Q4 2020 Ashland Global Holdings Inc. Earnings Call
[music].
Ladies and gentlemen, thank you for standing by.
And welcome to the Ashland Global Holdings, Inc. fourth quarter 2020 earnings Conference call.
At this time, all participants on a listen only mode. After.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you would need to press Star then one on your telephone.
Please be advised that todays conference is being recorded if.
If you require any further assistance. Please press star then zero.
I would now like to hand, the conference over to your speaker for today, Seth Mrozek you may begin.
Thank you Towanda good morning, everyone and welcome to Ashland's fourth quarter fiscal year 2020 earnings Conference call and webcast. My name is Seth Mrozek Director Ashland Investor Relations joining me on the call today are Guillermo Novo Ashland's, Chairman and Chief Executive Officer, and Kevin Willis.
Senior Vice President and Chief Financial Officer.
We released preliminary results for the quarter ended September Thirtyth 2020 at approximately five P.M. Eastern time yesterday November 10th.
The news release issued last night was furnished to the FCC in a form 8-K.
During this morning's call we will reference slides that are currently being webcast on our website Ashland dotcom under the Investor Relations section.
The slides can also be found on the Investor Relations section of our website.
We encourage you to follow along with the webcast during the call.
Please turn to slide two.
As a reminder, during today's call we will be making forward looking statements on several matters, including our outlook for fiscal year 2021.
These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections.
We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.
Please refer to slide two of the presentation for a more complete explanation of those risks and uncertainties and the limits applicable to forward looking statements. Please.
Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures. We will refer to these measures as adjusted and present them in order to supplement your understanding and assessment of the financial performance of our ongoing business now.
Non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.
The most directly comparable GAAP measures as well as reconciliations of the non-GAAP measures to those GAAP measures are available on our web site and in the appendix of today's slide presentation.
Please turn to slide three.
Gary will begin the call. This morning, with an overview of Ashland's results in the fourth fiscal quarter.
Next Kevin will provide a more detailed review of financial results for the quarter end the fiscal year.
Finally, gamma we'll close with key priorities and planning in the current economic environment. In addition to providing his thoughts on important next steps. We will then open the line for questions.
Now if you'd please turn to slide five I will turn the call over to Guillermo for his opening comments Guillermo.
Thank you Scott and good morning to everyone.
Before I begin I'd like to thank you for your participation. This morning.
I hope that everyone safe and healthy and these unprecedented times.
As we have stated throughout the year.
Our first priority has been protecting the health and safety of our employees second.
Second we have continued to supply our customers with a credit in the critical industries that we serve.
Despite all the challenges that presented this year. We have also remain committed to executing our strategy.
Importantly, this means expanding our margins enhancing our free cash flow conversion, demonstrating the resilience of our business and working to accelerate organic growth in each of our business units.
I will discuss these aspects of the strategy in more detail at the end of this call.
Please turn to slide six.
In summary.
Q4 results demonstrated the value of our leadership positions in high quality end markets and the importance of the actions we are taking internally.
Our consumer business continues to demonstrate strong resilience posting 4% sales growth during the quarter.
And we realize substantial sequential improvement in the industrial business as global demand continues to recover during the quarter.
On the self help side, we continue to make significant progress on driving our business focus restructuring costs, improving margins and reducing inventory levels.
This resulted in improved free cash flow generation in both the quarter and the full year.
Kevin will review, our inventory actions and the impact to free cash flow.
In more detail in a few minutes.
I'd like to recognize the entire awesome team for their focus and commitment to our success. During these challenging times, it's a real privilege to be a part of this team.
Let me pass the call over to Kevin to review, our Q4 results and full year in more detail.
Evan.
Thank you Daniel and good morning, everyone. Please turn to slide eight.
Total Ashland sales in the quarter were $609 million flat with the prior year period, and up 6% compared to the June quarter.
These results reflect continued strength in our consumer businesses and substantial sequential improvement in our industrial businesses.
Excluding key items and SGN, a and R&D costs again declined in the quarter as we realize the positive impact of the cost reduction program and new cost actions.
In total Ashland's adjusted EBITDA was $154 million, a 3% increase over the prior year quarter.
And adjusted EBITDA margin was 25.3%, a 70 basis point improvement over last year.
Adjusted EPS, excluding acquisition amortization was $1.25 per share.
Up 21% from the prior year.
Now, let's review the results of each of our three business groups. Please turn to slide nine.
First I'll begin with consumer specialties sales were $344 million up 4% from the prior year quarter.
The impact from favorable currency represents approximately one percentage point of this increase.
Within life Sciences pharma continued to perform well up high single digits in the quarter driven by strong demand for pharma Excipients.
And after a few challenging quarters, the nutraceuticals business returned to growth. Thanks to a lot of hard work and dedication of the team.
Nutrition sales were down during the quarter as our food and beverage customers continue to be challenged during the pandemic.
The personal care sales were down low single digits during the quarter as we continue to lap prior year business losses in oral care and experienced lower demand for hair styling and sun care products due to the pandemic.
Home care sales were up as the market for our hand sanitizer additives continued to grow.
Local sales also grew and while the business remains challenged we're making progress in stabilizing this clarity allied business.
We are now focused on leveraging the bio functional extraction capabilities in this business to develop new product lines to drive growth across new markets in both our personal care and household businesses.
Price mix was favorable during the quarter, which drove improvement in gross profit margin.
Adjusted EBITDA margin in life Sciences improved to over 28%, while in personal care and household adjusted EBITDA margin declined slightly to 28% in.
In total consumer specialties, adjusted EBITDA margin improved by 170 basis points to 28.2%.
Please turn to slide 10.
Turning to industrial specialties sales were $240 million down 3% from the prior year quarter and up 17% from the June quarter.
This first this reflects substantial sequential improvement in global industrial demand following the trough in April and May of this year.
Our coatings business was up double digits during the quarter, reflecting strong global demand for architectural paint, particularly in the iwai applications.
And while we saw modest growth in construction products, our energy business was down significantly reflecting lower drilling activity across the globe.
Sales of pressure sensitive adhesives were down year over year, but showing signs of recovery with continued sequential improvement.
Structural and he says sales were also down but demonstrated strong sequential improvement in demand for automotive and building applications.
And our laminated in coatings adhesives business is growing due to increased demand for food packaging.
Price mix was favorable in both specialty additives and performance diseases, which drove nice margin improvement.
Adjusted EBITDA margin in specialty additives improved to 27.5% while in performance adhesives, adjusted EBITDA margin improved to 26%.
In total industrial specialties, adjusted EBITDA margin improved by 160 basis points to 26.7%.
Please turn to slide 11.
Turning to intermediates and solvents sales were $28 million down from the year ago period, primarily reflecting both lower volumes and pricing.
Intercompany sales of video to consumer specialties totaled only $3 million in the September quarter as the consumer specialties business executed on its inventory control measures.
Adjusted EBITDA of $6 million for ins was down from $13 million in the prior year period.
Please turn to slide 12.
Before I review the results for the full fiscal year I'd like to spend a few moments on the inventory control actions, we pursued during the fourth quarter.
As we said on the last earnings call, we implemented a systems wide program to rightsize overall inventory levels.
This included slowing and in many cases shutting down production on certain lines and facilities for a period of time.
By the end of quarter, we substantially exceeded our original estimates and reduced overall inventory levels by $99 million compared to June 30, excluding an $11 million FX impact on the remaining inventory balance to.
To achieve these results, we incurred roughly $47 million of one time costs, mainly related to abnormal production variances expenses during the quarter.
Given the extraordinary and onetime nature of the program.
And in order to improve the comparability of our quarterly results. We are excluding these costs from our adjusted results, including adjusted EBITDA.
We are very pleased with the progress the team made during the quarter.
The onetime inventory control actions are now complete and to be clear. The business unit leaders are tasked with staying focused and disciplined regarding improved inventory management going forward.
The inventory actions also contributed to improved free cash flow during the quarter.
We generated $160 million of free cash flow compared to $83 million in the prior year quarter.
While both periods include payments for restructuring activities, our free cash flow improved in Q4, due primarily to the inventory reductions and improved earnings.
Please turn to slide 13.
Before I turn the call back over to Gary I'd like to make a few comments about ashland's results during fiscal year 2020.
While the underlying businesses performed as expected the full year sales decline reflects the dramatic decline in gold global industrial demand due to the Cove at 19 pandemic as well as the impact of headwinds from prior year share losses in consumer specialties.
As we enter fiscal year 2021, we've now lapped the impact of the share losses, and while uncertainty remains in the global marketplace. We have seen resilient performance in our consumer businesses and steady sequential improvement in demand over the past few months in our industrial businesses.
The important self help actions that we executed this year are evident in our earnings.
In what turned out to be a year full of uncertainty Ashland generated $528 million of adjusted EBITDA down only 1% from last year.
Adjusted EBITDA margin improved by 140 basis points to 22.7%, reflecting the progress we made on reducing start expenses during the year.
Adjusted EPS, excluding intangible amortization improved 10% to $3.90 per share again, reflecting these important actions.
And free cash flow improved by over $100 million to $175 million, including $30 million of restructuring payments related to our cost reduction initiatives during the year.
In summary, despite operating in a year of great uncertainty I'm pleased by the tremendous progress made by the team and look forward to stronger performance in fiscal year 21.
With that I will now turn the call back over to gear mode to address our priorities outlook and strategic focus gierman.
Thank you Kevin Please turn to slide 15.
As we look to our fiscal year 2021, our priorities are very clear.
Drive margin expansion and hands free cash flow conversion.
Continued to demonstrate business and operating resilience.
And accelerating profitable growth for.
To achieve these objectives, we have clear levers that we plan to act on it with the same discipline we showed in 2020.
Capture cost savings carryover from the 50 million dollar SAR cost reduction actions, we completed in 2020 and accelerate the capture of the $50 million of cost of goods sold reductions we have already identified.
To drive productivity and mix improvement from innovation focused on.
Focusing on our more profitable strategic segments and exiting some lower end product lines.
And align our capital allocation priorities for Capex and working capital consistent with our strategic priorities.
During fiscal year 2020, we have the opportunity to demonstrate the underlying resilience of our businesses as well as our improved operating discipline.
We will maintain focus on driving continuous improvement in our business centric model and our operating discipline.
As I will comment later fiscal year 2020 has not been just about our transformation and margin improvement. We have used this time to reset our strategy for each business and rebalanced, our innovation portfolio to accelerate growth.
As we enter fiscal year 2021, our focus will be shifting to accelerating profitable growth drivers both organic.
And inorganic.
Please turn to slide 16.
For fiscal year 2021, the drivers of performance our revenue growth.
And the net impact of our self help actions, partially offset by some cost reset items.
Although we do not control the cobot impact on demand, we do have control over our self help actions and our cost management discipline.
While the macroeconomic environment continues to improve sequentially in parts of the World. Recent developments are reminder, that there is still a high level of uncertainty around the potential impact of covance on market demand and global supply chains.
Given such high uncertainty, we will not provide specific guidance for fiscal year 2021.
However.
Based on the clarity of our planned self help actions, which are in our control.
And the sustained trend of continued demand improvements we will provide more specific comments on the expected key performance drivers.
For fiscal year 2021.
The areas of most on certainty of demand remained the impact of COVID-19 and potential actions governments can take in response.
Assuming no long term vaccine solutions are meaningfully implemented until later in our fiscal year 2021, our base scenario a C assumes the continued trend line or demand.
This scenario together with our plans to exit some lower end product lines.
Which impact revenue, but not EBITDA would mean sales growth in the range of 2% to 4% for fiscal year 2021.
We do recognize theres significant upside potential like what we saw in our fiscal Q.
Q4, given that demand in many of our industrial market segments are still below 2019 levels.
Absent any major shutdowns and key economies, we do not expect significant changes in consumer macro trends.
Or increased downside demand risk and industrial segments.
However, if industrial markets recover quicker there could be upside from higher volumes given benefits to both gross profit growth as well as improved cost absorption.
Given the self help opportunities we control, we feel confident about our EBITDA outlook.
Between the cost reductions we have just completed the new cost reductions were now planning to capture offset by cost reset items, such as incentive comp L tip and benefits. We expect the self help actions to improve EBITDA by at least 20 to 25 million.
Over and above organic EBITDA growth.
Our path is clear focus on driving the actions we control.
And building resilience and agility in our business to capitalize on the market developments for the factors, we do not control.
Please turn to slide 17.
As we communicated our strategic focus is to expand our additive portfolio and build out our biotech capabilities accelerate our growth in Asia Bill.
Bill a customer focus and innovation SEC centric culture and accelerate our digital modernization.
Please turn to slide 18.
I'm very proud of the Ashland team and the accomplishments they've achieved during 2020.
I continue to be impressed by the level of energy ownership and accountability. Our teams have demonstrated during a period of significant internal change and external challenges.
This transformation positions us well for the future.
Although I will clearly stay committed to completing and delivering the value of our transformation activities I.
I know that I can count on our leaders to execute on the plans we have developed.
We're now in a different stage in our journey and my primary focus will be shifting to accelerating profitable growth and advancing our SG agenda. We've.
We've already made a lot of progress in these areas. So my focus will be on accelerating impact.
On growth.
The focus will be on driving innovation, and Pat and advancing our strategy to targeted M&A in key market segments.
Regarding our environmental social and governance or SP agenda, Ashland has been ever on an ever evolving journey defining and driving sustainability progress under three core areas sourcing offer.
Operations and solutions.
Our focus will be on committing to create specific targets and delivering that we will become a signatory to the UN global compact and are developing science best based targets for Cfptwo water and waste.
And we will be a steward of global social responsibility.
Although a significant part of our portfolio already has a strong sustainability profile sustainability is an integral part of our innovation priorities for each business.
As ashes move moves forward, we are committed to making the world a better place through the application of our specialty materials. We will continue to respect protect and advance the people we work with customers, we serve shareholders, who invest in our future that the communities, where part of and the planet we share.
Yeah.
As we continue to focus on organic growth and our future. We will leave planning an investor day for mid year 2021, we will provide more details over the coming months.
Please turn to slide 20.
In closing I want to once again, thank the option team for their leadership and proactive participation in an uncertain environment.
We're fortunate to be a premier specialty materials company with high quality businesses that have leadership positions in defensive markets I'm.
Im pleased by the resilience demonstrated by our people and businesses and look forward to the opportunities that lie ahead.
Thank you operator can we move to QNX.
Thank you.
Ladies and gentlemen, as a reminder to ask the question you will need to press Star then one on your telephone. So it's all your question press the pound key.
Again, Thats star one to ask a question. Please stand by while we compared to Q on a roster.
Our first question comes from the line of Chris Parkinson with Credit Suisse. Your line is open.
Great. Thank you very much can you just talk a little bit more about your cost programs and reconcile your 100 million target.
With your remarks on the additional 20 to 25 million of cost benefit for 21 highlighted on slide 16.
And then also the cog cost reduction so just flipped simply isolating any EBITDA contribution from revenue grew up growth how can we isolate these factors for fiscal year, you're 21, and even 22. Thank you very much. Okay. So so if you will if you remember what we talked about.
In our journey at a minimum we want to improve our cost structure by 100 million. This.
This year, we focused on these this SGN area are in R&D to start at we've already identified hit the run rate per EUR 50 million.
Million, we have part of it came in this year the bulk will be coming in next year, and then theres a little bit that will that will spillover to 2022, but the majority of it will be done by by its already in the run rate. So it will be coming through so a big part of that number is the carryover of that sorry part.
What we did today.
The good news for us on the cost of goods sold we had to.
Two objectives. The minimum was another 50, but we also see that there are other opportunities that we look at plant footprint networks. Other things we wanted to do but we set a goal of mid of hard cost savings of another $50 million. The good news is we've already identified.
That $50 million.
Plus or minus a few million and we're already executing on it. So the issue now is how quickly we can move.
And so so what what the net impact will be for the year will be an issue of how quickly we can bring those costs and part of that is in the us and Europe.
You look at our manufacturing footprint, we have one plant in Asia.
So we just have to manage on the on the timing of that and how big that will be we do have some cost resets and terms of incentive comp and other other areas. So.
I am assuming right now that some of that will just offset.
The cost reset, but there is potential for more if we can accelerate more of the plan as we've already identified what were going to do and that's not a surprise, it's really going where the timing and similar to what we did and and this year is we're not waiting to do all the math of what timing is we're just going to do it and we'll report it as we go I think.
That worked well for us in terms of moving with with speed.
Moving forward.
Yes, very helpful and we'll we'll again, we'll let you know.
Okay and then in the December quarter earnings call in January where we are from a run rate perspective on on the Cogs savings at the end of December.
But the key is very much very much focused on on executing.
On on those items and as Gary said, we have a we have a detailed.
Detailed list of all and we're right at $50 million Mark So we feel really good about that.
That's helpful. Thank you and just as a quick follow up.
As we look at our PC and age on the growth front can you just parse out the trends that you're seeing in personal care any high level remarks on skin inherent on understanding the latter's obviously seasonally period, just trying to get a sense of your general that's been.
How these end markets to grow in a normalized environment.
And also just how sustainable are the benefits enhancing advisors.
Thank you very much.
So I would say the for the quarter frankly, other than the stronger recovery and some of the industrial segments everything sort of played out the way, we've talked about and communicated before all segments, including personal care.
Performed in line with what we had been expecting if you look at the parent personal care segments. The two segments that are mostly impacted.
Bye bye Kobe than the demand impact it has it's on the hair styling the salons people aren't going.
Going to salons as much and so on the Sun care those are the two they remain the two.
Areas and depending on what happens in 2021 with Covance I think those will still be the areas of focus and potential upside improvement depending on how things develop.
The other ones, we don't see any major changes.
I think from a market perspective hand sanitizers.
It's evolved and the first thing was just get product out there because of the urgency I.
I do think that there will be a little bit of inventory absorption of profit at the entire chain that early on there was a lot of lower end products that made but what we're seeing now is this is becoming a long term cash.
Category that that everybody.
Expects will continue so.
The product sophistication is increasing so we've actually expanded our product line offering so that we can now offer.
Offer different value points for our customers in terms of costs in terms of.
Sensory feeling of if you want a different texture of more of moisture.
If you go into some some.
Some of the stores or are they give you free set is that some some become stickier or has a residue after that all these the products for the future are going to evolve and get more sophisticated so that brings an opportunity for for more targeted technology. So we've actually it's not one product we're selling it's a portfolio of products.
And some of the new formulations.
Are really focusing on sustainability biotech.
Biodegradability natural product. So so there is a lot more happening there I would say in the other part that I would comment on in the personal care and household is of the AR of OCA, obviously that Kevin.
Pension that is has still been challenge this year, but as we go into next year. I think you know our production rates will increase so that will be good on our absorption and I'm really excited about I mean this is one of the biotech areas for us in terms of high volume extraction purification activities that we do and the team really.
He has done a great job in finding new product lines and some that we can that are already kicking in and we're getting new capacity.
And working with some customers, but there's a lot of new products I think that we want to bring into the household segment.
That are exciting too so more to come there, but theres. Obviously the teams are very busy and in that area.
Thank you.
Thank you.
Our next question comes from the line of John Roberts with FBR. Your line is open thank.
Thank you since.
Since we are midway through the fourth through the December quarter could you.
And you probably have your orders I would guess through November at this point can you give us some sense of what the December quarter is looking like.
Again, I don't want to look forward too much as there is a lot of uncertainty right now specifically if you look at what's happening in Europe Pos.
I can say that things are strong.
We don't see a change in the trend line that we had from prior quarter at this point in time.
And then can you talk about what your average operating rates are now since you are through the inventory controls.
Maybe compare them with the pre covert levels or maybe just for the large units like Cellulosics synthetics in video.
So so I think one of the big messages is look we're entering 2021.
Lean and ready to roll out or I mean, we've taken a lot of actions cost there's more things are going to do inventory. So right now obviously as Kevin said, we want to stay disciplined.
In terms of not letting inventories creep and we're not.
We're really going to try to operate with.
A very disciplined SLP process sales operations planning process.
So that we're meeting demand so.
Most most of our plants are improving our absorption rates, obviously versus this year.
The you saw the numbers on the inventory reduction, but if you look at prior quarters.
Relative to prior year absorption rates were lower.
Lower so there is a lot of upside potential as we move.
We moved there I don't have right now Kevin I don't know if you have you have any comments on the at the.
The.
Utilization rates by by groups I mean, we don't give up our plans, but by groups, but it's a much improved and.
Thats one of the upside potential if you look at in a recovery every 1% of sales has significant impact obviously on the gross profit, but that absorption rate our contribution margin.
Rate is much much higher so so that will be very positive for us. Okay. Thank you yes.
That's fair and John I would say that our plant footprint is operating normally at this point, we got through the inventory control piece, which was obviously huge and and you know everything's operating I would say normally and as it should be at this stage of the game into gear most point.
Two key extent, we can see more of a recovery above and beyond what we talked about in that 2% to 4% range.
There's there's only upside in terms of contribution margin, we do have some large plants.
That conversion cost is pretty high and so to the extent you do increase topline and volumes in those in those big facilities like the Calvert City, Texas City Hopewell you do see you do see a lot of a lot of uplift in the margin.
Great. Thank you.
Okay.
Thank you.
Our next question comes from the line of John Mcnulty with BMO capital markets. Your line is open.
Yes. Thanks for taking my question I guess, the first one would be on the topline.
You highlighted that there's going to be a number of product lines that you discontinue were shut down I guess can you quantify what that impact to the topline overall would be roughly.
I mean, we haven't shared that obviously, because we have to work with customers on do this in an organized way, but but it's a lot of what we've talked about in the past have and by resale products. It's now tens of millions of dollars.
In a time, where everybody's looking at every every percentage it does impact on that but it's marginal.
And mostly I would say in the personal care area and.
But it doesn't impact our EBITDA at all I mean, the margins are not no that's not our prior we're not here to sell anything we have a clear strategy and we're focusing on where we're adding value and create and can create value for our customers.
So maybe you should and shouldn't should also enable should also enable the team to be better focused and as you know as we remove this what I would call maybe a distraction from the mix.
And working capital.
Correct, Yes, yes.
Got it okay. Okay. No. That's helpful and then I guess the other the other question would just be on on the CEO priority that you listen I'm on the slide.
One of them was around M&A and I know that was something you were holding off on until you kind of got got things a little bit more on order.
Ashland overall, I guess do you feel like you are at a position now with line of sight in terms of in terms of the things that you're working on to improve do you think you're at a point now where we could actually look to us to M&A starting to roll in in 2021 is that is that kind of what that what that messaging is about yes.
Yes, we have I mean, and if you look at it in the segments that that that we've articulated additives biotech I mean, when we talk about I think it's also about additives is just because we need to build broader capabilities. That's the priority areas, So and Asia, obviously growth in Asia would be the other one.
So so I would look at you know the key priorities is pharma.
Personal care.
Coatings. So said, we we said our sort of our big areas and expanding our adhesive business globally would be I would add that although it's not an additive area. It is a very profitable business.
And we are committed to two driving its growth too.
Got it thanks very much for that for the color.
Thank you.
Our next question comes from the line of Dave David Begleiter with this new Bank. Your line is open.
Hi, Thank you good morning.
Hi, Kevin on the 2% to 4% sales growth.
Do you think that break it down between volume and price and mix any FX headwinds you might you might see next year.
Kevin ill give it some time to think through the all of the other details, but I would say I think core growth volume, which is the big driver.
No our consumer business has performed this year, we can see a continuing it so it's really that that level of growth moving forward.
I would say on the percent impact for obviously the exiting lower end again, it's not a.
A meaningful EBITDA impact, but it will in.
As a percent I mean long term it doesn't really.
Change anything for us, but this year, obviously at a percent level it reduces the personal care a little bit.
But I would say, it's more of a continuation in the consumer side I think the part that we were projecting what we're seeing today, we recognize the upside we don't.
We're not.
We're not ignoring it but we don't control it I think thats, where we were say look the 2% to 4% improvement that we're seeing in our underlying business and in the industrial side.
We're comfortable with is projected in a sense that there is limited downside unless that everything shuts down again, we don't see that going back.
The part that we don't want to get ahead of ourselves or or the hope is that everything is going to recover.
To be clear I mean, we hope the things are going to improve and as the the underlying recovery accelerates.
But hope is not a strategy and we're not here to sell hope we're here to deliver results and and I think it's probably better for us to plan on the things.
That will drive.
Our more disciplined operating performance and we're comfortable with the numbers were laying out right now based on on those scenarios, but Kevin I don't know if you want to add any any other color.
Yeah sure.
Yeah as you as you know the volume side of the equation is much heavier load.
Levered to the industrial businesses and so it's probably seven a 70 30 split give or take between industrial and consumer on the volume even though the consumer.
Consumer revenue is a fair bit higher as we look at 2021 I'd say the main driver is going to be volume a lot of that is going to be on the industrial side, and we're going to be looking to areas like coatings and adhesives in general.
To drive that energy is going to continue to be a headwind we expect.
Don't see that changing its not a huge part of the business, but you know, but it's it's down pretty significantly and thats, probably thats probably going to continue.
You should see some positive mix as well, which tool which will help margin.
Yes, I think I think the mix between price and raws is going to be pretty well balanced on on an overall basis and so I think that's kind of going to be the story and you just take a step back and look at it I think the consumer businesses are going to continue.
To to perform as they have good momentum in the <unk> and we've talked about some of the some of the purchase for resale stuff that will be exiting not a big impact you'll see a topline and bottom line not.
And it really really it kind of comes down to how do those industrial end markets perform.
And to the extent they recover better than we should we should see that flow through our results in a pretty meaningful way.
And for that question, Kevin and GMO incremental gross profit margins next year on these higher sales how should we think we should be thinking about that dynamic.
Well I mean, if you just took one maybe even.
Although we Didnt give guidance I think you have some good numbers to model different things, but what 1% incremental growth. Even you look at our current gross profit.
So what that does on the gross profit and the absorption right now Kevin depend I mean is it depended on the mix, but if it's more towards the industrial side that is the.
Higher asset Cellulosics as an example, you could see a significant.
Percentages increase in terms of margin impact for those products. So.
Yeah, I know in the upside is.
Thats right in the in the larger facilities and this is going to be cellulosics and settle on X, primarily adhesives Nox because their conversion costs are are a much smaller percentage of Cogs, but if you look at those big facilities contribution margins can be north of 50% per annum incremental volumes and that's more of a rule of thumb it depends on the planet.
On the product line, but rule of thumb is 50 plus percent contribution margins.
Thank you very much.
Okay.
Thank you.
Our next question comes from the line of Laurence Alexander with Jefferies. Your line is open.
Hi, two questions one just a follow up on that.
Given the.
Incremental margins and the cost savings and the favorable mix effects and the fixed cost absorption on the large units.
It looks like Youre bridging effectively to a 10% to 14% EBITDA growth.
Can you talk a little bit about what factors might be against that here in terms of stepping up has today investments or growth or any other kind of levers that you might have or or or areas of leakage.
And the second question is on.
Staying ability.
Roughly what percentage of your products are.
Kind of in the disadvantaged Carla.
And of those how many are effectively protected from substitution because they're in regulated more.
Or highly tailored specked formulation, so any kind of displacement will be all for several years or is that right.
Okay.
Let me let me.
First comment on on.
The the the growth and and EBITDA and leakage.
I mean, frankly, we've we've been very focused on what we're doing and I think the slide that of the growth drivers, it's pretty simple for US right now it is revenue growth and frankly, it's mostly the recovery we are doing a lot of work and revamping our entire innovation driving.
So thats, what I want to focus moving forward, but some of these things take time, so so developing new products and technologies.
I am more focused right now I don't control how quickly the market recovers if it doesn't recover this year. It will recover next year. So it's an issue of timing of that.
And what I want to make sure is that we are.
Physician to be resilient. So the demand comes faster, we capitalize and that's where the the upside would be for relative to what we're saying and in terms of.
The 2% to 4% and the net EBITDA growth on self help.
So there is that's where the upside is so being resilient.
But the part that we need to drive not just for this year, but for 2022 2023 is getting traction on core innovation and all and any inorganic.
Today again aligned with our strategy. So so that's where I want to see the growth. That's what I think we control and which really will determine our long term performance. So thats priority number number one.
If you look at sustainability, we will when we this will be a big item when we do our Investor day I mean.
We look at it.
A big part of our portfolio already as you know has a big sustainability profile as you can imagine cellulose I mean that we have a lot of natural products or raw materials.
The issue is when you start looking at well I would say we have the ones that are highly sustainable some that are partially and and as you said some that we need to continue to work on all the technologies.
In some areas.
We we can provide value to our customers as the technology evolves, so moving to sustainable to to natural products Biodegradability, we can build that into our products and thats part of the value that we're going to give our customers in other areas and I would say acrylics as an example for per.
Or polyurethanes and our adhesive business, it's not lets say that we are going to change our products, but can we enable our customer to drive sustainability and their product. So.
I think structural adhesives are a good example, lightweighting cars.
Enabling would materials for construction. So there is a lot of areas that that when we look at these these objectives that we've set ourselves up for ourselves of sourcing operations and solutions. The first two are things that we can do internally and change the solution is a much broader base than just you know our.
Your products advantage or disadvantage. It's also about the value that you can create to your customers to advantage their products too. So it's a little bit more complicated I think that the other comment I would say on sustainability.
Biodegradability remember I mean, we have obviously biodegradable products, but the issue is not in the product is biodegradable. It's also about tailoring the product to meet specific.
Requirements I mean in one country or in one region may be you know the requirement to be classified as sustainable it's Scott I'd Biodegrade, an X amount of time and in another place they might set a different target. So it's not just to the question of is a biodegradable is it. The question is is it biodegradable in.
In line with the targets that have been set and how do you dial that into your the products that you develop so theres a lot more discussion that will come in this area. It's not just a simple yes.
Yes, or no answer to most of the questions that come there. So we'll present a better picture of what we're doing as we move forward, but what we are starting from a very good place right.
Right now.
Thank you.
Thank you.
As a reminder, ladies and gentlemen, Thats star one to ask the question.
Our next question comes from the line of Mike Harrison.
Global security.
Your line is open.
Hi, good morning.
Hi, Mike Hi, Mike, given where you you talked a little bit about.
The coatings industry and wanting to maybe maybe add some things around that especially additives business.
And in particular, you mentioned the strength you're seeing in.
Architectural coatings have you started to tap into some of these opportunities around industrial coatings at this point that and is that something that you can do organically or is that really where you need to be M&A in order to increase your exposure in that non architectural piece.
Of the coating space right now it will we're definitely doing things. The teams are this is part of what I was mentioning around review.
Revamping.
Their innovation portfolios and we can do a lot of things organically I mean, as you will know as you look at industrial there's still a lot of solvent based products, but there has been a.
The industry continues to move to.
Water base powder, I mean that Theres a lot of other other types of products that are going in the water base, specifically, where we have a big big position vicious performance that some of the products have performed for architectural when you're.
Protecting structures modem.
That performance needs to increase so I think we need to do both some of it is organically through the technology development and some of it will be inorganically expand the portfolio and I don't I don't separate the two architectural industrial.
From my just my past history, although there is a lot of of movement of technology across those two areas. It's just how you dial it same as I said on on the on the sustainability how much you dial into the performance that you won obviously dialing down tends to be easier than dialing up.
And in the case of moving from architectural to industrial issues, you got to dial up.
Properties water resistance.
Corrosion resistance I think things that the products going into and I think we're well underway in that area.
All right. Thanks, and then on the Nutraceuticals business, you mentioned that return to growth.
Can you give us an update on some of the actions that you've taken to to get that growth back where you want it and in particular.
Some some of the margin actions. So would you say that this business is stabilized at this point or or poised for growth maybe just some color there. Thanks.
Hi, Thank you for that question, because I do want to recognize that team I mean coming into the company I mean, obviously that was an area that was heading.
A hit hard and there's a lot of commentary.
If I go back to a year ago when.
My first call.
And this team really has stepped up and done a fantastic job and it's not just they recovered should you know market position new business with new customers, it's not about totaling only one big customer. It's it's really been more diversified having heart to heart discussions with customers on what their product needs.
Our what the quality reliability of supply we need to hit.
They really move the needle on that and are well underway.
To to continue drive the space in itself is still growing health and wellness.
In this environment people are concerned and there is fundamental demand.
So so they've done a fantastic job, but I also want to recognize I mean, our plans a lot of them are.
And in New Jersey area. This year, they have done a phenomenal job in the middle of Cove It.
Supplying our customers operating I applaud.
That entire team and what they've accomplished and we are making good traction also on the cost savings productivity. So they haven't dropped the ball and I think the end of the year really in house with an incredible performance that we're hitting our run rates at the end of the year, we're back up to you know pre.
Pre.
Share loss moments with a better portfolio more robust so.
Let us to that.
Thanks very much.
Thank you.
Our next question comes from the line of Jeff The caucus with JP Morgan Your line is open.
Hi, Thanks, very much Tom you talked about a positive price mix effect in consumer specialties.
HM.
Was this more than 1% or less or or.
Okay can you quantify what the what the benefit was there.
So let me give you what were the drivers were and Kevin you can comment more but if you look at the mix in in the consumer side I mean on a life science, obviously pharma being stronger, it's a higher higher or lower.
Margin, however, higher mix of better quality mix area. So thats been very strong improvement in and.
The nutraceutical side that I, just talked about obviously, a big big driver.
The part that softer is our nutrition business up for nutrition.
Our nutrition business a lot of the products that go into food and beverage.
That's still has been impacted by coven.
Beer wine and so a lot of upwards of the travel restaurant entertainment industry still down.
So thats down but that tends to be lower margin business for us so that obviously was.
Favorable to the mix in terms of the growth areas and in the personal care again, we're shifting our focus to the areas that.
That are strategic to us and those tend to be the higher margin more profitable areas that are driving our mix. So it's more the mix side in these segments, it's more the mix, where there's more price stability in that area. There there could be some areas that we had some impact probably of oak as the only one where we probably saw some price erosion.
Early on but thats not not anything new.
And then when it hasn't.
Change that much towards the back end of the year, but Kevin I don't know if you have other other comments you with that.
Yeah I mean.
On an absolute basis, it was call it $10 million to $12 million positive.
Between price mix and raws. So we saw some contribution from each of those I would I would echo I would echo you give them a lot of that water that is mix I mean, when when the pharma business was up high single digits is our highest margin business.
It it really it really does help the overall mix of the consumer business pretty significantly.
Okay, great and in the quarter you took.
$22 million restructuring charge.
7 million environmental charge, how would you allocate those charges to cost of goods sold and two S.
SGN, a or other overhead expenses.
And in general.
What are your cash outlays for restructuring in environmental next year.
So I'll I'll take I'll take that when the towards the 22 million.
The 22 million is is mostly severance and so the vast majority of that is because severance related to the cost of the cost of goods sold work that will be ongoing throughout fiscal 21.
And given given that that's that's $50 million of hard dollar cost.
Typically we run we run about 70 cents on the dollar when when we do these things so that we could have we could certainly have more you know.
You're more of that in the December quarter, I don't really expect much after the December quarter that we want to get through this should be done with it and so yes. So most of that not all of them, but most of it is related to Cogs.