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
In 2025, Innospec delivered a mixed set of results with continued strong operating income growth and margin expansion in Fuel Specialties offsetting lower results in Performance Chemicals and Oilfield Services.
In Performance Chemicals, full year revenues were up 4 percent on the prior year; however, margins declined on higher costs, price management and weaker product mix. While these results were below our expectations, margin actions began to take effect in the third quarter, and together with lower overheads drove sequential improvement in the fourth quarter. Delivering sustainable margin improvement remains the primary focus of the business team. We continue to execute on a range of price/cost management, productivity and new product commercialization actions over the short-to-medium term. New products include the continued expansion of our industry-leading sulfate and 1,4-dioxane free personal and home care portfolio and growth in our technologies for agriculture, mining, construction and other diversified industrial markets. We expect these combined efforts to drive further growth in 2026.
In Fuel Specialties, full year revenues were unchanged on the prior year and operating income increased 12 percent benefiting from a stronger sales mix and disciplined pricing. The business has continued to deliver consistently strong results and has a diverse pipeline of fuel and non-fuel growth opportunities across all regions. 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, full year revenues were down 19 percent on the prior year, and operating income decreased 40 percent driven by no recovery in our Latin American business and lower than expected Middle East and US completion activity in the second half of 2025. We remain focused on delivering operating income growth in 2026 as Middle East activity returns, sales from our recent DRA expansion take effect, and our focus on margin improvement continues. We currently do not expect Latin America production activity to resume in 2026.
For the full year, cash from operations after capital expenditures remained strong at $63.9 million. As of December 31, 2025, Innospec had $292.5 million in cash and cash equivalents and no debt. Full year dividend payments increased by 10 percent over the prior year to $1.71 per share and we bought back 264 thousand shares at a cost of $23.9 million. We continue to have significant balance sheet flexibility for M&A, dividend growth, organic investment and buybacks.
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 U.K. is our principal site giving rise to asset retirement obligations, primarily connected to the production of tetra ethyl lead. There are also asset retirement obligations and environmental remediation liabilities on a much smaller scale in respect of other 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, 2025 amounted to $65.1 million and relate principally to asset retirement obligations at our Ellesmere Port site in the U.K.. 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 must make significant judgments when anticipating 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 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.
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 step zero assessment to determine whether it is more likely than not (that is, a likelihood of more than 50%) 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, 2025 we had $399.0 million of goodwill relating to our Performance Chemicals, Fuel Specialties and Oilfield Services segments. Our step zero impairment review at December 31, 2025 indicated the fair value of each segment is, more likely than not, higher than the carrying value, meaning no step one impairment review was required to be performed.
Other intangible assets and property, plant and equipment (net of amortization and depreciation, respectively)
Other intangible assets and property, plant and equipment are tested for impairment at the lowest possible level for which cash flows can be sufficiently distinguished, operationally and for financial reporting purposes.
To test for impairment the Company reviews whether there have been any changes or indicators of potential impairment. 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, undiscounted future cash flows expected to result from the asset groups are compared with the carrying value of the assets and, if such cash flows are lower, an impairment loss may be recognized. The amount of the impairment loss is the difference between the fair value and the carrying value of the assets. Fair values are determined using 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.
For the quarter ended September 30, 2025, we recorded impairment charges relating to our Performance Chemicals and Oilfield Services segments. See Note 6 and Note 9 of the Notes to the Consolidated Financial Statements for additional information.
At December 31, 2025 we had $67.7 million of intangible assets, included in Corporate costs and our Performance Chemicals segment, and we had $286.1 million of net property, plant and equipment for the Group in total. Our review at December 31, 2025 highlighted no indicators of potential impairment and the amortization and depreciation periods remain appropriate.
RESULTS OF OPERATIONS
The following table provides sales, gross profit and operating income by reporting segment:
(in millions)
Net sales:
Performance Chemicals
Fuel Specialties
Oilfield Services
Total net sales
Gross profit:
Performance Chemicals
Fuel Specialties
Oilfield Services
Total gross profit
Operating income:
Performance Chemicals
Fuel Specialties
Oilfield Services
Corporate costs
Adjustment to fair value of contingent consideration
Restructuring charge
Impairment of property, plant and equipment
Impairment of intangible assets
Profit on disposal
Total operating income
Other income/(expense), net
Pension scheme settlement charge
Interest income/(expense), net
Income before income taxes
Income taxes
Net income
Results of Operations – Fiscal 2025 compared to Fiscal 2024:
(in millions, except ratios)
Change
Net sales:
Performance Chemicals
Fuel Specialties
Oilfield Services
Total net sales
Gross profit:
Performance Chemicals
Fuel Specialties
Oilfield Services
Total gross profit
Gross margin (%):
Performance Chemicals
Fuel Specialties
Oilfield Services
Aggregate
Operating expenses:
Performance Chemicals
Fuel Specialties
Oilfield Services
Corporate costs
Adjustment to fair value of contingent consideration
Restructuring charge
Impairment of property, plant and equipment
Impairment of intangible assets
Profit on disposal of property, plant and equipment
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.
Performance Chemicals
Net sales: the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:
Change (%)
Americas
EMEA
ASPAC
Total
Volume
Price and product mix
Exchange rates
Higher sales volumes for the Americas were driven by increased demand for our personal care products, being offset by an adverse price and product mix due to pricing erosion and higher demand for our lower priced products. The volume decline in EMEA was offset by a favorable price and product mix, primarily
driven by increased demand for our higher priced products. ASPAC volumes were higher driven by increased demand for our personal care products, being partly offset by an adverse price and product mix due to higher demand for lower priced personal care products. EMEA and ASPAC benefited from favorable foreign currency exchange rate movements.
Gross margin: the year over year decrease of 4.8 percentage points was primarily due to pricing erosion and higher demand for our lower margin products.
Operating expenses: decreased by $4.5 million year over year, primarily due to lower provisions for performance-related remuneration accruals, together with lower charges for doubtful debts.
Fuel Specialties
Net sales: the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:
Change (%)
Americas
EMEA
ASPAC
AvGas
Total
Volume
Price and product mix
Exchange rates
Sales volumes in the Americas have remained constant year over year, combined with an adverse price and product mix due to a weaker sales mix. Sales volumes in EMEA have increased year over year due to increased demand from customers. Sales volumes in ASPAC have decreased year over year due to decreased demand from customers, being partly offset by a favorable price and product mix due to an improved sales mix and disciplined pricing. 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 due to an adverse customer mix. EMEA and ASPAC benefited from favorable foreign currency exchange rate movements.
Gross margin : the year over year increase of 1.8 percentage points was driven by increased sales of higher margin products, together with disciplined pricing and reduced inflationary pressures.
Operating expenses: the year over year decrease of $2.9 million was due to lower provisions for performance-related remuneration accruals, lower research and development expenditure and favorable movements for doubtful debt provisions.
Oilfield Services
Net sales: have decreased year over year by $95.5 million, or 19 percent, with the majority of our customer activity concentrated in the Americas region. Sales volumes in the current year were adversely impacted by the absence of production chemical activity in Mexico.
Gross margin: the year over year decrease of 1.6 percentage points was due to an unfavorable sales mix as our customer demand has weakened.
Operating expenses: the year over year decrease of $20.9 million was due to lower customer service costs
and commissions related to the reduced demand from certain customers, together with lower provisions for performance-related remuneration accruals.
Other Income Statement Captions
Corporate costs: the year over year increase of $2.6 million was due to the prior year including the recovery of $8.4 million of historical pension costs, increased provisions for asset retirement obligations in relation to our legacy operations, the additional investment in our IT infrastructure and the amortization of the group's new ERP system, being partly offset by lower provisions for performance-related remuneration accruals.
Adjustment to fair value of contingent consideration: the credit in the current year of $15.9 million compares to an expense of $3.4 million in the prior year. The amounts in both years relate to the acquisition of QGP Química Geral (“QGP”) within our Performance Chemicals segment. See Note 14 of the Notes to the Consolidated Financial Statements for additional information.
Restructuring charge: the charge in the current year is $0.9 million compared to no charge in the prior year. The charge relates to our operations in South America within our Performance Chemicals segment.
Impairment of property, plant and equipment: the charge in the current year is $22.9 million compared to no charge in the prior year. The charge relates to our Oilfield Services segment. See Note 6 of the Notes to the Consolidated Financial Statements for additional information.
Impairment of intangible assets: the charge in the current year is $19.1 million compared to no charge in the prior year. The charge relates to our Performance Chemicals and Oilfield Services segments. See Note 9 of the Notes to the Consolidated Financial Statements for additional information.
Other net income/(expense): for 2025 and 2024, includes the following:
(in millions)
Change
Net pensions credit/(expense)
Profit attributable to non-controlling interests
Sundry expense
Foreign exchange gains/(losses) on translation
Foreign currency forward contracts gains/(losses)
Interest income/(expense), net: was $9.2 million of income in 2025 compared to $9.3 million of income in 2024, driven by the interest income being earned from our cash balances.
Income taxes: The effective tax rate was 15.6% and 13.6% in 2025 and 2024, respectively. The adjusted effective tax rate, as calculated by adjusting income before taxes and by adjusting income taxes for the items set out in the following table, was 24.1% in 2025 compared with 26.4% in 2024. 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.
(in millions, except ratios)
Income before income taxes
Adjustment for stock compensation
Indemnification asset regarding tax audit
Legacy cost of closed operations
Adjustment to fair value of contingent consideration
Pension scheme settlement charge
Recovery of historical pension costs
Impairment of acquired intangible assets
Impairment of property, plant and equipment
Adjusted income before income taxes
Income taxes
Adjustment of income tax provisions
Tax on stock compensation
Tax loss / (gain) on distribution
Tax on legacy cost of closed operations
Tax on pension scheme settlement charge
Tax on recovery of historical pension costs
Tax on impairment of acquired intangible assets
Tax on impairment of property, plant and equipment
Impact of internal reorganizations
Other discrete items
Adjusted income taxes
GAAP effective tax rate
Adjusted effective tax rate
The adjusted effective tax rate is higher in 2025 than the GAAP effective tax rate, primarily due to the recognition of a deferred tax benefit in relation to internal reorganizations being eliminated in determining the adjusted effective tax rate.
The adjusted effective tax rate was higher in 2024 than the GAAP effective tax rate, primarily due to the 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.
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 2024 compared to Fiscal 2023:
(in millions, except ratios)
Change
Net sales:
Performance Chemicals
Fuel Specialties
Oilfield Services
Total net sales
Gross profit:
Performance Chemicals
Fuel Specialties
Oilfield Services
Total gross profit
Gross margin (%):
Performance Chemicals
Fuel Specialties
Oilfield Services
Aggregate
Operating expenses:
Performance Chemicals
Fuel Specialties
Oilfield Services
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.
Performance Chemicals
Net sales: the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:
Change (%)
Americas
EMEA
ASPAC
Total
Volume
Acquisition
Price and product mix
Exchange rates
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 QGP in December 2023 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 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: 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
Net sales: the table below details the components which comprise the year over year change in net sales spread across the markets in which we operate:
Change (%)
Americas
EMEA
ASPAC
AvGas
Total
Volume
Price and product mix
Exchange rates
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 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 $4.9 million was due to higher research and development expenditure and higher performance-related remuneration accruals, being partly offset by lower provisions for doubtful debts.
Oilfield Services
Net sales: 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 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 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 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): for 2024 and 2023, includes the following:
(in millions)
Change
Net pensions credit
Profit attributable to non-controlling interests
Sundry expense
Foreign exchange gains/(losses) on translation
Foreign currency forward contracts gains/(losses)
Interest income/(expense), net: 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: The effective tax rate was 13.6% and 20.2% in 2024 and 2023, respectively. The adjusted effective tax rate, as calculated by adjusting income before taxes and by adjusting income taxes for the items set out in the following table, was 26.4% in 2024 compared with 23.0% in 2023. 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.
(in millions, except ratios)
Income before income taxes
Adjustment for stock compensation
Indemnification asset regarding tax audit
Legacy cost of closed operations
Adjustment to fair value of contingent consideration
Pension scheme settlement charge
Recovery of historical pension costs
Acquisition costs
Adjusted income before income taxes
Income taxes
Adjustment of income tax provisions
Tax on stock compensation
Tax loss / (gain) on distribution
Tax on legacy cost of closed operations
Tax on acquisition costs
Tax on pension scheme settlement charge
Tax on recovery of historical pension costs
Other discrete items
Adjusted income taxes
GAAP effective tax rate
Adjusted effective tax rate
The adjusted effective tax rate was 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. during 2023.
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.
LIQUIDITY AND FINANCIAL CONDITION
Working Capital
In 2025 our working capital increased by $59.3 million, while our adjusted working capital increased by $33.9 million. The difference between the net movement for current assets and current liabilities and the adjusted working capital measure shown in the table below, is primarily due to the movements for income taxes.
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.
(in millions)
Total current assets
Total current liabilities
Working capital
Less cash and cash equivalents
Less prepaid income taxes
Less other current assets
Add back current portion of accrued income taxes
Add back current portion of plant closure provisions
Add back current portion of acquisition-related contingent consideration
Add back current portion of operating lease liabilities
Adjusted working capital
The movements in our adjusted working capital are explained as follows:
We had an $0.6 million increase in trade and other accounts receivable due to the timing of sales across our reporting segments and the mix of customer payment terms. Days’ sales outstanding in our Performance Chemicals segment increased from 61 days to 72 days; remained the same in our Fuel Specialties segment at 57 days; and decreased from 83 days to 64 days in our Oilfield Services segment.
We had a $28.3 million increase in inventories, net of a $5.8 million increase in allowances, as we manage the 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 63 days to 65 days; increased in our Fuel Specialties segment from 113 days to 133 days; and increased from 76 days to 83 days in our Oilfield Services segment.
Prepaid expenses decreased $0.9 million, from $21.0 million to $20.1 million, primarily due to a reduction in the group's insurance costs.
We had a $5.9 million decrease in accounts payable and accrued liabilities, primarily due to the timing of supplier payments. Creditor days (including goods received not invoiced) increased in our Performance
Chemicals segment from 46 days to 50 days; increased in our Fuel Specialties segment from 44 days to 58 days; and decreased from 68 days to 46 days in our Oilfield Services segment.
Operating Cash Flows
We generated cash from operating activities of $138.3 million in 2025 compared to $184.5 million in 2024. The decrease in cash is related to lower earnings in our Performance Chemicals and Oilfield Services segments, together with increased working capital requirements and higher prepaid income taxes.
Cash
As at December 31, 2025 and 2024, we had cash and cash equivalents of $292.5 million and $289.2 million, respectively, of which $145.4 million and $133.9 million, respectively, were held by non-U.S. subsidiaries principally in the U.K..
The $3.3 million increase in cash and cash equivalents in 2025 was driven by the cash inflows from operating activities, being 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, payments of our semi-annual dividends and the repurchases of our common stock.
Debt
As at December 31, 2025 and 2024, the Company had no borrowings under the revolving credit facility and as a result, the related deferred finance costs of $0.7 million (December 31, 2024 – $1.1 million) are now included within other current and non-current assets at the balance sheet date. During 2025 and 2024, the Company did not draw down or repay any borrowing on its revolving credit facility.
On May 31, 2023, Innospec Inc. and certain subsidiaries of the Company entered into a Multicurrency Revolving Facility Agreement with various lenders, providing for a $250.0 million four-year multicurrency revolving loan facility. 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 $125.0 million. 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. 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 3.5:1.0 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.
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, 2025, the Company had no obligations under finance leases.
Contractual Commitments
The following represents contractual commitments and the estimated additional cost to complete work in progress at December 31, 2025 and their effect on future cash flows:
(in millions)
Total
Thereafter
Operating activities
Operating lease liabilities
Operating lease future commitments
Interest payments on debt facility
Investing activities
Capital commitments
Internally developed software
Total
Operating activities
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 interest payments on debt are the commitment fees for our $250.0 million revolving credit facility. Any interest income has been excluded.
Investing activities
Capital commitments relate to certain capital projects that the Company has committed to undertake.
Internally developed software relates to the planned completion costs for the implementation of our new Enterprise Resource Planning system for the Americas, including the acquisition costs for the software as well as the external and internal costs of the development.
Outlook
Entering 2026, our focus is unchanged. We will continue to deliver exceptional innovation, value and service to our global customers across all our end-markets. We will also continue to prioritize margin and operating income improvement in Performance Chemicals and Oilfield Services. In both segments, we expect these actions to drive growth in 2026. In addition, we expect Fuel Specialties to continue to deliver consistent results.
With a net cash position at over $292.5 million, we continue to have significant balance sheet flexibility for M&A, dividend growth, organic investment and buybacks in 2026.
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 asset retirement obligations, decontamination and demolition projects on a regular basis. Full provision is made for those costs amounting to $65.1 million at December 31, 2025. See Note 13 of the Notes to the Consolidated Financial Statements for further details. Expenditure utilizing these provisions was $5.8 million, $3.8 million and $4.9 million in the years 2025, 2024 and 2023, respectively.
