Q2 2021 Diversey Holdings Ltd Earnings Call

August 13, 2021

[music].

Greetings and welcome to diversity of Holdings Limited second quarter 2021 earnings conference call at.

At this time all participants are in a listen only mode.

She didn't answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Greg waiver Investor Relations for diversity of holdings. Thank you you may begin. Thank you Hello, everyone and welcome to diversity second quarter Conference call with me today are Phil Whelan, our CEO and Todd Herndon our CFO.

Our earnings release, and the slides we will reference on this call are available on diversity as website at IR that diversity Dot com.

Please take a moment to read the cautionary statements in these material, which state that this teleconference and the associated supplemental material may include estimates of future performance.

These are forward looking statements and actual results could differ materially from those projected.

Factors that could cause actual results to differ are described under the risk factors section in our filings with the SEC.

On this call we will reference certain non-GAAP measures.

Please see the accompanying slides and our filings with the SEC for definitions and reconciliations to the most closely comparable GAAP measures.

And now I'm happy to pass it over to our CEO Bill we went for his comments.

Thank you grant and good morning to everyone.

Let me start by saying, we're very pleased to report another good quarter.

H one result in line with our IPA plot, despite a very difficult operating environment.

Now I'd like to share four.

Any thoughts about our business.

Lastly, we see a very bright teacher diversity.

As a leading provider of hygiene infection prevention and cleaning solution amidst the pandemic, we are well positioned to capture significant growth due to elevated cleaning standards.

Further to it.

<unk>, we see customers getting hungry and hungry to save water labor energy and waste, which were also well positioned to help them till later.

Within institutional reopening as a more advanced we are seeing faster than expected recovery of our base institutional business.

And our F&B business had a very strong quarter and first half because we continue to gain share in our core business and realized early success without water treatment offering.

Secondly, raw material inflation continues to be a theme for 2021.

In response, we implemented a series of intervention on top of what we had originally planned for the year.

Which has led to strong sequential quarter over quarter improvement in our margin.

One of these intervention is pricing, while we realized $2, 5% topline growth from pricing actions yesterday and expect to reach mid single digit percent.

Fourth quarter.

We've also had managed costs well.

Sequential improvement in EBIT margin Q1 over Q2, and very pleasing, 38% adjusted EBIT dog right.

Pre COVID-19 too.

2019 baseline.

Thirdly, our M&A process is delivering wow.

Pipeline remains very strong.

Since we last reported we have completed two deals to enhance our product portfolio and one deal to strengthen our supply chain.

And fourthly, we are pleased to report continued progress against our strategic plan, which we laid out during the IPO price that and again during our Q1 earnings call.

Our new business conversion of our growing pipeline continues to power ahead, as our strong product proposition and high service delivery continue to appeal to the market.

I'll come back to our progress against our strategic plan shortly.

I want to address two of the short term challenges, which make the operating environment tougher than we'd planned in 2021.

The first operating challenge is inflation.

Inflation has been higher than we've experienced in recent years.

Associated with the inflation is the challenge of availability of both raw material and freight carriers.

Staying extremely tight market in many parts of the world as competitions that constrained resources has increased.

This remains an ongoing challenge, which our procurement and supply chain team I still thought done an excellent job of mitigating.

We saw margin expansion quarter on quarter as expected, including the benefit of the savings driven by our operational excellence initiatives.

We take our responsibility as a market leader the price inflation very seriously, we have and will continue to take actions to minimize the impact of rising cost.

It continues to take pricing actions to meet our objective of maintaining and growing our margin.

We anticipate pricing action to step up through Q3 and more significantly in Q4, reaching mid single digit percent increases in Q4.

Also this quarter, we signed a lease on a site for our new manufacturing facility in the U S.

As described in our ICA price that we see this as an important step to take customer service to a new level and he is critically important to our margin journey.

The second environmental operating challenge is of course Covid.

Here, we are very focused on what we call base business performance versus 2019. This is how our revenue excluding infection prevention is recovering against a pre COVID-19 baseline.

You may remember that we lost over 400 million of revenue in this area in 2020, and we said we expected this all to recover over the 'twenty one to 'twenty three period.

First chart on page six shows the performance in the U S and U K two of our market with higher vaccination rates, which have been at the firm.

10 of the reopening time line.

It's very encouraging that in countries, where reopening a more advanced way.

Faster than expected recovery about based institutional business with the U S. Already ahead of 2019 on the U K tracking rapidly towards it.

The second chart shows the same for India and Philippines.

Hey, you see much lower levels of recovery, India started the year with an improving trend, but it must be a second COVID-19 way as required tough lockdown on a consequential impact on our core revenues.

Philippines like much of South East Asia, I think similar COVID-19 strategies with low vaccination level and prolonged lockdown.

When thinking about reopening around the world more than 75% of our base revenues come from outside of the U S and the U K.

I mean still has a long way to go on a global view.

<unk> is that we anticipate a base revenue to recover more quickly than originally planned as lockdowns ease, but to remain subdued while lockdowns to test and learn vaccination country.

In fact recovery to pre Covid levels of base business revenue is not our ultimate objective, we expect to go further.

The longer term effects of Covid are very likely to include higher cleaning hygiene and disinfecting sound good.

On page seven we summarized diversity shale. This is a global program designed to ensure that our customers are ready for reopening and the challenges of our pricing in a COVID-19 world.

We support our customers to choose the right products cleaning regime and frequency to ensure the appropriate ongoing efficacy.

As our customers' awareness and compliance right. These often result in a broader product portfolio being fell to the customer in order to deliver that hygiene needs for a clean and safe facility.

We then award the divesting shield, which allows customers to demonstrate that cleaning standards to their end customers.

This initiative is proving extremely helpful to customers all around the world.

Now, let me talk a little about our progress against our strategic plan, starting with the top line.

Central to everything we do is the need to continue to deliver our customers.

Underpins our ability to excel at customer retention.

Whether that's the day in day out of it or innovation that support improving product efficacy or advances in dosing in dispensing.

For operational efficiencies and ESG.

This is reflected in our strong and improving customer NPS scores our entire organization is obsessed with the other excelling in this area.

We have described before how we wanted to grow our global accounts muscle under a new and dedicated leader.

Following the double digit millions foodservice when we reported for Q1, we have seen further success with a significant global convenience store operation as well as meaningful wins in contract catering building service contractors and quick service restaurants.

But north America foodservice the reopening of the market has meant that future customers are once again active and so our sales teams have been extremely busy.

We are seeing our conversion rates climbing a game as they were before the pandemic, which is exciting given the size of the pipeline here.

But both global accounts and North American foodservice customers continue to see the benefits of our product efficacy combined with sophisticated dosing in dispensing equipment, which means that customers can reliably achieve sustainable cost efficiencies as well as tangible environmental benefits. This is a real differentiator against <unk>.

If the market.

And food and beverage I'll focus on our core geography is progressing well and we continue to gain share further under a new water treatment proposition. We reported our first global account win in Q1, and we have had further success since then.

Both in global accounts and local customers.

This initiative is going extremely well is ahead of expectations.

Early stage things to be validating our hypothesis that customers would be excited about our proposition.

On infection prevention, we described before and expectation that we would hold on to the majority of our games and in fact build on them within the health care market.

This has been the case I'm not aware of any customer losses in this market and we have continued to win new customers, which gives US reason to believe we can continue to enjoy above market growth in the health care sector.

We also said that outside of health care, we expect to see some normalization relative to peak COVID-19 sales in 2020.

It also looks to be true extended lockdowns are impacting disinfectant sanitizer usage outside of health care.

Conversations with our customers suggest that non health care infection prevention sales, we'll see accelerated penetration versus pre COVID-19 expectations in many sectors, including education office buildings retail and foodservice.

Reinforces our belief that demand for disinfecting, and sanitizing will settle well in excess of pre COVID-19 levels.

The opening of education in Q3, and the expected more widespread return to office days will provide useful insights.

Outside of North America, we saw the build out of our global infection prevention manufacturing sales platform earlier. This year, we are starting to see momentum building in these new markets.

In terms of M&A, we've seen very good progress, which is highlighted in more detail on the next page.

Firstly on the product side I'll deal with Halloween provides us the exclusive global rights to this new long lasting disinfectants technology.

This will allow customers to achieve a 30 day efficacy by using this new product alongside exploring based disinfectant.

This ultimately helps our customers further protects that working environment and states customer's chemical costs labor costs and contribute significantly to the ESG credentials.

Secondly, Shaw is a range of plant based disinfectant, which has been we've been using for some time in selected geographies. We've now completed a global deal to include this product range in our portfolio the environmental impacts and there are significant.

Thirdly, we're very excited about our acquisition of Kaufman chemicals, which operates in the institutional and F&B market in Australia, and New Zealand.

Given its location, which can be a challenging geography to deliver the right customer service outcomes and margin profile.

Our own manufacturing operations is therefore, an important step and we expect to deliver significant upside to the customers care.

These deals are pro forma deleveraging against our approximately 11 million investment.

We have been clear that we are focused in three areas for M&A.

<unk> products through our global portfolio, strengthening our supply chain and doubling down in important geographies. Our M&A funnel is healthy and we continue to see this as a real driver of value as we go forward.

Now I'm going to pass over to our CFO taught Hampden to discuss Q2 financial results in more detail.

Thanks, Phil Let me start on page 11, with a summary of our consolidated results.

Q2, net sales were up three 9% versus prior year as reported.

The recovery of our institutional business is better than unexpected in markets that have reopened.

As expected this was offset by Comping over the peak of infection prevention sales last year, while customers were building inventory at the start of the pandemic.

Our F&B business also continues to outperform the market while improving margins.

In order to see through the temporary ups and downs from Covid will continue to compare 2019. In addition to the prior year.

In Q2 revenue was $4, 4% below our pre Covid 2019 baseline.

As Phil mentioned, the decline was driven primarily by weakness in many parts of the world with lower vaccination rates.

While we expect a sharp recovery as lockdowns ease the near term progression remains uncertain, especially given the uptick in expenses tied to the Delta Marriott.

However, the most important takeaway is the diversity continues to execute against our profit objectives. Despite the topline pressure.

As expected our adjusted EBITDA in Q2 versus 2020 was down four 3% as reported driven primarily by lapping prior year furlough subsidies the normalization of infection prevention against the peak in 2020.

Short term raw material pressures.

Our Q2, adjusted EBITDA improved 14, 1% versus 2019 as reported and for the first half were up 37, 7% versus 2019.

First half 2021, adjusted EBITDA was $194 million in line with our expectations.

Overall, we're very pleased with the progress we're making on our margins. Despite a more uncertain backdrop for topline growth in the near term.

On page 12, let's review our segments starting with institutional.

Institutional revenue declined seven 5% versus Q2, 2019, but again, we performed well armed well against our asset efficiency initiatives as adjusted EBITA declined just one 5% over the same period.

As a result, our adjusted EBITDA increased 100 basis points to 16, 4% at quarter end.

Our second quarter revenue versus 2020 is up slightly based upon strong customer retention and new business offsetting stronger lockdowns unexpected.

Our EBITDA was down five 9% due to the tough infection prevention compare and furlough lap that I've mentioned already.

Something we're excited to talk about and I'd like to highlight is our recently launched tasks are all 3500.

Which combines vacuuming sweeping while driving hygiene and efficiency improvements to customers.

So you might ask why is this machine better.

Well first it uses passkey whispered patented technology, which leads to significantly improve air quality and reduced noise levels.

It's also a nine times faster than manual cleaning and two times faster than competitors' machines, while picking up debris high speeds using a single class.

It's a great example of how we're focused on helping our customers deliver fantastic cleaning results alongside operational savings.

On page 13 lets review, our food and beverage segment, where revenue grew by five 5% compared to the baseline quarter in 2019.

More impressive was the 44% growth in our adjusted EBITDA over that period, given our continued scale and focus on cost improvement.

As a result, our F&B segment ended the quarter with a strong margin of 22%, which was up 540 basis points compared to 2019.

Compared to 2020 revenue expanded by 15% and our adjusted EBITDA grew by 11% exhibiting.

Exhibiting the continued momentum we're experiencing closing new business wins around the world.

Along with that traction and investment in water treatment.

One of the innovations I'd like to highlight for F&B is diagnosed ECP, which is a revolutionary new patented accelerating cleaning protocol for the effective cleaning membranes used in the coal production of skim milk fasted and sweet way.

By reducing the cleaning steps required the customer saves water and energy usage improved production output by reducing cleaning in place or CIP downtime and reduced emissions to wastewater treatment plants.

Page 14 shows a bridge from Q2.2020, Q2 'twenty one.

As mentioned slower recovery from Covid weighed on our institutional revenues, which was offset by stronger trends in F&B and favorable FX, along with modest impact from M&A.

Our adjusted EBITDA declined modestly by $5 million as explained previously from furlough subsidy labs short term raw material pressures and a normalization of infection prevention against the peak in 2020.

Partially offset by favorable FX.

With that let me turn to the balance sheet cash flow and liquidity on page 15.

Beginning with free cash flow you can see a use of $36 million for the quarter.

As a reminder, given the seasonality in our business diversity tends to use cash in the first half of the year and then generate cash in the back half of the year.

Additionally, we would note that last year included a one time $50 million cash benefit from the securitization of receivables, which drives a larger year over year variance.

Our net working capital the quality of our AAR is in good shape amidst COVID-19.

We're continuing our focus on extending our days payable outstanding for ongoing work with sourcing.

In the back half of 2021.

Have an opportunity for cash flow improvement as evidenced by our elevated inventories in each one.

Inventory increased in the first half of the year as we've invested for reopening that hasn't begun as quickly in many parts of the world as we anticipated.

We do not want to compromise service levels when markets recover and our customers need products.

With that said, we believe we will make progress in our working capital in the back half of the year as we reduce inventory progress on payables with sourcing and leveraged markets opening and stabilize them.

Overall, we continue to have strong liquidity profile with over $511 million available as of quarter end, which we view as a strong asset given the fragmented market, we operate in and the M&A.

M&A opportunities as Bill noted earlier.

Lastly, our leverage remained stable compared to a quarter ago at four seven times net debt to EBITDA.

We're confident that we can delever in the back half of the year as our LTM EBITDA improves and we expect to generate free cash flow of roughly $100 million net of strategic investments.

So let me conclude with some qualitative comments on our outlook for the back half of 2021.

We're confident that our base business will continue to improve as markets reopen along with our ability to continue implementing new businesses that we've won over the last year.

We're already seeing this recovery play out in some markets with higher vaccination rates as Phil discussed.

For infection prevention outside of healthcare were seeing demand lower than the peak of the pandemic, but much higher than pre pandemic levels.

We continue to see strong behavior changes from customers, which will sustain elevated sales in the future.

And F&B, we'd expect to see continued growth in both our core business and newer water treatment portfolio.

We also expect to show quarter on quarter improvement for the remainder of the year pending the impact of the Delta variance change in the pace of reopening and potential challenges with raw material availability.

With the current status of delayed reopening and pricing actions that will build through the end of the year, it's likely that more of our quarter on quarter growth will come in Q4 than was originally planned for Q3.

With that said, we don't want to be too short term focused and we continue to make investments in the business for the longer term.

Our M&A pipeline is robust and we expect to make additional acquisitions in the second half.

With that I'd like to turn it back over to Phil for a reminder of our long term outlook before Q&A.

Thanks, Todd Yeah to smoke Q&A, let me summarize by saying that as a leading provider of hygiene and infection prevention and cleaning solutions amidst the pandemic, we are well positioned to capture significant growth due to <unk>.

Elevated hygiene standards.

Whilst we feel like there's too much market uncertainty in the short term to provide specific guidance, we feel very confident in our longer term outlook and.

And to bring you back to our earnings algorithm on page 16.

Look forward to building on the estimated long term market growth of around 3% with market share gains on pulp from our key initiatives, including global accounts, North America Foodservice global infection prevention water treatment and commercial excellence, where we have strong pipelines and excellent conversion.

We expect to grow another 2% per annum to accretive M&A.

We target to expand adjusted EBITDA margins to 20% at the average rate of 50 to 100 basis points per annum through strategic pricing improved sourcing supply chain improvements and operational excellence through SG&A cost initiatives.

This should generate strong free cash flow that we can use to delever over time with a medium term net debt go up three times adjusted EBITDA.

That concludes our formal remarks, operator would you. Please begin the question and answer period.

Thank you, ladies and gentlemen, we will now be conducting a question and answer session.

Like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue.

All participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key in the interest of time. Please limit yourself to one question and one follow up so we may get to everyone's questions.

Our first question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Hi, Thanks for taking our question. This is Andrew Christina on for Vincent.

I just wanted to ask a little bit more or a little bit more color, particularly around margins as you think about <unk> and <unk>.

How should we think about kind of the cadence of that.

Actual expansion or I guess, how should we view it in light of the ongoing pricing action.

And each quarter.

Yes. Thank you for that so let me.

Give you a few thoughts and then maybe Tom can ship it back.

Any kind of inflation.

It has been much higher than in previous years I'm sure you don't need me to tell you that.

We've been working really hard with suppliers to manage down the impact on our business and also with customers to offer them product changes and similar where possible our customers would expect us to take these actions, but there is of course still a significant net inflation that we need to pass on.

Customers.

And we have some good contracts in place that allow us to do that.

Okay.

About two and a half cent incremental revenue from our pricing actions, which is about $30 million.

In the half year.

Recovering dollars of inflation, so far this year, and we will increase pricing throughout the year.

Is it takes some time to implement the pricing with some accounts.

Proton objective of our strategy.

On a percentage basis, and we're targeting getting that by the first half of next year, depending on of course, whether we get a further significant wave of inflation.

We expect the impact of pricing actions to be greater in Q4 than Q3, that's just reflecting the time it sometimes takes to make the changes I'm fighting for them. We think we can get to mid single digit range.

Realized revenue its obviously going to be.

What were doing without margin profile I hope that helps.

It does thank you very much.

And then I was also hoping you could give us more color around the encouraging once you've been saying not only within foodservice, but also it sounds like market share gains in F&B as well so.

Just more color there, particularly.

Global accounts.

Helpful.

Yeah, no sure so let.

Let me start with with.

With food and beverage, perhaps I mean really that.

The really exciting thing here is is the ratio of our new business wins to our losses.

Which is really at an all time high we had a fantastic 2020.

It was really a step change from what the business have seen before and that is carried all right through 2021. So we've seen a significant number of wins, both global accounts and local accounts.

And I'm really very very modest.

<unk> side of the equation.

And.

Losing either then onto institutional again, starting with global accounts, we've seen some really really nice wins, we've had one really large right across the world when sort of high.

High single.

Digit millions and then we've also had a number of smaller global players that have awarded us one or more regions of that business. So that too has been encouraging but yeah again coming back to North American food service, we have had some strong wins there as well so that we sit here thinking really around.

Line right.

We're feeling really pretty positive around the strategy that we laid out and how it's rolling out.

That's helpful. Thank you.

Yeah.

Our next question comes from the line of P. J <unk> with Citi. Please proceed with your question.

Yes, hi, good morning.

Good.

Good morning.

You know you talked about market share gains in the past you talked about that in the quarter as well today.

How do you see that in terms of you know youre raising prices and trying to gain share at the same time.

Does that create an issue for you in terms of sort of getting new customers.

Yes, it's a good question P J.

The short answer is really that it hasn't I mean, it's certainly not easy trying to take price.

But.

As I said before our contracts to allow us to do it in a way that the.

Inflation is such a topic in 2021, everyone was talking about it and understanding it.

Means that there's some level of expectation and as long as we do it.

In a professional way.

We're very open and transparent with our customers.

Now, we're able to get where we need to.

On the new business wins.

Well, we get this right and we sell the value of.

What we do that we can.

Not only deliver the efficacy that customers need, but also the operational savings and the ESG credentials that they need as we save the water energy et cetera, you know price is not the main topic of conversation of course.

We need to be market relevant so actually we haven't found a particular conflict between between those two things are just sitting there at this stage.

Great. Thank you.

Can you give us an update on your joint venture with Salinas.

Are you getting any new business. There I think it was described as a $50 million opportunity at the time of IPO does any update on so Dennis Thank you.

Yeah sure so P J.

So far so good I think what we said was.

That we expected.

Modest impact in the first yeah I this year, perhaps we'd get to double digit millions of top line next year and then much smaller acceleration in year three.

We actually described it as a.

20% opportunity I E customers spent 20 salt water treatment.

Every dollar that they spend.

On cleaning and hygiene I think where we are so far.

We're really really pleased with the relationship is going very well.

Partnerships working.

We're coming.

Together to make sure that all of our people are trained.

We are the single point.

The relationship with the customer, but there's a level of training. That's the latest do behind the scenes that supports us and the proposition is really resonating and as a result, we feel like we're a bit ahead of where we expect it today, we had our first big global account win in Q1, we've had some more wins and we will.

Got some more in the pipeline.

And actually we've got a number of local wins the rollout to so look I don't want to get ahead of myself I certainly don't want to declare victory.

But at this stage, we feel like it's working and it's a little bit ahead of where we thought we might be at this stage.

Yeah.

Our next question comes from the line of Gary Bisbee with Bank of America. Please proceed with your question.

Hey, guys good morning.

Alright.

So you talked about the institutional recovery in the markets, where reopening has happened well.

Trending well better maybe than you would've expected but.

But the market broadly havent opened as quickly. So so it sounds like somewhat of a timing issue there I guess.

A partial offset to reopening that you've discussed was infection prevention some of that excess falling off I guess I didn't hear you comment on the pace.

At which that falling off versus last year.

In line with with the expectations, we had worse better can you comment on that on that part of it. Please.

Yeah, No look I I can say, yes, just just to.

Remind you we grew about $400 million of infection convention last year.

And this wasn't for US just a reaction to COVID-19, we've actually had several years of market share gains as we've been investing in this space.

We go to really to understand why we're tracking you got to split it into two parts firstly.

Health care.

Which was about half of that $400 million.

Gross growth last year, we said that we saw in health care that we would hang onto the majority of the growth.

So far that's the case, we've been pretty successful I'm again, I'm not aware of any customers, leaving us and we have added some new customers that we fail on that huh.

Which is health care that we're in we're in really good place outside of health care, we expected some normalization.

It's certainly true based on what we've seen so far that that's going to happen at levels are certainly below the 2020 paid but also that well above 2019 before the pandemic.

Debit is that he really tough at this moment to say you know where everything is going to shake out because we've still got really high locked down.

That means that there's some businesses that would be buying outside of health care.

Does that closed.

We've also had not yet got the return to offices, which is another large group of customers Finally U S education.

As you'd know better than me is just at the point of resuming and therefore, you know your guidance.

That's a big non health care market for us so it's very hard to see the buying pattern there.

So I think you know in the coming months, we'll get a much better read on why they are going to land, but from what we've seen so far.

Now below 20, well above 19.

And then.

Trying to think through sort of the back half.

Looking at the two year growth rate.

Yes.

And trying to adjust for currency and M&A given us.

That data.

It seems like it's all over the place I guess, maybe what I wanted to ask is when we get on the other side of these.

Headwinds you're facing.

Seasonal revenue pattern that you had in 2018 in 2019.

A good longer term guide.

Guide for the business.

And understanding it may be different in the short term is there really a strong case.

For a significant step up in Q4, given what we know now delta areas. Some of the some of the things moving on.

I'm just trying to gauge you know relative to prior year.

So okay.

Yeah.

So let me give us your thoughts and then I'll hand over to you. So I think ultimately we are going to get back.

Back into the same kind of seasonality.

As we have before but I think what we're saying is we expected the 400 million with law.

In the base to come back over time, and we expected that a big chunk of that to come back in a step change.

That might have happened around the middle of this year, we now know because the delta in the U S. But also the other thing I'd Lockdowns and other market that is going to be later.

<unk> is when is that going to be.

In Q4 or is it going to be a little bit later and that is just the the really tough.

<unk> to answer right now.

Todd do you want to add something yes, maybe I'll just add as a historical perspective from my view is that.

18, 2019 would be a more normalized view of the seasonality of the business typically Q1 would be.

Our lighter quarter and then as.

Hospitality and lodging and vacation as happened in particular in Europe in Q2, and Q3, you would see some seasonality there and then a little bit of tail back off in Q4.

This year you know.

I think were stating pretty clearly that we do expect sequential growth.

On an actual basis quarter on quarter, both in terms of revenue and.

Margin enhancement so.

It is a tricky environment to predict but we're confident that quarter on quarter growth as expected both end.

Dollars and margin and revenue as we go through this year, but I do think it is fair to say that there is some seasonality in this business when normalization returns.

That's helpful commentary thank guys.

Thank you.

Our next question comes from the line of Jeff Secaucus with Jpmorgan. Please proceed with your question.

Thanks very much.

Versus what you thought you would earn for 2021 three months ago do you now think youre going to earn something lower the same or higher.

Just in the very short answer to your question is the.

It's incredibly difficult.

To say.

As Todd was just saying.

What we do know is that we're going to grow.

Quarter on quarter basis topline on EBIT.

While we all say no.

Is the on the controllable we feel like we're in a great place. So we're winning more new business.

We see a lot of margin.

Our expectation of growing 50 to 100 basis points, we'll deliver this year.

Despite all of the challenges of inflation that are in the market and we feel that the M&A that we've reported this quarter will likely to deliver some similar revenue going forward on the controllable we feel like we're in a great place ahead of where we expected on the uncontrollable is really the pandemic.

It is.

It's really tough.

And.

You know all we can keep doing is taking the actions that we are and making sure that as each market reopens, we do a fantastic job and I think we've done in the U S and the UK Paradise chart.

But when each country occupancy is obviously.

Side of our control so our focus now is making sure that in the same way as we grew Q2 over Q1, we're going to grow with Q3 over Q2, and then Q4 overseas correct.

Okay great.

Maybe for Todd.

Your cash flow from operations was negative 100, roughly for the first two quarters and last year you were flat.

I don't think your working capital is going to change all that much over the next two quarters because your business is accelerating so is your cash flow from operations much less than it was last year.

And are you going to bring down your capital expenditures and you're dosing in dispensing equipment or leave them.

Where do you aspire to.

Can you talk about your cash flow from operations.

Maybe I'll try to give you a little color.

First of all on the comp.

Couple of things I think it was in the slide.

We had a onetime $50 million securitization benefit last year. So as you do the wreck Brexit.

On a quarter that's a that's a onetime lab, we do tend to to burn cash in the first half historically.

And generate cash in the second half and I think in our commentary we said, we do expect to generate.

$100 billion, roughly our free cash flow.

None of any major strategic investments that we might do outside of our plan.

And then I would say.

We do expect Pri.

Primarily in inventory to make progress in the back half of this year, we do have significant initiatives.

Focusing on cash flow.

Ignite, saying that.

We are in control of a number of those things.

As mentioned in the commentary we did build.

Inventory in the first half honestly consciously it was a discussion with our leadership teams.

More focused on making sure we capture the market.

As the market opens and to make sure that given all the challenges as you've heard and raw material supply and other other.

Raw material related matters that we're in a position to optimize our revenue.

As those markets reopen which as Bill mentioned is pretty tricky right now.

The other thing I would say this year as part of the IPO.

Was $30 million in cash L tip.

That was paid out in the first half IPO costs of roughly $11 million that were part of the first half cash flow.

And.

Exiting the <unk>.

Private equity management fee was roughly $20 million in the first half so that kind of that kind of explains the year on year first half cash flow that you referenced stood at minus $100 million.

As you think about the full year.

If you take first half and the second half $100 million and you kind of adjust for the onetime kind of IPO cash out.

Items I mentioned, the cash flow from operations, it's going to be roughly $50 million to $60 million. This year.

And so.

And as we look forward, we're quite enthusiastic about the cash generation of this business.

Maybe a little longer winded answer than you want but.

We're actively working.

Had some consultants to work on our sales and operation planning process in the first half to get our.

Demand and our inventory levels lined up to get the service level improvements.

We're working with our sourcing group to.

Work on continuing to work with our vendors on.

Supplier payment programs that we think will generate some significant benefit in the back half as well.

I think our working cap as a percent of LTM sales.

It.

It was about 10, 6% in the first half, which is actually not a bad marker.

For us as a business and the quality of our <unk> are now is better than it was pre COVID-19. So.

I want you to take away from this where we're controlling what we control and actively managing it and I do think you will see.

So some significant inventory take down in the back half.

Okay.

So the hunter and Youre going to generate $100 million in free cash flow guidance.

So if your capex and you're dosing in dispensing equipment.

It's about $100 million that would mean your cash flow from operations 200.

I understand your comments correctly.

No I don't think so I think if we were down a $100 billion in the front half roughly and we're going to be up $100 million in the back half and in that there's 50 or $60 million of one timers I would say this year that are related to the IPO.

Related to cash out.

IPO costs and.

Exiting management fees that are onetime in nature.

That's an adjusted number.

You did that yes, I think I think we need to look at it that way to understand the base business.

Net of some of the IPR sure yes.

Okay. Thanks.

Yes.

Our next question comes from the line of Kevin Mcveigh with Credit Suisse. Please proceed with your question.

Great. Thank you hey, it sounds like you.

You're making a lot of progress.

The retention.

The screen, where the retention is today.

And.

What are you winning from because it sounds like if we heard you right.

Your winter at an all time high in your losses are at all time low so maybe just help us frame, where the share shifts coming from and what the retention looks like.

Yes sure.

Pension numbers last year.

On large accounts because about 99%.

And it continued in.

Same ballpark this year, so extremely high retention I think we're winning from all over the market.

Our proposition.

Our products our service.

All the operational efficiencies that we can drive a very rather than to small customers medium into logic customer.

I wouldn't say a tool it's concentrated.

It's really all parts of the market.

Yes.

Our proposition makes sense.

Got it and then just.

The new product innovation.

Thank you.

<unk> introduced.

We just think about what that initiative can generate.

From a revenue perspective, how we should think about that maybe in 'twenty. One and then just as you think about.

The model longer term.

Yes sure.

That'd be sort of a sense of our machines business.

Is around 10% of our overall institutional business side of it.

Some of that maybe just a bit below 200 million.

This is one of a number of innovations that we are in the price there.

Releasing we got another big wave.

Coming out later this year, which will at the right time, we'll come back until it to you guys about.

But look we think that you.

Now, we can get really significant growth out of the machines business.

You know something.

Between mid and high single digit growth once we normalize for Covid and these innovations are a big part of that.

Got it.

Follow up on that point is there any benefit like with this infrastructure Bill.

Bruce said as well just from an ESG perspective.

Sorry, just say that one more time.

With the infrastructure Bill Legit.

As in the states is that helpful.

Yeah, well they need those machines as well.

Sorry, when you when you talk about the infrastructure, you're talking about the new U S factory that we talked about.

No no no just the infrastructure build that stimulus build a trillion dollars that just passed the Senate and then obviously.

Oh, sorry.

Okay.

Todd do you want to pick that up.

Yes sure.

Clearly I think there's a number of benefits from the infrastructure Bill that that may come our way.

Phil mentioned the concentration that we have in education, clearly education, I think will be a benefit.

The infrastructure Bill in terms of funding for our local and universities.

And these machines would be used in those environments also.

Just a general infrastructure build.

We will increase the need for.

The equipment is probably important to add we are not in the big industrial sweeper business.

In terms of cleaning roads and that kinds of thing but.

We do think the investment in Capex and infrastructure and.

In funding will positively impact the business.

And multiple industries.

For us the U S here.

Thank you.

Our next question comes from the line of George Tong with Goldman Sachs. Please proceed with your question.

Hi, Thanks, good morning.

Institutional business, you mentioned that the longer Lockdowns are weighing on revenue performance with reference to India and the Philippines are there additional markets that you'd call out where you're seeing lockdowns headwinds in can you elaborate on evidence that you're seeing in the business.

Sure, it's recovering better than expected in the markets that are open.

Yeah I mean.

So once you feel alignment, but maybe I can just.

Alright, great.

Hum.

What was what were seeing here because it is such a mixed picture and it is so important to the institutional business.

Let me start quickly.

America clearly you know we've shown you in the chart.

That were trading back above 2019 levels.

That is largely reopen but it's also fair to say that our food service proposition is being focused on contract catering, which means the offices and education are important to us. So we're very keen to see what happens there.

Obviously, some risk around delta some offices that are planning to open a leap day, not pushing that back a little bit later education about to open in the U S and in Canada at the start of September.

How is that going to play out so whilst we're really pleased with what the USA or North America. We are also a little bit nervous about what's going on here with Delta if I look at last time.

Lockdowns across the continent.

The situation is easing a little.

But vaccination rates alive.

On cases relatively high so we see that the full reopening not likely to happen.

Some time.

Europe.

Hum.

You know fully locked down for the majority of H one the UK started to reopen and we showed you the chart that vaccination rates in Europe are getting better.

Just following state so I could give you example of France, and Denmark that in July are kind of following suit, but then there's others that are tougher right. If you look at the the.

The Germanic countries look at Finland.

Somewhat the further behind and then as I go further east into the Middle East.

Hi, Lockdowns.

Being some easing.

But there's still a long way to guide really outside of Turkey Israel.

India.

You know remains pretty tough North Asia Interestingly, if you go to China.

This business has bounced back as well ahead of 2019, it's a local market has reopened.

National travel.

Still problematic for our hospitality business and we don't expect that international travel into China is going to happen anytime soon and then two really tough impacted place in southeast Asia, and Australia, New Zealand. The Lockdowns here right now are more significant than they were in 2020.

T D.

These markets are really neat.

Quite a tough spot and you know.

It could be some time before we see reopening that.

Got it that's helpful.

And you discussed cost inflation with raw materials and freight carriers.

As well as actions to offset with pricing.

Looking at <unk> in the second half of this year, how does the rise in input costs compare with the price increases.

Yes so.

My expectation is that the.

You know they will be further increases in costs, but what I'm, hoping that the rate of increase is going to slow and as we said the <unk>.

In Q4, the rate of price increases is going to increase.

That's why you know our belief and our ambition is that exit rate.

From Q4 into next year is going to be.

And quite a strong place and that's why you know.

We hired the first half of next year, we're going to we're going to cover.

Covered the inflation on a percentage basis, not just a dollar basis, we think it's going to get better but most of that improvement is going to be Q4, rather than Q3.

Got it very helpful. Thank you.

Thank you.

Our next question comes from the line of Andy Wittman with Robert W. Baird. Please proceed with your question.

Yeah, great. Thank you most of my questions have been asked and answered, but I thought it'd be helpful to talk about the M&A program and trying to get.

A little bit more detail out of you I think in the prepared remarks. So you mentioned that you thought the deals we're deleveraging I guess the implication there is that you paid less than your leverage multiple I just wanted to confirm that and Todd if you could give us any details as to.

The amount of acquired revenue that you expect to acquire from the three acquisitions that you noted noted here on the conference call just for the people to keep model.

Maybe.

Revenues on an annualized basis or something to that effect would be helpful. Thank you.

Hey, Todd do you want to pick this one up slowly.

Yeah, maybe just to start with a general comment on M&A, we're pleased with the progress.

As Phil mentioned.

Closed three transactions.

In the last.

30, 45 days here one.

Tasman chemical in Australia, we're excited about that it gives us a real strategic supply chain benefit and you know that's one of our three drivers of what we look for service levels will improve and that will really help our scale in Australia.

In terms of investment in our manufacturing capability, there and the other two are product portfolio.

Transactions, one Halo film, which gives us.

Disinfectant residual technology.

And market globally and the other one is <unk>.

<unk> actually.

An arrangement we had on a.

A product line called <unk>, which is plant based complete range of a 100% biodegradable kind of building Coeur kitchen care and personal care products.

We've invested about $11 million so far in those three transactions.

Our growth algorithm is is too.

We've indicated to try to generate 2% top line per annum.

We started this up.

<unk>.

And invested in it we've added resources to our internal team.

We may or may not get to 2% in year. This year, but we will absolutely be exiting we think at that.

Topline kind of rate.

We enter into.

2022 here.

We are we are.

Thanks for that.

We're generating about $20 million of revenue in terms of <unk> 22 impact.

$7 million of EBITDA.

Those three transactions.

Clearly.

Out of the box.

They may not be delevering, but within.

<unk> 22, we clearly will be below.

Our current net debt leverage so it is.

Pro forma delevering for us going forward.

Okay. That's helpful. Thank you.

Thank you.

Our next question comes from the line of Iran. Vishwanathan with RBC capital markets. Please proceed with your question.

Alright, Thanks for taking my question.

I guess I'm, just trying to get a little bit more color on the outlook. You noted that there is some uncertainty in the near term for Q3, just given the delta as well as.

Some price cost headwinds from inflation.

But also our future should be sequentially higher so.

And then just looking into 'twenty two I mean do you expect to hold onto some of these price increases that you're implementing right now.

Does that indicate you know maybe make up this shortfall in Q3 in 2022.

Yes, no great question.

The short answer is yes, so like I say everything we're doing controlling the controllable.

We feel that we're on or ahead of our plan.

This environmental challenge with the pandemic is short term.

Going to catch up at some point, we think the data we shared with you around what happens as a country reopens swap business is great evidence of that so the only thing we're really unclear about is.

What point does it catch up which is to do with when the Delta Varian.

Is that a sort of in the U S and when the other market.

Kind of reopened for the first time.

Following the following the pandemic.

So yes nothing in here.

Is it any cause or maintenance that off thesis on why we are heading in 'twenty two yes, the timing of this corona related stuff.

Okay, great and just on the share gains presumably some of your smaller competitors may be more affected by the inflation and disruptions. So.

Have you seen any acceleration in your share gains I guess with with increases on inflation and the Delta variant.

Is that an encouraging sign and so is there any possibility that maybe youre looking more positive on the 'twenty two 'twenty three outlook.

I think your underlying point is a great one.

Step back and think about in this environment right.

<unk> inflation availability in raw materials and freight.

In Europe unrest in South Africa.

And tech.

These are all real challenges that all of our competitors and our customers are saying we think actually.

Plays to our strength as we saw last year, where we delivered in tough times for customers. They showed us loyalty.

And actually this you know this.

Cocktail of challenging situations right now is similar so if we can continue to step up as we have seen and deliver for customer savings through these tough times I think is going to hold us in very good stead I feel really positive.

Just once we work through these things gone behind us.

Thanks.

Okay.

Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Hi, two questions first can you give us sense for how you think the other side of this inflation cycle might play out I mean would you.

Would we see.

Some reversal of the share gains offset by margin expansion or would you be passing the model the normalization of the supply chain through to customers I mean, just how what how should we what's the current sketch of that.

And secondly, just on your last comment.

Curious about the reference to the <unk> in Turkey was there an operational disruptions that you've seen there or.

Is it or is there a sort of an indirect supply chain issue.

Yeah. So.

Hum.

On your first question I think honestly, it's too early to tell I mean, if you look at all of the forward views of the feedstock indices, what's really happened this year as I've said, there's going to be at peak and then it kind of moderate and it's going to reduce and everything is going to come back to a more stable situation.

And every month that graph is just being pushed to the right.

We haven't yet seen any of that moderation.

And therefore, obviously certainly it until we actually see that happening on some more kind of permanent basis, we gotta keep guiding exactly as we are we've got a plan and we got a price that all of this stuff is permanent.

Certainly what we're doing.

On your second question.

Reference to.

He was.

As the holiday spots in Turkey, which is a huge market reopens from COVID-19. So the forest fires hit which dampened the overall market. So it didn't have a direct supply chain impact on us just the gist.

Just a challenge for the.

For our customers.

Therefore for us in that market.

Got it thanks.

Our last question comes from the line of John Roberts with UBS. Please proceed with your question.

Thank you and infection protection is somewhere between the second quarter of 2019 in the second quarter 2020, but that's a really wide range do you have a sense of where normal is and how far away from normal are you right now.

John.

Very hard to give you any more precision.

For the reasons that I've said.

Just don't know what's going to happen in education reopens as offices come back.

I think we feel quite positive about some of the underlying data point.

Don't want to give any.

Faults.

I would view based on those data points because they are incomplete I do think in the next quarter, we will get a lot of new data that's going to be really helpful.

And that's why I appreciate it's a wide range, we're well ahead of 2019, but wet but what else 2020, that's about as much as we can say with confidence at this point.

And then how about some of the other big categories like floor care is it down much more than the average in the segment and do you have any other areas that might be a way.

So sorry.

If I take <unk> in the U S.

Coming to the end of the floor cat season, there is such a thing.

We've had a fantastic.

Trading that.

Some challenges on.

Some of the raw material availability.

But we got through that and the teams did a great job.

What about me being.

Being back above 2019 levels.

Without floor pad business that so yeah. That's come back strongly I could eat could you give me examples of our retail business, which is performing very strongly.

You know really.

Now is the on.

On the institutional side is the hospitality and food service, which has sort of impacted by the lockdowns globally as I described earlier.

Thank you.

I'd like to hand, the call back to Mr. Wheeler for closing remarks.

Guys. Thank you for joining I apologize that we're over time.

In summary, I would just say look we feel great about the market.

We believe the pandemic is going to leave us with higher cleaning standards.

And against that we were controlling the controllable. We're ahead on our plan of where we expected we feel good about a 50 to 100 basis points, but we told you about M&A.

M&A.

Is going wild in gathering pace with a great pipeline.

In this tough environment, you know Israel, it's going to impact the timing of that.

Recovery of this $400 million, but everything we see tells us that 400 million is coming back.

And it will do so over the coming quarters. Thank you all for listening.

For your questions have a good day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Yeah.

[music].

Greetings and welcome to diversity Holdings Limited second quarter 2021 earnings Conference call.

At this time all participants are in a listen only mode.

Question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host Greg waiver Investor Relations for diversity of holdings. Thank you you may begin thank.

Thank you Hello, everyone and welcome to diversity second quarter Conference call with me today are Phil Whelan, our CEO and Todd Herndon our CFO.

Our earnings release, and the slides we will reference on this call are available on diversity website at IR Dot diversity dotcom.

Please take a moment to read the cautionary statements in these materials, which state that this teleconference and the associated supplemental material may include estimates of future performance.

These are forward looking statements and actual results could differ materially from those projected.

On this call we will reference certain non-GAAP measures.

Please see the accompanying slides and our filings with the SEC for definitions and reconciliations to the most closely comparable GAAP measures.

And now I'm happy to pass it over to our CEO Bill Wieland for his comments.

Thank you grant and good morning to everyone let.

Let me start by saying, we're very pleased to report another good quarter, bringing our H one results in line with Ipi ploughed, despite a very difficult operating environment.

Now I'd like to share four overarching thoughts about our business.

Firstly, we see a very bright future divesting as a leading provider of hygiene infection prevention and cleaning installation amidst the pandemic, we are well positioned to capture significant growth due to elevated cleaning standards.

Further to an ESG lens, we see customers getting hungry and hungry to site water labor energy and waste, which we are also well positioned to help them till later.

Within institutional.

Things are more advanced we are seeing faster than expected recovery of our base institutional based on that.

And our F&B business had a very strong quarter and first half as we continue to gain share in our core business.

Unrealized early success without water treatment offering.

Secondly, raw material inflation continues to be a theme for 2021.

In response, we implemented a series of intervention on top of what we had originally planned for the year, which has led to strong sequential quarter over quarter improvement in our margin.

One of these intervention is pricing, while we've realized two 5% topline growth from pricing actions yesterday and expect.

To reach mid single digit percent.

Our fourth quarter.

We've also managed costs well.

Importing sequential improvement in EBIT margin Q1 over Q2, and very pleasing, 38% adjusted EBIT Dag growth.

Pre COVID-19.2019 baseline.

Thirdly <unk>.

M&A process is delivering well on our pipeline remains very strong.

Since we last reported we have completed two deals to enhance our product portfolio and one deal to strengthen our supply chain.

And fourthly, we are pleased to report continued progress against our strategic plan, which we laid out during the IPO price that and again during our Q1 earnings call.

Our new business conversion of our growing pipeline continues to power ahead.

Strong product proposition and high service Bulletin rate continue to appeal to the market.

I'll come back to our progress against our strategic plan shortly.

I want to address two of the short term challenges, which make the operating environment tougher than we'd planned in 2021.

The first operating challenge is inflation.

Inflation has been higher than we've experienced in recent years.

Associated with the inflation is the challenge of availability of both raw material and freight carriers.

Seeing extremely tight market in many parts of the world as competitions that constrained resource business increase.

This remains an ongoing challenge, which our procurement and supply chain team <unk> done an excellent job of mitigating.

We saw margin expansion quarter on quarter as expected, including the benefit of other savings driven by our operational excellence initiatives.

We take our responsibility as a market leader to price to inflation very seriously we have.

And we'll continue to take actions to minimize the impact of rising costs and continue to take pricing actions to meet our objective of maintaining and growing our margin.

We anticipate pricing actions to step up to Q3 and more significantly in Q4, reaching mid single digit percent increases in Q4.

Also this quarter, we signed a lease on a site or a new manufacturing facility in the U S.

As described in our ICA price that we see this as an important step to take customer service to a new level and is critically important to our margin journey.

The second environmental operating challenge is of course Covid.

Here, we are very focused on what we call base business performance versus 2019. This is how our revenue excluding infection prevention is recovering against a pre COVID-19 baseline.

You may remember that we lost over $400 million of revenue in this area in 2020, and we said we expected this fall to recover over the 'twenty one to 'twenty three period.

First chart on page six shows the performance in the U S and U K two of our market with higher vaccination rates, which have been the <unk>.

10 of the reopening time line.

It's very encouraging that in countries, where reopening a more advanced way.

Seeing faster than expected recovery about based institutional business with the U S. Already ahead of 2019 on the U K tracking rapidly towards it.

The second chart shows the same for India and Philippines.

Hey, you see much lower levels of recovery, India started the year with an improving trend, but it must be a second COVID-19 wave is required talk locked down on a consequential impact on our core revenue.

Philippines like much of Southeast Asia, I think similar COVID-19 strategies with low vaccination level and prolonged lockdown.

When thinking about reopening around the world more than 75% of our base revenues come from outside of the U S and the U K.

I mean still has a long way to go on a global view.

Take away here is that we anticipate a base revenue to recover more quickly than originally planned as lockdowns ease, but to remain subdued while lockdowns to test and learn vaccination country.

In fact recovered to pre COVID-19 levels of base business revenue is not our ultimate objective, we expect to go further.

The longer term effects of Covid are very likely to include higher cleaning hygiene and disinfecting sounded.

On page seven we summarized diversity shale. This is a global program designed to ensure that our customers already for reopening and the challenges of off pricing in a COVID-19 world.

We support our customers to choose the right products cleaning regime and frequency to ensure the appropriate ongoing efficacy.

As our customers' awareness and compliance right. These often result in a broader product portfolio being felt in the customer in order to deliver that hygiene needs or a clean and safe facility.

We then award the diversity shield, which allows customers to demonstrate that cleaning founded to that end customers.

This initiative is proving extremely helpful to customers all around the world.

Now, let me talk a little about our progress against our strategic plan, starting with the top line.

Central to everything we do is the need to continue to deliver our customers.

<unk> underpins our ability to excel at customer retention.

Whether that's the day in day out of it or innovation that support improving product efficacy or advances in dosing in dispensing to support operational efficiencies on ESG.

This is reflected in our strong and improving customer NPS scores our entire organization is obsessed with the other excelling in this area.

We have described before how we wanted to grow our global accounts muscle under a new and dedicated legal.

But north America foodservice the reopening of the market has meant that future customers are once again active and so our sales teams have been extremely busy we've seen our conversion rates climbing a game as they were before the pandemic, which is exciting given the size of the pipeline here.

Both global accounts and North American foodservice customers continue to see the benefits of our product efficacy combined with sophisticated dosing in dispensing equipment, which means that customers can reliably achieve sustainable cost efficiencies as well as tangible environmental benefits. This is a real differentiator against much of the.

Market.

This initiative is going extremely well is ahead of expectations.

Early stage things to be validating our hypothesis that customers would be excited about our position.

On infection prevention, we described before and expectation that we would hold onto the majority of our games and in fact build on them within the health care market.

We also said that outside of health care, we expect to see some normalization relative to peak COVID-19 sales in 2020.

This also looks to be true extended lockdowns are impacting disinfecting and sanitizing usage outside of health care.

Reinforces our belief that demand for disinfectant sanitizer will settle well in excess of pre COVID-19 level.

The opening of education in Q3, and the expected more widespread return to office space will provide useful insights.

Outside of North America, we saw the build out of our global infection prevention manufacturing sales platform earlier. This year, we are starting to see momentum building in these new markets.

In terms of M&A, we've seen very good progress, which is highlighted in more detail on the next page.

Firstly on the product side I'll deal with Halloween provides us the exclusive global rights to this new long lasting disinfectant technology based.

This will allow customers to achieve a 30 day efficacy by using this new product alongside of chlorine based disinfectant based.

This ultimately helps our customers further protects that working environment and states customer's chemical cost labor cost and contribute significantly to that ESG credentials.

Secondly, Shaw is a range of plant based disinfectant, which have been we've been using for some time in selected geographies. We've now completed a global deal to include this product range in our portfolio the environmental impacts and there are significant.

Thirdly, we're very excited about our acquisition of Tasman chemicals, which operates in the institutional and F&B market in Australia, and New Zealand.

Given its location, which can be a challenging geography to deliver the right customer service outcomes and margin profile.

Our own manufacturing operations is therefore, an important step and we expect to deliver significant upside to the customers care.

These deals are pro forma deleveraging against dollar approximately 11 million investment.

We have been clear that we are focused in three areas for M&A I think exciting products to our global portfolio strengthening our supply chain.

Leveling down in important geographies, our M&A funnel is healthy and we continue to see this as a real driver of value as we go forward.

Now I'm going to pass over to our CFO taught him them to discuss Q2 financial results in more detail.

Thanks, Phil Let me start on page 11, with a summary of our consolidated results.

Q2, net sales were up three 9% versus prior year as reported.

A recovery of our institutional business is better than unexpected in markets that have reopened.

As expected this was offset by Comping over the peak of infection prevention sales last year, while customers were building inventory at the start of the pandemic.

Our F&B business also continues to outperform the market while improving margins.

In order to see through the temporary ups and downs from Covid will continue to compare 2019. In addition to the prior year.

Q2 revenue was four 4% below our pre Covid 2019 baseline.

As Phil mentioned, the decline was driven primarily by weakness in many parts of the world with lower vaccination rates.

While we expect a sharp recovery as lockdowns ease in the near term progression remains uncertain, especially given the uptick in expenses tied to the Delta Marriott.

However, the most important takeaway is the diversity continues to execute against our profit objectives.

The top line pressure.

Short term raw material pressures.

Our Q2, adjusted EBITDA improved 14, 1% versus 2019 as reported.

For the first half were up 37, 7% versus 2019.

First half 2021, adjusted EBITDA was $194 million in line with our expectations.

Overall, we're very pleased with the progress we're making on our margins. Despite a more uncertain backdrop for topline growth in the near term.

On page 12, let's review our segments starting with institutional.

Institutional revenue declined seven 5% versus Q2, 2019, but again, we performed well against our proactive efficiency initiatives as adjusted EBITA declined just one 5% over the same period.

As a result, our adjusted EBITDA increased 100 basis points to 16, 4% at quarter end.

Our second quarter revenue versus 2020.

Slightly based upon strong customer retention and new business offsetting stronger lockdowns unexpected.

EBITDA was down five 9% due to the tough infection prevention compare and furlough lap that I've mentioned already.

So I think and we're excited to talk about and I'd like to highlight is our recently launched tasks are all 3500.

Which combines vacuuming sweeping while driving hygiene and efficiency improvements to customers.

So you might ask why is this machine better.

Well first the easy task, you whispered patented technology, which leads to significantly improve air quality and reduced noise levels.

It's also a nine times faster than manual cleaning and two times faster than competitors' machines, while picking up debris high speeds using a single pass.

It's a great example of how we're focused on helping our customers deliver fantastic planning results alongside operational savings.

On page 13 lets review, our food and beverage segment, where revenue grew by five 5% compared to the baseline quarter in 2019.

More impressive was the 44% growth in our adjusted EBITDA over that period.

Given our continued scale and focus on cost improvement.

As a result, our F&B segment ended the quarter with a strong margin of 22%, which was up 540 basis points compared to 2019.

Compared to 2020 revenue expanded by 15% and our adjusted EBITDA grew by 11%.

Exhibiting the continued momentum we're experiencing closing new business wins around the world.

Along with that traction and investment in water treatment.

One of the innovations I'd like the highlight for F&B is <unk>, which is a revolutionary new patented accelerating cleaning protocol for the effective cleaning membranes used in the coal production of skim milk fasted and sweet way.

By reducing the cleaning steps required the customer saves water and energy usage improved production output by reducing cleaning in place or CIP downtime.

And reduce emissions to wastewater treatment plants.

Page 14 shows a bridge from Q2.2020, Q2 'twenty one.

As mentioned slower recovery from Covid weighed on our institutional revenues, which was offset by stronger trends in the F&B and favorable FX along with modest impact from M&A.

Our adjusted EBIT declined modestly by $5 million as explained previously from furlough subsidy lapse short term raw material pressures and a normalization of infection prevention against the peak in 2020.

Partially offset by favorable FX.

With that let me turn to the balance sheet cash flow and liquidity on page 15.

Beginning with free cash flow you can see a use of $36 million for the quarter.

As a reminder, given the seasonality in our business diversity tends to use cash in the first half of the year and then generate cash in the back half of the year.

Additionally, we would note that last year included a one time $50 million cash benefit from the securitization of receivables, which drives a larger year over year variance.

Our net working capital the quality of our AAR is in good shape amidst COVID-19.

We're continuing our focus on extending our days payable outstanding for ongoing work with sourcing.

In the back half of 2021, we have an opportunity for cash flow improvement as evidenced by our elevated inventories in each one.

Inventory increased in the first half of the year as we've invested to reopening that hasn't begun as quickly in many parts of the world as we anticipated.

We do not want to compromise service levels when markets recover and our customers need products.

With that said, we believe we will make progress in our working capital in the back half of the year.

We reduce inventory progress on payables, and sourcing and leveraged markets opening and stabilize them.

Overall, we continue to have strong liquidity profile with over $511 million available as of quarter end, which we view as a strong asset given the fragmented market we operate in.

Opportunities still noted earlier.

Lastly, our leverage remained stable compared to a quarter ago at four seven times net debt to EBITDA.

We're confident that we can delever in the back half of the year as our LTM EBITDA improves and we expect to generate free cash flow of roughly $100 million net of strategic investments.

So let me conclude with some qualitative comments on our outlook for the back half of 2021.

We're confident that our base business will continue to improve as markets reopen along with our ability to continue implementing new businesses that we've won over the last year.

We're already seeing this recovery play out in some markets with higher vaccination rates as bill discussed.

For infection prevention outside of healthcare were seeing demand lower than the peak of the pandemic, but much higher than pre pandemic levels.

We continue to see strong behavior changes from customers, which will sustain elevated sales in the future.

And F&B, we'd expect to see continued growth in both our core business and newer water treatment portfolio.

We also expect to show quarter on quarter improvement for the remainder of the year pending the impact of the Delta variant change in the pace of reopening and potential challenges with raw material and carrier availability.

With that said, we don't want to be too short term focused and we continue to make investments in the business for the longer term.

Our M&A pipeline is robust and we expect to make additional acquisitions in the second half.

With that I'd like to turn it back over to Phil for a reminder of our long term outlook before Q&A.

Thanks, Todd Yes, its little Q&A, let me summarize by saying that as a leading provider of hygiene infection prevention and cleaning solutions amidst the pandemic, we are well positioned to capture significant growth due to <unk>.

Elevated hygiene standards.

Well, we feel like there's too much market uncertainty in the short term to provide specific guidance, we feel very confident in our longer term outlook.

And to bring you back to our earnings algorithm on page 16, we look forward to building on the estimated long term market growth of around 3% with market share gains on pulp from our key initiatives, including global accounts, North America Foodservice global infection prevention water treatment and commercial excellence.

Where we have strong pipelines and excellent conversion, we expect to grow another 2% per annum to accretive M&A.

We target to expand adjusted EBITDA margins to 20% and the average rate of 50 to 100 basis points per annum through strategic pricing improved sourcing supply chain improvements and operational excellence to SG&A cost initiatives.

This should generate strong free cash flow that we can use to delever over time with a medium term net debt go up three times adjusted EBITDA.

That concludes our formal remarks.

Would you. Please begin the question and answer period.

Thank you, ladies and gentlemen, we will now be conducting a question and answer session. If you'd like to ask a question you May press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing historically in the interest of time. Please limit yourself to one question and one follow up so we may get to everyone's questions.

First question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Alright, Thanks for taking our question. This is Andrew Christina on for Vincent.

I just wanted to ask a little bit more forward, a little bit more color, particularly around margins as you think about <unk> and core can you how should we think about kind of the cadence of a potential expansion or I guess, how should we view it in light of the ongoing pricing action.

In each quarter.

Yes. Thank you for that so let me give.

I'll give you a few thoughts and then maybe Tom can ship it back.

Any kind of inflation.

It has been much higher than in previous years I'm sure you don't need me to tell you that we.

Mexican net inflation that we need to pass onto customers.

And we have good contracts in place that allow us to do that.

There is about two and a half cent incremental revenue from our pricing actions, which is about $30 million.

In the half year.

Recovering dollars of inflation, so far this year.

Increased pricing throughout the year.

I think it takes some time to implement the pricing with some accounts.

Proton objectives strategies.

On a percentage basis.

Targeting getting that by the first half of next year, depending on of course, whether we get a further significant wave of inflation.

We expect the impact of pricing actions to be greater in Q4 than Q3, that's just reflecting the time it sometimes takes to make the changes.

T for them, we think we can get to mid single digit range for realized revenue, which obviously you're going to be supportive of what were doing without margin profile I hope that helps.

It does.

Much.

And then I was also hoping you could give us more color around the encouraging once you've been saying not only within foodservice, but also it sounds like market share gains in F&B as well so.

Just more color there, particularly.

Global accounts.

That'd be very helpful.

Yeah, no sure so let.

Let me start with with food and beverage, perhaps I mean really that.

The really exciting thing here is is the ratio of our new business wins to a lawsuit.

Which is really at an all time high we had a fantastic 2020.

It was really a step change from what the business has seen before and that is carried all right through 2021. So we've seen a significant number of wins, both global accounts and local accounts.

And I'm really very very modest.

<unk> side of the equation.

And.

Losing either that onto institutional again, starting with global accounts, we've seen some really really nice wins, we've had one really large right across the world when sort of high single.

Digit millions and then we've also had a number of smaller global players that have awarded us one or more regions of that business. So that too has been encouraging but yeah again coming back to North America food service, we've had some strong wins there as well.

We sit here thinking really around our top line growth.

We're feeling really pretty positive around the strategy that we laid out and how it's rolling out.

That's helpful. Thank you.

Our next question comes from the line of P. J <unk> with Citi. Please proceed with your question.

Yes, hi, good morning, Todd.

Good morning.

You know you talked about market share gains in the past you talked about that in the quarter as well today.

How do you see that in terms of you know youre raising prices and trying to gain share at the same time does that create an issue for you in terms of sort of gaining new customers.

Okay.

Yes, it's a good question P J.

The short answer is really that it hasn't I mean, it's certainly not easy trying to take price.

But.

As I said before our contracts to allow us to do it in a way.

Inflation is such a topic in 2021 everyone's talking about it and understanding it.

Means that there's some level of expectation and as long as we do it.

In a professional way.

We're very open and transparent with our customers.

We're able to get where we need to.

On the new business wins.

Where we get this right and we sell the value of what we do but we can.

Need to be market relevant.

Actually we haven't found a particular conflict between between those two things are certainly at this stage.

Great. Thank you Phil.

Can you give us an update on your joint venture with Salinas.

Are you getting any new business. There I think it was described as a $50 million opportunity at the time of IPO does any update on sort of this thank you.

Yeah sure. So P. J. So so far so good I think what we said was.

That we expected.

Uh huh.

Pretty modest impact in the first yeah I this year, perhaps we'd get to double digit millions of top line.

Yeah.

Smaller acceleration in year, three and we actually described it as.

20% opportunity I E customers spend 20 salt water treatment.

Every dollar that they spend.

Cleaning and hygiene I think where we are so far.

We're really really pleased with the relationship is going very well.

And if it's working.

We're coming to.

Together to make sure that all of our people are trained.

We are the single point.

Our relationship with the customer, but there is a level of training. That's the latest do behind the scenes that supports us and the proposition is really resonating and as a result, we feel like we're a bit ahead of where we expect it today, we had our first big global account win in Q1, we've had some more wins.

Some more in the pipeline.

And actually we've got a number of local wins the rollout to so look I don't want to get ahead of myself I certainly don't want to declare victory.

This.

At this stage, we feel like it's working.

Bit ahead of where we thought we might be at this stage.

Okay.

Our next question comes from the line of Gary Bisbee with Bank of America. Please proceed with your question.

Hey, guys good morning.

Right.

You talked about the institutional recovery in the markets, where reopening has happened well.

Trending well better maybe than you would've expected but.

But the market broadly havent opened as quickly. So so it sounds like somewhat of a timing issue there I guess.

A partial offset to reopening that you've discussed was infection prevention some of that excess falling off I guess I didn't hear you comment on is the pace.

At which that falling off versus last year.

In line with with the expectations, we had worse better can you comment on that on that part of it. Please.

Yeah, No look I can say, yes.

Just to remind you we grew about $400 million of infection convention last year.

And this wasn't for US just a reaction to COVID-19, we've actually had several years of market share gains since we've been investing in this space.

We got a really to to understand why we're tracking you got to split it into two parts firstly in health care.

Which was about half of that $400 million.

Growth growth last year, we said that we saw in health care that we would hang onto the majority of the growth.

So far that's the case, we've been pretty successful.

I'm not aware of any customers, leaving us and we have added some new customers. So we fail on that huh.

Which is health care that we're in we're in really good place outside of health care, we expected some normalization.

It's certainly true based on what we've seen so far that that's gonna have.

Leveled off certainly below the 2020 paid but also well above 2019 before the pandemic.

Dominic exactly really tough at this moment to say, where everything is going to shake out because we've still got really high low.

So that means that there's some businesses that would be buying outside of health care.

Does that closed.

We've also had not yet got the return to offices, which is another large group of customers Finally U S education.

As you'd know better than me is just at the point of resuming and therefore, not too big not health care market for us. So it's very hard to see the buying pattern that.

So I think you know in the coming months, we will get a much better read on that.

They are going to land, but from what we're seeing so far.

Below 20, well above 19.

And then.

Trying to think through sort of the back half.

Looking at the two year growth rate.

And trying to adjust for currency and M&A given us that data.

And it seems like it's all over the place I guess, maybe what I wanted to ask is when we get on the other side of these headwinds you're facing.

Seasonal revenue pattern.

That you had in 2018 in 2019.

A good longer term guidance.

Guidance for the business.

And understanding it may be different in the short term is there really a strong case.

For a significant step up in Q4, given what we know now delta areas. Some of the some of the things moving on.

I'm just trying to gauge you know relative to prior year.

So.

So let me give us your thoughts and then I'll hand over T SEC.

Ultimately we are gonna GAAP.

Back into the same kind of seasonality.

As we have before but I think what we're saying is we expected the 400 million with law.

In the Bay to come back over time, and we expected that a big chunk of that come back in a step change.

That might have happened around the middle of this year, we now know because of the delta in the U S. But also other things lockdowns and other market that is going to be later.

Question is when is that going to be.

In Q4 or is it going to be a little bit later and that is just the the.

Really tough.

<unk> to answer right now.

Todd do you want to add something yes, maybe I'll just add as a historical perspective from my my view is that.

<unk> thousand 18, 2019 would be a more normalized view of the seasonality of the business typically Q1 would be.

Our lighter quarter and then.

Hospitality and lodging and vacation as happened in particular in Europe in Q2, and Q3, you would see some seasonality there and then a little bit of tail back off in Q4.

This year.

I think were stating pretty clearly that we do expect sequential growth.

On an actual basis quarter on quarter, both in terms of revenue and.

Margin enhancement so.

It is a tricky environment to predict but we're confident that quarter on quarter growth is expected.

Both end.

Dollars and margin and revenue as we go through this year, but I do think it is fair to say that there is some seasonality in this business when normalization returns.

That's helpful commentary thanks, guys.

Thank you.

Our next question comes from the line of Jeff Secaucus with J P. Morgan. Please proceed with your question.

Thanks very much.

Versus what you thought you would earn for 2021 three months ago do you now think youre going to earn something lower the same or higher.

Just a very short answer to your question is the.

It's incredibly difficult.

To say.

As Todd was just saying.

What we do.

Is that we're going to grow.

Quarter on quarter pricing topline EBIT Donna <unk>.

China.

Is the on the controllable we feel like we're in a great place. So we're winning more new business.

We feel our margin.

Expectation of growing 50 to 100 basis points, we'll deliver this year.

Despite all of the challenges of inflation that are in the market and we feel you know.

The M&A that we've reported this quarter will likely to deliver some similar appetite going forward Scott on the controllable we feel like we're in a great place ahead of where we expected on the uncontrollable is really the pandemic.

It's really tough.

And.

All we can keep doing is taking the actions that we are and making sure that as each market reopens, we do a fantastic job and I think we've done in the U S and the UK Paradise chart.

When each country occupancy is obviously outside of our control. So our focus now is making sure that in the same way as we grew Q2 over Q1, we're going to grow Q3 over Q2, and then Q4 I think please correct.

Okay great.

Maybe for Todd.

Your cash flow from operations was negative 100, roughly for the first two quarters and last year you were flat.

I don't think Youre working capital is going to change all that much over the next two quarters because your business is accelerating so is your cash flow from operations.

Less than it was last year.

And are you going to bring down your capital expenditures your dosing in dispensing equipment or leave them.

Where do you aspire to.

Can you talk about your cash flow from operations.

Maybe I'll try to give you a little color.

Okay.

First of all on the comp.

Couple of things I think it was in the slide.

We had a onetime $50 million securitization benefit last year. So as you do the wreck Brexit quarter on quarter. That's a that's a onetime lab, we do tend to to burn cash in the first half historically and generate cash in the second half and I think in our commentary we said, we do expect to generate.

$100 billion roughly of free cash flow.

I would say net of any major strategic investments that we might do outside of our plan.

And then I would say we do expect.

Primarily in inventory to make progress in the back half of this year, we do have significant initiatives.

Focusing on cash flow recognizing that.

We are in control of a number of those things.

As mentioned in the commentary we did build in.

Inventory in the first half honestly consciously it was a discussion with our leadership teams.

More focused on making sure we capture the market.

As the market opens and to make sure that given all the challenges as you have heard and raw material supply and other other raw.

Raw material related matters that we're in a position to optimize our revenue.

As those markets reopen which as Bill mentioned is pretty tricky right now.

The other thing I would say this year as part of the IPO, there was $30 million in cash L tip.

That was paid out in the first half IPO costs of roughly $11 million that were part of the first half cash flow.

And.

Exiting the.

Private equity management fee was roughly $20 million in the first half so that kind of that kind of explains the year on year first half cash flow.

You referenced that minus $100 million.

As you think about the full year.

If you take first half and the second half $100 million, then you kind of adjust for the onetime kind of IPO cash outs.

Items I mentioned.

Cash flow from operations, it's going to be roughly $50 million to $60 million this year.

And so.

And as we look forward, we're quite enthusiastic about the cash generation of this business.

Maybe a little longer winded answer than you want but.

We're actively working.

Had some consultants and to work on our sales and operation planning process in the first half to get our.

Demand and our inventory levels lined up to get the service level improvements.

We're working with our sourcing group to work.

Work on continuing to work with vendors on.

Supplier payment programs that we think will generate some significant benefit in the back half as well.

Our working cap as a percent of LTM sales.

It was about 10, 6% in the first half, which is actually not a bad marker.

For us as a business and the quality of our <unk> are now is better than it was pre COVID-19.

No.

I want you to take away from this we are controlling what we control and actively managing it.

And I do think you will see.

Some significant inventory take down in the back half.

So the hunter and Youre going to generate $100 million in free cash flow and so if your capex and you're dosing in dispensing equipment.

About $100 million that would mean your cash flow from operations 200.

The way to understand your comments correctly.

No I don't think so I think if we were down $100 billion in the front half roughly.

Going to be up $100 million in the back half and in that there's 50 or $60 million of one timers I would say this year that are related to the IPO.

Related to cash Altice IPO cost.

And.

Yes.

Getting management fees that are onetime in nature.

That's an adjusted number.

Yes, I think I think we need to look at it that way to understand the base business.

Net of some other ones.

Sure.

Okay. Thanks.

Okay.

Our next question comes from the line of Kevin Mcveigh with Credit Suisse. Please proceed with your question.

Great. Thank you hey, it sounds like you.

You are making a lot of progress just blindly retention.

The screen, where the retention is today.

And.

What are you winning from because it sounds like if we heard you right.

Your winter at an all time high in your losses are at an all time low so maybe just help us frame, where the share shifts coming from and what the retention looks like.

Yes sure.

Our retention numbers last year.

On large accounts was about 99%.

And it continued in the same ballpark the shifts so extremely high retention.

I think we're winning from all over the market.

<unk>.

Our proposition.

Our products our service.

The operational efficiencies that we can drive a very rather than to small customers three medium into logic customer.

I wouldn't say, it's all it's concentrated.

It's really all parts of the market.

Yes.

Our proposition makes sense.

Got it and then just.

The new product innovation.

Thank you.

<unk> introduced.

We just think about what that initiative can generate.

From a revenue perspective, how we should think about that maybe in 'twenty. One and then just as you think about that.

The model longer term.

Yes sure.

That'd be notwithstanding our machine business.

Is around 10% of our overall institutional business.

Some of that maybe just a bit below $200 million.

This is one of a number of innovations that we're in the process.

Releasing we got another big wave.

Coming out later this year, which will at the right time, we'll come back until you guys about.

But look we think that.

We can get really significant growth out of the machines business.

Something somewhere between mid and high single digit growth.

Once we normalize for Covid and these innovations are a big part of that.

Got it.

So is there any benefit.

Restructure bill that's going to push that as well just from an ESG perspective.

So I would just say that one more time.

With the infrastructure build.

As to the state does that help boosted.

Yeah, well they need those machines as well.

Sorry, when you when you talk about the infrastructure, you're talking about the new U S factory that we talked about.

No no no.

Infrastructure build the stimulus bill the trillion dollars.

Passed the Senate.

Alright.

Okay.

Todd do you want to pick that up yes sure clear.

Clearly I think there is a number of benefits from the infrastructure build that that may come our way.

Phil mentioned the concentration that we have in education, clearly education, I think will be a benefit of.

The infrastructure Bill in terms of funding for our local and universities.

These machines would be used in those environments also.

Just the general infrastructure build.

We will increase the need for.

Equipment.

It's probably important to add.

And the big industrial sweeper business.

In terms of cleaning roads and that kind of thing, but we do think the investment in capex and infrastructure.

Funding will positively impact the business.

And multiple industries.

Across the.

The U S here.

Thank you.

Our next question comes from the line of George Tong with Goldman Sachs. Please proceed with your question.

Hi, Thanks, good morning.

Institutional business, you mentioned that the longer Lockdowns are weighing on revenue performance with reference to India and the Philippines are there additional markets that you'd call out where you're seeing lockdown headwinds in can you elaborate on evidence that youre seeing in the business.

Sure that's recovering better than expected in the markets that are open.

Yes.

Don't you feel alignment, but maybe I can just.

Alright, great.

VA.

What was what were seeing here because it is such a mixed picture and it is so important to the institutional business.

Let me start quickly in North America clearly.

Revenue in the chart.

That were trading back above 2019 levels.

That is largely reopen but it's also fair to say that our food service proposition is being focused on contract catering, which means the offices and education are important to us so.

Very keen to see what happens there.

How is that going to play out so whilst we're really pleased with where the USA or North America. We are also a little bit nervous about what's going on with Delta If I look at last time.

Real lockdowns across the continent.

The situation is easing a little bit.

Vaccination rates alive.

In cases relatively high so we see that the full reopening not likely to happen for quite some time into Europe.

Obviously, you know fully locked down for the majority of H, one the UK starting to reopen and we showed you the chart on that vaccination rates in Europe are getting better.

Just following state so I could give you example of France, and Denmark that in July are kind of following suit, but then there's others that are tougher I look at the the gym on it country by look at Finland.

Somewhat the further behind and then as I go further east into the Middle East.

Hi, Lockdowns.

Being some easing.

But there's still a long way to guide really outside of Turkey Israel.

India.

You know remains pretty tough North Asia Interestingly, if you go to China. After each service business has bounced back as well ahead of 2019, it's a local market has reopened.

International travel.

Still problematic for our hospitality business and we don't expect the international travel into China is going to happen anytime soon and then two really tough impacted place in southeast Asia, and Australia, New Zealand. The Lockdowns here right now are more significant than they were in 2020.

T D.

These markets are really.

Quite a tough spot.

It could be some time before we see reopening that.

Got it that's helpful.

And you discussed cost inflation with raw materials and freight carriers.

As well as actions to offset with pricing looking at <unk> in the second half of this year, how does the rising input cost compare with the pricing increases.

Yes.

My expectation is that the.

They will be further increases in costs, but what I'm, hoping that the rate of increase is going to slow.

And as we said.

<unk> Directv in Q4, the rate of price increases is going to increase.

That's why.

Our belief and our ambition is that exit rate.

From Q4 into next year is going to be.

And quite a strong place and that's why we said.

We hired in the first half of next year, we're going to we're going to.

Covered.

The inflation on a percentage basis, not just a dollar basis, but we think it's going to get better but most of that improvement is going to be Q4, rather than Q3.

Got it very helpful. Thank you.

Thank you.

Our next question comes from the line of Andy Wittman with Robert W. Baird. Please proceed with your question.

Yeah, great. Thank you most of my questions have been asked and answered, but I thought it would be.

<unk> talked about the M&A program and trying to get.

A little bit more detail out of you I think in the prepared remarks. So you mentioned that you thought the.

The deals were deleveraging I guess the implication there is that you paid less than your leverage multiple I just wanted to confirm that and Todd if you could give us any details as to.

The amount of acquired revenue that you expect to acquire from the three acquisitions that you noted noted here on the conference call just for the people to keep model.

Maybe.

The revenues on an annualized basis or something to that effect would be helpful. Thank you.

Hey, Todd do you want to pick this one up slowly.

Maybe just start with a general comment on M&A.

Pleased with the progress.

M&A platform.

As Phil mentioned, we've closed three transactions.

And the last.

30, 45 days here one.

Tasman chemical in Australia, we're excited about that it gives us a real strategic supply chain benefit and you know thats one of our three drivers of what we look for service levels will improve and that will really help our scale in Australia and.

In terms of investment in our manufacturing capability, there and the other two are product.

Folio.

Transactions, one Halo film, which gives us this.

The effect on residual technology.

First in market globally.

The other one is extension actually.

An arrangement we had on a.

A product line called <unk>, which is plant based complete range of a 100% biodegradable kind of building Coeur kitchen care and personal care products.

We've invested about $11 million so far in those three transactions.

Our growth algorithm is too.

We've indicated to try to generate 2% top line per annum.

We started this up.

<unk>.

And invested in it we've added resources to our internal team.

We may or may not get to 2% in year. This year, but we will absolutely be exiting we think at that.

Topline kind of rate.

We enter into.

2022 here.

We are we.

Thanks for that.

We're generating about <unk>.

$20 million of revenue in terms of 22 impact in <unk>.

$7 million of EBITDA on those three transactions.

Clearly out of the box.

May not be delevering, but within <unk>.

'twenty two we clearly will be below.

Our current net debt leverage so it is.

No form of Delevering for us going forward. Okay. That's helpful. Thank you.

Thank you.

Our next question comes from the line of around Vishwanathan with RBC capital markets. Please proceed with your question.

Great. Thanks for taking my question.

I guess I'm, just trying to get a little bit more color on the outlook. You noted that there is some uncertainty in the near term.

For Q3, just given the delta as well as.

Some price cost headwinds from inflation.

But also our future should be sequentially higher so.

And then just looking into 'twenty two I mean do you expect to hold on to some of these price increases that you're implementing right now.

And does that indicate you know maybe make up this shortfall in Q3 in 2022.

Yes, no great question.

The short answer is yes.

Like I say everything we're doing controlling the controllable we fail on or ahead of our plan.

This environmental challenge with the pandemic is short term.

Going to catch up at some point, we think the data we shared with you alright.

As the country reopens swap business is great evidence for that so the only thing we're really unclear about is at what point does it catch up which has to do with when the Delta Varian.

Is it sort of in the U S and when the other market.

Kind of reopened for the first time.

Following the following the pandemic.

So yes nothing in here.

Gives us any cause or maintenance that off thesis on why we are heading in 'twenty two yes timing of this corona related stuff.

Okay, great and just on the share gains presumably some of your smaller competitors may be more affected by the inflation and disruptions. So.

Have you seen any acceleration in your share gains.

With with increases on inflation and the Delta variant.

Is that an encouraging sign and so is there any possibility that maybe youre looking more positive on the 'twenty two 'twenty three outlook.

I think our underlying point is a great one.

Step back and think about this environment right.

Pandemic inflation availability in raw materials and freight.

In Europe unrest inside that fire in tech.

These are all real challenges that all of our competitors and our customers are saying we think actually.

Plays to our strength as we saw last year, where we delivered in tough times with the customers they showed us loyalty.

And actually this.

Just once we've worked through these things have gotten behind us.

Thanks.

Okay.

Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Hi, two questions first can you give a sense for how you think the other side of this inflation cycle might play out.

Would we see.

There were some reversal of the share gains offset by margin expansion or would you be passing the model the normalization of the supply chain through to customers I mean, just how what how should we what's the current schedule of that.

And secondly, just on your last comment kind.

I'm curious about the reference to the <unk> in Turkey was there an operational disruptions that you've seen there or.

Is it or is there a sort of an indirect supply chain issue.

Yes so.

On your.

And every month that graph is just being pushed to the right.

Haven't yet seen any of that moderation.

And therefore.

You certainly it until we actually see that happening on some more kind of permanent basis, we got to keep guiding exactly as we are we've got a plan and we got a trike that all of this stuff is permanent.

Certainly what we're doing.

Second question No my reference to.

I see.

<unk> holiday spots in Turkey, which is a huge market reopens from COVID-19. So the forest fires hit which dampened the overall market. So it didn't have a direct supply chain impact on us just that.

Just to just a challenge for the.

For our customers and therefore for us in that market.

Got it thanks.

Our last question comes from the line of John Roberts with UBS. Please proceed with your question.

John.

It's very hard to give you any more precision.

For the reasons that I've said.

Don't know.

Going to happen like education reopens as offices come back.

I think we feel quite positive about some of the underlying data points, but I don't want to give any.

Faults.

I would view based on those data points because they are incomplete I do think in the next quarter, we will get a lot of new data that's going to be really helpful.

And that's why I appreciate it's a wide range, we're well ahead of 2019, but wet but what else 2020, that's about as much as we can say with confidence at this point.

And then how about some of the other big categories like floor care.

Down much more than the average in the segment do you have any other areas that might be a way.

So sorry.

So if I take floor cat in the U S.

Coming to the end of the floor cash season, there is such a thing.

We've had a fantastic.

Fantastic trading that.

Some challenges on.

Some of the raw material availability.

But we got through that and the teams did a great job.

Actually.

Being back above 2019 levels.

With our <unk> business. That's so yes, that's come back strongly I could eat could you give me examples of our retail business, which is performing very strongly.

Really.

Now is the on.

On the institutional side is the hospitality and food service, we should sort of impacted by the lockdowns globally as I described earlier.

Thank you.

I'd like to hand, the call back to Mr. Wheeler for closing remarks.

Thank you for joining I apologize that we're over time.

In summary, I would just say look we feel great about the market.

We believe the pandemic is going to leave us with higher cleaning standards.

And against that we were controlling the controllable. We're ahead on our plan of where we expected we feel good about a 50 to 100 basis points, but we told you about M&A.

M&A.

<unk> is going well and gathering pace with a great pipeline.

In this tough environment, Israel, it's going to impact the timing of that.

Recovery of this $400 million, but everything we see tells us that 400 million is coming back.

And it will do so over the coming quarters. Thank you all for listening.

For your questions have a good day.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation you may disconnect. Your lines at this time and have a wonderful day.

Q2 2021 Diversey Holdings Ltd Earnings Call

Request a DemoDemo

DSEY

Diversey Holdings

Earnings