptions could impact the plan asset value, PBO and pension charge recognized in the income statement.

Such changes could adversely impact our results of operations and financial position.

For example, a 0.25% change in the discount rate assumption would change the PBO at December 31, 2023 by approximately $10.8 million and the net pension credit for 2024 would change by approximately $0.6 million.

A 0.25% change in the level of price inflation assumption would change the PBO at December 31, 2023 by approximately $6.9 million and the net pension credit for 2024 by approximately $0.3 million.

Further information is provided in Note 10 of the Notes to the Consolidated Financial Statements.

The Company’s reporting units, the level at which goodwill is assessed for potential impairment, are consistent with the reportable segments.

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These fair value techniques require management judgment and estimates including revenue growth rates, projected operating margins, changes in working capital and discount rates.

We would develop these assumptions by considering recent financial performance and trends and industry growth estimates.

We would develop these assumptions by considering recent financial

performance and trends and industry growth estimates.

While we believe our assumptions for impairment assessments are reasonable, they are subjective judgments, and it is possible that variations in any of the assumptions will result in materially different calculations of any potential impairment charges.

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Oilfield Services

Total net sales

Gross profit:

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Oilfield Services

Total gross profit

Operating income:

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Corporate costs

Adjustment to fair value of contingent consideration

Profit on disposal

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Other income/(expense), net

Pension scheme settlement charge

Interest income/(expense), net

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Oilfield Services

Total net sales

Gross profit:

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Oilfield Services

Total gross profit

Gross margin (%):

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Corporate costs

Adjustment to fair value of contingent consideration

Profit on disposal

Total operating expenses

Financial information with respect to our domestic and foreign operations is contained in Note 3 of the Notes to the Consolidated Financial Statements.

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Exchange rates

Lower sales volumes for all of our regions were primarily driven by reduced demand for our personal care products resulting from cautious consumer sentiment, together with the impact of destocking by our customers.

The Americas and EMEA were impacted by an adverse price and product mix due to a higher proportion of lower priced products being sold.

ASPAC benefited from a favorable price and product mix due to a higher proportion of higher priced products being sold.

Higher sales volumes for all our regions were driven by increased demand for our personal care and home care products resulting from higher consumer demand, in particular for lower priced higher volume products.

The acquisition of the QGP business has also delivered increased volumes year over year.

All our regions recorded an adverse price and product mix due to lower selling prices, driven by lower raw material costs, together with the greater demand from consumers for lower priced products.

Gross margin:

the year over year decrease of 4.6 percentage points was due to an adverse sales mix from reduced sales of higher margin products and the adverse impact of reduced manufacturing efficiency resulting from lower production volumes.

the year over year increase of 3.9 percentage points was due to margins returning to a more normalized level when compared to the depressed margins in the prior year.

Margins have benefited from raw materials pricing reductions in the current year, combining with the favorable impact arising from our manufacturing efficiency due to the higher production volumes.

Operating expenses:

decreased $3.6 million year over year, due to lower selling expenses including commissions, lower performance-related remuneration accruals and lower acquired intangibles amortization following the end of the expected life of the assets.

increased $14.4 million year over year due to higher selling expenses, increased amortization for the acquired intangible assets relating to our QGP acquisition, increased spending on research and development and higher performance-related remuneration accruals .

Fuel Specialties

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Exchange rates

Sales volumes in all of our regions have decreased year over year, primarily due to a reduction in the sales of lower margin higher volume products.

Price and product mix was favorable in all our regions due to an increased proportion of higher margin products being sold.

AvGas volumes were lower than the prior year due to variations in the demand from customers, together with an adverse price and product mix due to a higher proportion of sales to lower margin customers.

Sales volumes in all our regions have increased year over year due to increased demand from customers.

Price and product mix was adverse in all our regions, with a favorable sales mix being offset by lower pricing resulting from lower raw material costs.

AvGas volumes were higher than the prior year due to variations in the demand from customers, together with a favorable price and product mix due to a higher proportion of sales being made to higher margin customers.

Gross margin:

the year over year increase of 0.5 percentage points was primarily due to a favorable sales mix from increased sales of higher margin products, being partly offset by the impact of the Brazil inventory misappropriation and the ending of that trading relationship.

the year over year increase of 3.3 percentage points was driven by an improved sales mix from increased sales of higher margin products, together with the easing of raw material and other inflationary pressures, combined with the prior year adverse impact of the Brazil inventory misappropriation and the associated costs of exiting the related trading relationship.

Excluding this prior year item, gross margin has increased 1.0 percentage points.

Operating expenses:

the year over year increase of $5.2 million includes increased research and development expenditure and higher provisions for doubtful debts which are primarily related to the ending of the Brazilian trading relationship, being partly offset by lower performance-related remuneration accruals.

the year over year increase of $4.9 million is due to higher research and development expenditure and higher performance-related remuneration accruals, being partly offset by lower provisions for doubtful debts.

Oilfield Services

have increased year over year by $97.5 million, or 16%, with the majority of our customer activity concentrated in the Americas region.

We believe that customer demand remains strong despite operating income growth moderating, as expected, through the second half of the 2023.

have decreased year over year by $200.7 million, or 29 percent, with the majority of our customer activity concentrated in the Americas region.

Sales volumes were adversely impacted by significantly lower production chemical activity in 2024 in Latin America.

Management expects to see lower sales volumes continuing for production chemicals in the coming quarters, while believing the growth opportunities for our other oilfield markets will drive sequential quarterly improvements.

Gross margin:

the year over year increase of 2.9 percentage points was due to a favorable sales mix and the benefit of improved pricing.

the year over year decrease of 7.6 percentage points was due to an unfavorable sales mix as Latin America customer demand has weakened.

Operating expenses:

the year over year increase of $18.7 million was driven by higher customer service costs which are necessary to support the increase in demand with certain customers, together with higher provisions for doubtful debts, while being partly offset by lower performance-related remuneration accruals.

the year over year decrease of $76.0 million was driven by the lower customer service costs and commissions related to the reduced demand from certain customers, together with lower performance related remuneration accruals.

Other Income Statement Captions

Corporate costs:

the year over year increase of $9.8 million was primarily due to acquisition related costs, additional environmental remediation provisions, increased spending on our information technology infrastructure and some legal costs related to the Brazil inventory misappropriation, being partly offset by lower performance-related remuneration accruals.

the year over year decrease of $11.0 million was primarily driven by the $8.4 million recovery of historical costs which the Company incurred relating to our defined benefit pension scheme in the U.K., together with a reduction for acquisition related costs, being partly offset by higher information technology investment and the adverse impact of inflationary increases year over year.

Adjustment to fair value of contingent consideration:

the charge in 2024 of $3.4 million (2023 - $0.0 million) relates to the accretion of the contingent consideration relating to the acquisition of QGP.

See Note 5 of the Notes to the Consolidated Financial Statements for further information.

Pension scheme settlement charge:

the charge in 2024 of $155.6 million (2023 - $0.0 million) relates to the buy-out of our U.K.

defined benefit pension scheme.

See Note 10 of the Notes to the Consolidated Financial Statements for further information.

Other net income/(expense):

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Net pensions credit

Profit attributable to non-controlling interests

Sundry expense

Foreign exchange gains/(losses) on translation

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Interest income/(expense), net:

was income of $2.3 million in 2023 primarily due to the interest earned on the Company's cash balances, compared to a $1.1 million expense in 2022 primarily due to the commitment fee which the Company paid to retain its revolving credit facility for the term of the agreement.

in 2024 was $9.3 million of income, compared to $2.3 million of income in 2023.

Interest income from our cash balances has increased due to higher central bank interest rates together with the benefit from our increasing cash balances.

Income taxes:

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The adjusted effective tax rate, once adjusted for the items set out in the following table, was 26.4% in 2024 compared with 23.0% in 2023.

The Company believes that this adjusted effective tax rate, a non-GAAP financial measure, provides useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends.

The Company believes this adjusted effective tax rate, a non-GAAP financial measure, provides useful information to investors and may assist them in evaluating the Company’s underlying performance and identifying operating trends.

In addition, management uses this non-GAAP financial measure internally to evaluate the performance of the Company’s operations and for planning and forecasting in subsequent periods.

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Legacy cost of closed operations

Adjustment to fair value of contingent consideration

Pension scheme settlement charge

Recovery of historical pension costs

Acquisition costs

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Tax on acquisition costs

Tax on pension scheme settlement charge

Tax on recovery of historical pension costs

Other discrete items

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Adjusted effective tax rate

The adjusted effective tax rate is higher in 2023 than the GAAP effective tax rate, primarily due to elimination of the impact of other discrete items.

This mainly represents the benefit arising from adjustments to the tax charge for previous years arising from return to provision adjustments in relation to the federal and state tax returns filed in the U.S.

Our adjusted effective tax rate was lower in 2022 than the GAAP effective tax rate primarily due to the elimination of stock compensation activity.

Foreign income inclusions arise each year from certain types of income earned overseas being taxable under U.S.

Foreign tax credits can fully or partially offset these incremental U.S.

foreign income inclusions.

The utilization of foreign tax credits varies year on year as this is dependent on a number of variable factors which are difficult to predict and may prevent offset.

The GAAP effective tax rate and the adjusted effective tax rate in both 2023 and 2022 have been negatively impacted by these items.

As a consequence of the Company having operations outside of the U.S., it is exposed to foreign currency fluctuations.

These have had a positive impact on the GAAP effective tax rate and adjusted effective tax rate in 2023, and a negative impact in 2022.

As in the prior year, the level of foreign-derived intangible income benefit that the Company is entitled to has also had a positive impact on the GAAP effective tax rate and the adjusted effective tax rate.

For additional information regarding the GAAP effective tax rate in 2023 see Note 11 of the Notes to the Consolidated Financial Statements.

The adjusted effective tax rate is higher in 2024 than the GAAP effective tax rate, primarily due to the current year recognition of previously unrecognized tax benefits being eliminated in determining the adjusted effective tax rate.

This item arose due to the lapse of the statute of limitations associated with the unrecognized tax benefit in the final quarter of 2024.

The adjusted effective tax rate was higher in 2023 than the GAAP effective tax rate, primarily due to the elimination of the impact of other discrete items in determining the adjusted effective tax rate.

This mainly represented the benefit arising from adjustments to the tax charge for previous years arising from return to provision adjustments in relation to the federal and state tax returns filed in the U.S.

For additional information on items which impact both the GAAP effective tax rate and the adjusted effective tax rate see Note 11 of the Notes to the Consolidated Financial Statements.

Results of Operations – Fiscal 2023 compared to Fiscal 2022:

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Oilfield Services

Total net sales

Gross profit:

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Oilfield Services

Total gross profit

Gross margin (%):

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Corporate costs

Profit on disposal

Total operating expenses

Financial information with respect to our domestic and foreign operations is contained in Note 3 of the Notes to the Consolidated Financial Statements.

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Exchange rates

Higher sales volumes for the Americas and ASPAC were primarily driven by increased demand for our personal care products.

Lower sales volumes for EMEA were due to reductions in demand for our home care products when compared to strong sales volumes in the prior year.

All our regions benefited from a favorable price and product mix due to increased sales of higher priced products together with the impact of increased raw materials pricing being passed on through higher selling prices.

EMEA and ASPAC were adversely impacted by exchange rate movements year over year, due to a strengthening of the U.S.

dollar against the British pound sterling and the European Union euro.

The Americas and EMEA were impacted by an adverse price and product mix due to a higher proportion of lower priced products being sold.

ASPAC benefited from a favorable price and product mix due to a higher proportion of higher priced products being sold.

Gross margin:

the year over year decrease of 0.4 percentage points was primarily due to adverse manufacturing variances and higher raw materials costs in the fourth quarter of 2022, being partly offset by a favorable sales mix from increased sales of higher margin products.

Operating expenses:

the year over year increase of $0.4 million was due to higher selling expenses to support our increased sales and higher personnel-related expenses, including higher share-based compensation accruals and higher performance-related remuneration accruals;

being partly offset by lower provisions for doubtful debts.

Fuel Specialties

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Exchange rates

The Americas and ASPAC sales volumes have increased year over year as the global demand for refined fuel products has increased.

EMEA sales volumes were lower year over year primarily due to a reduction for the sales of higher volume lower margin products.

Price and product mix was favorable in all our regions due to a favorable sales mix with an increased proportion of sales of higher margin products, together with the impact of increased raw materials pricing being passed on through higher selling prices.

AvGas volumes were higher than the prior year due to variations in the demand from customers, being offset by an adverse price and product mix with a higher proportion of sales being made to lower margin customers.

EMEA and ASPAC were adversely impacted by exchange rate movements year over year, due to a strengthening of the U.S.

dollar against the British pound sterling and the European Union euro.

Sales volumes in all of our regions have decreased year over year, primarily due to a reduction in the sales of lower margin higher volume products.

Price and product mix was favorable in all our regions due to an increased proportion of higher margin products being sold.

Gross margin:

the year over year decrease of 0.8 percentage points was due to the impact of the time lag for passing higher raw material costs through to selling prices.

Operating expenses:

the year over year increase of $11.6 million was due to higher personnel-related expenses, including higher share-based compensation accruals, higher travel expenses, increased sales promotions and increased provisions for doubtful debts.

Oilfield Services

have increased year over year by $254.0 million, or 75%, with the majority of our customer activity being concentrated in the Americas region.

Customer demand has increased through each quarter in 2022.

have increased year over year by $97.5 million, or 16%, with the majority of our customer activity concentrated in the Americas region.

We believe that customer demand remains strong despite operating income growth moderating, as expected, through the second half of the 2023.

Gross margin:

the year over year increase of 1.9 percentage points was due to a favorable sales mix, while management are continuing to maintain prices in a competitive market.

the year over year increase of 2.9 percentage points was due to a favorable sales mix and the benefit of improved pricing.

Operating expenses:

the year over year increase of $67.0 million was driven by higher customer service costs which are necessary to support the increase in demand, together with higher personnel-related expenses, including higher share-based compensation accruals and higher performance-related remuneration accruals, and increased provisions for doubtful debts.

Other Income Statement Captions

Corporate costs:

the year over year increase of $15.8 million was driven by higher personnel-related expenses, including higher share-based compensation accruals and higher performance-related remuneration accruals, together with increased maintenance expenditure for our information technology infrastructure.

Profit on disposal:

in the prior year there was a profit on disposal of $1.8 million, which principally related to the sale of land within our oilfield services business in the U.S..

Other net income/(expense):

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Foreign currency forward contracts gains/(losses)

Interest expense, net:

was $1.1 million in 2022 compared to $1.5 million in 2021.

Interest expense includes a commitment fee to retain the Company’s revolving credit facility for the term of the agreement.

Interest income/(expense), net:

Income taxes:

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Tax loss / (gain) on distribution

Change in UK statutory tax rate

Tax on legacy cost of closed operations

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Adjusted effective tax rate

The GAAP effective tax rate and adjusted effective tax rate in 2022 were negatively impacted by foreign income inclusions, net of foreign tax credits, which arise each year from certain types of income earned overseas being taxable under U.S.

tax regulations.

The adjusted effective tax rate is higher in 2023 than the GAAP effective tax rate, primarily due to elimination of the impact of other discrete items.

Our adjusted effective tax rate was lower in 2022 than the GAAP effective tax rate primarily due to the elimination of stock compensation activity.

Foreign income inclusions arise each year from certain types of income earned overseas being taxable under U.S.

Foreign tax credits can fully or partially offset these incremental U.S.

foreign income inclusions.

The utilization of foreign tax credits varies year on year as this is dependent on a number of variable factors which are difficult to predict and may prevent offset.

The GAAP effective tax rate and the adjusted effective tax rate in both 2023 and 2022 have been negatively impacted by these items.

As a consequence of the Company having operations outside of the U.S., it is exposed to foreign currency fluctuations.

These also had a negative impact on the GAAP effective tax rate and adjusted effective tax rate in 2022.

The adjusted effective tax rate is lower than the GAAP effective tax rate, primarily due to elimination of stock compensation activity to better reflect the Company’s underlying business performance.

The most significant factor impacting our adjusted effective tax rate in 2021 was elimination of the impact of the increase in the U.K.

statutory income tax rate.

These have had a positive impact on the GAAP effective tax rate and adjusted effective tax rate in 2023, and a negative impact in 2022.

The level of foreign-derived intangible income benefit that the Company is entitled to has also had a positive impact on the GAAP effective tax rate and the adjusted effective tax rate in both 2023 and 2022.

LIQUIDITY AND FINANCIAL CONDITION

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The movements in our adjusted working capital are explained as follows:

We had a $25.2 million increase in trade and other accounts receivable primarily driven by increased trading activity and timing of sales across our reporting segments.

Days’ sales outstanding in our Performance Chemicals segment increased from 60 days to 62 days;

We had an $18.1 million decrease in trade and other accounts receivable primarily driven by the timing of sales across our reporting segments and the mix of customer payment terms.

Days’ sales outstanding in our Performance Chemicals segment decreased from 64 days to 61 days;

increased in our Fuel Specialties segment from 55 days to 57 days;

and increased from 55 days to 83 days in our Oilfield Services segment.

We had a $73.0 million decrease in inventories, net of a $1.0 million increase in allowances, as we manage inventory levels necessary to support future demand, whilst mitigating the risk of potential supply chain disruption for certain key raw materials.

Days’ sales in inventory in our Performance Chemicals segment decreased from 78 days to 61 days;

We had a $0.9 million increase in inventories, net of a $6.5 million increase in allowances, as we manage inventory levels necessary to support future demand, while mitigating the risk of potential supply chain disruption for certain key raw materials.

Days’ sales in inventory in our Performance Chemicals segment increased from 62 days to 63 days;

decreased in our Fuel Specialties segment from 121 days to 113 days;

and decreased from 58 days to 53 days in our Oilfield Services segment.

Prepaid expenses increased $4.6 million, from $14.1 million to $18.7 million principally due to the timing of prepaid invoices.

and increased from 48 days to 76 days in our Oilfield Services segment.

Prepaid expenses increased $2.3 million, from $18.7 million to $21.0 million due to the impact of inflationary increases and the timing of some prepayments.

We had a $16.6 million decrease in accounts payable and accrued liabilities primarily due to the timing of supplier payments.

Creditor days (including goods received not invoiced) remained unchanged in our Performance Chemicals segment at 42 days;

decreased in our Fuel Specialties segment from 45 days to 41 days;

and decreased from 54 days to 53 days in our Oilfield Services segment.

Creditor days (including goods received not invoiced) increased in our Performance Chemicals segment from 45 days to 46 days;

increased in our Fuel Specialties segment from 41 days to 44 days;

and increased from 48 days to 68 days in our Oilfield Services segment.

Operating Cash Flows

We generated cash from operating activities of $184.5 million in 2024 compared to $207.3 million in 2023.

The increase is primarily related to the decrease in our working capital together with the improvements in our earnings before depreciation and amortization, being partly offset by income tax payments.

The decrease in cash is primarily related to our increased working capital, being partly offset by the improvements to our earnings before depreciation, amortization and excluding the one off non-cash impact relating to the U.K.

defined benefit pension scheme buy-out.

As at December 31, 2024 and 2023, we had cash and cash equivalents of $289.2 million and $203.7 million, respectively, of which $133.9 million and $59.8 million, respectively, were held by non-U.S.

subsidiaries principally in the U.K..

The $56.6 million increase in cash and cash equivalents in 2023 was driven by the cash inflows from operating activities and lower working capital needs, partly offset by the acquisition payment for a business in Brazil, continued investments in capital projects, payments for income taxes and the payment of our semi-annual dividends.

As at December 31, 2023 and 2022, the Company had repaid all of its borrowings under the revolving credit facility and as a result, the related deferred finance costs of $1.2 million (December 31, 2022 – $0.6 million) are now included within other current and non-current assets at the balance sheet date.

The $85.5 million increase in cash and cash equivalents in 2024 was driven by the cash inflows from operating activities, partly offset by higher working capital needs, our continued investments in capital projects including the development of our new ERP platform, payments for income taxes and the payment of our semi-annual dividends.

As at December 31, 2024 and 2023, the Company had no borrowings under the revolving credit facility and as a result, the related deferred finance costs of $1.1 million (December 31, 2023 – $1.2 million) are now included within other current and non-current assets at the balance sheet date.

During 2024 and 2023, the Company did not draw down or repay any borrowing on its revolving credit facility.

On May 31, 2023, Innospec Inc.

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The Agreement also contains an accordion feature whereby the Company may elect to increase the total available borrowings by an aggregate amount of up to $125,000,000.

The termination date of the facility is May 30, 2027, but the Company has an option to request an extension of the facility for a further year.

The termination date of the facility is May 30, 2027, but the Agreement includes an option for the Company to request an extension of the facility for a further year.

The agreement replaced the Company’s credit facility agreement dated September 26, 2019.

See Note 12 to the Notes to the Consolidated Financial Statements for additional details.

Effective as of May 20, 2024, the termination date of the Facility was extended from May 30, 2027 to May 31, 2028 in accordance with the terms of the Company’s multicurrency revolving facility agreement (the “Facility Agreement”).

No other terms of the Facility Agreement or the Facility were modified.

The Company paid a customary extension fee in connection with the extension of the Facility as contemplated by the Facility Agreement.

As a consequence, the Company has capitalized a further $0.3 million of costs relating to the new Agreement which are to be amortized over the period to May 31, 2028.

The revolving credit facility contains terms which, if breached, would result in it becoming repayable on demand.

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(1) our ratio of net debt to EBITDA must not be greater than 3.5:1.0 and (2) our ratio of EBITDA to net interest must not be less than 4.0:1.0.

Management has determined that

the Company has not breached these covenants and does not expect to breach these covenants for the next 12 months.

Management has determined that the Company has not breached these covenants and does not expect to breach these covenants for the next 12 months.

The revolving credit facility contains restrictions which may limit our activities as well as operational and financial flexibility.

We may not be able to borrow if an event of default is outstanding, which includes a material adverse change to our assets, operations or financial condition.

The credit facility contains a number of restrictions that limit our ability, among other things, and subject to certain limited exceptions, to incur additional indebtedness, pledge our assets as security, guarantee obligations of third parties, make investments, effect a merger or consolidation, dispose of assets, or materially change our line of business.

At December 31, 2023, we had no debt outstanding under the revolving credit facility and no obligations under finance leases.

The credit facility contains a

number of restrictions that limit our ability, among other things, and subject to certain limited exceptions, to incur additional indebtedness, pledge our assets as security, guarantee obligations of third parties, make investments, effect a merger or consolidation, dispose of assets, or materially change our line of business.

At December 31, 2024, the Company had no obligations under finance leases.

Contractual Commitments

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Operating lease commitments relate primarily to right-of-use assets at third-party manufacturing facilities, office space, motor vehicles and various items of computer and office equipment which are expected to be renewed and replaced in the normal course of business.

The estimated payments on debt are the commitment fees for our $250.0 million revolving credit facility.

The interest payments on debt are the commitment fees for our $250.0 million revolving credit facility.

Any interest income has been excluded.

Due to the uncertainty regarding the nature of tax audits, particularly those which are not currently underway, it is not meaningful to predict the outcome of obligations related to unrecognized tax benefits.

Further disclosure is provided in Note 11 of the Notes to the Consolidated Financial Statements.

Investing activities

1 unchanged sentence

Internally developed software relates to the planned completion costs for the implementation of our new Enterprise Resource Planning system for EMEA and ASPAC, including the acquisition costs for the software as well as the external and internal costs of the development.

Our business teams delivered a strong overall 2023 result.

Despite our expectation for continued economic headwinds in the coming quarters, we enter 2024 with optimism.

Our growing pipeline of technology-based organic opportunities will continue to advance in parallel with the integration of our recent acquisition of QGP.

Over the medium to long-term, we do not expect any change in our customers’ drive towards cleaner formulations, lower carbon footprint and operational efficiency.

We plan to continue our investment in R&D to improve our products and technology.

We believe our innovative chemistries and highly responsive technical service directly support our customers’ priorities.

Cash generation was excellent in 2023, and our debt-free, net cash position remained at over $200 million after funding the QGP acquisition.

Entering 2024 we expect to have significant flexibility and balance sheet strength for further M&A, dividend growth, and organic investment.

Our 2025 outlook remains for continued growth in Performance Chemicals and Fuel Specialties and sequential quarterly recovery in Oilfield Services.

In all our businesses we share a common focus to deliver best-in-class surface active chemistry technologies and service to our global customers.

Our opportunity pipeline continues to center on technologies that lower emissions, enable cleaner formulations and increase operating efficiency.

We view these as long-term customer priorities in all our markets.

Operating cash generation is expected to remain positive and we continue to have significant flexibility and balance sheet strength for further M&A, dividend growth, share repurchases and organic investment.

Environmental Matters and Plant Closures

6 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis