Q4 2019 Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to Universe solutions fourth quarter 2019 earnings Conference call. My name is Mariama and I will be your host operator on this call. Currently all participants are in a listen only mode. After the presentation. We will conduct a question and answer session instructions will be provided at that time.
If at any time during the conference call you need to reach an operator, Please press star followed by zero.
I will now turn the meeting over to your host for today's call Heather Kos, Vice President of Investor Relations at Universal Elutions Heather. Please go ahead.
Thank you and good morning, welcome to Universe solutions fourth quarter 2019 earnings call and webcast joining our call today, our David you, President and Chief Executive Officer, and neglect, the executive Vice President and Chief Financial Officer.
This morning, we released our financial results for the fourth quarter and full year that ended December 30, Onest 2019, the third full quarter that includes Nexeo solutions chemical distribution business, which we acquired on February 28 2019.
We posted to our corporate web site, a supplemental slide presentation to go with today's call. The slide presentation should be viewed along with the earnings release.
Both of which had been posted on our web site at Univar solutions Dot com.
During this call as summarized on slide two we will refer to certain non-GAAP financial measures for which you can find the reconciliations from the comparable GAAP financial measures in our earnings release and the supplemental slide presentation.
As referenced on slide two we will make statements about our estimates projections outlook forecast or expectations for the future.
All statements are forward looking and while they reflect our current estimate they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more complete listing of these risks and uncertainties inherent in our business and our expectations for the future.
On slide three you will see the agenda for the call David will start with his perspective on the quarter and our Nexeo integration progress Nick will walk through our results and our outlook and finally, David will close with concluding remarks.
Following that we will take your questions with that I'll now turn the call over to David for his opening remarks.
Thank you Hello, and good morning, everyone.
We ended up with effective but exciting quarter. So uniboss solutions ticket many steps forward in executing our growth strategy and the integration next sales chemical distribution business.
I'd like to highlight several key accomplishments from the quarter as well as speaks to some of the challenges we face.
In summary, once again, we control the Controllables well.
Despite a challenging macro environment and the chemical sector operates in performance was commendable and inline with our expectations, resulting in higher margins.
Overall integration of legacy Univar Nexeo continues to go well.
On net synergy cost savings came in ahead of our previous forecast.
The first wave of ERP migration was completed successfully on our second wave is now going live and is also progressing on truck.
We sold our environmental science is business using proceeds to pay down debt and achieving our lowest leverage ratio as a public company the 3.3 times.
Our working capital efficiency improved cash flow was strong on our balance sheet continued to strengthen.
One thing we cannot control is the macro globally, Tony and it continues to be very challenging.
We have plans in place to continue to execute on our strategies and financial goals in Twentytwenty.
And I'm pleased to introduce nickel exos, our new Chief financial officer. His background of improving business performance is helping sharpen our focus and drive our strategies and financial goals.
Nick as an impressive background in gross margin expansion strategies, most recently as SVP and CFO Dentsply Sirona before that as managing director of Medicine table partners LLC.
Concurrently I'd like to thank call leakage for his many invaluable contributions as CFO and appreciate his expertise now as our executive Vice President corporate developments.
Nick will take you to the details of the quarter in a few moments, but first let me add a little color. So those headlines.
The double digit growth you see in our gross profits and adjusted EBITDA reflects the additions Nexeo plus margin improvements from our disciplined approach to commercial execution from an improving sales force as well as net cost synergies from integrating the legacy organizations.
Yet as we mentioned last quarter, we have opposing forces in our results.
We have a sustained improvement in execution and Tom trip net cost synergies from the next two acquisition, where we were able to pull forward an additional $10 million synergies into 29 team for a total of $30 million.
However, we have headwinds from lower global demand for chemicals, dis synergies and a generally deflationary price environments that are partially offsetting these actions.
As we noted on the last call demand in the fourth quarter was quite low across many of our end markets with the iOS NPL My index that barometer of industrial demand being well below 50 in the USA.
With the integration Mexico across our operations nearly complete we only truck outperformance by the reported geographies.
However, our best estimates of our Q4 results will include mix. So in the prior year indicate that our revenues on a constant currency basis down low double digit with about two thirds attributable to lower price of one third attributable to volume, including estimates for anticipated dis synergies from the acquisition.
This is generally consistent with the results of our key supplier partners and data from other energy sources.
Our estimates on the same basis for adjusted EBITDA indicate we earned about 6% less on a constant currency basis than last year.
As I said earlier, our sustained focus on margin management, along with synergy capture were offset by weaker end markets and dis synergies.
While we're intensely focused on increasing our EBITDA, we're equally folks and the long term opportunity to serve our suppliers and customers and grow share.
The global addressable market for distributed chemicals, and ingredients is large and the value proposition and univar solutions remains attractive and well received.
During the past few months, we successfully delivered on several significant integration milestones business investments I'd like to highlight a few of those now.
The first wave of our migration to a single Sep system to the Americas successfully went live in Q4 in the Pacific Northwest.
Second wave in the southwest began in mid January is also going well.
I continue to be pleased with how we are exits on this program.
No interruption service our production transportation schedules are on time.
Invoices are being issued accurately.
Whilst our inventory management processes and records are working well.
With a successful go live with these two ways. We now have approximately 50% of our USA business on S&P and are on schedule to have it rolled out to the remainder of the USA before the end of the year.
Our attention now turns to wave three which will go live early in Q2 with lessons learned from wave one and wait to now incorporate them into the plant.
While never complacent, we move ahead of pace and with confidence.
This system migrations long overdue for the legacy in of our business enables us to build agility into our operating model as well as labor efficiencies.
It does however, consumer large amounts of human capital to ensure these go lives a successful and disruption free for our customers and I look forward to that day in the near future. When our focus can be exclusively turned externally to delighting our partners as we use the platform to grow profitable share.
Our site consolidation plan continued closing eight branches in the quarter, bringing 2019 closures to 12.
Additionally, we finalized the sale of two of our more valuable sites as well as five additional sites for a total of $55 million.
We're in the early stages of realizing the benefits of optimizing our scale, but remain true to our strategy of having a strong local presence for our customers.
One area, where that scale really matters is our investments in digitization.
Given the size and compliance to the chemicals ingredient supply chain, a robust comprehensive digital infrastructure will be another competitive advantage.
Our customers continue to adopt and use our digital solutions to search select source and self serve in growing numbers.
During 2019, the number of site visitors and active users of our platform more than doubled.
For customers is becoming a more valuable and differentiating part of the universe solutions customer experience.
In Twentytwenty, we'll continue to expand both the capability and geographic reach that this platform.
Meanwhile, our advanced analytic teams continue to leverage AI to help us better anticipates and serve our customers needs and further improve our competitive offerings.
Our us commercial team with every redesign sales territories lawns dedicated sales support for all feel sellers.
Our new sales operating rhythm focuses sales managers on driving behaviors and coaching sessions with sellers weekly.
A new sellers scoreboard has been loans to aligned to each line of business to support key CPI is the focus on reducing churn and driving growth.
But before we get carried away with ourselves and as a reminder, despite sales territory realignment being complete.
Businesses still operating on two separate CRM systems, which means we are more clunky than I would want us to be.
Migration to a single CRM has been pull forward to the end of Q1, which will make it much easier to get rapid access to key data to drive performance and growth.
Recently, we highlighted our abilities and strong commitment to technical differentiation, particularly in our global industry verticals, such as food ingredients beauty and personal care and household industrial cleaning.
By holding our first ever customer and supplier innovation day.
This was a splendid event with over 150 customers and supplies in attendance, we were able to put our flagship solution center in Houston on full display.
Our focus on commercial innovation and enables us to truly differentiate with specialty chemical suppliers will deliver strong sustainable growth.
From market in trend knowledge to concept definitions sampling scale up and launch we demonstrated to customers. How upset if we qualified subject matter experts can help them identify and solve the most crucial problems.
The event was very well received by all who attended with a significant number of new opportunities to innovate and grow together be importing of our solutions in the immediate aftermath.
It is often underestimated with our worldwide network of innovation experts supported by state to be our solution centers, we have as much capability as anyone to deliver technical application development excellence and significantly more than most.
Now, let me turn the call over to Nick you will walk you through our fourth quarter results and explain our Twentytwenty full year guidance, then I will close with some additional comments.
Thanks, David I'm delighted to be part of universe solutions, and it's been a welcoming start with a great team of people across the company.
Of our solutions is the enviable position in a broad based sector with many opportunities to add value in the supply chain, while improving our margins by capitalizing on our scale.
The team here as accomplished a lot with many accretive strategies ahead.
Well I look forward to working with all of you on this call.
As David mentioned, our fourth quarter financial results reflect double digit growth in gross profit dollars and adjusted EBITDA.
The benefits from our Nexeo acquisition, our disciplined approach to commercial execution and improving sales force as well as the realization of net cost synergies a $15 million in a quarter and 30 million for the year drove improved gross margins and adjusted EBITDA margins.
Including our integration expenses for Q4, we reported GAAP net loss of 55.1 billion or 33 cents per share compared to net income of 1.2 million or one cents per share in the prior year.
The current GAAP EPS benefits of next years earnings better operating performance and the environmental sciences divestiture gain or more than offset by various taxes.
Lower demand in global industrial markets.
Loss on extinguishment of debt and pension mark to market.
Our taxes were significantly higher driven by increased international taxes us tax reform impacts nonrecurring transactions with foreign subsidiaries and the gain on the sale of the EPS business.
Adjusted diluted earnings per share for the quarter was 29 cents compared to 33 cents in the prior year.
This decline is attributed to lower demand in global industrial end markets, a higher share count at a 7% impact and higher depreciation and amortization at a four cents impact offset by next year earnings and better operating performance.
Page six highlight certain key financial metrics.
On a GAAP basis gross profit dollars exclusive of depreciation grew 17.5% to 522 million or 18.4% on a constant currency basis.
Our gross margin expanded by 170 basis points to 24.2% driven by contribution from the Mexico acquisition improved salesforce execution and favorable product in the end market mix.
When adding legacy Nexeo chemical results from last year's financials, we estimate gross profit dollars exclusive of depreciation were down about 3.8% on a constant currency basis.
The positive impact from improved salesforce execution and product mix for more than offset by lower volumes with approximately two thirds of this negative impact being driven by global macro conditions impacting demand and bulk chemical pricing and the remaining one third coming from the synergies.
Our fourth quarter adjusted EBITDA of 158.8 million grew 10.3% and 11.3% on a constant currency basis.
Adjusted EBITDA margin expanded 10 basis points to 7.4%.
We were able to achieve this performance despite the tough macroeconomic conditions affecting our volume.
Adjusted EBITDA was favorably impacted by the contribution from Nexeo and our continuous efforts towards improved salesforce execution and product mix as well as the realization of synergies.
As David mentioned on an estimated basis, adding legacy next year to last year's results. Adjusted EBITDA was approximately 6% lower on a constant currency basis.
Positive impacts from margin improvement and synergy capture or more than offset by negative volume headwinds driven by the lower market demand and dis synergies.
Our cash flow was significantly ahead of prior year largely due to the reduction of net working capital from lower sales demonstrating a resilient nature of our business model with counter cyclical cash flow.
Our top priority for use of cash in the short term continues to be deleveraging.
Our residual cash earnings in the quarter contributed towards a net debt decline of 480 million ending the year at a 3.3 leverage ratio our lowest as a public company and versus 3.9 at the end of Q3 2019.
Return on invested capital is down from 11% in the prior year, the 10.1% in 2019, which will improve as we advance towards fully capturing synergies from integration.
We measure ROI see by dividing adjusted net income for the last 12 months by net assets deployed excluding goodwill and intangibles.
Moving forward, we will be including certain goodwill and intangibles, which will nominally reduce the ROI see benchmark.
We will continue to find high return investments in our business and use residual cash earnings to pay down debt and plan to end. This year 2020, with a relatively flat leverage ratio versus 2019.
Deleveraging could further benefit from additional portfolio divestitures of non core businesses.
During 2019 recaptured net cost synergies of $30 million and we are on track to achieve a $120 million annual run rate by the end of the third year from the Nexeo closing date.
Our estimate of integration cost remains at approximately 225 million.
In 2019, we spent roughly 100 million on the next few integration excluding deal related expenses and expect to spend 85 to 100 million in 2020.
As we've said over the past and demonstrated in Q4 monetizing excess facilities will provide substantial funding of these integration costs.
And 29 here, we captured about $20 million of working capital and $55 million from property sales.
Let me now share highlights of each of our geographic segments.
The U.S. segment represents 63% of total consolidated net sales in Q4.
On a reported basis gross margin was higher up 130 basis points to 24.4, reflecting our focus margin management salesforce execution favorable product and end market mix as well as nexeo synergy capture.
On the cost front, we manage our discretionary spending well and benefited by the net cost synergies from next year.
However in Q4 19, these cost reductions if not outweighed the macro impact on the business.
Upstream oil and gas headwinds of 8 million and caustic price deflation of 4 million result in a flat EBITDA margin.
Adding legacy Nexeo chemical results to last year's financials estimated adjusted EBITDA in the USA was down 9.5% to.
The favorable impact for margin expansion efforts and synergy capture were more than offset by negative volume headwinds driven by market demand and the synergies.
Estimated volume, including legacy Nexeo chemicals was down 4.7%.
Good performance in some of our verticals like food ingredients and personal beauty care for more than offset by lower demand in the upstream oil and gas markets and deal related revenue dis synergies.
Our Taylor segment was 12% of total consolidated net sales in Q4.
Our industrial chemical business in Canada showed solid performance in the fourth quarter, along with contribution from legacy Nexeo business.
We saw continued strengthen our focus industry lines, which includes food ingredients personal beauty care pharmaceuticals, and the case markets.
The agricultural business also had some pickup due to better product mix. The energy sector continued to be sluggish and saw lower volumes. The segment results were also negatively impacted by chemical price deflation.
Our gross margin expanded by 230 basis points and adjusted EBITDA margin by 70 basis points due to our continuous efforts for margin improvement.
Adjusted EBITDA increased 4.7% on a constant currency basis.
RMS segment was 19% of total consolidated net sales in Q4.
Improved performance in our core chemical distribution business more than offset the continued market pressure in the pharmaceutical finished goods line.
Our gross profit margin and EBITDA margins also increased by 90 basis points and 60 basis points, respectively. Despite the revenue headwinds.
Adjusted EBITDA increased 2.9% on a constant currency basis in a challenging macroeconomic environment.
Our last half segment was 6% of total consolidated net sales in Q4 in Mexico. Our team was able to capitalize on the expanding energy markets driven by government investment.
In Brazil amid a weak economy, we saw some recovery in agriculture and polyurethane.
Adjusted EBITDA grew 63% on a constant currency basis benefiting from improved operating performance in Mexico energy markets and the Brazilian agricultural sector prudent cost management, along with the contribution from the legacy Nexeo business and onetime gain on Brazilian VAT recovery.
Excluding the impact of the Brazil, VAT recovery gross profit expanded 26.2%.
Net cash provided by operating activities is 329.7 billion in Q4 of 29 team 37.2 million higher than last year, reflecting our counter cyclical cash for business model.
We're also benefiting from harmonizing payment terms between legacy Nexeo and legacy Univar.
Capital expenditures were 50.4 billion and we ended the year with 122.5 million in total capex above our initial 2019 outlook driven by timing and additional funding of our digital infrastructure and growth initiatives.
Turning to our 2020 outlook.
Net sales gross profit exclusive of depreciation and adjusted EBITDA are projected to grow as we benefit from the addition of Exzeo, our improved operating performance and our net synergies.
These gains allowed us to achieve margin improvement in 2019, despite the challenging macro environment.
This gives us a clear confidence in stronger margins with a recovering market.
We expect full year adjusted EBITDA to be within a range of 700 740.
With 2019, adjusted EBITDA up several for and taken into account the environmental Sciences divestiture and two months of Nexeo. The adjusted EBITDA growth is up low single digits, but is below our long term expectations.
With a continuation of weak industry demand in certain segments and related soft pricing trends. We expect the first quarter of 2020, adjusted EBITDA to be in the range of $150 million to $160 million as compared to 160.1 billion in Q1 of 2019.
Although we expect additional cost synergies in Q1, the resulting decline versus prior year is principally driven by low double digit negative trends in upstream energy and commodity chemical pricing deflation, especially in relation to caustic soda and hydrochloric acid.
We expect an improved growth profile, particularly in the us market in the rest of the year as many of our integration activities will be completed by mid year, allowing for even more effective salesforce execution.
Our full year results will also be adversely affected by a decline in the finish pharma business and there is this product line becomes a small part of our earnings space.
The company expects to generate $120 million to $170 million and free cash flow, which is net of a build in working capital driven by second half growth versus a decline in Q4 2019.
In determining our guidance we made the following assumptions.
Flat industrial production weighted to a back half of the year recovery.
US energy headwinds continued estimated at 20 million of EBITDA for the year.
Pricing pressure in certain bulk commodities, let caustic and hydrochloric acid impact EBITDA by 15 billion.
Additionally, our guidance excludes any continuing impact from the Kuroda vars outbreak.
From a direct sourcing perspective, we have limited exposure. However, the interruption in supply chain, both in and out of the region for our customers may have more risk and we'll continue to monitor the situation closely.
Operationally, we assumed continued improvement in sales efficiency and effectiveness.
Growth from new supplier authorizations, especially in our dedicated industry verticals and specialty chemicals.
And next node net cost synergies of approximately 40 million in 2020.
Furthermore, we serve EMEA finished pharma EBITDA decline of 15 million.
Net interest expense of 115 to 125 million income tax rate for adjusted EPS of 20% to 30% with no expected unusual tax items in 2020.
Diluted weighted average common shares outstanding of 175 billion largely due to the shares issued in the next year transaction being reflected for the full year of 2020.
Free cash flow assumes capital expenditures of 120 to 130, which includes investment in digital infrastructure and other growth initiatives to increase our competitive advantage.
Overall, we are satisfied and how we're performing on our key strategies in the management of our costs during a slowdown in certain sectors.
The next CEO acquisition and integration has been a clearer success, which has furthered our ability to de lever and create long term value for all of our stakeholders with that I'll turn it back to you David.
Thanks, Nick.
As Nick mentioned joined our guidance for a variety of reasons short term customer demand has become more tricky to predict.
The effects of geopolitics and Corona virus related supply chain disruptions in the market is particularly difficult to read at the moment.
Upstream energy in North America is depressed, which produces consumption of certain inorganic chemicals and has a knock on effect to pricing pressure in those key chemistries.
But I've said before we've operated in these types of constrained type markets before our asset light model helps us, but better than many others.
Our own focus for the past three courses as being necessarily overly internal with time fleet that is now heading towards an end and we can be much more externally focused active and aggressive to grow faster than the market and win back any loss share customer demand.
In addition, we have multiple lead within our control.
Which is roughly $40 million of incremental integration cost synergies in twentytwenty.
This affords us the opportunity to continue to invest in our expanded use salesforce, which as we get progressively less clunky and free of an ERP integration demands will only get more and more effective every day.
With greater market coverage and capacity for growth as well as disciplined spending in capital deployments. We believe we have all the elements that will help clearly sets us apart from the rest.
As we approach the first anniversary of the launch of Univar solutions, our confidence in the strategic rationale and value creation opportunity that comes from the merger of legacy next soon univar has only grown I.
Im pleased to say that we have clear tangible evidence that the new culture is taking routes on our growth strategy is working.
We remain focused on controlling the controllables, while simultaneously building for the future.
Our execution continues to improve we are executing a pace with discipline and confidence in our ability to remain on jobs and execute effectively sustainably and responsibly.
But in summary from the year.
We improved our operating performance with high margins.
We achieved very good performance in EMEA, Canada, Asia Pacific and Latam markets.
We continue to successfully integrate legacy univar nexeo $30 million of synergy cost savings $10 million ahead of our previously disclosed forecasts with 29 team.
We successfully completed two waves VIP migration to S&P in the U.S.
We decreased our leverage ratio to 3.3 times 20 basis points below our leverage fourth quarter last year.
We completed two divestitures nexeo plastics and environmental Sciences.
Successfully executing on our site consolidation plans, including the sale of seven of our sites.
Monoprice effectively in a very challenging macro global economic climate to better serve the needs of our suppliers and customers.
In addition to all these achievements I want to highlight two important strategies there are rooted in the values of the new Univar solutions.
Firstly, we are ingrained in our sustainability and diversity agendas deep into our culture.
We were thinking through the UN global components as well as its 1.5 degree commitments and I'm proud that we are now in the high upper quartile of ranking on the human rights campaign foundations corporate equality index, recognizing the diversity and inclusion our apps our core.
We remain true to our stated aim of making univar solutions, a place where the best people want to work.
Secondly, and under our banner streamline innovate grow we continue to invest in innovation through both technical differentiation and advanced digitization to create more value for our customer and supply opponents redefining distributions, making it easy horizontal to manage our businesses together.
We are becoming more commercially and operationally agile every day on our successfully put positioning our company to deliver long term profitable growth and shareholder value.
Thank you for your attention with that we will open up for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound our hash key please standby, while we compiled the culinary roster.
Your first question comes from Michael again with Wells Fargo. Your line is open.
Hi, Thanks, everyone. Thanks for the time.
Carl just wanted to start off with free cash flow do you can walk us through is there's like a cadence throughout the year I guess.
Specifically working capital.
Your needs there as the demand environment remains a little soft.
Sure Michael. Thanks. This is that I know, let Nick took you through that as.
Those those numbers it is fingertips, yes, Michael nicely here on the phone clearly working capital varies with our topline and as we saw worked topline come down Q3, and notably in Q4, we had a good source of cash flow. We also improving our efficiencies, particularly on the days receivable side, so going into 2020 as were four.
Casting growth youre going to see a consumption at the same kind of racial level into the quarters and thats a use of cash during the year roundly as we said in the.
One excuse me one.
100 250 range.
So that you will get normalized as we go forward in subsequent periods, but that is a use of cash during the year. In addition, as we've noted we had some extraordinary tax expenses in 2019, those will get paid out in our Twentytwenty and so you have an incremental use of cash there and.
Lastly, I would say is we had a notable are positive increase in AG prepayments in Canada is Q4 and that will stabilize again going into.
Twentytwenty.
Okay and are you able to frame what that dollar amount of prepayment that basically is built into 2019 number.
Yes, it's roughly around $20 million in Q4 is less going into next year about a $20 million differential.
Okay.
And then if I can just switch gears can you give us an update on what you see in terms of the strategic actions on locations and then freight consolidation how that.
He's going to be benefiting ops going forward and any sort of timeline or.
Hi, guys momentum building.
With the current initiatives underway.
Sure Michael we have an execution plan for the United program I think we as we said we closed the consulting 12 sites last year the sites.
Closures in the consolidations really follow the ERP integrations the integration is going well. So we'll probably do another 10 to 15 sites in Twentytwenty until we have a very.
Clear plan and a very strict discipline around that plan and you can see is executing on that some says systematically through 19 and usage by the same in Twentytwenty.
Appreciate it thanks for the time.
Your next question comes from Laura five with Exane BNP Paribas. Your line is open.
Yes. Good morning. This question is on the U.S. conversion ratio. It was that in Q2 year on year, a pin Q3 year on year in Q4. It was down about 200 basis points. I was wondering if you could talk about that you could surprise, that's the synergies again come through in the in that line. Thank you.
Yes, Lauren nickel ex US again. Thank you. We're we're very mindful of our conversion ratio and clearly targeting an improved EBITDA margin going into 2020 and beyond the shortfall in the US was principally as a result of the lower dollar DGP base.
We are including obviously the benefit of the synergies in the net EBITDA number with saw improvement, but the mix of business and the lower DGP based caused a compression of the conversion ratio in Q4.
Thank you and then you've heard me.
On the synergy so you managed to prove forward 10 million and from 2020 I was wondering if there is no improvement in the second us on in this from prediction and how much of an opportunity you have to bring forward some of the synergies.
From 20 to 21.
Hi, there on for him to look as I said on the previous call. We got a very clear program and a very clear execution strategy against our program. We're very confident that we can achieve at least to the 120 million of nets and niches that we've given guidance.
Guidance towards we're consistently looking how we can move from stabilizing the integration to optimizing the processes. So thats something which we are looking at addressing at the moment no. We are we used to two operating in tough markets and so we're we're pulling out our playbook to look at the things that we.
Can do unto accelerates.
Cost savings or to streamline our business.
Faster than we would want to do but what I will do is I won't compromise and I won't put the integration program at risk by by doing that but we have a high degree of confidence in our ability to now executing so at least at 120 million of net synergies.
Thank you.
Your next question comes from Laurence Alexander with Jefferies. Your line is open.
So two quick ones can you can feel for what's going on with the.
Regional exclusive account wins are your vote for larger.
Customer wins and how much are very typical when that should be deferring to grow.
In 2020 in 2021.
And secondly.
Hello neurons question.
Given the levers you have could you maybe speak about in terms of apart from a short schawk from Corona.
What kind of environment would it take for every dollar to actually be boosting negative comparisons year over year.
Sure I mean, I think on Laurence I think you're thinking about the exclusive supply arrangements that we have the exclusive distribution rights since we have which which will benefits and will support growth, particularly in those global industry verticals like food ingredients beauty and personal care.
And we're seeing some bennett.
In Twentytwenty with Don you arrangements in beauty and personal care in Germany in Central Eastern Europe, and also then with no designs in Canada they benefit.
The those global verticals quite significantly so we do see.
[music].
A good amount to growth that we can get that that is in Ohio value growth. It's more sustainable growth takes longer to get because you have to suit technically.
Formulates the chemistries in ingredients into the new seasons technologies, but it is a key driver for the growth Rose I think in terms of of the current markets.
We've seen significant headwinds in.
In energy, which is on welcome and more energy to also does than it has a knock on effects onto some of the key chemistries that are used in energy so things like in caustic and hydrochloric. So we're trying to understand the global flows on those products to see what we should be doing in terms of pricing in supply.
We do though have Andrew Corona in note semi Corona is either it's a day by day thing you know thankfully, we don't have much province, which we directly sourced from from China. However, the.
Supply chains are very complex and our customers are affected both from products from China and selling to China. So I don't know what's going to do it is a day by day thing, we do have confidence, though the as the year Gozone as time goes on as everyday goes on we free our sales organization.
Consumer focus.
Our infant defense, we we have our entire organization, we can focus on non integration not asap not sales sales territory alignment, but growing with our customers and we continue investing that sales organization and so we're not cutting in sales were investing in sales were investing in digital we're investing in more ways.
To regions of touch customers. So we believe that we should be our execution as it gets better and better should allow us to grow share on a relative basis and whatever the market conditions. I mean, it is a tough market right now we do have some headwinds energy.
The biggest to those Corona is a big unknown, but there was a loss of self help that we can do.
Thank you.
Your next question comes from Jim Sheehan with Suntrust. Your line is open.
Thank you good morning.
On the real estate sales about $55 million in the fourth quarter have you received the proceeds of that yet.
Yes, we are.
Terrific and.
Our <unk> regarding the working capital tailwind you had in 2019.
Was that mostly from.
Lower demand.
Or maybe you could break that out between where were you benefited from better execution in integration and related to that how much runway do you have for improvement from integration and better inventory management in India, So and depot improvement.
Sure Jim I mean, I think if you if you look at what we said we would do in terms of working capital improvements as far as the integration program was concerned we figured that about 20 million and we achieved that $20 million from I think as Nick said earlier on we had higher.
Prepayments than we would necessarily expected oil would expect into twentytwenty. So that was a positive was up.
With helping to support.
So I mean part debate is yes, it's it's it we haven't counter cyclical model and so harvesting cash, but a chunk of it is stuff that we are doing and as I said, we at 20 million in the plan for integration and we've executed on that and we'll continue to to work to improve our efficiency as the year goes on.
Thank you and can you talk about what.
Your sales force effectiveness progress that you've gotten to date, what concrete improvements have you made there.
Sure I mean, I think that as I said earlier on we are clunky than I would like us to be because we sell operating onto Crms. Although we do have now one salesforce.
And we are distracted by ERP and that began means the icon have everybody every day focused on knocking on doors and selling to customers. We have seen something like a 25% in uptake, though in our coal right. It's something we track on every week we have.
Other sales operating rhythm in sales dashboard that sales dashboard is something which my leadership team and high now look at every week. So looking at CPI is of things that are driving sales growth. So as we as the year goes on we will just get better and better because we will haby will be less clunky I will be on.
On one CRM.
Which means our AI and can work of one set of data to provide more information to our sales organizations who.
To go target and Winback business or win new business.
And we will have more and more people, who will have nothing else to do both just south of rather than worry about S&P worry about integration and I really look forward to that day.
Thank you.
Your next question comes from Bob Court with Goldman Sachs. Your line is out fan.
Thank you maybe adding on to that David do you have carried an excess sales capacity for a while here in that and the world's not getting any better at some point did decide that maybe you need to right size that organization and then you talked about new KP eyes in sales how are those any different than sort of what you've changed culturally in the sales approach over the last.
Two years.
Hi, Bob on look I think it's a it's a it's a fact question to say.
Do you are right size. The sales organization. The question is to rightsize the against your current sales would your rightsize against the opportunity we've chosen to right size it against the opportunity. So so I think with there is plenty of share that we can get here.
No others right now a cutting their sales force I don't see that as a way to grow I think the very simple metric is calls equals orders I don't care, how you do those goals, but the more times you asked for an order the more chance you got to getting one and we want to grow our share profitably in all the markets that we're in we demonstrated that we could do that in every market.
That we operated in last year apart from the us and I understand in the us around some disruption less we've given for twentytwenty because the disruptions go away. So I would say that we are right sized against the opportunity rather than against the current bases of.
Business.
In terms of the K P eyes.
I mean, they are still very much about value and about value driven.
And the leading indicators that we're looking at much more on.
I guess tactical Arounds.
Customer contacts around must wins around most closes around.
Price management, and so we have a pretty clear dashboard, which which can tell us down to a granular level, whether acella a regional whatever is performing well or less well. So we can speak that back into the operating rhythm for the sales managers to managing Trojan develop their people. So it's it's a it's a very consistent against a consistent set of data.
Value driven sets of disciplines to help us to execute better as a sales organization.
Got it.
And I think Nick mentioned that you're finished pharma EMEA was going to be a $15 million EBITDA head is is that right because it sounds like a very big chunk.
And how is it that business just goes away that seems pretty substantial.
It is it's a product that we've had always is an industry. We've been operating in for a very long time, the probably we have here is coming towards the.
Our maturity and so the demand for that product is going down.
No it more competition in there as well and some newer technologies. So this is something which we kind of it but the same happening over a number of years. This is the first year that it's really impacted significantly, but it's kind of anticipated in our long term forecast, it's nothing that says there anything fundamentally wrong.
In the execution of the founder ingredient business. It is around no particular particular application and as we emphasize it's gotten down now to a pretty small portion of our EBITDA contribution in 2020.
Thank you.
Your next question comes from Kevin Mccarthy with vertical research partners. Your line is open.
Good morning, David Friday will be the one year anniversary of your acquisition ANEXIO, just curious whats shorter free Port card would you give univar in terms of key metrics like earnings IP integration. Other sources of synergy talent retention, maybe can run down the list and indeed.
Okay, where you've been pleasantly surprise store underwhelmed as you've gone through the first year.
Thank you and thank you for for noting the the birthday.
Well, we're very proud of what we've achieved in the first 12 months of of the business. So our net cost synergies are very much on plan and we're executing them.
As fast as we can head of our original estimate the IC transition of legacy Nevada legacy Nexeo is is as you'd expect it's very involved and what we successfully completed two ways of that about to launch our third wife fairly shortly and already have over 50% of the business on site.
And we Havent created the business like many other people deal and I say pay or I may have done earlier on in my career with Thats, a baby bonds. So I'm very happy with the way that's gone.
It's still to be copy complacent on that in my fingers are crossed every time that we go lives that we have a very good program of execution and.
Finally, we have a great seem on that.
I think in terms of talent retention, we really cabs nope most of the talent we've had very few.
Less than a handful of regrettable losses losses that we have haven't gone to competition they've gone for new opportunities in different places some very talented people that we add but we managed to mates at retain most of those so I'd give as a good.
Good.
Scorecard on that as well as launching a single company with a single culture. So people do talk about legacy no awesome them, which is huge and this I think the cultural piece of any acquisition is massive and I think we've handled that really really well so if I.
I look at what we've done I look at the teams of how they have delivered I think they've delivered incredibly well.
I think is being as good as we could have done it.
I think the supply dis synergies are pretty much in line with with what we expect it.
No I would have liked.
That's a sales in the U.S. fast on but thats, probably unrealistic given a the amounts of distraction we've had as the integrations going on and be just to stay to the marketplace at the moment and we try and spend allotted time working out how much you thousand how much is the market because we answer the wants to find the truth in there.
But but we haven't.
Had a mass defections of customers, we haven't had mass defections of people, we haven't blown up our systems, we haven't missed any of our synergy targets I think we've done pretty.
Pretty well.
Guys I have a huge amounts of admiration for that for a team of people who've worked phenomenally art.
Executing with discipline and pace to deliver something which is now I think really as weakness and next month's go on and we get through the next wave of S&P integration, we get our CRM CRM integrated I think that that really does provide a great platform.
For growth so I'm I'm.
I would if you asked me this a year ago at a big and off.
Thank you for that second question for Nick on the subject to free cash flow.
And some others have asked about it I mean at the risk of beating a dead horse I wanted to.
Global little bit more about what seems to be an apparent disconnect between your earnings guidance and the free cash flow guidance.
That relationship is.
Usually counter cyclical as I think you noted in your prepared remarks.
Slide 13, I think indicates some price deflation.
And so just wondering if you could help sort of clarify the relationship. There. For example does your range include any cash costs for restructuring, where there any factoring of receivables or or other.
Unusual items that might explain.
The relationship or outlook for 2020.
Yes, Kevin I. Appreciate the question I think the biggest chunk is basically just the expected bounced back of cash working capital use on page 14.
Which is the recovery of in sales and obviously that would be counter cyclical. If we did not realize ourselves, but clearly we plan to grow into Twentytwenty you had a big source of cash in Q4 somewhat in Q3, so thats just stabilizing at that level. So going forward, we would expect express expect working capital to be.
Flat with a normalized growth rate as I mentioned is the cash taxes, which include $30 million to $40 million of onetime payments related to certain expenses that we noted in our 2019 results we've not done any back.
That's something that we planned we have very good receivables and have good collection rates into a question earlier, we do look for some improvement in our dsos, but thats not a meaningful driver of cash flow going into next year and then the last piece was a $20 million expected year over year swing on the AG payments. So.
So I think our results in Q3 Q4 highlight the benefit of the counter cyclical element.
But when you have reduction in growth you do see improvement in cash flow.
And it's it's will be evident as we move forward.
Okay. Thank you for the color.
Your next question comes from Dave I think leader with Deutsche Bank. Your line is open.
Thank you good morning.
Nick again, just on the free cash flow looking at slide 14, if I look all the elements bridging to free cash.
Just on the slide 14, I'm thinking about $250 million, some still short or two high above $100 million, what is that gap to get the midpoint of your free cash flow guidance.
Yeah, I mean, there is a line item, which you'll see on the cash flow statement, which is just kind of other operating.
Adam is that good are flushed through the cash flow that includes various accruals in some of the accruals of the onetime expenses do flow through that.
It's not reflecting our 14 is we have about the same level in 2020 as we have in 2019. So it's about 100 million dollar use so that David would be the differential.
Bridging and you'll see that if you look at the 2019 cash flow, you'll see about our $109 million of other which includes some of those are below the line expenses that flow through accruals and those will continue on into 2020 thereafter, they should come down to a more normalized level.
Very helpful. Thank you and they would just on the on the commodity chemical price inflation, obviously most is caustic.
There will be about $15 million this year.
And with 4 million Q4 always why was it for all 2019 and how much of your business or EBITDA is generated off of the commodity chemical or caustic distribution.
Look I think you know as you know.
Of bulk.
Caustic business is probably on us we disclosed in the past out we helping the business is our latest thoughts about.
Maybe ill tell you something brand new yes, it's about 10% about U.S. business.
<unk> is in is in that in terms of in terms of earnings there in that area.
Clearly, we then have a knock on effect into the packed business, but caustic hydrochloric would be in terms of volumes the largest products that we that we sell in terms of value in profitability, obviously, not the largest programs that weve itself.
We have.
Reconciled in Canada, and we have silicon sells into energy and other markets in the U.S. and we have a really good business that which manages the market I am very well so what we what we recognize that the moments is the.
This is going to be itself you have costing and it's a tough you have a hydrochloric and the numbers that we've we've given for.
Guidance for Twentytwenty, which is that kind of 15 16 million of headwind that we that we see.
In terms of what it may have been in 20 in 29 team.
We think it's you know maybe something like.
4 million and then maybe another 8 million into into energy. So it could be up to sort of 12 million hit in 2019.
Thank you very much.
Your next question comes from Duffy Fisher with Barclays. Your line is open.
Yes. Good morning, just a question around the comments you are making on guidance did you say that guidance excludes any corona virus impact or it excludes any corona virus impact getting worse from here.
I think our general view is we don't have a.
Direct impact on Corona buyers on the business there could be larger impacts if it persists and that larger impact would not be reflected in the numbers that we've given for guidance, but whatever is impacting their current environment. We feel is reflected in our numbers to the extent becomes something bigger that's clearly now.
So so far in for instance.
Duffy I think we've given guidance so what we know the moments.
What we don't know is what's going to do to us Hallion business for instance.
As Italy suddenly.
What's going into our tallying, but I'm going to close our Italian business is now.
Massive in the rounds, but this thing is developing on a daily basis, and so we don't have a crystal ball for those.
Things, we didnt expect the market to drop a thousand volunteers today.
It's it's evolving so we've told we've given guidance to be conservative about the things that we know.
But theres a lot still that we we don't know.
No very fair okay.
And then second question. It seems like you got big prepayments in your Canadian AG business, what does that portend for the outlook for that business. This year. That's one that suffered a little bit over the last couple of years is there a meaningful bounced back happening in that business. This year.
We have we not factored in a meaningful bounce back we're looking at it to being stable to slightly positive going into 20 to 20.
Great. Thanks, Yes, you know, we're not weather forecasters, yes. So.
But but I mean, the farmers are feeling a little more confidence. It may be tells you that supply chains are ends here after three bad seasons.
And of course with shifting the focus of our AG business.
To be.
Slightly less seasonal risky products light than the move into bio AG.
So I think it reflects probably that supply chains are little ends you than they were.
The farmers want to to secure some deals and stop for this season and then we'll now wait for the weather.
Fair enough. Thank you guys.
There are no further questions at this time I will now turn the call back over to their presenters.
Thank you, ladies and gentlemen for your interest Unibanco yourself. If you have any follow up question. Please reach out to the Investor Relations pain. This does conclude todays call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].