Q1 2021 Univar Solutions Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to you get the worst solutions first quarter 2021 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 you need to reach and operator. Please press star followed by zero I will now turn the meeting.
But to your host for today's call Heather Kos, Vice President of Investor Relations and communications.
Our solutions Heather. Please go ahead.
Thank you and good morning, welcome for Univar solutions first quarter 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 Friday, we released our financial results for the first quarter ended March 31, 2021, and posted to our corporate web site at Univar solutions Dotcom, a supplemental slide presentation to go with today's call for.
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 a reconciliation to the most directly comparable GAAP financial measure and our earnings release and the supplemental slide presentation as.
As referenced on slide two we will make statements about our estimates projections and outlook forecast 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 uncertainty.
Inherent in our business and our expectations for the future.
On slide three you will see the agenda for the call David will start with the first quarter highlights and and market trends and Nick will walk through our financial update and then David will close with progress on our F. 'twenty two next day or integration and business strategy. Following that we will take your questions with that I'll now turn the call over to David for his opening remarks.
Thank you Ed and good morning, and good afternoon, and good evening for everyone and thanks for joining our call.
We're off to a really good staff for 2021 and I am proud of how the team executed this quarter overcoming the dislocation and the global supply demand balance exacerbated by the severe weather conditions and the U S.
We're building momentum and our focus on strong operational excellence is paying off as we have.
And our strategic priorities and complete on net deal integration activities.
Our Q1 adjusted EBITDA results reflect the successful execution of our strategy and ability to grow market share through and improved operating agility.
The strength of our supplier and customer relationships extensive distribution network and the extra ordinary assets about dedicated team members all contributed to our performance as we continued growing together.
Key highlights from the quarter al.
And we delivered exceptional Q1, adjusted EBITDA of just over $182 million with a strong liquidity $833 million.
As one would expect given our divestiture program and the exits of our Canadian wholesale agriculture business, our headline sales were down versus prior year, but we continue to enter the growth.
For business and executed well on cost management.
Our Mexico integration work is complete and the USA with only Canada, and Mexico outstanding and are on track for the $120 million of net savings we originally committed to.
We advanced our X 22 program streamlining our business with a digital Paul divestiture.
We improved our sales performance with another sequential improvements and our win loss ratio and ending the quarter for the highest customer accounts and the year.
<unk> investments are bearing fruit with approximately 40% of our U S customers now registered on our e-commerce channels and able to utilize 24, seven and self service capabilities. Additionally.
Additionally, already over 90% of U S customers are utilizing our recently launched and still tracking capabilities.
And we strengthened our position and our global specialty and market verticals with new supplier authorizations doubling in the past year unexpected too good for around $10 million and annualized delivered gross profit.
We do see increasing business activity globally. Despite the resurgence in COVID-19, and parts of the world, particularly Brazil and Continental Europe Understandably.
Understandably given the businesses, we have divested or exited in 2020.
January sales were down 8% February sales were down 4%, while March sales were up 4%.
The decrease in Texas during February along with the Suez Canal blockage at March caused unprecedented supply disruption globally from certain chemistries and enrolment cereals, as well as and the transportation market.
Once again, we were able to provide existing customers with security of supply and the most difficult to circumstances as well as support the needs of new customers, we've been let down elsewhere.
The first quarter saw continued double digit growth sales and our industrial solutions business with strong performance and case lubricants and industrial cleaning.
The case bent business benefited from a combination of tight material supply and strong consumer demand and construction automotive and general coatings.
Lubricants and seeing increasing day mountain within industrial and manufacturing applications as well as the automotive maintenance market.
Our consumer solutions business saw double digit sales growth led by our beauty and personal care business in North America.
We are seeing especially strong demand with skin and hair care applications were up and spoke formulations and strong supplier partnerships allow us to provide a differentiated value to customers.
Our general and industrial business continues to see sales growth and was especially strong and chemical manufacturing and industrial and manufacturing applications.
Our extensive organic chemistry portfolio supported growth in these segments, while the ability to leverage our scale enables us to provide our customers with security supply during Q1.
Although we had a fourth quarter of year over year declines within energy and refining without seeing some sequential improvement and this may present, an upside for the remainder of the year.
Our services business was down double digits and the quarter largely due to microchip shortages and manufacturing disruptions within the automotive and airlines set for us, but we manage chemical waste streams unrelated recycling programs.
That business remains fundamentally strong.
For 2021, we still expect to grow at the rates better than industrial production and.
The second quarter start and strongly ahead of our previous expectations. We are providing guidance of 180 million for $190 million and raising our full year adjusted EBITDA guidance range to $680 to $700 million.
With net free cash flow conversion above, 40%, which Nick will expand upon shortly.
Beyond 2021, we believe the imminent completion of the next few integration for the final stage of and Canada, and Mexico and the actions we have taken to streamline our business.
And that positions us for sustainable success.
Got the right people products and tools and strategy that we expect will deliver the innovative solutions for customers and supply is volume and that will position us to deliver shareholder value.
Now, let me turn the call over to Nick who will walk you through our first quarter results and outlook, then I will share some closing thoughts.
Thank you David Hello, and good morning to all I am pleased to share universe solutions solid Q1 financial results.
Net you on our business activities and provide an updated outlook for the rest of the year.
Sales were down two 5% on a reported basis and for 3% on a constant currency basis.
Excluding results of the Canadian agriculture business from prior year financials, we estimate net sales were relatively flat and down one 6% on a constant currency basis.
This reflects the headwind and energy versus prior year and the February shutdown and the U S, which were partially offset by a strong recovery seen and March across all geographies.
Gross profit exclusive of depreciation was higher by one 8% to $542 4 million and flat on a constant currency basis.
Our gross margin increased by 110 basis points to 25, 2% driven primarily by favorable product and end market mix as well as the impact of chemical price inflation due to the disruption in the supply chain.
First quarter adjusted EBITDA of $182 2 million was higher by 12, 7% and 10, 6% on a constant currency basis.
Adjusting for the Canadian AG businesses growth was 12, 5% on a constant currency basis. The increase was primarily driven by chemical price inflation due to the February disruption in the supply chain, the realization of Nexium and net synergies and product mix, partially offset by the year over year.
Here energy headwinds.
As a result, adjusted EBITDA margins were higher by 120 basis points and as you may recall last year, we did have a higher environmental charge.
Correspondingly our conversion ratio also improved substantially and the quarter.
Moving on to slide seven Q1, GAAP net income was $66 2 million or <unk> 39 per share compared to $55 9 million and the prior year.
Sure.
The increase was primarily due to higher gross profit lower warehouse selling and administrative expenses and a loss on the sales of business and the prior year, partially offset by higher taxes and higher pension related expense.
Beginning in 2021, we changed the calculation methodologies for adjusted EPS.
The most notable change is the exclusion of the amortization and certain retirement benefit expenses, while also planning to limit the amount of adjustments, we would pro forma in the future, which will narrow the gap between net free cash flow and adjusted net income.
These along with other adjustments are highlighted in our earnings release with accompanying reconciliation tables for easier comparability.
We believe that reporting adjusted EPS on this basis better reflects core operating results and enhances comparability with peer companies.
Adjusted earnings per share of <unk>, 43, and the quarter increased from 35 and the prior year first quarter, primarily due to factors I highlighted on the previous slide.
Operating cash flow at a higher use of cash versus the prior year period.
Primary uses are the timing of certain expense payments such as prior year bonuses and payroll and a strong pickup in sales at the back end of March which drove a high use of cash in networking capital.
However, we still maintained ample liquidity with 141 billion and cash and total liquidity, including availability under our asset based credit lines of $833 million.
We do expect normalized levels of working capital and cash flow for the full year.
Capital expenditures for the quarter were $16 million and next year and a great deal related expenses were on plan at $17 million.
Our ROIC was 10, 2% for the quarter and leverage stands at three six times.
We expect these figures to improve as we continue to capture the synergies from integration and grow the business.
On slide eight we have aggregated the key metrics across our four reporting segments and we provide the detail in the appendix.
Quarter results reflect year over year decline in Jan and February a strong recovery in March the impacts of the Gulf storm supply chain issues and the adjustments for divestments.
U S sales declined due to a continued impact by bulk commodity prices here again early in the quarter and lower energy demand, particularly in the upstream segment.
Canada also saw a decline in sales due to the divestment and the exit of agricultural businesses adjusting for these impacts sales were roughly flat year on year in both U S and Canada.
EMEA and Latam and improvement in sales due to strong organic demand and all geographies benefited from improved product mix and chemical price inflation beginning in March due to the disruptions in the supply chain.
Gross margins improved across all segments from the favorable product mix as well as chemical price inflation.
And Canada margins benefited by the exit of the agriculture wholesale business.
Adjusted EBITDA margins expanded across the board, primarily due to the higher gross margins.
<unk> margins were further aided by lower Ws and a from net synergies and absence of the higher environmental costs in the prior year period.
Candidates double yesterday was also lower year over year due to divestment and exit of the agricultural business.
EMEA and Latam margins benefited from operating leverage as we are able to maintain cost over rising gross profit.
Moving on to slide nine coming.
Coming out of the first quarter, we remain confident and our ability to execute on our strategies and 2021.
As discussed last quarter, our 2020, adjusted EBITDA of $636 million included approximately $20 million of earnings from the Canadian Agriculture services business, which closed in Q4 and disappoint, which closed on April one this year.
We also have received a benefit of $35 million from essential and market demand and 2020, which we did not expect in 2021.
Moving onto our 2021 and outlook and some of the key factors affecting 2000 and 'twenty one guidance.
We expect continued market share growth and 2021, as we anticipate our business to grow faster than the general economic consensus using a six plus percent U S industrial production growth rate as our benchmark.
Through Q2, we expect continuing chemical price inflation due to the disruption and the supply chain, along with robust customer demand and our focus industries to drive overall performance.
And the back half, although we expect chemical pricing will normalize and we also expect continued good product mix, along with stronger volumes, assuming a broad reopening of north American or European economies to drive our results.
Accounting for all of these and the expected Nexium net synergies of $20 million to $25 million, we have revised our expected adjusted EBITDA guidance to $680 to 700 million for fiscal year 2021, $50 million higher at the midpoint from our prior full year guidance.
Guidance for our Q2 2021, adjusted EBITDA is and the range of $180 million to $190 million, which is an increase from our expectations embedded in our initial 2021 and guidance.
On Slide 10, let's review some of the cash flow highlights for our 2021 outlook.
Net working capital liquidation from exiting the Canadian agriculture wholesale distribution businesses will result in net proceeds of $25 million by early Q3, 2021, which is net of related payables and then in addition to the $52 million received in Q4 of 2020.
Our plan is to continue to target net working capital in line with our guidance of 13% to 14% of annualized quarterly sales, despite being slightly above that level at the end of Q1.
Net working capital efficiencies and planned sales and our current guidance are expected to yield positive cash flow through the rest of the year offsetting a higher use of cash from net working capital and Q1.
Cash use of other expenses and timing of your accruals is expected to be up to $35 million.
Final Nexium integration expenses, which are not included in our adjusted EBITDA forecast are expected to be up to $70 million for the year.
And the midpoint of planned capital expenditures will be $125 million in line with our initiatives to invest and high ROI projects to increase competitiveness.
Consequently, we are targeting net free cash flow of $280 to $300 million for 2021, resulting in a net free cash flow conversion above 40%.
Excluding the final next year and integration expenses of the $70 million, our guidance would be and the range of the normalized free cash flow of 325 $375 million that we provided last February and a net free cash flow conversion ratio in excess of 50%.
These numbers of course exclude further proceeds from divestments or any cash uses for acquisitions.
Net leverage taking into account all cash and no. Further divestment proceeds is now expected to be two eight times by year end 2021 exceeding our F. 'twenty two target of three times with ample cash and line of credit liquidity throughout.
In conclusion, we had a good start for the year. Our teams worked very well and a very challenging environment and I am very pleased with the progress we have made against our F. 'twenty two objectives, we are continuing to implement our plans to achieve a run rate adjusted EBITDA margin of 9% by the end of 2020.
And we intend to provide more details on the 2021 2020 margin bridge this fall.
David.
Thanks, Nick.
As I previously stated we're moving into the end game of integration activities and successfully delivered on several integration milestones during the quarter, including delivering $7 million of cost synergies.
And we expect to achieve our goal of $20 million to $25 million of synergies this year.
Other highlights include.
And the SAP system migration for the USA is completed and the quarter and already beginning to realize benefits from operating on a single Martin ERP platform.
Our safety and migration for calendar and Mexico remains on track for the second half of 2021.
Our site consolidation plan continued closing two branches in the quarter, bringing total close to 30, and we expect to close approximately nine branches and total this year.
We finalized the sale of three further sites with cash proceeds of approximately $5 million.
Since 2019, our real estate sales have generated pre tax cash proceeds of $78 million.
Moving onto X 22 as.
And as we anticipated, we sold with digital and plastics business and EMEA on April the first.
Our realized divestments to date have yielded approximately $192 million and gross proceeds and.
And Q2, we expect to deliver for the $7 million from asset sales in EMEA and <unk>.
<unk> targeting up to $240 million and total gross proceeds but have paused RMA and divestments until later this year or early next.
Our expected strong cash flow and divestiture proceeds will fund our strategic initiatives and.
We expect to make the first of our X 22 commitments and reduce our net leverage to below three times by year and actually two eight times.
This on our approach to maximize cash flow that's been recognized by the rating agencies and let both S&P and Moody's to upgrade our corporate tissue and debt ratings and April.
We're also making solid business strategy progress and the strength and capability of our sales force remains a key driver of business improvements as we leverage our advantage network of technical and regional sellers and combination with our digital platforms.
The expansion of our consistent technical differentiation approach to customers to the globalization of our specialty end markets and the consumer and industrial solutions verticals is delivering growth.
Our expertise and commitment and investments in these verticals is allowing us to build and our strong supplier partnerships and expand them globally.
Over the last 12 months, a number of new supplier authorizations doubled.
And we expect to deliver approximately $10 million and annual delivered gross profit.
These partnerships along with a leading chemical and ingredient products. They bring are a recognition of how apartments volume a global consistency technical leadership solutions senses and digital capabilities to support that growth.
And I'll commit to being digitally and it continues unabated as we continue to accelerate our omnichannel approach expanding our customer technical webinars with consistently now attracts over 1000 customers each quarter.
Our digital commerce platform at Shoptalk Univar solutions Dot com is delivering results, enabling customers to search select source and self serve and whatever the time and day on 90 day choose.
The next release Zhou and Q2 will give further enhanced search capabilities as well as for the first time transparent pricing without and Logan.
We've seen a 42% increase and document downloads and and 8% increase and order through sharp quarter over quarter and fully expect this to be a source of continued and sustainable competitive advantage.
Our 10 central Dot Com no frills channel continued to deliver growth and both number of new customers and amounts of business transacted through the site.
We expanded the parts available and the U S, Canada and the U K and are building on this success and taking care and central to France, and Brazil, and the second quarter.
As part of our F. 'twenty two efforts our first as a digital distribution center and just on log and the Netherlands.
This provides near real time visibility to tank levels, and all active processes and what is one of our more complex sites, leveraging blockchain and ultimately integrating directly into <unk>.
Eliminating paper inefficiencies.
We're excited about the result for the pilot, thus far and what it could do for us and for our connected business partners.
Altogether, our digital investments and customer centric approach is designed to maximize the effectiveness and scale of our operations turning data into strategic assets and making it easier for customers and suppliers to do business with us.
So before we come to your questions and to summarize we delivered exceptional Q1, adjusted EBITDA and strong liquidity, while realizing our purpose to help keep occupancies healthy fed clean and safe even during challenging times.
We've raised our full year, adjusted EBITDA guidance by $50 million $690 million to $700 million.
And we'll maintain a firm control of our working capital and other cash needs and ended the quarter with $833 million and liquidity.
We maintained momentum and our <unk> integration program and are on track to achieve the $120 million and net synergies we committed to.
We're investing and furthering our digital advantage, which we believe is becoming increasingly attractive to customers.
The F 22 program is tracking very well towards here and divestment proceeds lower leverage and 9% EBITDA margins by year end 2022 through global and functional excellence.
We remain committed to deliver at least 40% net fleet cash flow conversion and 2021 and improve on that metric and years beyond.
We made significant progress with our cash management and now see leverage at two eight times by year end 2021.
We have plans to use our cash to fund our growth through a combination of high ROI capital investment and some of the right time selected accretive bolt on acquisitions and evaluation of options for return of capital to shareholders.
Our focus remains on our strategic priorities, putting the customer at the center of all we do and working to take full advantage of every opportunity to drive growth.
That strategy is working and it's gaining momentum and we see plenty of opportunities both organic and inorganic growth.
We believe the company's positioned to capture greater value from the anticipated market recovery and that these collective efforts will deliver enhanced shareholder value.
Thank you for your attention, please stay healthy and safe and with that and we'll open it up for your questions.
Thank you at this time and keep I'd like to ask a question some of your cash.
Star then the number one on your telephone keypad and Keith.
I would like to withdraw your question press the pound key thanks from.
Sales to one question and one follow up please call Bob we compile the Q&A roster.
Your first question comes from Kevin Mccarthy from vertical research your line is open.
Hi, Good morning, this is corey on for Kevin.
And the first part of your EBITDA margin was impressive at eight 5% Q.
Curious can you talk through maybe some of the.
And what drove that on a regional basis and maybe some other puts and takes as it relates to your forward EBITDA.
Forecast, both and <unk> and for the rest of the year.
Hi, Good morning, Corey and we're happy to do that.
First and foremost I think it's really exciting.
And see that our strategy is working.
And getting the FHA program behind Us and the U S and the Middle of February was a really big deal and supporting our operating agility, which allows us to grow and.
And if those F 'twenty two commitments that we and we spoke of last year.
And now what we've seen and some some market share gains.
Clearly our advantaged distribution network has allowed us to do that through a very difficult time, and we have seen mix improvement we've seen day.
The products that we sell and continues to be the higher margin portfolio of the most specialty portfolio, which has driven and some of the growth and then yes. There has been some chemical price inflation, we've seen we've seen that through the dislocation and you know I think we addressed that in the prepared remarks that we think that will abate as well.
And as we go into the second half of the year, but I think that's helped us a little bit and the and the first quarter.
Understood and.
If I may.
Chemical price inflation on mines, and it sounds like and the second half.
Should we expect it to impact margins at the same rate on the way back down or how should we think about that.
I would expect it to and pop margins, but not been like on the way up I mean, I think we manage.
<unk> and incredibly carefully to make sure that we are always competitive and the marketplace.
And so I wouldn't expect.
A bad news story and the second half yes.
Yes, Corey it's Nick the only thing I would add is that we are expecting overall EBITDA margins to be better this year than last year, and I think youre seeing the benefit of some operating leverage.
And as prior year as debt margin drops through given some of our cost reductions in Ws and eight so there are a lot of factors as you surmise, but we do net net see a year over year improvement and our margins this year.
Excellent. Thank you very much.
And your next question will come from Laurence Alexander from Jefferies. Your line is open.
Good morning, two questions one on the share gains and characterized by region or specialty versus commodity product lines, where the share gains were most pronounced and.
And then can you characterize the pipeline and bolt on acquisitions currently.
Sure good morning loans.
<unk>.
And I think we're getting share gains right across the.
The piece I mean.
And with very successfully winning business from from competitors large and small and in the.
Specialty area as well as and the.
And that's different J P products and I think certainly we were able to support customers, who will let down elsewhere and the first quarter and.
And that was on some of the.
The commoditized more commoditized products, but I think.
Doubling of abuse supplier authorizations, and it's very significant because it does drive that specialty portfolio and helps and that improvement mix. So I think we're seeing it pretty.
Pretty much right across the board.
Pipeline type of high volume and at your second question, Sorry, Forgive me I mean, we're in the revenue and the very early stages of that our focus is.
Is to get our.
Our leverage down.
Very excited that we're going to meet and.
And beat for the first of our F. 'twenty, two objectives, which is to get the leverage down below three to two eight times and now we start to think about capital allocation strategy. So we are looking at building that pipeline.
Through.
True.
Very careful process.
I think we wanted to add people that.
<unk> enhanced our technical capabilities.
For expanded into a new geography, but we are starting to build a pipeline up and it will be bolt on acquisitions that we will have we will have to address but I don't want and he wants to think we're going to suddenly rush off and stop buying lots of companies because that isn't the case.
Thank you.
Your next question will come from Bob <unk> from Goldman Sachs. Your line is open.
Thank you very much good morning.
Yeah.
I guess I would've thought relative to the reopening of U S versus EMEA you would've maybe you had a better relative performance and the U S.
And then just a function of the storm or how should we think about the cadence between across the pond and here in North America.
Yes, good morning, Bob and I think that couple of things to remember and the U S. B firstly.
We were affected by the storm as well.
And so we did have a number of sites down for.
Some of them up to 10 days, which did impact our sales and in February and some of those sales that you could get back in March some debt.
<unk> gone gone and you know many of our customers. We're also close second thing is we're still very focused on Asap and.
And.
And and the first quarter and moving the U S. One to that final stage of the SAP platform. So to do that very successfully.
Months.
We'll have we'll have helped and.
And the.
In March.
But it will clearly be and and impact in January and February I mean don't forget we have a headwind still and energy and the first quarter.
Around $7 million.
And both pricing was was still against us and the first quarter year on year, but I think you can see a good acceleration of growth and North America as we exited the quarter and certainly that's built into our forecast going forward and really the strategy starts to work.
And the.
I guess for guidance, we gave on second quarter, and then implied for the back half maybe suggest some deceleration.
Is that.
Just little conservatism or is there something about the seasonality and.
And pattern of volume or maybe the pricing coming and what can we think about the implied.
The tone of business and the second half.
Sure. So again, there will always be.
And that's such a conservatism about us, but and there are some factors to consider and firstly.
We've got the impacts of this proposal.
And the second excuse me and the second half versus the first half.
We have.
Q4 is always our weakest quarter.
And so.
That's probably $20 million down on what we'd normally expect in the earlier quarters.
And we'll see how how we'd expect some softening and price, but some increase in volume as economies open up again. So it is how much of that balance there isn't there.
Thank you very much.
And your next question will come from David Begleiter from Deutsche Bank. Your line is open.
Hi, Good morning. This is Katherine Griffin on for David Hi, So for.
First question for you kind of follow up on an earlier question and that would be.
And place and then you called out to Gary There was some benefit from.
And usually high raw material costs and just curious can you size what that was in Q1 and maybe speak to how you would expect that trend.
And Q2 and going forward.
Sure I mean.
And I think it some.
It's difficult for us to quantify and the way that we did last year because the the debt.
The spread is rights across and the product portfolio and we're looking at transport to increase and we're looking to scale increase and so it's difficult to quantify and quite the way that we did.
This time last year with the with the very narrow focus on products into some of the essential end markets.
The good things you should see is our strategies working with starting to take some market share and our mix is improving and that's what drives our performance through the rest of the year. You know, we're very confident about where we are now.
Moving now headed and our ability to improve that operating agility and grow that share rights across the portfolio and now we have the integration and are pretty much behind us.
And then secondly, just curious on the downward pressure on non bulk might be chemical prices and the Florida.
Can you talk about that and headwinds and how it squares.
Ed.
And then on Basel.
Broadly higher chemical prices like what is the difference between.
And the bulk commodity aspects first day broader chemical pricing.
Well, yeah, I mean, I think it was.
Excuse me copy Ive got a program and throat this morning.
I think and the first couple of months, so it's a year on year.
Thing.
I think we're now starting to see those bulk commodities.
Back in price and.
And start to to get some.
Benefit from those but that's really looking at a year on year on year thing to point and time year on year thing and the first couple of months of the year.
Okay. Thank you.
Okay, and if anybody would like to ask a question. Please press star one on your telephone keypad and your next question comes from Michael Mcginn from Wells Fargo. Your line is open.
Hey, good morning, everybody good quarter.
If I can go back to the EBITDA the free cash flow pull through so.
Some quick back of the envelope math the midpoint of the EBITDA would suggest that the.
Versus the midpoint and the free cash flow and would be up 30.
No.
We'll for there is 20 points better than what you would potentially previously expecting.
Is there something different and.
For working capital structure given house.
The supply chain was the first half versus second half or is it simply ERP benefits and any color there would be great.
Yeah, Kevin and thanks for the Michael I'm, sorry, Michael.
And Michael.
I was looking at the wrong name. Good morning, Yes, Q1 did see a big use of cash and working capital.
Some of that was also.
The Canadian business, which as we've said is getting liquidated.
And the summer.
And then we do expect an improvement and our overall ratio as we get back to the back into the year.
And the Q4 is a lower volume level. So we are expecting and improvement in working capital percentages in the back half of the year otherwise, it's small numbers puts and takes that might have a swing five or $10 million one way, but overall, we're expecting pretty good cash flow conversion and at the end of the year.
Okay, Great and then the.
Divestiture proceeds and Incrementals and get you to the $2 40 target is this something that one or two kind of.
Businesses left or is it just.
One one business and then you kind of switch to that capital allocation Road you were talking for you were alluding to.
Earlier in the call.
Yeah, and we're not being very.
Specific in terms of what the assets are but they are small businesses or assets debt.
And frankly, given some external and internal issues, we've decided to defer till later in the year or perhaps early next year.
Not factored those into the two eight times leverage and.
And as the.
As we get to those we hope to get those completed on that revised timetable I think Michael I think it's fair to say that anything significant we sold already there's nothing else Lodge.
And for us to sell.
And we can still hit our first of our F. 'twenty two commitments and got below three times levered without that so that's why we're closing.
Noted so if I were to.
No.
Square that up with your interest rate interest expense guidance base level without doing any other divestitures, you could probably pay down and $75 million per quarter, but if you do that additional debit a couple of divestiture for small smaller you can maybe push you down.
<unk> 100 million debt pay down per quarter, that's the way to think about debt yes.
Yes, I mean, the additional divestitures or roughly that $40 million range and put that aside we're looking at the cash flow per page 10 to be our goal and target and that.
Will come through the next few quarters.
100% will be over the next few quarters, given the cash use.
In Q1.
Any divestitures would just add to that deleveraging and would not have any meaningful impact on the reported EBITDA numbers.
Got it I appreciate the color.
Sure.
I have no further questions. Thank you and I turn the call back over to the presenters for closing remarks, Oh, we do have for popping and Steve Byrne from Bank of America. Your line is open.
Hi, Good morning apologies this is Luke washer on for Steve.
I wanted to ask about your regional margins again, and the first quarter. They were quite strong and I know you've touched upon that a little bit but is there anything that you're doing or are seeing ex U S. Driving your margins higher that perhaps you would implement and United States.
And with more kind of product mix shift or anything like that.
Yes.
Look I think that for the first first thing North America had a larger portion of products and bulk commodity chemical products.
And then the rest of the world and so that will drive the margin down and comparatively our EMEA business and our Latam business has more of those differentiated chemistries.
Yes.
Sensitive its portfolio and.
And and so that that helps it now we do have global programs and to drive sales force effectiveness to drive.
Price and to drive margin management, we have globalized.
For the specialty global end markets for consumer solutions, and industrial solutions as we look to take the best learnings from all parts of the business and deliver those consistent consistently around every every business that we operate today.
And fundamentally and you've got a bigger proportion of commodities, both commodity and the U S and the North American business, and then you do and the EMEA Latam business.
Great. Thanks for that and then maybe just one more new supplier authorizations seem to have really picked up recently, so and you talked about your digital capabilities and the value that youre, adding to customers I guess is there anything and the kind of recent.
Past that has really allowed you to either take market share through the digital or is it more of a function and some of the supply chain disruption that we're seeing is adding value to your platform staying more detail around that would be helpful.
Sure.
A few things I mean.
Firstly, if you look at the the more specialty portfolio.
We started to focus those business globally last year, and having a specific focus on that and those consumer solutions and and Joseph solutions businesses led by Macau is driving those new authorization suppliers are finding that a very attractive model coupled.
A couple of our global reach of our digital capabilities and their ability to connect into us.
That's very attractive and that drives market share growth.
And secondly in the U S and North America, and in particular, as we get and integration behind us.
It doesn't mean that we can focus on the customer more and put the customer at the center of all we do.
And that also is starting to drive zone. Some share now clearly what we have is a great network and a great portfolio and really strong supply relationships and other.
Time, when there's dislocation in our marketplace customers do turn to us and they have done because we can support them through thick and thin when others can't and so that helps.
And drive some market share gains.
Focus now is keeping out of those customers and making sure they stay with us our digital investments are around attracting some new customers and in an hour.
And Ken Central model does that and it brings and bringing in.
Literally hundreds of brand new customers customers that you wouldn't otherwise have found but out our shop capabilities and about 40.
And 42% increase and downloads.
Making this easier to buy from and if we are easier to buy from customers. We will continue to do it so that all feeds into the share gains and so there is a range of things I can point to but really.
Having a better operating agility now on a modern ERP platform supported by digital.
To help us be easy to buy from and then having very focused sellers and very focused around the the.
For specialty products that we have and leveraging.
<unk> solution centers that we have with the digital with the focus is all making it much more compelling for suppliers, the juices and for customers too.
And so those will stick with us.
Great. Thank you.
I have no further questions in queue I turn the call back over to the presenters for closing remarks.
Thank you for your tend to day, ladies and gentlemen, and for your interest and unit activation. Thank you for any follow up questions. Please reach out to the Investor Relations team and this does conclude today's call.
Thank you everyone for joining US today. This concludes today's conference call you may now disconnect.
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