Albemarle reports on fourth quarter performance

Albemarle Corporation reported 4Q15 earnings of US$174.3 million, or US$1.55 per diluted share, compared to a 4Q14 loss of (US$18.5) million, or (US$0.24) per diluted share. Fourth quarter 2015 includes an income tax benefit of US$0.40 per diluted share primarily related to the release of certain tax reserves associated with lapses in statutes of limitations and audit closures, and a mark-to-market (MTM) actuarial gain of US$0.25 per diluted share mainly resulting from a higher discount rate and updated mortality assumptions included in the annual remeasurement of the pension and OPEB plans. 4Q14 included an MTM actuarial loss of US$0.91 per diluted share, which reflected actuarial assumptions at the time of the remeasurement. 4Q15 adjusted earnings were US$116.2 million, or US$1.03 per diluted share, compared to US$77.4 million, or US$0.99 per diluted share, for 4Q14. The company reported net sales of US$930.4 million in 4Q15, up from net sales of US$598.6 million in 4Q14, driven primarily by the acquisition of Rockwood Holdings, Inc., which closed 12 January 2015, partly offset by the impact of lower sales volumes, unfavourable price and mix impacts in some businesses and unfavourable currency exchange impacts.

Earnings for the full year 2015 were US$334.9 million, or US$3.00 per diluted share, compared to US$133.3 million, or US$1.69 per diluted share, for the full year 2014. Adjusted earnings for the full year 2015 (including US$52.4 million in non-cash currency exchange transaction gains from the first quarter) were US$439.4 million, or US$3.94 per diluted share, compared to US$332.1 million, or US$4.20 per diluted share, for the full year 2014. Net sales for the full year 2015 were US$3.65 billion, up from net sales of US$2.45 billion, driven primarily by the acquisition of Rockwood, partly offset by the impact of lower sales volumes, unfavourable price and mix impacts in certain businesses and unfavourable currency exchange impacts.

"In 2015, we began the transformation of Albemarle with the acquisition of Rockwood and delivered on our commitments to our shareholders," said Luke Kissam, President and CEO. "The lithium and surface treatment businesses we acquired in January exceeded profitability expectations for the year, resulting in adjusted EBITDA for the company of US$959 million and 6% growth over 2014. Cash generation was as expected, and the US$60 million of synergies achieved exceeded our goal at the beginning of the year. We completed the sale of two non-core businesses and used the proceeds to pay down debt by over US$300 million in early 2016. We achieved our goals for 2015 and are well positioned to grow in 2016. Our goals for 2016 are clear: deliver the forecasted free cash flow to enable further deleveraging, continue to drive synergy savings and convert the recently announced memorandum of understanding related to our lithium concession in Chile to a definitive agreement."

The acquisition of Rockwood was completed on 12 January 2015 for a purchase price of approximately US$5.7 billion. The cash consideration was funded with proceeds from senior notes the company issued in 2014 and borrowings under the company's term loan credit agreement, cash bridge facility and revolving credit agreement. The results of Rockwood from January 1, 2015 to 12 January 2015 (stub period) are excluded from the year-to-date financial results presented herein. Excluded net sales and adjusted EBITDA for the stub period were US$33.2 million and US$3.4 million, respectively.

Quarterly segment results

In order to provide a meaningful comparison of the results of operations, where applicable, segment results for the fourth quarter and year ended 31 December 2015 are compared to pro forma segment results for the comparative periods of 2014. The 2014 pro forma segment results are based on the historical combined consolidated financial statements of Albemarle and Rockwood and were prepared to illustrate the effects of the integration of the Rockwood business, as well as the first quarter 2015 change in reporting structure. This supplemental pro forma financial information is also located on Albemarle's website and in Albemarle's Current Report on Form 8-K which was filed on 13 April 2015.

Performance Chemicals reported net sales of US$385.5 million in 4Q15, a decrease of 1.2% from 4Q14 pro forma net sales of US$390.0 million. Net sales were impacted by US$10.8 million of unfavourable currency exchange impacts as compared to the prior year. Higher Lithium sales volumes and favourable pricing in Bromine and Lithium were partially offset by lower Bromine sales volumes, which, in total, offset US$6.3 million of the unfavourable impacts of currency exchange. Adjusted EBITDA for Performance Chemicals was US$120.1 million, a decrease of 2.8% from 4Q14 pro forma results of US$123.6 million. Adjusted EBITDA was impacted by US$2.2 million of unfavourable currency exchange impacts as compared to the prior year. The remaining US$1.3 million decrease in adjusted EBITDA was primarily driven by lower Bromine sales volumes and lower equity income from our Lithium joint venture, Talison, partially offset by higher Lithium sales volumes and favourable Bromine and Lithium pricing.

Refining Solutions generated net sales of US$200.4 million in 4Q15, a decrease of 14.2% from net sales of US$233.5 million in 4Q14. Net sales were impacted by US$5.1 million of unfavourable currency exchange impacts as compared to the prior year. The remaining US$28.0 million decrease in net sales was primarily driven by unfavourable Clean Fuels Technology volumes and price partly offset by favourable Heavy Oil Upgrading volumes. Adjusted EBITDA for Refining Solutions was US$52.7 million in 4Q15, a decrease of 21.6% from 4Q14 results of US$67.2 million. Adjusted EBITDA was impacted by US$1.0 million of unfavourable currency exchange impacts as compared to the prior year. The remaining US$13.5 million decrease in adjusted EBITDA was primarily due to lower Clean Fuels Technology sales volumes and price partly offset by favourable Heavy Oil Upgrading volumes.

Chemetall^® Surface Treatment reported net sales of US$207.7 million in 4Q15, an increase of 2.9% from 4Q14 pro forma net sales of US$201.9 million. Net sales were impacted by US$21.4 million of unfavourable currency exchange impacts as compared to the prior year. The remaining US$27.2 million increase in net sales was primarily due to increased sales volumes related to the acquisition of the remaining shares of the Chemetall Shanghai joint venture in February of this year and favourable pricing. Adjusted EBITDA for Chemetall Surface Treatment was US$53.7 million in 4Q15, an increase of 13.5% from 4Q14 pro forma results of US$47.3 million. Adjusted EBITDA was impacted by US$5.8 million of unfavourable currency exchange impacts as compared to the prior year. The remaining US$12.2 million increase in adjusted EBITDA was primarily due to higher overall sales volumes and favourable pricing offset slightly by increased selling, general and administrative expenses primarily associated with the Chemetall Shanghai joint venture acquisition.

All other net sales were US$133.4 million in 4Q15, an increase of 8.1% from pro forma net sales of US$123.5 million in 4Q14. Net sales were impacted by US$7.9 million of unfavourable currency exchange impacts as compared to the prior year. The remaining US$17.8 million increase in net sales was primarily due to increased Fine Chemistry Services volumes due to timing of projects and pricing. All other adjusted EBITDA was US$24.5 million in 4Q15, an increase of 66.0% from 4Q14 pro forma results of US$14.7 million. Adjusted EBITDA was impacted by US$1.0 million of unfavourable currency exchange impacts as compared to the prior year. The remaining US$10.8 million increase in adjusted EBITDA was primarily due to higher Fine Chemistry Services sales volumes and pricing.

In summary, total net sales of US$930.4 million in 4Q15, a decrease of US$19.9 million or 2.1% from 4Q14 pro forma net sales of US$950.3 million, were unfavourably impacted by currency exchange of US$45.2 million. Excluding currency exchange impacts, net sales for the period would have been up 2.7% as compared to the prior year. Total adjusted EBITDA of US$228.6 million in 4Q15, an increase of US$3.1 million or 1.4% from 4Q14 pro forma adjusted EBITDA of US$225.5 million, was unfavourably impacted by currency exchange of US$10.9 million (including US$0.9 million of unfavourable currency exchange impacts on Corporate results). Excluding currency exchange impacts, adjusted EBITDA for the period would have been up 6.2% as compared to the prior year.

Outlook

2015 ended, and 2016 has begun, with much increased economic uncertainty. Nevertheless, the company currently expects growth in most of its businesses in 2016. Full year 2016 adjusted EBITDA is expected to range from US$900 million to US$950 million; adjusted EPS is expected to be US$3.45 to US$3.80, which would result in an adjusted EBITDA margin of approximately 28%. Reported free cash flow is expected to range from US$450 million to US$550 million.

Adapted from press release by Rosalie Starling

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