Ingevity Corporation (NGVT) Earnings Call Transcript & Summary

Greetings, and welcome to the Ingevity Oilfield Technologies and Industrial Specialties Webinar. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dan Gallagher. Please go ahead, sir.

Thank you, Kevin. Good morning, everyone. Once again, welcome back to Ingevity's 2020 Webinar Series. We've got some good feedback about this series and trust you're finding them useful. From all of us here at Ingevity, we like to continue to express our hope for the safety, health and well-being of you and your families. We'd like to express the same for our employees worldwide as we work together through the challenges that our world is still presented with. As you saw from our press release on March 24, we're hoping these webinars as a way to continue to inform and educate the financial communities about our businesses. Today, we'll be focusing on both Oilfield and Industrial Specialties. For participants who are logged into the webcast, the slide should be visible in the online viewing pane, and we will be advancing them or you can download the slides from the Investors section of our website. You can find it by visiting ir.ingevity.com under events and presentations. On Slide #2 of that deck, you'll see our disclaimer that today's webinar may contain forward-looking statements. Relevant factors that could cause actual results to differ materially from these forward-looking statements are contained in our SEC filings including our Form 10-K and most recent Form 10-Q. Ingevity undertakes no obligation to publicly release any revision to the projections and forward-looking statements made during the call or to update them to reflect events or circumstances occurring after the date of this call. Turning to Slide 3. I'd like to introduce you to the very experienced business leaders from Ingevity that will be taking through -- taking you through our materials today. You all know Mike Smith, President of Performance Chemicals, who, as you can see from the slide, has a very diverse background in terms of chemical industry experience and leadership. With Mike today, we have Nick Kob, Vice President of Oilfield and Lubricant Technologies; and Rich White, Vice President of Industrial Specialties. It's been my sincere pleasure to get to know these guys over the years. Obviously, from their resumes, they all have strong experience in the specialty chemicals space, and they are seasoned leaders at Ingevity that I have a lot of confidence in. My confidence in them and our management team's confidence in them will be well evidenced by their presentation today. After the presentation, we'll open the line for questions. In addition to Mike, Nick and Rich, John Fortson, Executive Vice President and CFO, will also be available to participate in the Q&A. Rick Kelson, our Chairman and interim CEO, wasn't available today due to a scheduling conflict. We'd like to keep the Q&A at the end of the call focused on these 2 businesses. We'd be happy to answer any questions about the other businesses either at their upcoming webinars or our Q2 earnings release. As for our current company outlook for 2020, we just gave an update 1.5 months ago with our Q1 earnings results and in our press release last week, and we won't be making any updates today. Before I turn the call over, I'd like to tell you that I've been afforded a new opportunity here at Ingevity and will be moving on from Investor Relations. It's a great career development opportunity that I just couldn't pass up. It's been my pleasure to serve you, our investors, over the last 4 years since we became public. And I genuinely appreciate the relationships we have developed. I'm not going anywhere. I'm very proud of the IR program we've developed. There are very few people I would trust to take over the IR reigns at Ingevity. Jack Maurer, who has been with us since before the spin and truth be told, has been the man behind the curtain of all our financial press releases and quarterly call scripts, will step into that role. He's been named Vice President of Public Affairs and Investor Relations after previously being VP of Communications with Ingevity. There'll also be a man named Joe Danehower, who is in our finance department, supporting Jack. So don't be surprised if you see that name in the email. My sincere congratulations and pride for Jack, who is my friend. My sincere thanks for your support all these years through thick and thin. And don't be surprised if I turn up at a conference here or there. With that, I'll turn the call over to the venerable, Mr. Smith. Mike?

Thank you, Dan. Really appreciate the great work you've done in IR. And official welcome to Jack in his new role. We're really fortunate to have both of you on the Ingevity team. Of course, thank all of you for joining Ingevity's webinar today. We're excited to provide you an overview of our Oilfield Technology and Industrial Specialties businesses, as we conclude the Performance Chemical components of our webinars covering the 4 business units in the segment. Slide 4 summarizes the leading positions Ingevity has across our businesses and provide you some context to our Oilfield and Industrial Specialties fit within our company. As you can see, and as Nick and Rich will cover in more detail, these businesses serve a broad array of applications in our market and technology leaders in areas where we compete. Last year, these 2 businesses combined to approximately 60% of the $802 million in sales across the 4 business units in Performance Chemicals. Similar to the manufacturing process we described in the Pavement Technology webinar, the majority of sales within Performance Chemicals, including Oilfield Technologies and Industrial Specialties, are derived from specialty derivatives we manufacture in the pine chemical value chain we summarize here on Page 5. We use co-products from the pulp production process as our key input materials. The primary raw material is crude tall oil, which we fractionate in our biorefineries. The majority of our products, we utilize the key outputs of TOFA, rosin and biofractions to further react these inputs with a wide range of other chemistries in a variety of manufacturing processes to derivatize them into a broad range of specialty additives. These products provide critical functionality for various end-market applications. As we'll discuss further today, Ingevity has continued to put significant focus on increasing our position in downstream derivatives, which deliver higher and more sustainable margins compared to basic intermediate products such as merchant rosin or TOFA. In addition to CTO, we also use lignin, another product from the pulping process. Lignin dispersants are used in some important applications within Industrial Specialties, such as agricultural chemicals and dyes. Before we conclude the Performance Chemical segment webinars with the business overviews and our strategies for Oilfield and Industrial Specialty businesses, I thought it might be helpful to provide some context to how the direction within all of our businesses fits in the overall strategy Ingevity has employed during the last 4 years. A key element of this strategy is to focus our resources and expand our position in higher-margin downstream products, which are essential ingredients and technologies employed by our customers to meet their needs, both in Performance Chemicals and Performance Materials. In chemicals, we have continued to pursue opportunities to derivatize rosin and TOFA in the specialty products and market segments listed in the upper right portion of Slide 6. Since 2016, we have made significant progress on structurally improving position of our Performance Chemicals segment. We have reduced costs, improved our CTO supply position and continued to upgrade the portfolio of our products through growing our position in higher margin, higher growth businesses, such as Pavement and Engineered Polymers, which now represent a significant part of the chemical business as well as improve the product mix within Oilfield and Industrial Specialties. Our execution of this strategy resulted in improving the EBITDA margins by 1,000 basis points to 23% in 2019 and provides a solid platform for profitable growth in future years. I'd now like to turn the discussion to Nick Kob, Vice President of our Oilfield Technology business. Nick?

Thank you, Mike, and thank you, everyone, for your attention and interest. Next slide, please, Laura. In Ingevity's Oilfield Technology business, we continue to work to diversify our product segment portfolio outside of drilling as well as expand our business outside of North America. We also continue to try to move to higher-value products, which are built on our core strengths in our pine chemistry derivatives, as Mike had described. These derivative products command higher value and hold that value better during the oilfield market cycles. Our products in emulsifiers, corrosion inhibitor chemicals, rheology modifiers and wetting agents are all examples of these derivative products. We enjoy strong positions and competitive advantages. These are rooted in our technical service, which is about getting the right product performance, quality and cost to fit the customer need, our customer intimacy. This is the trust customers have enough to not only communicate with us but to work in partnership with us. And innovation, this is our ability to connect the dots and then execute with our core competencies. We are making progress, and as an example, growing our derivatives. When looking at our sales of TOFA versus derivative products in 2016, 30% of our sales were TOFA. In 2019, only 23% of the sales were TOFA and the rest were derivative products. Next slide, please. We've developed strong trusting relationships and business from drilling all the way through to transportation fuel. Having the broad view of this value chain is important as it can help us understand not only the need, but the why behind the need. And in some cases, this understanding creates more value for not only us as Ingevity, but for our customers as well. Each segment in this value chain can and many times does have unique drivers. We have many customers and touch points across this chain that allow us to develop the solutions for this particular need that have the right, not only performance but cost. And this is essential as hitting both performance and cost targets is important to have sustainable value-adding success. All of these things result in us being able to get to the right product solution more quickly for our customers. Next slide, please. As mentioned, we have many existing products finding applications across the chain. The common theme for these products are that many and most of which are tall oil refinery derivative products. And many of these have chemistries that are unique to Ingevity. They enjoy attractive margins as well as competitive defensibility. In doing this, we take a customer-centric approach in our product development. And all or most of which of these products shown here are a result of that approach. Our products tend to be relatively small percentages of formulations, but despite that, provide essential performance and hence, value to the customer. As an example, our emulsifiers are typically about 1% or 2% of a drilling mud. But despite this small percentage of -- for the essential properties it provides mud stability. This translates into increased mud lifetime, which provides performance and cost benefits to the user. They, in part, improved wetting of solids. This translates to more efficient and effective solids removal in the drilling process, which increases efficiency for the user. We don't compete with our customers, rather, we partner with them and work with them to develop the right product. Next slide, please. Our oilfield business has 3 strategic pillars: market development, innovation and geographic expansion. All 3 of these pillars offer significant opportunity for us to not only grow but improve our cycle resiliency. Our execution across these 3 pillars is built on our customers and their relationships, the trust they have in us to not only share their product specifications but the why behind it and give us the right performance and cost targets for us to execute on. Built on our technical acumen, this is our ability to develop the right product with the right consistent quality and our ability to tailor our chemistries to bring the right requirements to the customer. It's also built on our track record of success. We have a strong proven business that customers recognize. Next slide, please. We'll go through some examples. The first example we will give is in the market development pillar. Next slide, please. As an example of market development is our Tenax product of chemistries. This is a unique to Ingevity derivative -- fine derivative chemistry, and it finds use in the production segment within our oilfield business. This example of unique to Ingevity chemistry is for a market need that, in some respects, is becoming more important due to the nature of shale wells. Over the short life of a shale well, the water-to-oil ratio within that well increases. And as this increases, it presents new and challenging corrosion challenges for the operator in the well. Tenax has the unique properties that make it ideal for this environment. Tenax can be water dispersible. Whilst this is important because it needs to be dispersed in the increasing water phase and still -- but still, despite being water dispersible, has an affinity for the oil phase. This is important because it allows the Tenax to get down to the metal surface. And it's critical that the product gets to the metal surface because this is where the corrosion protection is imparted. Once at that service, the unique Tenax chemical structure results in a superior surface persistency. And this enables the resilient corrosion protection film even as the well water content increases. Next slide, please. We'll now go through an example of our innovation pillar. Next slide, please. Oil drilling takes place in all kinds of environments. And some of these environments and location present challenges to the engineer that liquid products either cannot or struggle to meet. For example, in very cold weather locations, liquid flow, due to cold temperatures, can be an issue. Or for example, offshore, where storage can be limited and having liquid drums is not easily stored. Or in some locations where drum storage isn't a problem but drum disposal can be costly or challenging. To meet these challenges, we've developed a spray-dried additive based on our derivative chemistry. This spray-dried additive is Ingevity patented, is a powder, so it flows regardless of temperature. It comes in bags, which improves its storage footprint, and it provides multifunctional properties and not just emulsification but also fluid loss. Also being a powder, it's 100% active versus liquids that many times contain diluents. The product is storage stable, which means it's -- the operator is able to take it and store it for long periods of time and the product will still stay free flowing. This innovation is consistent with our focus to develop innovative solutions that are tied to not only customer needs, they're built on our derivative chemistries. Next slide, please. We will give a final example in our geographic expansion pillar. Next slide, please. Ingevity has and continues to develop global relationships. And we do this to generate growth in regions outside of North America land, where we are the leaders in oil-based mud emulsifiers. By doing this, it provides not only growth, but the geographic diversity will provide cycle resiliency. Two areas where we have and continue to focus are China and the Middle East. China, for example, is projected to be a growing market for drilling based on the China's national strategic intent to develop its own resources versus its reliance on importation. To support this, China national oil companies have recently upgraded their 7-year drilling plans. In addition, we see China increasing the level of horizontal drilling, increasing the need for the proven oil-based mud emulsifiers in which Ingevity is already the leader in North America. The Middle East represents a cycle-stable market for Ingevity to grow in. As an example, we'll use Saudi Arabia. Saudi Arabia has put in place what is called IKTVA, which is In-Kingdom Total Value Add, and it's a program that's designed to supply more oilfield chemistries and products and formulations from in-countries producers versus importation to support their oilfield business. We are developing the right relationships in both of these regions to bring the right product solutions from our portfolio. Each of these regions has unique needs and requirements, and we are developing the right relationships to make sure we're have -- we're in place to supply them. These global expansion efforts allow us to bring our high-value derivative products to growing and stable markets outside of North America land. Next slide, please. In summary, we will continue in our position as the leader in oil-based muds. We're trying to position ourselves to grow sustainably in our 3 strategic pillars, which we described and gave examples, which are market development, innovation and geographic expansion. In doing all of these, we're building on our capabilities in derivative chemistries. This allows us to not only have a good cost position, but to apply our proven chemistries as well as our confidence in our ability to scale and deliver these derivative products. We're doing this in conjunction with our customers where we have strong relationships with key players, and with all our focus on our technical service excellence. I will now turn it over to Rich White and talk about Industrial Specialties. Thank you for your attention.

Thank you, Nick, and thanks, everyone, for joining our call today. I'll be reviewing the Industrial Specialties portfolio, providing an overview of the business, then focusing on a few key segments before finishing, as Nick did, with a quick look at our strategy. Next slide, please. Thank you. Industrial Specialties business, which we refer to as In Spec, is committed to driving that value from pine-based chemistry in the 4 product segments that you see up here on the left-hand corner, resin, fatty acid, lignin and biofractions across a variety of applications. As you can see from our pie chart, this is a highly diversified business, with 50% of the application to be associated with rosin-based products. While the majority of the In Spec business is within North America, we continue to pursue business accretive to our portfolio around the globe as evidenced by the 45 countries in which we serve. Next slide, please. Taking a little closer look at rosin and fatty acids, TOR or tall oil rosin accounts for approximately 29% of the global rosin market, with a greater percentage being made up of gum rosin, primarily from China and Brazil. Since January of this year, it has been encouraging to see the market price for gum rosin trending up. Though with the pandemic, the last couple of months have flattened a bit. The high bio content of these resins tend to increase interest in a variety of applications due to their sustainability benefits. TOFA, or tall oil fatty acid, makes up a smaller percentage of the fats and oil market segment. As many of you are aware, soybean, rapeseed, palm, sunflower tall oils and the like are widely used in the market and a host of other applications, both industrial and edible. TOFA is only used in specialty industrial applications, as shown on the previous slide. While we do sell some level of both TOR and TOFA into the merchant market, our strategy with both products is to derivatize and use in higher value segments. So with these -- both of these products, derivatize, derivatize, derivatize is what we aim to do. We will now take a look at 3 segments within the In Spec business. Next slide, please. We're all seeing increased use in digital media, whether through viewing news, magazines and the like on our PCs, tablets, mobile devices as well as the increase in social media. This shift, along with our strategy to focus on higher-margin business within the ink portion of our portfolio has rearranged the way this segment looks from [ used hands ]. Ingevity deliberately exited low-margin business in European market and has successfully introduced new, lower cost, environmentally friendly resins by removing products like phenol and formaldehyde from the product makeup. This was first introduced in the U.S. and is now being marketed in other regions where these cleaner resins are valued. Our science are actively working to develop the same easier to handle resins in the growing flexible packaging market. Also in the flexible packaging market, the trend is to move away from nitrocellulose due to cost and handling concerns. So even with this, the shift in the overall printing ink market, Ingevity is well positioned to participate in the areas of the segment to develop the benefit of the customer while meeting the internal needs of the business. Next slide, please. Certainly exciting times for Ingevity in the areas of adhesives. We made a conscious strategic decision years ago to increase our focus in this segment. As we saw on the trends -- as we saw the trends in historical printing inks, since 2016, we have increased rosin sales into this segment by 10%, moving from 20% to 30% of our total resin sales. In pavement markings, on the left-hand side of this slide, thermoplastic markings, also known as thermoplastic markings, are expected to grow 7% to 9% for the next 10 years. There will also be certain mandates in the coming years as autonomous vehicles enter the market. Our products improved the retro-reflectivity due to our rosin adhesives to the glass beads in the formulation, significantly increasing safety. It also has a better resistance to vehicle residue in oil and asphalt, making it last longer than alternative technologies, most likely paint. On the packaging side, on the right-hand side, as we all see more packages arriving in our homes, certainly, I know we're seeing a lot at my home, Ingevity tackifiers or adhesives, which are up 90 -- which are up to 99% bio-based, improve adhesion to highly recycled corrugated board used in rigid packaging. [ Technically ] developed that is advance in Ingevity include low-odor, low-color products that are more environmentally friendly than the hydrocarbon alternatives. So overall, we expect to see continued growth across our adhesive portfolio. Next slide please. As the agricultural landscape continues to grow, Ingevity's broad portfolio of products allows for multifunctional formulation alternatives, which are also eco-friendly. With offering both in crop protection and plant health, our strategic focus is to expand our portfolio, leverage our customer focus and expand geographically, primarily in Brazil. While our products are not the active ingredient, they do aid in the performance of the active ingredient in sustainable manner to which we will take a closer look at in a couple of slides. Next slide, please. The strategic initiatives with In Spec are grouped in the following manner: #1, higher-margin growth; #2, innovation; and #3, drive operational excellence. Let's go through each one of these with examples. Next slide, please. In the area of higher-margin growth, we will continue to expand derivative demand, as you heard me say it earlier, derivative -- derivatize, derivatize, derivatize; continue to look to improve margins with mixed optimization and leverage diversified end markets. Next slide, please. As an example of expanding derivative demand within higher-margin products and applications, we had Diacid 1550, a bio-based multifunctional additive that we use and that has served in metalworking fluid applications. This is a derivative of TOFA. Well-known in the metalworking space, it works as a coal emulsifier, so you can add just this one product as opposed to 2 or 3. The Diacid 1550 provide increased lubricity as well as corrosion, enabling the use of less additives and saving formulators money and producing less waste. So this has been a nice success for us, and we continue to see the use of Diacid 1550 in various metalworking applications. Next slide, please. Within innovation, one thing that is key, as Nick mentioned in his -- during his talk is customer intimacy. Customer intimacy promotes for us, a product pull or customer pull philosophy. Gone are the days of the product [ pulls ]. In other words, "I made this. Do you want to buy it?" No, we have to move towards the customer saying to us: "We need this, can you make it?" So through multilevel interaction of our technical service, we've seen that go a long way toward additional customer collaboration and use that to create the customer pull dynamic that is needed within Industrial Specialties to be successful from an innovation standpoint. Next slide, please. We hit on all 3 of these points in our innovation examples that we have here. AltaHance and AltaSolv, a very high-performing multifunctional formulation for plant health protection. AltaHance is a product that provides stickiness or rainfastness. So as this -- as active ingredients are added to this, that allows them to stay on the plant longer, whether it's raining or whether it's windy, it doesn't just flow off the plant and allows for the active ingredient, whether it's being a fungicide, pesticide, herbicide, to stay on the plant longer and enabling less use of repeated sprays and more environmentally friendly. The AltaSolv product is a green solvent as opposed to a petroleum-based product, which also helps increase product pesticide performance and enable easier handling. These products within Ingevity provide the highest quality of natural [ oxygen additives ] and [ green starch ]. Now the dynamics associated with ag are a bit different than some of the other market segments. With ag, there are field trials and regulatory requirements. So the full commercialization of these products sometimes takes -- can take and usually takes 2-plus years. That being said, we are seeing products assessed with our new products and have a very robust pipeline going forward, which is exciting for us here at Ingevity. Next slide, please. Key to any refinery business is driving operational excellence. And to that extent, we've continued to leverage synergies from acquisition we made, we look to enhance our low-cost producer position and are optimizing our manufacturing flexibility and refinery balance. Next slide, please. As an example of this, the successful integration of our Georgia-Pacific's pine chemicals business allowed us to strengthen our leading position, added scale through adding complementary technologies, provided very important long-term CTO security supply at a market price, delivered greater than $11 million per year in synergies and completed customer product qualification across a wide network of plants that we have and improved our efficiency and supply security. Next and last slide, please. So within Industrial Specialties, optimizing product mix to maximize earnings is our focus. Our strong reputation for technical expertise and customer -- and delivering customer solutions helps us to continue to innovate in the areas of agricultural chemicals, adhesives and as we aim looking to new uses for rosin. We will continue to leverage our global position in higher-margin applications, consistent with our strategy. So with that, I thank you very much for listening and turn it back over to Mike Smith. Mike?

Well, thank you, Rich. But before we open up for Q&A, I thought I'd quickly refer back to a prior slide, where we described our efforts across performance chemicals on our strategic focus to improve and grow our position in higher-margin products and applications. I hope you have gained a better feel for how our businesses are using strong customer collaboration and advancing some exciting technology innovation to progress this element of our strategy and strengthen our leadership position going forward. So with that, operator, we can turn it over to Q&A, please.

[Operator Instructions] Our first question today is coming from Jim Sheehan from SunTrust.

Can you talk about what TOFA prices have done since the oil price crash and decline in rig counts?

Sure, Jim, and thanks for calling in. So our pricing in North America for oilfield has remained essentially stable. And so we consider that to be reasonably positive, although the demand destruction in terms of the overall industry is really tough, but we're seeing our pricing to keep stable. And that's encouraging because, as you know, Jim, over the last 3 or 4 years, we've made a lot of effort to bring those TOFA prices up, and oilfield has been a big part of that. Where we have a bit of a more -- a bit of a challenge within TOFA is now that we have some additional TOFA available, if you will, because of the downturn in demand in oilfield, we need to go and export that to some additional markets. And in those cases, the TOFA market is kind of much more transactional, and those prices tend to be a bit lower than those that are established in North America, either in the Oilfield area or the Industrial Specialties area.

And I'd like to ask you about your adhesive products. You mentioned that new low-color adhesive, when was that product launched? And what is the pricing point of that adhesive? Is it the same price as your other pine-based adhesives? Or is it a premium price point?

I'll make a general comment, and then I'll turn it over to Rich in terms of our pricing strategy. But we introduced that product, I think, probably just over a year ago. And so -- and we've been pleased with some of the early adoption. There is a lot of focus from a sustainability standpoint in order to move towards rosin-based natural products. So we think that, that is a very positive dynamic. But in order to hit the mark from a quality standpoint and displace hydrocarbon resins, we needed to come up with a product with lower color and lower odor, and we've worked to position that as a premier product. So Rich, if you want to talk about -- just a little bit about our pricing approach on that new product.

Yes. Thanks, Mike, and thanks, Jim, for your question. Certainly, this market, price is an important factor, but in low color, low odor is just a matter of quality and what folks want to see, not that the darker higher odor products don't work. So this is something that the market wants and needs. To Mike's point, though, there are hydrocarbon-based products in the market that don't have the bio-based component. That being said, we still need to be actively and are active in making sure that the price is consistent with what the market will demand. So it's not so much that, that is a premium -- significant premium over current products but priced accordingly to what the market will be willing to accept.

And on that product, are you currently qualified or specced into key customers in the adhesive market with that bio-based product? And also what -- when will that low-odor, low-color product be material to your Industrial Specialties sales?

Yes. We currently have that product specced in and has been introduced and specced in. And from a material standpoint, as I mentioned earlier, we continue to see this business grow, I mean, from the time that I mentioned I've seen a 10% growth of our rosin sales into this segment with the reduction in printing inks. So in material, I'm not sure what you are referring to on material, but we are excited about the growth across the adhesives business both in packaging and pavement market.

Jim, if I can just make one more comment on that. We're pleased that customers are qualifying it. Many of them express that interest in migrating towards a more sustainable bio-based products, especially in customers where there is at least some consumer touch. But frankly, it is up to those large customers in terms of how serious they are in making that migration towards higher sustainable products. And I think you understand that, that theme has been out there. I think Ingevity has just a terrific position when it comes to sustainability overall. We're promoting those advantages as we were talking here in adhesives and as Rich also described in printing inks. And we're just excited and hopeful that, that adoption by the customer base will start to ramp up, and they'll essentially put their money where their mouth is from an implementation standpoint.

[Operator Instructions] Our next question today is coming from John McNulty from BMO Capital Markets.

So I guess the first one would be on the oilfield side. So can you speak to who are your top, whatever, 2 or 3 biggest competitors? And I guess, presumably, if they're some of the larger kind of giants out there in the oilfield services area, how do you compete against them, given their scale versus your scale? How should we think about that?

Yes. Thanks, John. So let me first make a couple of comments, and then I'll turn it over to Nick. But as Nick referenced, if you're talking about the real giants in the oilfield service industry, we do not compete with them. They are our customers and they are our products, and they rely on us to provide them with the products and the technology that we need. And as Nick talked about, we work with them very closely and collaboratively to make sure that they have the derivative products that will either hit their oil-based mud formulations for whatever formation they're trying to work in or a multifunctional product that has corrosion benefits. And so, Nick, if you want to further take -- make any comments on competition or further add to the comment on our customer base.

Yes. Thanks, Mike. I would just reiterate what Mike said, is that we really don't compete against what we'll consider other very large multinational companies for the most part. And we really position ourselves to win versus our competitors that aren't -- don't have that size and that scale, really like through what we pointed out was our technical service, our reputation and customer relationships and our proven ability to innovate and deliver for them, which puts us in a strong position versus that competitive landscape.

Okay. Fair enough. And then I guess on the -- yes, go ahead...

John, I thought it may be worth mentioning one other thing that sometimes can be confusing, and I know even Rich mentioned the small proportion in some regards that TOFA has in the overall broader oil and fats market. When it comes to oilfield applications, it's very clear that TOFA has a very specific technical advantages to some of those other fats and oils. So when it comes to competing in oilfield for fatty acid and fatty acid derivatives, TOFA products are the ones that customers consistently go to in order to get the functionality that they need.

Got it. Okay. No, that's helpful. And then I guess on the industrial front. So I guess maybe high level, can you speak to -- it seems like there are some parts of the business that are actually relatively defensive or not overly cyclical, and then there are other parts that are pretty cyclical. I guess, can you speak to kind of, in aggregate, how you think about the overall cyclicality of the business? How it's kind of weathering the current environment? And I guess, also tied to that, how should we think about the pricing sensitivity in that business, again, given the cyclicality?

Yes. So John, as you mentioned, we've had a lot of different applications and a lot of different end markets, and the dynamics in those markets are different. And some, one might consider cyclical, others, as Rich described, and we've talked about a number of occasions, I wouldn't necessarily call cyclical but face sort of long-term ongoing pressure. And inks is absolutely at the top of the product line for that. So I wouldn't call that cyclical. I'd say that's more an ongoing secular decline. 4 or 5 years ago, our portfolio probably had $100 million more of sales in inks than we do now. So that's a big drop. Some of that has been the ongoing secular decline that we've talked about. Some of that has been us intentionally moving away from nonprofitable business, especially in Europe. So businesses like that, that's a business that's tough. I think that our adhesive business on the resin side is not one where we see those types of cycles. There is an impact from either consumer demand. Sometimes it's more positive than negative based on overall industry requirements or the pull from certain customers. And the other area, sort of I've mentioned that can depend on various end markets, either positive or negative. Rich talked a bit about metalworking fluids. And we have metalworking fluids that go into a broad array of industrial applications. But one of those applications for metalworking fluids broadly would be automobile manufacturing. So that's a part of that. So if automobile manufacturing is down, that is going to be a partial hit to a broad metalworking fluid portfolio. But on the other side, we have a nice and growing position in agricultural chemical products. And it's an area where, once again, I think about 3 or 4 years ago, we increased our resources. We know we had a good position in lignin dispersants for ag, a great customer base across the globe that really like the products that we had to offer. And so as Rich has talked about, we're looking to and have diversified our portfolio away from just lignin dispersants, which are highly effective, and we're going to continue to support that to some other additives, either solvent based or other adjuvants that can help in the inactive portion of the ag chem market. So it's a bit of a long-winded answer. Like a lot of things, it depends, but hopefully, those are a couple of examples that give you a flavor of some of the ups or downs within the industrial portfolio.

Yes. No, that definitely helps. And can you speak to the pricing environment that you're seeing? Because I think that would certainly be indicative of how either resilient or, in some cases, not so resilient that the business may be in kind of a recessionary period?

Yes. So the rosin market is still tough. We've had a lot of, I'd say, stability in rosin, not from pricing. We don't think it's at a level that it should be. It's well below the kind of pricing level from about 4 years ago. Not to a point, maybe, I don't know, 18 months ago, 24 months ago, where things were pretty stable, but not where we believe that those price -- the prices should be. We have, as Rich said, seen since the beginning of this year, an increase in the pricing of Chinese gum rosin. It had fallen, let's see, well over 30% in pricing compared to 2 or 3 years ago. But since January, the Chinese gum market pricing has improved by about 20% off a very low base. We have yet to see that, that increase in Chinese gum rosin really manifest itself to our ability to increase price in the gum rosin market. And I think it's really a combination of the demand side as much as anything. We've always had some overhanging pressure from Chinese gum. We're pleased to see that, that is kind of relieving itself. But the demand weakness that we're seeing in some of the key markets and, of course, with the situation that has so greatly impacted so many industries with the COVID epidemic really has hurt the overall demand. So the pricing environment on the rosin side is still tough. Rich, I don't know if you'd like to add anything to those comments.

No, Mike. I think you covered that very well, and I would agree with everything you said. Thank you. And thanks, John, for the question.

Sure. And actually, I just had one last one. Just in terms of just a higher level for this portion of -- or these 2 portions of the business. Is there a way to think about the vitality index? Or what percent of your revenues is kind of tied to new products that you've come up within, in the last 5 years? It looks like there's a decent focus on innovation and kind of consistently pushing into derivatives. Is there a way to think about how that's playing out and maybe where it was, say, 3 or 5 years ago?

So the -- well, we've looked at vitality index in these businesses. Both businesses have been in a vitality index range of 10% to 15% over the last 4 years. And actually, they -- with minor movements up and down, that's been relatively stable. And so the dynamic we've had there is we have introduced new products over the last 5 years, and they have grown a position. But some other ones that we had introduced 6, 7 years ago kind of fall off of that index. It's our intention to drive that overall vitality index across Performance Chemicals and including these 2 business units to a higher sustainable level. And I think you can see some of the examples of the types of things that we're working on regarding innovation, regarding products we've introduced the last few years that should help solidify that and hopefully grow it.

Our next question is a follow-up from Jim Sheehan from SunTrust.

How much pine chemical capacity have you idled as part of the restructuring over the last couple of months? And do you also know of any other producers in the industry that have idled any of their capacity?

Okay. So Jim, what I think you're referring to is we have just recently announced a temporary furlough at our site in Crossett, Arkansas. That furlough is going to be for 6 weeks. So from middle of June to the end of July. And we'll be restarting that plant at the end of July. So from an overall capacity standpoint, it's pretty modest because it's targeted in duration. And of course, of the 3 plants in our network, the Crossett plant is the smallest in terms of refinery network. To this -- at this time, I am not aware of anyone in the industry who has announced anything in terms of an actual shutdown or furlough. So we'll obviously be keeping our ears and eyes open to that. It made sense for Ingevity, based on the kind of near-term demand outlook that we have, that we're able to need to, for cost-control reason, to take this 6-week furlough in Crossett.

Mike, may I add one comment there?

Of course, Rich.

That is -- there's a South African producer of tall oil-based derivatives called IOP that has been fractionating that crude tall oil since 1970. They announced recently in middle of May that they're going to be setting down their fractionating plant -- I mean their crude oil plant down. So that would -- that came out in May 14, 2020, and that's a South African producer.

Yes. Rich, thank you very much for adding that for Jim's question.

Okay. So this is Dan Gallagher again. We have a question that came in via e-mail from Vincent Anderson from Stifel. When it comes to sustainability trends, are you seeing a bigger focus from customers on sustainable sources or more focus on recyclability? And how are your products positioned with regards to other? So sustainability and recyclability, is that a big focus for customers?

Yes. So I think that those dynamics really depend on the customer and what that customer is seeking within their own sort of ESG sort of corporate approach. The sustainability portion, I would say, has been the one that has been sort of at the forefront of our interactions with customers. They are interested in the bio-based aspect of our raw materials, which obviously translate into the final portion of our products. So I'd say of the 2, that's been the largest. We have that said, and I think that if you happen to listen into the Engineered Polymer webinar, that there are aspects of biodegradability, if you will, that we are seeing in other customer bases. So some that are more, say, consumer based, that biodegradability aspect of a product, which Steve and Lewis talked about in terms of biodegradability for thermoplastics in bioplastics, is a trend that we believe has some real opportunity for the future.

That's all the questions we have.

Okay. Thank you, everybody, for joining us this morning. This is Jack Maurer. And I'm going to let you know that our next webinar is going to be held on June 25. And at that time, we'll have Ed Woodcock, our President of Performance Materials, talk about our automotive gasoline vapor emission control business. So hopefully, you can join us for that. And before I sign off, I wanted to thank Dan Gallagher for all of his dedication and hard work in establishing Ingevity's IR function. Dan has set a very high bar, and we'll be working to kind of get close to that on a regular basis. So hopefully, we'll be hearing from you soon. So thank you, everybody, for joining us.

Thank you. That does conclude today's teleconference and webinar. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.