INNOSPEC INC. (IOSP) FY 2021 MD&A

Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion should be read in conjunction with our consolidated financial statements and the notes thereto.

EXECUTIVE OVERVIEW

Our recovery during 2021 following a
COVID-19
impacted 2020 was strong with all businesses achieving significant sales growth. Our business teams navigated tight supply-chain, labor and inflationary challenges to deliver record sales in the final quarter and the full year for Performance Chemicals and Fuel Specialties.

Performance Chemicals was extremely resilient during the pandemic, and performance has accelerated in 2021. We believe that the long-term sustainability and consumer trends driving this business have strengthened, and we are allocating additional organic growth capital to support the anticipated increase in demand from our customers.

Fuel Specialties recovered
in-line
with our expectations during 2021, although as anticipated, there currently remain some demand gaps versus 2019. As demand continues to recover towards the
pre-pandemic
levels, and cost inflation moderates, we expect both continued revenue growth and the return of gross margins to our target range.

In Oilfield Services, which has been our most impacted business during the pandemic, our sales, operating income and gross margins have grown for each sequential quarter during 2021. Overall activity levels and market conditions continued to improve in all the markets of our oilfield business in 2021. We anticipate opportunities for significant additional operating leverage, operating income growth and gross margin expansion into 2022.

CRITICAL ACCOUNTING ESTIMATES

Note 2 of the Notes to the Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of the consolidated financial statements.

Plant Closure Provisions

We are subject to environmental laws in the countries in which we conduct business. Ellesmere Port in the United Kingdom is our principal site giving rise to asset retirement obligations associated with the production of TEL. There are also asset retirement obligations and environmental remediation liabilities on a much smaller scale in respect of other manufacturing sites. At Ellesmere Port there is a continuing asset retirement program related to certain manufacturing units that have been closed.

Plant closure provisions at December 31, 2021 amounted to $56.5 million and relate principally to our Ellesmere Port site in the United Kingdom. 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 or Company promise, and the costs

29

Table of Contents

can be reasonably estimated. The Company has to anticipate the program of work required and the associated future expected costs, and comply with environmental legislation in the countries in which it operates or has operated in. We develop these assumptions utilizing the latest information available together with recent costs. While we believe our assumptions for 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.

Income Taxes

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

The calculation of our tax liabilities involves evaluating uncertainties in the application of accounting principles and complex tax regulations. We recognize liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be required. If we ultimately determine that payment of these amounts is unnecessary, we reverse the liability and recognize a tax benefit during the period in which we determine that the liability is no longer necessary.

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 financial statements, our effective tax rate in a given period may be materially affected. An unfavourable tax settlement may require cash payments and result in an increase in our effective tax rate in the year of resolution. We report interest and penalties related to uncertain tax positions as income taxes. For additional information regarding uncertain income tax positions, see Note 11 of the Notes to the Consolidated Financial Statements.

Pensions

The Company maintains a defined benefit pension plan covering certain current and former employees in the United Kingdom. The United Kingdom 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.

Movements in the United Kingdom’s underlying plan asset value and Projected Benefit Obligation (“PBO”) are dependent on actual return on investments as well as 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, 2021 by approximately $22 million and the net pension credit for 2022 would change by approximately $1.4 million.

30

Table of Contents

A 0.25% change in the level of price inflation assumption would change the PBO at December 31, 2021 by approximately $14 million and the net pension credit for 2022 by approximately $0.3 million.

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

Goodwill

The Company’s reporting units, the level at which goodwill is assessed for potential impairment, are consistent with the reportable segments. The components in each segment (including products, markets and competitors) have similar economic characteristics and the segments, therefore, reflect the lowest level at which operations and cash flows can be sufficiently distinguished, operationally and for financial reporting purposes, from the rest of the Company.

To test for impairment the Company performs a qualitative assessment to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of a segment is less than the carrying amount prior to performing the quantitative goodwill impairment test. Factors utilized in the qualitative assessment process include macroeconomic conditions; industry and market considerations; cost factors; overall financial performance; and Company specific events.

If a quantitative test is required, we assess the fair value based on projected
post-tax
cash flows discounted at the Company’s weighted average cost of capital. 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. 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.

At December 31, 2021 we had $364.3 million of goodwill relating to our Fuel Specialties, Performance Chemicals and Oilfield Services segments. Our step zero impairment review at December 31, 2021 indicated the fair value of the reporting unit is, more likely than not, higher than the carrying value, no step one impairment review was required to be performed.

Property, Plant and Equipment and Other Intangible Assets (Net of Depreciation and Amortization, respectively)

As at December 31, 2021 we had $214.4 million of property, plant and equipment and $57.5 million of other intangible assets (net of depreciation and amortization, respectively), that are discussed in Notes 6 and 9 of the Notes to the Consolidated Financial Statements, respectively. These long-lived assets relate to all of our reporting segments and are being amortized or depreciated straight-line over periods of up to 17 years in respect of the other intangible assets and up to 25 years in respect of the property, plant and equipment.

31

Table of Contents

We continually assess the markets and products related to these long-lived assets, as well as their specific carrying values, and have concluded that these carrying values, and amortization and depreciation periods, remain appropriate.

Impact of
COVID-19
Pandemic and Current Economic Environment

The Company’s results have been adversely impacted in 2021, due to the
COVID-19
pandemic and the global economic environment, although results have improved throughout the year.

Fuel Specialties have been impacted by reduced demand stemming from the reduction in freight transport and passenger miles and the widespread grounding of aircraft for a large part of the year. We have seen some improvement through 2021 as travel has begun to increase, and demand has largely returned to the

pre-COVID-19

levels. We expect demand will continue to improve in 2022, to the extent global economic activity recovers, subject to the potential for future lockdowns or restrictions around the world related to the spread of new COVID variants.

Performance Chemicals have experienced little overall impact from the pandemic as increased demand for certain products linked to health, hygiene and cleaning outweighed some lost revenues linked to the short-term shutdown of some of our customers manufacturing facilities.

Oilfield Services have been heavily impacted by the reduction in oil exploration and production as the wider industry reacts to the reduction in demand. We have seen some improvement in 2021 from increasing demand for production products but demand remains below expected levels for oil exploration products and customers have reduced their capital expenditure on exploration. We do not know how long this downturn will last and the rate of recovery will depend heavily on the rate and extent to which the government restrictions on movement are lifted and not
re-imposed.

Our manufacturing facilities have continued to operate with only some minor interruption, and we expect them to continue to do so. We have implemented flexible working, including working from home for our employees where possible, in line with advice and rules in each of the jurisdictions in which we operate. Additional costs have been incurred to ensure our manufacturing and administrative facilities are COVID-safe for our employees. While these costs have not been significant to date there may be increased costs in the future, if further safety restrictions are required. Raw material sourcing has been impacted and we expect that may continue into 2022. Logistics are operating with some delays but our products are currently being delivered to our customers.

We believe that our financial position remains strong. We expect to have sufficient access to capital if needed, including our $250 million revolving credit facility we entered into in September 2019, and we do not anticipate any issues with meeting the covenants for our debt agreements. We have previously extended this facility by a further twelve months until September 2024, during the third quarter of 2020. Our major capital projects are continuing to progress as planned.

32

Table of Contents

As we operate in the chemical industry, we continue to be focused on protecting the health and safety of our employees and have procedures in place at each of our operating facilities to help ensure their well-being.

We do not know how long the pandemic and current economic environment will continue and while we have made estimates as to potential impacts on our financial position and operations, the ultimate impact on our business will depend on many factors which are very difficult to predict with certainty and substantially beyond our control.

RESULTS OF OPERATIONS

The following table provides operating income by reporting segment:

33

Table of Contents

Results of Operations – Fiscal 2021 compared to Fiscal 2020:

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

34

Table of Contents

Fuel Specialties

Net sales:

the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:

Volumes in all our regions have increased year over year, as the global demand for refined fuel products has returned to near the
pre-pandemic
levels. Price and product mix was favorable in all our regions due to increased sales of higher margin products and increased raw materials pricing being passed on through higher selling prices. AvGas volumes were lower than the prior year due to variations in the demand from customers, being offset by a favorable price and product mix with a higher proportion of sales to higher margin customers. EMEA and ASPAC benefitted from favorable exchange rate movements year over year, due to a strengthening of the British pound sterling and the European Union euro against the U.S. dollar.

Gross margin:

the year over year decrease of 0.1 percentage points was impacted by the time lag for passing higher raw material costs through to selling prices in the second half of the year.

Operating expenses:

the year over year increase of $12.8 million was due to higher selling expenses to support the increased sales, together with higher research and development costs and higher personnel-related expenses including higher share-based compensation accruals and higher performance related remuneration accruals.

Performance Chemicals

Net sales:

the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:

Higher volumes for the Americas were driven by increased demand for our personal care products. Volumes in EMEA were favorable including the continued recovery of demand across several markets which have been adversely impacted by the pandemic. Lower volumes

35

Table of Contents

in ASPAC were primarily driven by a reduction in demand for our personal care products. All our regions benefitted from a favorable price and product mix due to increased sales of higher priced products and increased raw materials pricing being passed on through higher selling prices. EMEA and ASPAC benefitted from favorable exchange rate movements year over year, due to a strengthening of the British pound sterling and the European Union euro against the U.S. dollar.

Gross margin:

the year over year decrease of 0.6 percentage points was due to adverse manufacturing variances as activity slowed over the holiday season in the fourth quarter, together with some
one-off
provisions.

Operating expenses:

the year over year increase of $5.3 million was due to increased spending on research and development, an increase in the allowance for doubtful debts and higher personnel-related expenses including higher share-based compensation accruals and higher performance related remuneration accruals.

Oilfield Services

Net sales:

have increased year over year by $84.8 million, or 33 percent, with the majority of our customer activity continuing to be in the Americas region. Customer demand has increased throughout the year as the pandemic recovery has continued. We expect to see continued growth in customer demand into 2022.

Gross margin:

the year over year increase of 2.6 percentage points was due to a favorable sales mix compared to a prior year comparative which was adversely impacted by the pandemic, while management have successfully maintained prices in a competitive market.

Operating expenses:

the year over year increase of $15.8 million was driven by our continuing customer service flexibility which allows us to support the increase in demand as the pandemic recovery has continued, together with higher personnel-related expenses including higher share-based compensation accruals and higher performance related remuneration accruals.

Octane Additives

The Octane Additives business ceased trading and is no longer a reporting segment from July 1, 2020 as the production of TEL for use in motor gasoline has finished. Legacy costs related to these operations have now been recorded as operating expenses within corporate costs.

Prior to the business ceasing trade there were no sales in 2020, together with a gross loss of $2.2 million and operating expenses of $0.6 million.

Other Income Statement Captions

Corporate costs:

the year over year increase of $3.4 million was driven by higher personnel-related expenses including higher share-based compensation accruals and higher performance

36

Table of Contents

related remuneration accruals, together with the adverse impact of the foreign currency translation of our costs at Ellesmere Port in the United Kingdom due to a strengthening of the British pound sterling against the U.S. dollar.

Profit on disposal:

there has been a profit on disposal of assets for $1.8 million in 2021, which principally relates to the sale of land within our oilfield services business in the U.S..

Other net income/(expense):

for 2021 and 2020, includes the following:

Interest expense, net:

was $1.5 million in 2021 compared to $1.8 million in 2020, driven by the repayment in full of our revolving credit facility in the second half of 2020. Interest expense includes a commitment fee to retain the Company’s revolving credit facility for the term of the agreement.

Income taxes:

The effective tax rate was 30.7% and 27.7% in 2021 and 2020, respectively. The adjusted effective tax rate, once adjusted for the items set out in the following table, was 22.7% in 2021 compared with 23.5% in 2020. 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. 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.

37

Table of Contents

The most significant factors impacting on our effective tax rate in 2021 are explained in Note 11 of the Notes to the Consolidated Financial Statements.

38

Table of Contents

Results of Operations – Fiscal 2020 compared to Fiscal 2019:

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

39

Table of Contents

Fuel Specialties

Net sales:

the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:

Volumes in all our regions have suffered from the adverse impact of the
COVID-19
pandemic, which has reduced the global demand for fuel additive products. During the second half of 2020, we have seen customer demand recovering steadily as lockdowns in countries around the world have been eased. However, the reintroduction of lockdowns for European countries in January 2021 could slow the return of customer demand to the
pre-pandemic
level. Price and product mix in all our regions was adverse due to lower sales of our higher margin products. 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. EMEA benefitted from favorable exchange rate movements year over year, due to a strengthening of the British pound sterling and the European Union euro against the U.S. dollar.

Gross margin:

the year over year decrease of 3.7 percentage points was driven by the impact of the
COVID-19
pandemic reducing demand for our higher margin products, together with adverse raw material costs and higher provisions for slow moving inventory.

Operating expenses:

the year over year decrease of $12.1 million was due to cost savings as a result of the
COVID-19
pandemic, including lower travel and entertainment costs, together with lower personnel related performance-based remuneration due to a decrease in share-based compensation accruals linked to the Innospec share price.

Performance Chemicals

Net sales:

the table below details the components which comprise the year on year change in net sales spread across the markets in which we operate:

Higher volumes in the Americas and ASPAC were driven by increased demand for our personal care and home care products. Volumes were lower in EMEA primarily due to lower

40

Table of Contents

demand for home care products. The Americas and EMEA suffered an adverse price and product mix due to increased sales of lower priced products due largely to lower raw material costs. ASPAC benefitted from a favorable price and product mix due to increased sales of higher priced products. EMEA and ASPAC benefitted from favorable exchange rate movements year over year, due to a strengthening of the British pound sterling and the European Union euro against the U.S. dollar.

Gross margin:

the year over year increase of 1.1 percentage points was due to a richer sales mix, the continued benefit of margin improvement projects and the timing of pricing movements for certain raw materials.

Operating expenses:

the year over year decrease of $2.4 million was driven by lower personnel related performance-based remuneration due to a decrease in the share-based compensation accruals linked to the Innospec share price, together with cost savings as a result of the
COVID-19
pandemic, including lower travel and entertainment costs.

Oilfield Services

Net sales:

the year over year decrease of $224.9 million, or 47 percent, was primarily due to a collapse of customer activity for the U.S. onshore market, as a result of the
COVID-19
pandemic reducing world-wide demand together with the depressed price of crude oil. The previously expected recovery in the U.S. completions market has been delayed, however the Company has seen an improvement in the demand for crude oil in the second half of 2020 leading to higher sales for our production and drag reducing agent products.

Gross margin:

the year over year decrease of 1.6 percentage points was primarily due to significant inventory adjustments in the second quarter of 2020 as a result of the collapse in demand, being partly offset by margin improvements in the second half of the year due to a favorable sales mix and management cost control initiatives.

Operating expenses:

the year over year decrease of $29.9 million was driven by the
right-sizing
of the operations to adjust for the reduction in demand caused by the
COVID-19
pandemic, together with lower accruals for long-term performance-based incentive plans due to a decrease in share-based compensation accruals linked to the Innospec share price.

Octane Additives

The Octane Additives business ceased trading and is no longer a reporting segment from July 1, 2020 as the production of TEL for use in motor gasoline has finished. Legacy costs related to these operations have now been recorded as operating expenses within corporate costs.

Prior to July 1, 2020 net sales were nil in 2020 compared to $21.0 million in the prior year; the gross loss was $2.2 million in 2020 compared to a $1.7 million gross profit in the prior year; operating expenses were $0.6 million in 2020 compared to $2.4 million in the prior year.

41

Table of Contents

Other Income Statement Captions

Corporate costs:

the year over year decrease of $2.2 million was driven by lower accruals for long-term performance-based incentive plans due to the impact of the
COVID-19
pandemic on the group’s profit performance together with a decrease in the share-based compensation accruals linked to the Innospec share price. There has also been a reduction in travel and entertainment expenses resulting from the
COVID-19
pandemic restrictions on local and international travel. The decrease in costs was partly offset by $4.2 million of acquisition related costs in 2020; the inclusion of legacy costs related to the now closed Octane Additives segment of $2.5 million; and higher spending on information technology following the network security incident in the second quarter of 2019.

Restructuring charge:

was $21.3 million related to the cessation of production and sales of TEL for use in motor gasoline. See Note 5 of the Notes to the Condensed Consolidated Financial Statements for further information.

Impairment of intangible assets:

was $19.8 million related to acquired intangible assets in our Oilfield Services segment. See Note 9 of the Notes to the Condensed Consolidated Financial Statements for further information.

Other net income/(expense):

for 2020 and 2019, includes the following:

Interest expense, net:

was $1.8 million for 2020 compared to $4.8 million in the prior year, driven by lower average net debt as the business generated cash inflows.

Income taxes:

The effective tax rate was 27.7% and 25.4% in 2020 and 2019, respectively. The adjusted effective tax rate, once adjusted for the items set out in the following table, was 23.5% in 2020 compared with 22.6% in 2019. 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. 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.

42

Table of Contents

The most significant factors impacting our adjusted effective tax rate in 2020 are the restructuring charge relating to the cessation of production and sales of TEL for use in motor gasoline, the impairment of acquired intangible assets in our Oilfield Services segment, and an increase in the statutory income tax rate in the U.K..

The most significant factor impacting our adjusted effective tax rate in 2019 relates to the adjustment of income tax provisions. During 2019, the Company recorded additional tax and interest arising as a consequence of the tax audit into Innospec Performance Chemicals Italia Srl. This item had a negative impact on the effective tax rate, which has been subsequently reversed in determining the adjusted effective tax rate. We note that any finally determined tax liabilities would be reimbursed by the previous owner under the terms of the sale and purchase agreement.

LIQUIDITY AND FINANCIAL CONDITION

Working Capital

In 2021 our working capital increased by $77.7 million, while our adjusted working capital increased by $37.1 million. The difference is primarily due to the exclusion of the increase in our cash and cash equivalents, together with the timing of prepaid income taxes.

43

Table of Contents

The Company believes that adjusted working capital, a
non-GAAP
financial measure, provides useful information to investors in evaluating the Company’s underlying performance and identifying operating trends. Management uses this
non-GAAP
financial measure internally to allocate resources and evaluate the performance of the Company’s operations. Items excluded from the adjusted working capital calculation are listed in the table below and represent factors which do not fluctuate in line with the day to day working capital needs of the business.

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

We had a $63.1 million increase in trade and other accounts receivable primarily driven by increased trading activity across our reporting segments, partly offset by improved debtor collections in our oilfield business. Days’ sales outstanding in our Fuel Specialties segment increased from 52 days to 53 days; increased in our Performance Chemicals segment from 60 days to 64 days; and decreased from 64 days to 52 days in our Oilfield Services segment.

We had a $57.6 million increase in inventories, net of a $6.0 million increase in allowances, as we managed inventory levels in anticipation of the increase in demand which we are expecting in 2022, while managing the risk of potential supply chain disruption for certain key raw materials. Days’ sales in inventory in our Fuel Specialties segment decreased from 116 days to 108 days; increased in our Performance Chemicals segment from 58 days to 59 days; and decreased from 95 days to 76 days in our Oilfield Services segment.

Prepaid expenses increased $3.1 million, from $14.9 million to $18.0 million due to the timing of certain invoicing and higher annual insurance prepayments.

We had a $86.7 million increase in accounts payable and accrued liabilities primarily due to increased activity across all our reporting segments as the pandemic recovery has continued. Creditor days (including goods received not invoiced) in our Fuel Specialties segment increased from 34 days to 50 days; decreased in our Performance Chemicals segment from 48 days to 47 days; and decreased from 53 days to 48 days in our Oilfield Services segment.

44

Table of Contents

Operating Cash Flows

We generated cash from operating activities of $93.2 million in 2021 compared to cash inflows of $145.9 million in 2020. The reduction in cash generated from operating activities was primarily related to the increase in working capital as the pandemic recovery has continued, partly offset by the timing of payments for income taxes.

Cash

At December 31, 2021 and 2020, we had cash and cash equivalents of $141.8 million and $105.3 million, respectively, of which $55.1 million and $52.5 million, respectively, were held by
non-U.S.
subsidiaries principally in the United Kingdom.

The increase in cash and cash equivalents in 2021 of $36.5 million was primarily driven by the cash inflows from operating activities, including the impact of our increased working capital levels, being partly offset by our investments in capital projects and the payment of our semi-annual dividends.

Debt

As at December 31, 2021 and December 31, 2020 the Company had repaid all of its borrowings under the revolving credit facility and as a result, the related deferred finance costs of $1.0 million (December 31, 2020 – $1.3 million) are now included within other current and
non-current
assets at the balance sheet date.

On September 16, 2020, Innospec and certain of its subsidiaries agreed to extend the term of its revolving credit facility, as described below, until September 25, 2024. The costs of $0.3 million for extending the term have been capitalized on the balance sheet, which are being amortized over the expected life of the facility.

On September 30, 2019 the Company repaid its
pre-existing
term loan and revolving credit facility that had been amended and restated on December 14, 2016, and replaced this borrowing with the new credit facility. As a result, refinancing costs of $1.5 million were capitalized which are being amortized over the expected life of the facility.

On September 26, 2019, Innospec and certain of its subsidiaries entered into a new agreement for a $250.0 million revolving credit facility until September 25, 2023 with an option to request an extension to the facility for a further year. The facility also contains an accordion feature whereby the Company may elect to increase the total available borrowings by an aggregate amount of up to $125.0 million.

The revolving credit facility contains terms which, if breached, would result in it becoming repayable on demand. It requires, among other matters, compliance with the following financial covenant ratios measured on a quarterly basis: (1) our ratio of net debt to EBITDA must not be greater than 3.0:1.0 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.

45

Table of Contents

The revolving credit facility contains restrictions which may limit our activities, and 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, 2021, we had no debt outstanding under the revolving credit facility and $0.1 million of obligations under finance leases relating to certain fixed assets within our Fuel Specialties and Oilfield Services segments.

At December 31, 2021, our maturity profile of long-term debt and finance leases is set out below:

Contractual Commitments

The following represents contractual commitments at December 31, 2021 and the effect of those obligations on future cash flows:

46

Table of Contents

Operating activities

Plant closure provisions represent those cash flows that the Company is currently obligated to pay or is expected to pay in respect of decontamination and environmental remediation activities, principally relating to asset retirement obligations at current and former facilities.

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 included in the table above reflect the variable interest charge on long-term debt obligations. Estimated commitment fees are also included and interest income is 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

Capital commitments relate to certain capital projects that the Company has committed to undertake.

Financing activities

Finance leases relate to the financing of certain fixed assets in our Fuel Specialties and Oilfield Services segments.

Outlook

Entering into 2022, we expect tight supply chains and elevated cost inflation to persist. We believe these conditions continue to be near-term risks which have the potential to adversely impact our businesses. Technology, customer service, pricing and gross margin management are in sharp focus, and we are cautiously optimistic that the supply-chain and inflation conditions which have dominated recent quarters will moderate in 2022, and we feel well positioned for continued growth in all our businesses.

We plan to continue our investment in R&D to improve our products and technology. Our leading chemistries and formulation expertise combined with our culture of highly responsive customer service make us a unique and nimble partner to our customers. We believe that we have a solid foundation for future
technology-led,
organic growth.

Our strong balance sheet gives us the flexibility to move in parallel on all of our capital allocation priorities which include funding our $70 million growth investment plan in Performance Chemicals, pursuing complimentary acquisitions that may arise and continuing

47

Table of Contents

our track-record of increasing capital returns to shareholders through dividends and our newly announced $50 million share repurchase program.

Environmental Matters and Plant Closures

Under certain environmental laws the Company is responsible for the environmental remediation of hazardous substances or wastes at currently or formerly owned or operated properties.

As most of our manufacturing operations have been conducted outside the U.S., we expect that liability pertaining to the investigation and environmental remediation of contaminated properties is likely to be determined under
non-U.S.
law.

We evaluate costs for environmental remediation, decontamination and demolition projects on a regular basis. Full provision is made for those costs amounting to $56.5 million at December 31, 2021. See Note 13 of the Notes to the Consolidated Financial Statements for further details. Expenditure utilizing these provisions was $5.3 million, $4.1 million and $4.4 million in the years 2021, 2020 and 2019, respectively.

48

Table of Contents