Q2 2020 Univar Solutions Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to Univar solutions second quarter 2020 earnings Conference call.
My name is Carol 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 it anytime during the conference call you need to reach an operator, Please press star followed by zero.
I'll now turn the meeting over to your host for today's call other costs, Vice President of <unk> Investor Relations at Universal Solutions. Heather. Please go ahead.
Thank you and good morning, welcome to use of our solutions second quarter 2020 earnings call and webcast, joining our call today or David you, President and Chief Executive Officer, and Nick Illico Executive Vice President and Chief Financial Officer.
Last night, we released financial results for the second quarter ended June Thirtyth 2020, and posted to our corporate web site at Universe solutions Dotcom, a supplemental slide presentation to go with today's call. The slide presentation should be viewed along with the earnings release, which has also been posted on our website.
During this call as summarized on slide two we will refer to certain non-GAAP financial measures for which you could find the reconciliations to 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 and or expectations for the future. All statements are forward looking and while they reflect our current estimates they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more complete lifting of the risks and uncertainties inherent.
And our business and our expectations for the future.
On slide three you will see the agenda for the call.
David will start with second quarter highlights and end market trends, Nick will walk you through our financial update and then David will close with progress on our Nexeo integration and our business strategy.
Following that we will take your question.
That I'll now turn the call over to David for his opening remarks.
Thank you and good morning, and good afternoon, and good evening to everyone and thanks for joining me on cool.
Our mission solutions, just to streamline innovate and grow and I'm pleased to see our progress reflected in our Q2 performance, which remains solid as we continue to adapt to during these challenging times and deliver results.
As a company that has always serious about safety. This remains our highest priority for employees a supply under customers.
Key highlights from the quarter, all we delivered solid earnings beyond the upper end of our expectations in a challenged environment.
Although sales were down versus the prior year, we're able to partially mitigate the colgate and economic headwinds by selling to new customers disciplined margin management and cost reduction we continue to moments of changing market to meet new demand buttons for critical problems I'll speak more on trends in a moment.
We had strong cash provided from operations of $152 million and into core through the liquidity $815 million above the 70 $50 million to $80 million guidance range.
With all sides fully operational on the strength of our supply relationships, we were able to serve customers I met the high demand for household cleaning consolidation products that were in short supply as well as improve our product mix, enabling margin lift.
A mix of integration remains on track.
As you saw in our release last night food accelerates, our strategies to streamline operations and put digital family as a cool with a program, we're calling streamlined twentytwenty too or X 22 for short, which Nick will speak to in greater detail.
A key enabler for this program is a range of senior organizational alignments, providing me direct functional reporting of the North American segment.
We continue to advance our digital capabilities and make progress in our sales force effectiveness, attracting more new customers.
And we continue to streamline our business, where the disposal of some nonstrategic assets.
Before I speak more on trends I want to provide a brief updates on our cope with 19 go forward plans.
Our employees that are working remotely returned to a worksite remains a voluntary process.
Currently we have returned to office side pilots are global head cold.
We are closely following W. boat show and CDC guidelines, whilst I mean P.P. on site, you safety protocols and continued robust cleaning practices.
We also continue to monitor our customer and supply closures as well as reduced production schedules in each region on a daily basis.
As compared to the prior year excuse me Environmental Sciences divestiture April sales were down mid teens male sell Saddam mid Twentys and June sales downloads for the month, but still down year over year.
Our unbalanced by region.
Globally, we saw strong demand in consumer solutions, which can be products to a central end markets related to health care on the personal care softness in uptick in demand during June.
Hi loans on shopping centers reopened.
Our general industrial market sequentially during the back half of the month.
Refining and chemical processing markets were down significantly in the USA and Canada affected by both demand and pricing in our energy business.
And although we are not reinstating full year guidance I can say the seat.
Crunchyroll sales improvement we sold through the quarter has continued into July dates and the steps we plan to take going forward, including through our as 22.
Business for sustainable success.
For the future.
Looking ahead.
Global network of solution sensors.
We continue to deliver comprehensive solutions for customers and touch in new business a market share.
Hi, this complicated macro economic environment.
Now.
Let me turn the call over to our CFO NIPT, who will walk you through our second quarter, we suppose that updates on Nexeo integration progress and highlights our team. Thank you David Hello, and good morning to all on the call.
Universe solutions delivered solid performance in the quarter ahead of our ability the diversity of our product portfolio and end markets.
For digital investments and cost reductions at significantly offset demand decline constant currency net sales of 2 billion were down 20.6% mental sciences from last years for now.
We estimate that sales were down approximately 16.5%.
Gross profit exclusive.
15.3% for <unk>.
2.5% on a comp.
Gross margin expanded by 200 base he says points to 24.3.
Product and end market mix.
Criminal Sciences from last year's finish.
Actuals, we estimate gross profit was down 8.8 per se.
And on a constant currency basis, adjusted EBITDA of 160.
3 million was lower by 18.8% and 16.6% on a car Justin EBITDA was unfavorable due to lower demand in markets globally, the environmental Sciences.
Divestiture and price deflation affecting certain product margins.
The decrease was partially offset by favorable product mix interim cost reduction exzeo synergies.
Excluding environmental science is busy.
This is from last year's results adjusted EBITDA was approximately 11.3% lower on a constant currency basis should net cost synergies related.
It's only 13 million, which.
Millions of the plant 35 million for 2020.
Based on internal estimates.
On a global basis versus the.
Q2, adjusted EBITDA of 163 million, we believe we benefited by 20 million from nonrecurring product. We also believe covered recession impact on demand was approximately 55 million versus prior year, which was partially offset exzeo cost reduction.
Absent these unique coal, but impacts collectively we would have had an adjusted EBITDA.
For Q2.
With.
Continued uncertainty economy would you for of 2028.
The net 20 million per quarter for of covered related headwinds versus the prior year results become is 1.8 million or one.
Sent per share compared to net intense sense for sure in the prior year quarter the decrease in <unk>.
Yes was primarily due to the lower gross profit.
Parent charges and fair value adjustment with the next few acquisition. These were partially offset by lower warehousing selling and administrative expenses as a result of cost reduction measures and.
This is and stock based compensation for the quarter was 33 cents.
The prior year period.
Working capital was our biggest source of seem to counter cyclical and seasonal.
Nature of our business model.
Net cash from operations said by the lowered net income and the prior year second quarter.
Sometimes legal settlement.
Capital expenditures for this and integration related expenses or around 14 million.
We ended the quarter with cash on it for total liquidity include.
Putting availability under our asset 15 million.
This isn't due to the timing of net working cap.
Hello.
Our ROI, so deep was 9.4% for them.
Last year, we expect these figures to improve as we continue to.
It was well as grow the business.
0.6 times leverage ratio down from 4.1.
On to slide eight we have.
So our four reporting segments and <unk>.
Provides a detailed in the appendix.
Across our three large line declined due primarily.
Partially offset by higher demand.
For products and essential and cup continued to benefit by growth in its range of markets.
In the U.S., excluding me get.
Back to the environmental Sciences divestiture only 22%.
The higher demand in certain essential end markets also had a significant impact on gross margins as more higher margin products.
Universe solutions benefited by it.
That that supply and operational position across all its geographies to serve these essential markets going forward freed up we continued to service the marketplace, but at a more normalized for term all right.
Back on the delivered gross margins.
[laughter] impact was not significant enough to offset deflationary headwinds.
In some commodities.
Also expanded with strong proof.
Hormones in EMEA, and Latin America, but dot margin expanded valley.
We're further impacted by the contract.
I should have the energy market.
We're not sufficient to offset that.
The delivered gross profit decline.
For an outlook uptake.
Despite a good Q1 in Q2 and relative to our guidance remains withdrawn.
For the full year 2020, given the uncertain economic environment sales trends in Q3, so far our comparable with the latter part of Q2 with some signs of continued demand recovery.
However, keep in mind do three typically involve seasonal.
Bose given the holiday period in a male.
Full year Nexeo net synergies are expected to 35 million take into account the delays in some of the S. Also continue to expect over $40 million, an incremental cost savings for the full year of which about half a reductions versus the prior year costs are as 22 actions should also benefit margins in the sector.
In half of 2020.
We're diligently manage.
I think our working capital and expected to remain between 13% to 14% of annualized net yearend.
As we noted while Q2 generated flow from net working capital.
We expect expect Q3 to be a seasonal use of working so in Q4 as it is certainly does with our year end.
Seasonality.
Cap at 15 million, which is in line.
With prior guidance well next you'll integration costs may come in looks 70 million.
Cash used in 2020 of other expenses.
The around 90 million within our prior guidance <unk>.
<unk>.
32 million has already been spent year to date.
The full your estimate also includes Q3 in Q4 as 22 cash costs of up to 20 million.
As discussed earlier, we exceeded our liquidity guidance in Q2, although Q3 will be a use of cash due to the seasonal effect on working capital and other cash needs.
We continue to target liquidity to be near range of 750 to 800 million by year end and versus our last guidance. We now expect to any more cash available for debt.
Debt pay down before the impact of any divestitures asset sales or any acquisitions.
Beyond 2020 or.
Early significant other use of cash will be approximately 65 million in 2021 as the final portion of our Nexeo integration plan that totaled 225 million and we still expect to achieve the targeted net nexeo synergies of 120 million by Q1.
2022.
David mentioned with the onset of covet and the subsequent recession, we have accelerated certain actions to reduce cost streamlining our operations and improved business performance, particularly in North America.
For our press release 22 program, we're targeting an EBITDA margin run rate up 9% by the end of 2022 and a net leverage of 3.0 times by year end 2021.
Other elements of our program are as follows.
Just starting this week a binding agreement to divest Chu nonstrategic industrial emergency response, and cleaning businesses. We expect this transaction to close in Q3.
During Q2, we recorded a 16 million dollar impairment charge related to these assets and expect to now record a further loss of approximately 15 million in Q3.
Although we view these businesses as non strategic we are committed to growing our nationwide chemical waste services business can care as we believe it holds great promise also supportive of our sustainable.
Realty ambition, we have targeted other portfolio management and visit with an additional 35 million.
Those of charges, yet yield positive cash flow assist with working capital management and would.
Of these charges.
We expect up to 20 million to be cash expense, which we have already reflected this in our year end liquidity outlook, we expect fees and additional portfolio activities could yield and pre tax cash proceeds with timing through 20.
The 21.
As we focus on creating long term value for all our stakeholders, we have aligned our management to drive growth and operating efficiencies.
Argus EBITDA margin of 9% run rate by the end of 22.
Funny Chu with more details can be provided on our 2021 Guy that's called.
It is clear <unk> very well during this challenging period, while keeping our next.
Do you integration and strategic plan getting additional measures designed to it.
Accelerate our market share growth and improve the cash flow profile of the business. We also continue to target free cash flow in a more normalized economic environment to 375 million.
With that I'll turn it back to you.
Nick.
Moving to Orange.
19 obstacles, we successfully delivered on several significant integration.
Seen million dollars of net synergies.
Highlights a few of those milestones now.
We successfully kicks off the third wife about Europeans.
Cementation, and we'll continue to see.
Accessories service, our customers wallet assigned consolidation plan continued closing six branches.
In the quarter, bringing total closures to 19.
We finalized the sale of six from approximately $6 million and remain on schedule to close 15 branches in total during the call recipe migration plans on time.
Hi, My name in the same as we communicated last wala more agile ways.
Much more remote training and support.
Completion is Q2 20 twond.
It go Rollouts move into the second.
When the early stages of realizing the full benefits of optimizing our scale, but remain true to our strategy of having a strong local presence for all customers.
Strategy progress Salesforce.
Perfect. That's remains a key driver business improvements as we leverage our combination with our digital platforms.
We continue to track all levels of pipeline growth transactional activity customer retention.
Actually the activity at the low because because that's a level.
Evil.
We've maintained momentum.
<unk>.
Can you just see good progress and the leading our U.S. average customer counts.
This is quenching from Q2, despite customer closures.
And just like we saw in the first quarter, we welcomed hundreds.
In quarter defined as customers.
With no activity in the past 12 months since of the new customers. We welcome back in Q.
He won 40% plus.
I am though in patients to see the leading indicators feed through so the financials, which is why of mates.
Which are particularly impacts North America, and allow me to be closer to that business.
Due to program will allow us to drive process efficiency and stuff.
Structural cost improvements and.
She will also take responsibility those hedges of north them.
A chief commercial officer.
So then it can progress and establishing common global practices for pricing salesforce execution and digital disruption.
But taking a direct control of the largely.
Local chemical distribution business really drive these the execution through the local management team.
Consumer and industrial solutions.
Industry verticals under the leadership.
Nick how I expect to deliver faster growth through in a good.
The people to the form consistently for supplier partners and whatever geography, we operate something they told us they wants.
The expansion of its largely difference is an important driver of our mix enrichment goals.
A supply Polish instrument, a bedrock crop business I'm, a source of competitive advantage, especially in times like these you may have seen our announcements over the last few months regarding new orix bombing, probably the authorizations from supply upon as such as Tao zinc chemicals biosynthetic technologies get products and valley.
Yeah.
Oh, it ships, along with a leading chemical ingredient products. They bring our a recognition of how our problem is recognized the value of our end market expertise and digital capabilities to support that grows.
We continue to build and expand a robust portfolio of products and solutions capabilities.
And as we go forward, we developed a customer centric approach to drive growth.
In addition, we believe connecting our industry verticals globally and increased use of our digital tools will allow for both glades, a cost productivity and deeper customer intimacy throughout the end markets we serve.
We conducted an in depth survey of our customers you've told us how they want to interact and purchase and the cobot 19 world.
Not surprisingly imposed in meetings as the prime instead of engagement rank low with our customers in each region on the mix of mobile virtual and lessen persons interactions and previously will be the preferred no.
This is confirmed our strategic decisions to accelerates our omni channel approach, which has allowed us to open up or expand sales channels, so that to address customers current preferences.
Just as one example, during the second quarter, we held 31 customer webinars to promote the technical capabilities to stimulate demand for certain chemicals and ingredients in North America, a math on Latam, reaching approximately 1500 customers, while engaging our supply upon us.
As our investments to expand our digital footprint continue deliver results. This presents another source of competitive advantage for us as customers adopt and use our E commerce platforms to search select.
Source and self serve in growing numbers.
These platforms create multiple entry points for customers and new ways for us to connect with them and gain share.
Our universe solutions website provides customers with products I'm formulation information and we've improved the ratio website traffic to sales leads.
We expanded our shop adults universe solutions Dot com to offer self serve capabilities is 24 seven to improve our customer experience.
Customers in the U.S. I can now browse the entire product catalog request quotes and quickly poetry is products that can download a variety of documentation doing invoices and safety data machines as well as track the shipments. The recently launched was my stuff feature.
We continue to expand our reach on 10 point dotcom, increasing the number of products end markets served through this digital channel.
As we told you last quarter, we launched Chem central Dot Com and new no frills retail channel for those transactional customers, who don't require the high touch service available through more regular universe solutions channels. This had been a really exciting startup platform that we are rapidly expanding and is attracting many new buying cost.
Ms.
Altogether, a digital foundation uncommitted Salesforce strategy is aimed to maximize the effectiveness and scale of our operations as well as make it easier for customers and suppliers to do business with us and deliver market share growth.
We're confident we're investing in the right tools to streamline the supply chain innovate with customers and accelerate growth there in step with customers changing preferences.
Before concluding I'd like to mention a few other highlights.
In June we released our sustainability report.
This report is a more useful comparable and comprehensive till for all stakeholders than ever before with improvements that includes you dashboard, which shows our progress against the company's Twentytwenty one sustainability goals. Additionally, the report reference is the latest version of the global reporting initiatives GR I standards.
Integrating universe solutions, a sustainable performance data, representing the combined impact some aspects of the entire it's about new company, making sure our reporting more transparent uncompleted.
Reporting in accordance with the sustainability accounting standards Board essay SP for the chemical sector, increasing the ability for stakeholders to access key information.
Expanding the tilted of monitoring and managing our global impacts through the introduction of scope three emissions reporting.
Integrating the material contributions that our business makes to the United Nations sustainable development goals.
Achieving external assurance on our global sustainable is reporting claims as well as shown in our scope on unto emissions safety unreleased metrics.
This significant milestone is a multi vitamins as we move to demonstrates our robust and honest approach to better business.
Sustainability is a priority for us as it touches each of our core values that aligns with our vision to redefine distribution than be the most valued chemical I'm ingredient distribution on the planet as well, it's been a better stewards of the votes resources.
Also we're pleased to announce universe solutions joined as the signatory of the C election commitments pledging to take action and foster safe collaborative supportive and respectful environments. The valleys diverse perspectives mitigate some conscious buyers and enables a culture, where employees are able to bring to our offense itself to work.
Before we come to your questions to summarize.
We delivered solid financial results during these challenging times.
We ought to $850 million of liquidity a june quarter ends.
Well maintaining from control, our working capital and other cash needs and expect to end the year with $750 million to $800 million of liquidity.
We maintain momentum on our Nexeo integration program and expect to achieve a $120 million net synergies.
We delivered $17 million a cost reductions in the quarter against the greater than 40 million additional cost savings we identified this year.
We're investing in furthering our digital advantage, which are becoming increasingly attractive so our customers.
We've launched as 22 as a program to deliver growth in revenue, a 9% EBITDA margins through global and functional excellence.
We continue to see an opportunity to capture new business, even in a challenging economy as we target growth through salesforce effectiveness, an omni channel approach and digital capabilities to better serve customers.
Through Xtwenty too, we're focused on delivering the agility and decisive actions to enhance our competitiveness and increase our operational and financial flexibility as we want to position the company to capture greater value for me anticipated market recovery and growth opportunities ahead.
We believe these collective efforts provide a path to deliver greater shareholder value.
Thank you for attention please stay healthy unsafe and with that we'll open up for questions.
Thank you, ladies and gentlemen, we will now conduct a question and answer session.
She would like to ask your question. Please press star.
[noise] she would like to try to your question. Please press the pound key.
Your first question. This morning comes from Bob acquired from Goldman Sachs. Please go ahead.
Thank you good more.
Okay, David I was wondering if Uh huh.
Maybe give us some granularity on getting to that 9% EBITDA margin target.
Okay and look to that is volume dependent how much of it is internal call. You can you give a sense of the bridge bridge to that 9% margin and and do you need to get back to 2019 demand levels to do it.
Yeah, I mean, I think Bob I mean, thanks, a line of sight.
Announced that 9% a margin target and it is a combination of portfolio management of cost management productivity and growth.
With that share growth and we'll give much for the guidance on that at a yearend earnings call.
But that's that's how we're saying things, it's very very clear path that we have in a very clear program the.
And I'm trying to understand a little bit about the changes in management and responsibility can you maybe give it.
Some specifics on how you do things differently going forward with this change structure.
Sure what the plan really is to section of our processes and speed.
Teed up decision, making and accelerates or the some benefits into our operating model.
Did you that were on and then in.
Hands into different pieces of the business that we have so our focus global interest stories.
During the meeting in successful and I'll go in our it's administrations now segmenting doses.
It's conns consumer solutions and to make Powell to run Globe will consistent performance you know we expect.
That's a good growth from that because that is.
I'm sorry that we wanted if we can do the on a global basis and not get.
Entropy that slows down decision, making and actions that we believe that we can accelerate much faster than they have in jens role as a single folk.
On a single pro a single focus on optimization of our business processes will have the virtuous effects.
Have you know probably reducing our costs certainly improving our cost.
Relativity, but also making as he our growth strategy. So think of it as a kind of front of house back of house split well Nick.
The local business have front of house.
Jan has back of House, you know very clearly at able then.
But getting through S&P and our digital investments to drive process improvements and then it allows me to lean and much more into the U.S. business. That's that's a might show that we are doing the things that we know we ought to be doing at the time, we ought to be doing them.
Your next question comes from Mark. Please go ahead.
Yes, yes.
Question Fleet and that's one.
And it sounds now that <unk>.
And if you could share with us capes.
How do you see this is doing and what you want to do we need a beats you know anything that's can then person understands how to have Smith and his to these businesses within your evolve right now that's that's it.
Besides question then the second one.
Just trying to understand sorry, and then Booz Allen Bang on the number that you provided so can you perhaps that repeat how we should be thinking it bounced anti I guess, you fancy mix being into and into Q3, and then how we think it down to defend seen e. coli costs and between what's happened in Q2 and once you would expect in Q3. Thank you.
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Shaw and Oh, I'm, sorry, if we found those old we'll try and numbers will if that's such a word let's look at Comcast first and foremost them in the businesses. We divested was small businesses, which are a businesses and to do with emergency response emergency clean up and then.
Really just not caught sued chemical ingredion distribution can catch you shouldn't business because it provides you know a value added service for chemical waste pros Jesse so our customers our existing customers are requiring though services and we can integrate that within our distribution network tobacco.
Products clean up.
Nickel waste it supports our sustainability goals as well so it kind of fits much more as an integral parts about chemicals and increase.
Our business, it's performing okay at the moment, it's performed well for the last few years its its impact see right now I'm as we notes on the end market slide I mean activity.
We have a.
Transitions for <unk> for manufacturing plants, what Ken.
Having being.
I have a meeting taking place in the keys in the second quarter. It is now improving its performance a into the third quarter. So we have a great expectations and Oh.
A clear plans to grow that business into.
Sums of Q3 last may not be let Nick Bamboozle, you with the numbers, yes, good morning warrant and thanks for your our notes last night.
If we look at Q2, obviously, we performed very well and we're quite pleased by that we are very much tracking key components of the Q2 performance and we've called out three pieces of those that we thought would be informative to all of you in terms of the performance, which is the product mix benefit.
It, which we thought might have been a unique to the quarter, a pure cold weather impact I, either recessionary impacts on demand and then the cost savings that we targeted <unk> going into the quarter as we spoke on her last earnings call <unk> and when you adjust for those if we would try to adjust for those.
We get to that $180 million number that one could look at as quote earnings power of the business pretty common obviously, we are continuing in a recessionary and perhaps kogut environment and what we tried to do is give context in terms of what the numbers I would've otherwise going further impacted our versus prior.
Here are and we detailed the number that we think is roundly $20 million breach of Q3 Q4, So I would take a step back and say what would one would have thought those numbers would have been on earlier in the year. Our pre the are covered recession and there's Raleigh, a 20 million go impact as you know Lauren.
There are other factors year over year, we had the divestment of the environmental science is businesses, which needs to be backed out but we're also seeing a growth in certain parts of our market, which out would offset that but what we tried to do it gave you some sense of year over year continuing impact on coal good.
Through the end of this year.
<unk>.
Understood. Thank you.
Our next question comes from Jim Sheehan from True Securities. Please go ahead.
Good morning, Thank you.
Under 9% margin target could you give some more color on where the cost savings are likely to occur by region and what what regions do you expect to drive more of the margin expansion.
Jim Thanks for the question I mean, I think that firstly, that's 22 is a global program. So we do see the opportunity for improvement rights across our business. It is about process improvements is about streamlining operations and reduce the opportunity to do that but take as you bring digital outcome.
Cool and roll those digital solutions across across the whole business I mean, clearly the the U.S. is the largest parts of our business. So clearly the U.S. is where we expect to see the the bigger improvements or the biggest improvements, but we have opportunities right throughout the business.
Thank you and on your free cash flow outlook could you maybe talk about you know your early views on free cash flow for 2021, I know you mentioned your normalized free cash flow being around $350 million.
What are the major puts and takes that we should be aware of for 2021. For example is working capital going to be a large hurdle.
Hey, Jim Thanks.
There are obviously a lot of pieces and we're not a at a stage of giving further guidance on 2021 other than highlighting that we think the one other factor that will continue to be a use will be the finalization of the next you integration of roughly $65 million into next year, we very.
Much feel that we can operate within the bandwidth of 13% to 14% working capital through 2021. Much is we're trying to do for this year. So if we have growth versus 2020 odd certainly there'll be a use of cash but that will be positive outcome for all of us given that we will be in a growth.
Environment, if the gears flat then we would not have a significant use of cash. It's clearly we also have to be cognizant of where we end up at the end of the year and certainly we'll talk about that in early 2021, when we give our full year guidance.
Thank you.
Your next question comes from Kevin Mccarthy from vertical research. Please go ahead.
Yes, good morning.
You've divested your pest elimination business and now and industrial emergency response business.
In the third quarter.
Aside from Cam care, which you've addressed what other businesses do you have in the portfolio that.
Art or not classic.
Chemical distribution businesses.
Yeah I mean, thanks. Thanks for the question Firstly on portfolio management remains a priority for hours and obviously its a.
One of the elements, which will support the F 22 gold getting below three times lab and by the end that's one piece when do you want.
And we do have a number of other profitable and its razzi businesses that I'm you know like next year's legacy plastic legacy Nexeo plastics business don't fits into the toll of what we would view chemicals ingredient distribution. So we're looking at those I'm, we'll work on some of those and you know there they're up a couple of of those no.
And we can share today, nor can we can announce today, but portfolio management and cleaning up our business to focus on on a call ingredient.
<unk> chemical distribution businesses Gd priority for us.
Okay and.
And then it sounds like digital will be part of your new as 22 program.
Can you help us understand you know how big that businesses today, what your vision is for the future and how profitability compares with your non digital businesses.
I'm sure I mean, I don't necessarily think of businesses as a digital unknown digital well. We think about is we are well, but digitizing. Its process is what would digits I mean, that's a pay roll out the business system migration is a form of Digitization that allows is data, which we can then put in a structured format to improve our process.
As to reduce touches a makers easier to buy from so we think about to as what we have is this big shopping mall and rather than just have one front door for people to come through I won't lots and lots of adults with little to come through whether it's come into our specialty store for food or a specialty still for fun.
Solvents or coming to the general stole through the front door. So with building multiple entry points a multiple touch points for customers. You know, we also talked about customers changing how they operate is changing how they want so interact I think certainly at the moment when people are working from home no I suspect if your way.
Working from home Youre, not getting up at nine and finishing a five your operating you're getting your work done but whenever time scale. You know suits you best if he wants a walk the dog warn you walk in the dog at want you come back and get the worked on customers and no difference. So we're seeing more customers interacting with us over our digital channels it too in the morning or on July.
The fourth so whenever we need to be open and accessible however customers choose to interact with us and build as many doors. So our business as we possibly can do and then give them a streamlined our way through our organization. So we don't disappoint them when they do do that and that's really what the folks about digital capabilities are about.
Yes.
That makes perfect sense to me I guess, what I was trying to get AD is when customers Center, you know with digital door.
Are you in different in economic terms as to whether they do that or.
We use the telephone to call up a sales person for example, just trying to get a sense of what the margin implications or may be from digital is you're moving toward that 9% goal, if it's straight up four or.
If you go lower before you go higher that kind of thing.
Well you know just think about it in terms of you know thing I'd say in two ways. One one the price and then secondly, the cost. So it is clearly it costs me more to process an older if I'm getting on the phone and I've got inefficient processes, which means I have to touchy 10 times before it gets out the door rather than if.
It comes in seem as they go through digital set a channels and then help sell into a truck and off it goes so I can enhance my margin without change you my sounding productive just focusing on that transaction costs and so there's a you know the pricing strategy will depend on the channel that we have but I don't think this gives us the opportunity to.
No change.
Overall market prices it does give us the opportunity, though to reduce our transaction cost to make our processes more effective and therefore, you know more profitable.
Excellent. Thank you so much.
Your next question comes from Steve Byrne from Bank of America. Please go ahead.
Yes, thank you well.
Regarding your management changes within.
Well, our hung Sean will swing David is a.
A key driver of this is likely a.
Yeah.
Oh, sorry, a view from you that the pace of progress in materials for its effectiveness, it's just not been.
It sounds since you would've liked to see would walk in your comments on that but maybe more specifically.
You're tracking Oh, yes, the RUPS.
Well, what other metrics do you look that.
Sales force whatsoever.
How would you rate.
Secondly, as compared to.
What do you think things should be a accomplishing right now what.
For some of optimum would you put it all of our yet see thanks. The question look I mean I think.
We are reporting.
We are progressing well on our integration plan and a cost reductions and so.
This is performing reasonably well, but as I said in her prepared remarks, I mean patients have been patients. They say some of the really good leading indicators turning.
To the really good lagging indicators.
Really walk what I want to try and do I want to try and removes some of the organizational entropy that stops those two things connect saying you know as as a metaphor I think we're building muscle.
We need to improve the other so they can operate no.
Let's try and you know kind of focus on on just building a muscling one area like.
Our sales organization seven out of 10, when I was asked his question last.
Time, I was asked how what would what words.
Caused me to get into an eight or nine or 10, and the answer was time executing what and I think it.
It's what we recognize is the strategy were up we were on needs to be adjusted slightly because no a strategy that's more customers more often.
You know is probably not the best ones that have when customers say I don't want to all can't see right. Now. So we have to look at how we have an omni challenging them in different ways of approaching them.
And we need to do that in a very very agile and flex it was really about.
Yeah, improving our organizational agility.
So we can then bassett can actually right way with a lagging indicators, which are not where I would want them to abate.
And my in patients.
Yeah.
And with respect to the the sales force majeure, what is the head count of your sales.
It's worse right now Oh versus what it was prior to the ANEXIO acquisition that legacy uniform.
The acquisition.
Well, we haven't we have.
The sales force since we can.
By the two businesses, we said at the time in sales heads it was about side.
Because in the sales organization field, which easy for growth we saw that we still see the opposite you've seen sales heads.
It is probably not the most sensible thing to do however, and thinking about how you touch customers in a different way and how you make salad.
It was more productive I'm, so more transactions and how we can get summit.
Oh people when they choose to do does seem to me to be a sensible approach and central strategy.
Your next question comes.
From his bank lender from Keybanc. Please go ahead.
Hi, Good morning, they're just back on as 22 program and thinks your detail on that or that's specific cost saving attach their program.
Well, it's David as we said I mean, I think <unk>, Firstly, we say very clear path about nine cents operating margin and we see that through growth and we see that Threed cross productivity on our.
<unk>.
Spoke about Twentytwenty want the weight going to follow the same execution model that we followed with the unite program.
You'll remember you know we talked about the bloodstain documents when people have to signing blood, what they were going to deliver to enable us to execute that in the pace that we won't see too and the pace, we committed to and that's been a very successful program we have delivered.
It's over delivered in certain cases, what we committed to by engaging our people and that having then commit to what they can do not some kind of theoretical notion we'll take the same approach with streamline twentytwenty too which is one of the reasons you know Gen haven't been sell successful running to unite program will will.
We'll manage the.
The lead the streamline program.
Dave if I could just at one point of emphasis I clearly the intention is not to announce as part of that it further significant restructuring, yes streamlined our 2022, it's about the portfolio rationalization that we highlighted as well as improving the process the leadership in place a time through 2022.
Let's say disease, a thing to look up and growth.
Okay, and you know because that supports growth yes.
Got it.
I guess I'm just on the on the noncore assets I apologize you mentioned, that's why the sales and EBITDA attached the noncore assets identify themselves.
Yeah, I would say, we're not being specific opt for obvious reasons, our overall they won't be material to the impact of the profile of the business and God. You know, we're going to work to try to achieve maximum value for those assets as we divest.
Thank you very much.
Your next question comes from Duffy Fischer from Barclays. Please go ahead.
Yes, good morning.
Maybe I missed it but in your comment that July sales are comparable to June.
What is that benchmark what were June sales that too.
HM fees I think what I think we said in prepared remarks.
June was down low teens year on year, although it accelerates it as the <unk>.
On Wednesday June and July is more like the end of June than just off the June so that's a I was saying things.
Okay, and then the not really guidance that directional guidance. It Nick gave that negative 20 million just to be clear basically that's just the run rate of July taking into account seasonal effects is indicative of the rest of the year, we shouldnt subtract roughly $20 million in.
EBITDA per quarter for each of the next two quarters is at the right way to read that.
Yeah, I would say Duffy Nick here I thought you could take that approach our approach on the 20 is basically pretty cove. It it whatever your views you would layer into that a $20 million net coal that impact.
Obviously, it's hard to determine exactly but we are tracking the three pieces that we talked about and we extrapolated that we thought those in prior year results you can.
Take a seasonality into account obviously adjust for the environmental science is businesses and maybe you probably get to the same place, but our context was a year fair enough.
Maybe I could just.
[noise] sneaking a third.
When you look at sequentially from Q1 into Q2 your gross profit was down 40.
4 million, but yet your EBITDA was up one which is terrific can you just walk through what it was you were able to kind of squeeze out in between the gross profit line in the EBITDA line in how much of that you know we might be able to repeat and how much of that was just kind of emergency measures. When we really didn't know what hope it was gonna due to the.
World.
Yeah, I mean, we called out of a savings that we kind of a.
Hold on after the quarter <unk> that will year, so that leaves.
My math 23 million plus 17 million run rate.
And you know I would.
I like it those are numbers took out versus our plans going.
Moving into a 2020 about half of those costs are really our savings versus prior year spending levels.
Terrific. Thank you guys.
Sure Jim comes from Laurence Alexander from Jefferies. Please go ahead.
Good morning, or a couple of.
Thanks can you give a sense for <unk>.
Your experience.
And how you're seeing.
Sure.
<unk>.
That's a cash cycle evolve kind of fully migrate.
I can trucks and certainly try for you.
If you think about those channels as the store.
Front channels, and then shops today, we'll be using it.
And reorder I'm. So you know with one of migrates as many of those two utilizing shop.
Stuff.
Which is exactly what it says on which we think he's gone.
Via I'm, a big driver of adoption for us because it'll it'll bring people back into side. So you think of the telephone to do other things if you look at something like.
Which we launched which is.
Retail channel no dad customer.
You know, where we have you know probably pricing that people are buying the swiping credit cards.
So that's a pretty touch free program.
On she's been hugely successful so far I'm, it's bringing new customers and bring new the massive dates are in.
But the cash cycle and that's pretty pretty good.
And then longer term and your with your margin improvement should your cash cycle get faster or slower as you're more.
Looking to improve.
I mean, they Mike I.
Do you any working capital.
Items that we would provide.
Seem to 14% working capital.
The best in class, a and we'd be we'll plan to stay within that.
Well I chain on both sides.
Thank you.
[noise] and again from Wells Fargo. Please go ahead.
Okay.
Hi, good morning, everyone. Thanks for the time, thank our underlying.
Good morning, I, just want to go back to the digital conversation really quick is this a scenario you keep playing out is becoming more of like the Rockchip resellers, who don't marketplace. When you don't have to take inventory what percent of that business is that today, maybe parlaying that into free cash flow.
Envision a scenario, where you've seen steady growth for the business overall, but still positive working capital contributions given the nature.
Show, So I don't envisage in what we're doing.
So we become just thinking you know I mean closely handling dangerous chemicals, Hanjin I'm being hazardous chemicals.
Very very well and it's something that I supply upon it comes rely on us on and it's something that customers come to rely on so so this is about digitizing the interaction about but that's a fundamental core competence that we have.
Applications developments in U.S so.
Differentiated chemicals ingredients. So so I think whether there's a value that we.
Transaction costs. So I don't see has evolved into a marketplace model I don't see is evolving into a you know kind of a just to just an intermediary I'm I think the you know the maybe place for US zone marketplaces, potentially that's a more philosophical question about.
The evolution of marketplaces in this space, which over the last 20 is no so far I haven't been successful, but but the.
You can more to and safety and sustainability and compliance in a highly regulated.
Industry those functions that we perform.
Core value from us and we'll continue to invest in doing those incredibly well.
Okay.
Thank you for that and then maybe switching gears to the management structure I think Oh.
There are some color earlier on the call, but I just wanted to get a sense of their there seems to be a lot of oh, the regional focus on those and operational focus.
Internally in the region all the direct line on the operational the dotted line just trying to get a.
For how how your organizing that is that what the changes versus prior structure.
Sure. So what we have is we globalized certain businesses and globalizing functional excellence.
So the functional excellence will cross boundaries enforced by areas.
And we'll do that and and Uh huh.
Uninterrupted way by any regional structure. However, a business is a local business. So we have to operate regionally we have to all platelet operate locally. So we'll still have no very close Copa <unk> local touch points with our customers So global touch points with our.
With our suppliers, we still have those local I'm sites in facilities, but I.
I think what we have it won't do we want to be able to do is to drive process excellence to enable that's a fast to local decision, making so this is not centralization per se. It's globalization of processes that have consistent affected processes. So you can make faster decision, making locally that's a decision making locally.
And that's where some of the operational Giotti comes in.
Okay and in the past you.
Hi, Yes, I'm, sorry about changing the <unk> com's compensation structure of the organization is there are there any compensation structure changes now with this change or still the same.
Well there isn't a twentytwenty when we went will will will honor all the arrangements and going after twentytwenty, we need to look at what we do for Twentytwenty wants to make sure that fit for purpose, but what I will tell you is compensation will be based on gross margin growth. That's what have you based on that would be the largest component for our sales organization gross margin growth.
We won't flip it to to volume or anything more esoteric driving gross volume growth in check growth is really important to us. So whilst the twentytwenty won chain structure might might be fun asked on the fundamentals of its based on growth and it's based on gross margin won't change.
Thanks.
Appreciate that.
This concludes the Q and a portion of our call I'll turn the call back for any closing remarks.
Thank you, ladies and gentlemen for your interesting enough acquisition. If you have any follow up question. Please reach out to the Investor Relations team. This does conclude.
Ladies and gentlemen, this does indeed and conclude today's conference call. Thank you once more for participating you may now disconnect.
Oh.
[noise] [noise] Oh.