Q4 2020 Univar Solutions Inc Earnings Call
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[music].
Good morning, ladies and gentlemen, and welcome to Univar solutions fourth quarter 2020 earnings Conference call.
My name is Michelle 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 and instructions will be provided at that time, if at any time during the conference call you need to reach an operator, Please press star followed by zero.
We will now turn the meeting over to your host for today's call Heather Kos, Vice President of Investor Relations and Global Communications, Inc.
Of our solutions Heather. Please go ahead.
Thank you and good morning, welcome to Univar solutions fourth quarter and full year 2020 earnings call and webcast joining our call today are David Jukes, President and Chief Executive Officer, and Nick <unk> Executive Vice President and Chief Financial Officer.
Last night, we released our financial results for the fourth quarter and year ended December 31, 2020, and posted to our corporate web site at Univar solutions Dotcom, a supplemental slide presentation to go with today's call and 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 can find the reconciliation to the most directly comparable GAAP financial measure in our earnings release and a supplemental slide presentation.
As referenced on slide two we will make statements about our estimates projections outlook forecasts and our expectations for the future.
All such 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 detailed summary of the risks and uncertainties inherent in our business and our <unk>.
Expectations for the future.
On slide three you will see the agenda for the call David will start with fourth quarter highlights and end market trends, Nick will walk through our financial update and then David will close with progress on our F. 'twenty two nexium integration and business strategy. Following that we will take your questions.
I'll now turn the call over to David for his opening remarks.
Thank you Heather and good morning, good afternoon, and good evening to everyone and thanks for joining our call.
Univar solutions with focused on growing together.
The customer at the center of all we do looking to take full advantage of every opportunity to drive growth as we execute them all strategy.
This is reflected in our Q4 performance, which remains solid as we continue towards downstream is evolving pandemic environment.
The company that is always serious about safety. This is of course remains our highest priority for all employees.
<unk> non customers.
Key highlights from the quarter all we.
We delivered solid financial results above our guidance range, including strong cash flow generation.
As expected, although sales were down versus the prior year, we were able to partially mitigate the economic headwinds are selling to new customers executing well on margin and cost management.
With the purchase of Techie can bolt on the builds on our existing specialty approach and the case markets.
We continue to work with customers as they return to higher operating rates at.
As compared to the prior year, excluding divestments October sales were down 6% November sales were down 3% whilst December sales were up 8%.
2000, twenty's, an exceptionally challenging year for many of those and it's encouraging to see progressive growth in many of our key end markets.
The fourth quarter saw particular improvement in the specialty industrial solutions vertical was automotive manufacturing demand accelerated lifting both our lubricants business as well as automotive coatings sealants and elastomers.
Our industrial cleaning business has seen incremental growth as return to site activities and commercial and industrial buildings increases.
Within the consumer solutions business, we saw double digit growth in pharmaceuticals, and personal care and we partnered with many of the global leaders in these industries to provide them with the highest quality products.
Our general industrial business has returned to growth over 2019 led by growth in the chemical manufacturing industry.
Other key industry sectors are stable.
Dissipate and improving market in 2021.
The refining and chemical processing business was down throughout 2020 due to the significant decline in oilfield services. However, refining activity has begun to increase and leveraging our existing infrastructure to support them as soon as this industry may presents an upside in the coming period.
In the first half of 2021 of the industrial production improved we have seen a tightening supply of certain chemistries and raw materials as well as a tightening in the transportation market.
Although not immune from these extraneous factors, we've been successful in mitigating them by leveraging our integrated platform to deliver products and services to customers by having the right product at the right price to meet the demand.
The recent storms from freezing temperatures throughout the USA, especially in the hard hit, Texas and Gulf region.
Some near term challenges with supply transport and pricing dynamics.
Although we lost a few shipping day, all our facilities are now operational and we're in regular communications with suppliers and customers as the situation unfolds.
Safety for our employees is paramount, while the supporting the needs of people in the hardest hit communities on our working to provide essential products wherever they are required.
Globally January sales were trending in the same direction December and we're assessing the immediate impact of the storms on the USA and Canada results.
The 2021, we do expect EBITDA to show growth at a rate better than industrial production on with some puts and takes we're providing an adjusted EBITDA guidance range of $630 million to $650 million for the year with net free cash flow conversion of approximately 40%, which Nicola.
Sales will expand upon shortly.
Beyond 2021, we believe the imminent completion of Nexium integration and the actions we are taking with the F 22 program and further positioned our business for sustainable success, even if conditions continue to disrupt the business and personal lives and the near term.
We have the right people products sales and strategy that we expect will deliver the innovative solutions that customers and suppliers value and will deliver share growth.
Now, let me turn the call over to Nick who will walk you through our fourth quarter results and our outlook then I will share some closing thoughts.
Thank you David Hello, and good morning to all I am pleased to share Univar solutions solid Q4 financial results and update you on our business activities.
Sales were down five 5% on a reported basis and six 1% on a constant currency basis excluding.
Excluding results of environmental Sciences from prior year's financials, we estimate net sales were down two 1% on a constant currency basis.
Gross profit exclusive of depreciation was lower by seven 2% to $484 5 million or seven 7% on a constant currency basis.
We estimate gross profit exclusive of depreciation was down three 5% on a constant currency basis, when excluding the results of the environmental Sciences.
Our gross margin decreased by 40 basis points to 23, 8% driven primarily by the inclusion of a Brazil recovery benefit in 2019 results and an unfavorable margin impact of final inventory sales and costs related to our exit of the Canadian agriculture distribution business.
Excluding the impact of the Brazil.
And the Canadian AG charges are estimated total gross margins would've been higher versus 2019 reported results.
Sequentially gross profit margin was slightly lower in Q4 2020 due to declines in margin of certain essential products related to COVID-19 demands.
Fourth quarter adjusted EBITDA of $146 4 million was lower by seven 8% and seven 5% on a constant currency basis due to price deflation in certain products lowered demand versus pre recessionary levels and the environmental Sciences divestiture.
The decrease was partially offset by additional nexia net synergies favorable product mix and interim cost reduction measures.
Excluding the environmental Sciences business from 2019 results adjusted EBITDA was four 6% lower on a constant currency basis.
Adjusted EBITDA margins were lower by 20 basis points over one excluding the unfavorable margin impact, resulting from final inventory sales and cost related to our exit of the Canadian AG business. Our estimated adjusted EBITDA margins would have been slightly higher versus prior year reported results.
During the quarter, we captured net cost synergies related to the nex integration of approximately $5 million for full year total of $46 million slightly ahead of our prior projections.
Q4, net loss was $33 7 million or <unk> 20 per share compared to a net loss of $55 1 million in the prior year period.
The decrease in net loss was primarily due to lower taxes being partially offset by the F 22 charges.
Adjusted earnings per share for the quarter was 27.
<unk> 29 in the prior year period as lower adjusted EBITDA was partially offset by lower interest expense.
Sequential improvement in net working capital primarily related to the liquidation of the Canadian Agriculture business was a contributing factor to our strong operating cash flow.
As you recall networking capital was abnormally low in 2019 and free cash flow in 2019 benefited from the timing of Canadian AG prepayments.
Q4, 2020 balances had zero at prepayments and slightly higher aged accounts receivable in the U S, but otherwise normalized levels.
Capital expenditures for the quarter were $29 million, which was lower than we guided last November and Mexico integration related expenses were on plan at $14 million.
We ended the quarter with cash on hand, $387 million in total liquidity, including availability under our asset based credit lines of $855 million.
Collective actions in 2020 related to working capital and F. 'twenty to set us up for higher cash flow conversion, which I'll speak more about 10 minutes.
Our ROIC was nine 3% for the quarter versus 10, 1% last year. We expect these figures to improve as we continue to capture the synergies from integration and grow the business.
Our leverage ratio stands at three five times at year end significantly down from three eight times in the prior quarter net.
Net cash flow available for debt Paydown pre divestitures was over $150 million versus our target of $100 million.
On slide eight we have aggregated the key metrics across our four reporting segments and provide further detail in the appendix.
Our three largest regions saw top line decline on a constant currency basis, primarily due to the environmental sciences divestiture and the U S and Canada.
Lower overall global demand versus pre recessionary levels and energy headwinds.
We exclude the impact of this divestiture and energy we saw us from Canada sales growth trends improved sequentially versus Q3.
In the USA, excluding the impact of the environmental Sciences divestiture sales were down approximately three 8% significantly better versus Q3, 2020 declines of 14% otherwise, reflecting the year over year continued headwinds in energy and bulk.
Canada also performed better versus Q3 due to lower impact from the divestiture of the environmental Sciences business, which has seasonally lower sales in the fourth quarter as well as seeing sequentially better performance in Canada industrial chemicals business.
EMEA saw sequential top line improvement in Latam continued to benefit from growth in industrial solutions.
We saw generally favorable gross margins in the USA and EMEA due to product mix, regardless of the diminished benefits from certain essential end markets.
Gross margins in Canada suffered from the final inventory sales and shutdown costs of approximately $5 million related to the Canadian agriculture distribution business exit.
This is in addition to the amounts reserved in Q3, but allowed for closure on that business by year end 2020.
Latam comparative margins were impacted by the Brazil VAT.
In 2019, but otherwise performed well.
Adjusted EBITDA margin for the business declined 20 basis points versus prior year.
USA adjusted EBITDA margin also declined by 20 basis points as higher medical and legal expenses offset cost savings in the quarter.
In EMEA higher W. SNA versus the prior year resulted in lower margins, while in Canada, lower WGNA helped partially offset unfavorable gross margins.
<unk> margin change was negligible.
Turning to key 2021 highlights we emerged out of the fourth quarter performing better than our guidance for 2020, and we are confident in our ability to execute on our strategies in 2021.
Starting with the 2020 reported adjusted EBITDA of $636 million, let's look at some of the impacts we expect to affect 2021 adjusted EBITDA.
Firstly, we note the impact from the divested Canadian agricultural services business that closed in Q4, which is distinct from the Canadian agricultural distribution business I spoke to earlier.
Second last month, we announced the signing of an agreement to sell this triple our Europe plastics business, which we expect to close subject to customary conditions in the first half of 2021.
Collectively these contributed approximately $20 million to adjusted EBITDA in 2020.
We also noted last quarter, a sequential decline into 2021 of essential end market product demand impact of $35 million.
Offsetting these are expected further next year net synergy benefits of $20 million to $25 million in 2021.
Along with organic business growth from anticipated overall higher demand for our products with economic recovery. Our aggregate 2021, adjusted EBITDA is expected to be 630 $650 million.
We view, our 'twenty 'twenty, one guidance is reflecting core business growth better than general economic forecast for the year.
Guidance for our Q1 2021, adjusted EBITDA is in the range of $150 million to $160 million.
The recent severe weather in the U S and in particular, the Texas area have disrupted normal shipping supply and pricing in the interim.
Our teams have responded very quickly and we are currently operational at all sites while.
While the low end of our Q1 guidance reflects some adverse impacts we do see opportunities to offset these in the quarter and we are confident in our overall 2021 outlook in.
In addition, excluding the impact of divestments in 2021, we expect our adjusted EBITDA to improve sequentially quarter over quarter in line with consensus of economic projections for GDP and industrial production through 2021 with a slight falloff in the fourth quarter due to seasonality.
Now, let's look at some of the other pieces of 2021 outlook.
Net working capital liquidation from the exit of the Canadian AG distribution business resulted in proceeds of $52 million in 2020 faster than we anticipated and we expect to receive an additional $25 million in 2021, which is net of related payables.
With the exit of the agribusiness, we will no longer have the fluctuations associated with agricultural seasonal working capital.
Our plan is for networking capital to be generally in line with our guidance of 13% to 14% of annualized quarterly sales.
Q1, and Q2 net working capital percent may end up higher due to the runoff of the AG networking capital without any contribution to sales. In addition to the pace of recovery in the rest of the general business and the impact from inventory price inflation.
Net working capital efficiencies and planned sales in our current guidance are expected to result in very little cash impact from net working capital by year end.
Cash use of other expenses and timing of year end accruals is expected to be up to $35 million, which is near our prior guidance of $30 million.
Final Nexium integration expenses, which are not included in our adjusted EBITDA are expected to be up to $70 million per year.
And our planned capital expenditures will be up to $130 million.
Consequently, we are targeting net free cash flow to be a minimum of $250 million with some upside to $300 million.
Excluding the final next few integration expense of $70 million, our net free cash flow forecast is in the range of the normalized net free cash flow of $325 million to $375 million. We provided last February the.
The resulting net free cash flow conversion of approximately 40% is in line with our prior guidance as well.
These numbers of course exclude proceeds from divestments or any cash usage per acquisition.
Net leverage taken into account all cash is now expected to be below three <unk> times for year end 2021, with ample cash and line of credit liquidity throughout.
In conclusion, I am pleased with our progress against our F. 'twenty two objectives in our 2021 plans to achieve run rate adjusted EBITDA margins of 9% by end of 2022.
It's been a great first year for me at Univar solutions, and I really must thank all our employees for their good work as well as our many constituents outside the company as we work through our business transitions in a challenging environment.
David.
Thanks, Nick.
Moving onto our integration activities and despite the COVID-19 obstacles, we successfully delivered on several significant integration milestones in 2020, including delivering $46 million of cost synergies.
Other highlights include.
The completion of our SAP system migration in the USA with a final districts going live just last week.
The U S chemical and ingredient distribution business is now on a single CRM and ERP technology platform, which reduces the complexity inherent when working on multiple systems.
The simple visibility to things like stock availability and service levels can really hone in on providing a better experience for our customers and suppliers alike. As we now move to optimizing processes.
Our SAP migration to Canada, and Mexico remains on track for the second half of 2021.
Our site consolidation plan continued closing three branches in the quarter, bringing total closures to 28 and expect to close approximately 10 branches in total this year.
We finalized the sale of two further sites with cash proceeds of approximately $3 million.
1019, a real estate site sales have generated pre tax cash proceeds of $73 million.
Moving onto the F 22 update.
We ended the year with X 22 charges of $92 million, although only $9 million of those charges with cash expenditures in 2020.
We finalized the exit of the Canadian agricultural and wholesale distribution business.
This business generated approximately $291 million of revenue in 2020 with negligible earnings.
The wind down of its associated working capital generated $52 million in cash in 2020, and we expect an additional $25 million from 2021.
Of the planned divestitures in 2020, we sold our emergency spill response business on in Q4 close the sale of the Canadian agricultural services business.
As noted last month, we also signed an agreement subject to normal closing conditions to sell the disappoint plastics business in Europe.
In total these divestments are expected to yield approximately $182 million in proceeds.
These planned divestitures generated approximately $162 million in revenue and had an adjusted EBITDA impact of $20 million in 2020 as Nick referenced earlier.
With the remaining divestment expected to be complete by mid year, we are increasing our total expected divestment proceeds from $200 million to approximately $240 million.
Expect only minor incremental tax payments.
We also acquired a small but important business that distributes innovative specialty silicon solutions in China from Turkey, Ken.
As we approach the two year anniversary of becoming Univar solutions and put the systems migration and integration in our rearview mirror, we can see the path to realizing the full benefits of our optimized scale, whilst remaining wholly committed to our strategy of having a strong local presence for our customers and opt.
<unk> cash flow and margins.
Our expected strong cash flow and divestiture proceeds will continue to fund our strategic initiatives and reduced our net leverage to below three times by year end.
We have plans to use our cash to fund our growth initiatives with high ROI capital expenditures and investments and at the right time to consider slightly bolt on acquisitions and return of capital to shareholders.
Our commitment to reduce the average amongst <unk> cash flow has been recognized by the rating agencies and let fits to upgrade our corporate tissue and debt ratings. This month.
Moving to our business strategy progress the strength and capabilities about sales force remains a key driver of business improvement as we leverage our advantage network of technical and regional sellers in combination with our digital platforms.
As noted earlier the completion of the business system migration in the USA, Inc. Sales professionals now have more time available to them to be with customers.
Even with the obstacles of COVID-19, we've maintained momentum and to see.
Good progress and performance, including seeing the all important win loss ratio being positive in all regions.
The <unk> two program is well underway. In addition to the business portfolio optimization work we've done the following.
As I mentioned earlier, Jim Holcomb is now leading our chemical distribution business in the U S and Canada.
Jim has over 25 years of chemical distribution experience on a per.
Proven track record of success.
Jim has hit the ground running focusing on growing sales in North America, and championing the needs of the customers.
Last quarter I spoke about the establishment of a customer experience or CX centre of excellence, combining <unk> and <unk> those are key suppliers and customer feedback and can be net promoter or NPS scores.
This team has hit the ground level indicative of already established metrics that runs at the heart of good customer experienced staffing, it's simply doing the basics well.
In addition, the CX team will continue to elicit the voice of the customer so our NPS scores as well as leverage our advanced analytic capabilities to proactively address pain points, along the customer journey.
We established a baseline for NPS. Thanks for the feedback we received from customers in Q4.
I can share that our NPS score is considered good but for US good isn't good enough from the change to great and also excellent has begun.
The expansion of our consistently technically differentiated approach to customers with the globalization of our consumer and industrial solutions verticals has been roundly welcomed and positioned us for growth and mix enrichment.
Given our expertise our strong supplier partnerships continue to expand and remain a source of competitive advantage.
Over the last few months, we've been awarded new or expanded postholes organizations from supplier partners such as one ex rel lessons Camos, Dow Dupont Emerald evergreen fluid energy Greek Delima, Henkel nutrient Sasol Solvay Novacare.
These partnerships along with the leading chemical and ingredient products. They bring a recognition of how our partners value our end market expertise and digital capabilities to support that growth.
We continue to build and expand our robust portfolio of products and solution capabilities.
We also continue to accelerate our omnichannel approach to Bachelor address customer preferences, as we expand our pulp constant customer webinar offerings from the technical capabilities of and stimulate demand for certain chemicals and ingredients. These attracted over 1500 customers across all regions in the quarter.
Meanwhile, 10 dot com a longstanding dedicated digitally enabled sales channel continues to advance in a marketplace with traditional sales methods are challenged.
Put processes in place to drive growth, including extending out such that E. Commerce capabilities driving increased sales leads from our sites and expanding our product lines globally.
Overall, our digital footprint continues to deliver results as we use data as a strategic assets to create systemically digital advantage to search select source and self serve capabilities for a growing number of customers whatever the time of day or night they choose.
And our 10 central Dot Com No frills channel continues to show growth in the USA is now also available and already delivering results in Canada on slightly parts of Europe.
Altogether, our digital foundation and committed customer centric strategy is aimed to maximize the effectiveness and the 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 our supply chain and innovate with customers and accelerate growth in step with consumers changing preferences, while always staying in tune with specific local needs of customers.
So before we come to your questions and to summarize we delivered solid financial results from both adjusted EBITDA and liquidity, while realizing our purpose to keep our communities healthy and.
And safe during challenging times.
We're maintaining firm control of our working capital and other cash needs and ended the year with $855 million from liquidity.
We maintained momentum in non Mexico integration approach non <unk>.
<unk> achieved a $120 million net synergies by early 2022.
We're investing in furthering our digital advantage is becoming increasingly attractive to our customers.
The F 22 program, just tracking very well towards delivering higher divestment proceeds growth and 9% EBITDA margins by year end 2022 key global and functional excellence.
We remain committed to give or approximately 40% net free cash flow conversion in 2021 and improve on that metric in years beyond.
We've made significant progress with our cash management and now see leverage below three <unk> times by year end 2021.
We continue to see opportunities to capture new business and share growth, especially now that we've completed the U S business systems migration from.
It is behind US our organization is freed up to focus solely on understanding customer needs and then delighting them.
We will focus on delivering operations operating agility and taking decisive actions to enhance our competitiveness, we will increase our operational and financial flexibility.
Good day at the company's position to capture greater value from the anticipated market recovery and growth opportunities ahead.
Collective assets will deliver enhanced shareholder value.
Thank you for your attention, please stay safe and healthy and with that we'll now open it up for your questions.
Thank you at this time, if you would like to ask a question simply Costar and then number one on your telephone keypad. If you would like to withdraw your question. Please press the pound key please limit yourself to one question and one follow up please hold while we compile the Q&A roster.
And your first question comes from Steve Byrne Bank of America. Your line is open.
Yes, David you mentioned the two year anniversary is coming up and clearly you have made a lot of changes in the overall sales force structure.
By region by specialty and so forth how would you characterize the.
The performance of the sales force now.
Relative to your expectations.
Good morning, Stephen Thanks for question.
I think that.
Really happy with the way our sales organization that comes together.
Have a good stable organization that have reacted and responded very very well cheat difficult circumstances. In 2020, we have really strong sales leadership in both our regional and specialty vertical businesses are people.
If I look at the logging into so the leading indicators like the call rights of pipeline lagging indicators like the win loss ratio, they're all trending positive. So I'm very confident in our sales organization very encouraged by the leadership that we have a stability relative to bring into the organization.
And was curious about whether you saw any differential impacts from the pandemic.
On your customer base, depending on their size.
Were smaller clusters disproportionately impacts that are a force to shutter just curious as to whether any of those dynamics might impact the rate of recovery.
I don't think day, it's going line by the Reits have recovery, Steve I think you can do really well energy segment equaled <unk> rather than <unk>.
The size.
I think that.
Our people responded really well to them, what we did say, we could changing customer preference and how they want it to be contact on how they wanted to purchase.
And that's been a really light to be.
The increase in our business through our digital channels and our continued investments in non digital channels be able to react and respond to that for customers whenever they feel like interacting with us.
Just one last one are you pushing price in anticipation or.
Higher purchasing costs from your suppliers.
While we manage price I think the thing you manage price pretty well these days and as you can appreciate it's a fast changing dynamic market. So, yes, I mean price increases or the order per day at the moment and our teams are all over it.
Very good thank you.
Thanks, Dave.
And your next question will come from Kevin Mccarthy from vertical research. Your line is open.
Good morning, everyone.
David if we were to see a sharp and sustained environment of selling price inflation across the chemicals industry.
Would that have a positive effect on your EBITDA margins are a negative effect or no effect I'm trying to get a sense as to.
Whether that sort of environment would make it easier or more difficult for you to achieve your streamlined 22 EBITDA margin improvement goal.
Yeah. Thanks, Kevin given it's a good question I mean generally speaking as a distributor we prefer volatility in the marketplace rather than a stability in the marketplace, because we can make money.
Marginally more non U.
Price goes up and we can make <unk> more money if the price go down if we manage our business appropriately manage our stocks appropriately.
So right now we operating in a period of chemical inflation, we feel confident that we can manage our way through that and I think it's going to be broadly supportive to our assets our items.
And then a second question if I may for NEC on on Slide 10.
You outlined.
Your free cash flow goals for 2021.
And you've characterized it as a minimum of $250 million with an upside to 300 and so my question is.
If you were able to achieve that upside of I guess $50 million.
Where would that come from in the context of the various line items that we see on slide 10, what are the key moving parts in your mind.
Sure Kevin Thanks for your note last night I would say as you look down <unk> said in the script.
Most of the cash uses are kind of up to amounts.
Whether it's capex integration expenses or other cash uses.
Those are kind of what we think are kind of the Max's and so we believe that we will manage to hopefully better numbers across all of them and that should provide.
Some upside to the bottom line 50 number as opposed to giving ranges to each one we kind of.
Cat categorize them as kind of Maximums, and then hope to do better in total.
I see okay. Thank you very much for the color.
Sure.
And your next question will come from David Begleiter from Deutsche Bank. Your line is open.
Thank you.
David just in the $35 million with central market demand, we think will come off this year.
What portion of the growth does it represent and is it half and how much of that central demand do you think sustain going forward.
Hi, David Thanks for question and I think really got.
That reflects.
A lot of that $35 million, we're seeing quarter to quarter, It's free and reflects Bollywood 65 is kind of a full scale on on things like hand sanitizer.
And a lot of that was in margin rather than.
Volume. So we expect to have still higher volumes for the counter products that going from kind of chemistries that we sell into those products.
2019, but not of the same kind of margins that we have in 2020 are in those periods of 2020, which is a $35 million.
Got it and you mentioned sales Jama was similar to December where they up 8% in January.
What do you think there'll be in February knowing that we do from Hasnt impacts from the severe winter weather.
Well I'll just say I mean January is trending very much in line with the samba.
February is a really interesting months.
Given where we are with the interruptions in supply.
The people, we had from the big trades in non interruptions in supply and opportunities. This app. So we're working our way through that at the moment I don't think that February is going to.
Hello. This is not just the quarter well and so we're looking really across the three months to see what impact that will have we know what billing days, we lost shipping days, we lost and we know how much so that we can catch up.
We know how much of the pond capacity is down at the moment, we don't know how fast that will come up so were very carefully looking at the stock that we have to make sure that we can maintain supplies to our customers.
And on key product flowing.
Thank you.
And your next question will come from Duffy Fischer from Barclays. Your line is open.
Yes, good morning, guys.
First question is just around you are calling out price deflation in certain products can you kind of walk through what those products are and more importantly was that a one time issue in the quarter or does that have to anniversary now through the next three quarters as well.
Well I think we had price deflation and a variety of products I mean, certainly some of those the ones into essential end markets that we had in in.
In Q2, and Q3, certainly some of the Chlor alkali family, we'll see now what happens in Q1 and Q2 <unk>.
Supply situation in Tara.
<unk>.
Okay.
I'm sorry, if that was just so it wasn't that you got caught where you bought inventory at a higher price and had to sell it at a lower this is just the.
The prices dropped and so that makes the business less attractive on a structural basis correct.
It isn't that we got to write stock off I mean bear in mind, we did have to write some stock half to go.
Associated with the Canadian egg distribution business day, our exit from that but really it's caustic and HDL, what the sale prices fluctuate.
Quite significantly and it just reflects those bonds in the cycles Upfronts were at the time.
It's going to add that.
That's consistent with what we've called out at the beginning of the year with reference to the guidance and it was reflected in the Q4 numbers.
Okay Fair enough and then.
And in general as we enter 2021.
Roughly how big is the energy business for you guys in your 2021 outlook and is it starting to inflect with energy prices rising or is it still.
Trending down.
And so as we I think we've said before our LNG business problems you can see it's about 8% of our total business upstream.
Is 3% of that speech.
<unk> gross profit per.
Planned into 2021 to have similar sorts of levels as 2020 now that the oil price.
<unk> moved a little and demand is moving up.
Yes, we did take some costs out during 2020, there's probably opportunity for us to leverage our existing infrastructure to maybe provide some some upsides could be mentioned that in the prepared remarks.
Great. Thank you guys.
And your next question comes from.
Michael Mcginn from Wells Fargo. Your line is open.
Good morning, everybody can you hear me okay.
Yes, Thanks, Mike.
Good morning.
Morning.
I appreciate slide nine specifically the end market organic growth forecast.
Four eight to five six so I was just wanted to put a finer point on that if we're assuming some additional divestitures and then incremental currency tailwind are.
Are those two factors offsetting each other so that we can assume that your total sales is kind of.
Reflected in that range that you gave above that range or is one going to offset more than the other speaking of acquisition divestiture acquisitions versus currency.
Yes.
Our target really with the growth there is more DTP focused.
And obviously, we back out the divestitures from the EBITDA. So I would say, we're looking just to kind of put a point to it to grow our profitability. Our DTP are deliver gross profit as well as our EBITDA above on a reported basis above that general market conditions number.
So FX is a bit of a tailwind going into the year.
Divestitures has been adjusted and excluded and so the reported business will be above that general economic indicator level.
Sorry, so that's not a sales target that would deliver growth.
Yes, yes.
Yes, that's right that's right.
Because as.
As we've always said.
Revenue fluctuates based on pricing and our focus is to have delivered gross profit above general economic indices.
And as well as EBITDA.
Okay.
And then.
<unk>.
I wanted to switch gears to the supplier authorization they seemed a little.
As we notably above average on what you've kind of been reported in the last couple of quarters.
On the other hand, you noticed you noted a pharma product in EMEA I believe that was rolling off its product lifecycle is the way to think about your business that youre going to continue to bring in these value add chemistries, but there are some older products skus in your portfolio now that are reaching the end of their life cycle.
And could you frame that.
If that's true can you frame the difference between those products, maybe how long it takes for brands for the sales force trained on the new product versus our new products Rolling off really low margins for you guys.
Any color there would be great.
Sure.
And the last.
Probably two years, we've been calling out.
The wind down of finished pharma business in Europe, I think last year was $50 million.
On the previous year.
And that's.
That's a one off it's a onetime thing it's a one off it's one product and there are others.
There are like that that should roll off.
The addition of new supplier chemicals and ingredients is really a testament to the strength of our.
Specialty.
Seamless solutions industrial solutions verticals on the attractiveness of those in the end markets. They go into and so diesel.
<unk> to the portfolio of chemicals and ingredients, we have to be more and more attractive to customers in that sector, which will be fueled growth.
We think exciting growth in those in those more specialized chemistry, so, yes, I think quarter for Wassa.
A busier time for new authorizations, but that really is the testament of the team and the consumer solutions and adjusted solutions book was in particular from the new authorization from products that were bringing on as well as the change in our bulk business.
Some really good new deals to do.
<unk> growth as well.
Great and then if I could sneak one more in you called out bolt on M&A and I think thats kind of a shift from the divestiture mindset.
<unk> had the last few quarters.
Could you talk about when you do bolt on M&A.
For a property that you purchased is that incremental or does it offset your 10 branch closures or is this something you can layer on top of your your freight network your existing branch network.
And then the differences between maybe the businesses you're targeting versus the EMEA business that you're divesting. It seems like that had some medical exposure would do well as elective surgeries start to pick up here. So any comment there would be great.
Sure. So you know on the deal on a stand up.
Priority has been to get our balance sheet and debt shake them too.
Bring down our debt leveraging you'll remember that one of our streamlined 2022 objectives was to get our debt leverage below three times by the end of this year and I think we're in pretty good shape to do that by good cash management and some of the divestments that we have to focus on our core business in America with selling.
We believe that that had.
The growth profile in better hands than ours, better and being people, who could could focus on it because it's a slightly different business from the rest of the business.
And we seem to new owners are going to be happy with their acquisition on the people in that business are going to have.
I have a really good growth profile with a new one and so we're very excited about the future.
As far as the M&A that we will now look at and we'll be very selective in the M&A that we have and we'll look to see the things that actually.
Add to our product portfolio all bring their technical capability, we don't have or may be even.
And take us into a geography, which is adjacent to what we may be already and we can leverage our inputs.
Infrastructure on our digital infrastructure to bolt them and bring them in so we're being very targeted to be very disciplined and very targeted about the kind of M&A that we'll go after.
And the priority is first and foremost to get that debt leverage below three times and we're well on track to do that.
I appreciate the time thank you.
Again, if anybody has a question. Please press star one on your telephone keypad.
One on your telephone keypad. Your next question comes from Laurence Alexander from Jefferies.
Thanks, Alexandra I apologize from Jefferies. Your line is open.
Good morning.
So just to follow on the M&A question could you give accounts as you are coming out of the spring to a more normal environment.
Our regional ambitions, so how youre thinking, particularly about Asia.
I'm curious.
The need to change your scale there.
And also opportunities from Europe.
I'm sure and good morning Laurence.
<unk>.
We just we have a small position in China at the moment.
Thats legacy from Univar, and then we added onto that our legacy position.
From net sales solutions, when we bought them and we've added another small piece onto that now which is really building a specialty portfolio around some key suppliers.
I think our M&A strategy.
Looking at concentrating goes in the areas that we already are.
Rob.
Then rushed to see.
New geographies, so I think that looking at whether there are things that we can AGA in Latin America to become a real powerhouse there and build on the success that we have there whether there is more opportunity for us in EMEA, where we have some from some dark spots across the EMEA landscape.
Those small things in North America, which can add to our.
Our specialty focus and capabilities I think that would be our priorities and the.
In the near term.
Thank you.
And your next question will come from the line sorry for any from Exane. Your line is open.
Good morning.
One question left on the logistics side I was wondering if maybe you could remember the remainder stuff.
I guess the exposure you have to your own fleet.
Said participates in Europe and in the U S.
I mean, all you ex.
We don't see any particular team.
Touching on the higher cost Youre testing is on logistics issue. So much so high for your customers the day actually prepay entertain more.
How is the discipline in the industry in that regard. Thank you.
I'm not sure from state the discipline in the industry I can speak to discipline with us. Thank.
Thanks for the question I think in Europe, where abouts.
28%.
Occupancy, 20% our own fleet.
<unk>.
And the you assets more like our North America, it's more like 50 50.
So we have.
Certainly in North America, we have good control over that last mile and that local distributions tend to be multi into branch on bulk products, where we where we partnered with third party wholesalers and yes, there's been some interruption in the assets being some inflation in those prices per se.
Over the recent weeks, we do feel confident in our ability to react quickly I think we focused a lot on our operating agility, and so where we have quickly and proportionately from inflationary environments.
Make sure that we are remaining competitive supporting our customers, but from the funding any increases in transport that we may ask.
Thank you.
And your next question comes from Michael Mcginn. Your line is open.
I appreciate the follow up wanted to keep this call go on a little longer.
So you mentioned the divestiture proceeds taking that up to 40 I think 180 is what you have kind of already.
What youre going to realize.
With regards to your guidance.
Are you assuming in your interest expense are you assuming that you get the incremental fixed fee and that feeds into your debt Paydown and interest expense line item or.
Is that something that would do complete that initial 60 would drive interest expense lower.
How are you working through the mechanics of your.
Your EBIT.
Just general guidance.
Sure Michael Yeah, our assumption is that those divestitures occur in the early part of this year and are marginally reflected and reducing interest expense.
There is a little bit of the EBITDA in the guidance, but.
What we're talking.
$2 million.
This way or the other way in terms of impact.
Not material to the overall EBITDA guidance non material to the overall interest expense, but it is assumed that will be done with our divestitures.
First half of the year.
Okay, and then can you I don't know if this was asked can you walk through regionally.
You mentioned, the Texas shutdown, but outside of that outside Q1, where are you feeling that in terms of your growth prospect core growth prospects.
And look I think we feel pretty good about the whole business at the moment.
Our EMEA business has been on a good growth track.
Our Latam business has also been a good growth track and space on that day U S business.
Is july due to Ibs IP migration behind it I think that's a huge staff I think thats a massive step that we've taken that we use a very busy but a very good year last year and you've got a lot of good things done which sets us in good stead now to grow.
In the U S amounting to our Canadian business.
Now as clear of the agriculture base.
Well, we will continue to show really strong performance, so I feel very good about.
Notwithstanding whatever extraneous things may be going on in the Gulf right now I feel very good about where we are I feel very confident in our strategy and our ability to execute on that strategy, we havent goods seem stable team.
<unk> strong leaders in the right places.
So I'm very confident about our growth prospects.
I appreciate it thank you.
Thanks, Michael.
Thank you that brings us to the end of our Q&A session for today actually from the back call back over to Heather Kos for closing remarks.
Okay.
Thank you, ladies and gentlemen for your interest in unified solution. If you have any follow up questions. Please reach out to Investor Relations team. This does conclude today's call.
Thank you everyone. This will conclude today's conference call you may now disconnect.
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