Q4 2021 Neenah Inc Earnings Call
Good morning, My name is David and I'll be your conference operator today at this time I'd like to welcome everyone to the Neenah Q4 2021 earnings Conference call. Today's conference is being recorded all lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
If you'd like to ask a question. During this time simply prestige Starkey followed by the number one on your telephone keypad, if you'd like to withdraw your question Press Star one once again.
Thank you Carl Anderson, Vice President of corporate strategy and Investor Relations you May begin your conference.
Good morning, and thank you for joining us on Neenah is Q4 2021 earnings call with me today are Julie Shoretel, Chief Executive Officer, and Paul <unk>, Chief Financial Officer, Julian Paul will discuss recent activities and results as well as share thoughts on our full year highlights.
And our strategy as we look ahead.
We issued a press release covering financial results yesterday afternoon, and hopefully you've had a chance to review that information. Following our prepared remarks, we will open up the call for questions. As a reminder, our comments include forward looking statements actual results could differ from these statements due to risks outlined both on our website and in our SEC.
SEC filings.
As we get started a few opening highlights in the fourth quarter. We continued our top line growth momentum and set another quarterly record with net sales up 28% over last year. Adjusted earnings were <unk> 45 per share excluding 86 tenths of unusual costs.
In Q4 of 2020.
Adjusted earnings were <unk> 87 per share and excluded 28 tenths of unusual cost details of these adjusting items along with a reconciliation to GAAP amounts can be found in our press release.
I'd like to turn it over to Julie.
Thanks, Kyle and good morning, everyone I'd like to start with our highest priority employee safety our strategy of proactive risk identification continues to show strong progress.
Our recordable rate decreased by 30% during 2021 and I'm pleased to say that incidents are at an all time low well great to see this improvement there's still work to do to get to zero injuries across all of Neenah.
Fourth quarter results demonstrated continued strong topline growth and margin improvement.
Total volume was up 22% with fine paper and packaging up 16% and technical products up 25%.
We delivered sales of almost $265 million up 28% from last year.
This is our second consecutive quarterly top line record a clear indication that our growth focus and efforts are being realized.
From a bottomline perspective as expected margins improved from Q3 to Q4, but continued to be challenged by a number of factors.
Input costs continue to increase throughout the quarter and to a greater degree than originally anticipated energy cost, particularly in Europe , where volatile and came in higher than expected ongoing supply chain disruptions, primarily shortages of several specialty chemicals combined with labor availability chat.
<unk> negatively impacted manufacturing cost.
In the fourth quarter, the net impact of selling prices and raw material costs reduced operating margin by over 500 basis points and EPS by over 50 per share versus the prior year.
We have aggressively taken a number of actions to address these input cost and operational challenges and can clearly see some early improvements in 2022.
Adjusted operating profit margin increased in Q4, although short of our long term targets. We saw continued meaningful traction and sequential improvement driven by increased volume and price.
In fine paper and packaging, we were pleased to see adjusted margin improved from 7%, 13%, reflecting the strength of volume growth strong mix and pricing initiatives.
As expected margins in technical products declined due to ongoing escalating input prices, but this will be addressed primarily by our annual filtration pricing adjustment that took effect in January .
We have also recently taken additional pricing and surcharge actions and most of our categories to address additional inflationary pressures seem late in the year.
We've made progress addressing the labor shortage by increasing staffing in our facilities to match the level needed to satisfy the opportunities of our robust topline growth, while accelerating our automation efforts.
Our R&D and procurement teams have continued to work closely with customers to qualify alternate products to address the impact of raw material availability as.
As we mentioned last quarter, we have reformulated or identified alternate sources for approximately $200 million of annual sales.
As a result, we can now offer our customers an expanded set of product options.
Sales mix, which had been unfavorable over the prior several quarters, primarily driven by raw material availability was neutral in the fourth quarter evidence of the improved raw material availability and substitution improvement.
Finally, we've streamlined our fine paper and packaging portfolio to simplify operations and improve our cost position, including over a 30% reduction of grades and we're seeing early benefits in 2022.
So while it's a challenging environment, we've been aggressive in our actions and to position the business for further growth and margin improvement. This year lastly in 2021, we saw meaningful progress in our ESG effort.
Including continued reduction in energy usage water consumption and greenhouse gases.
We received recognition from leading sustainability rating agencies, including the ego latest gold medal in Spain, and silver metal and all other locations.
With that I'll turn it over to Paul to cover financial results and then I'll wrap up with some comments on our strategy.
Thanks Julie.
First let me begin with a quick review of the fourth quarter financial statements consolidated sales reached $264 million up $57 million from last year's comparable quarter.
<unk> accounted for $38 million of sales in the quarter, we saw very strong growth in several areas, including all of fine paper and packaging industrial and specialty coatings volume accounted for growth of 22% overall with the task of contributing 18% while price accounted for another <unk>.
6%, partially offset by currency of around 2% both segments demonstrated continued volume growth.
Adjusted earnings were $14 million compared to $21 million in last year's fourth quarter favorable pricing of $13 million was offset by input cost increases of $25 million, netting an unfavorable $12 million transportation and manufacturing costs were also unfavorable.
We were able to offset a significant portion of that gap through favorable volumes, including volume and margin from the <unk> acquisition.
<unk> with our discussions over the last few quarters, the input costs and supply chain environments remain volatile, but we expect to see margins improve over time as our pricing actions strong volume and efficiency initiatives gain momentum.
Technical products sales were $167 million up 27% from 2020 and up 3%, excluding a toss up.
And Appleton adjusted earnings were $6 million.
Down from a very strong $18 million last year, reflecting the impact of raw material cost increases along with labor transportation and chemical availability.
Tactical products continues to bear the brunt of the input cost increases and what's the most impacted by contractual timing with filtration annual pricing, which took effect January one.
Fine paper and packaging sales were 98 million up 29% from last year's level and adjusted earnings were $12 million for the quarter up from last year's 8 million. We continue to perform above our original expectations of recovery, reflecting the strength of the commercial print packaging and consumer.
<unk> products businesses in.
In both segments. We believe we're on track to offset the 2021 unrecovered input costs as well as the expected inflationary pressures during 2022.
To summarize our pricing and cost impacts for the quarter, our pricing actions accelerated and we saw $13 million of pricing benefit in the fourth quarter compared to $8 million in the third quarter and that increase continues to gain momentum with additional pricing actions in 2022, especially in.
Filtration.
During the fourth quarter, we saw input costs rise, even higher than our expectations entering the quarter to about $25 million over the prior year.
For the full year, we experienced almost $47 million.
Of increased input costs with pricing of $19 million overall 13 million of which we realized in the fourth quarter as pricing momentum continued to take hold.
Regarding Appleton facility was closed at the beginning of the fourth quarter and we expect this action will save us approximately $7 million to $8 million annually. A few other key items to update first in late January we had a fire above the dryer section of the paper machine in our manufacturing facility in Brown.
Well New York.
Fortunately and most importantly, there were no injuries. Thanks to the rapid response of our team.
With the help of local first responders the fire was quickly contained.
This is one of our smaller facilities and we're continuing to assess the timing of a restart we've moved production into other facilities, where possible, but we're expecting unfavorable profit impact in the first quarter, primarily in fine paper and packaging. The business is insured and we currently do not expect material losses.
Nina we will have more details during the first quarter call.
During 2021, we took actions that resulted in more than $80 million of adjustments to earnings. Those included the facility closure restructuring our debt buying you tosser and lastly, I want to highlight the actions we took to simplify our pension position during the quarter, we recorded a noncash.
Charge of $17 million related to pension settlement as a continuation of our strategy to reduce our pension risk and obligations. We purchased an annuity for the retirement benefits of approximately 1400 retirees. This transaction was funded from trust assets and did not require.
Cash outlay from Nina we expect to save more than $7 million over the life of the pension plan through reduced administrative costs, all without impacting our retirees.
Turning to the balance sheet and cash flows as of year end liquidity remains strong 2021 cash flow from operations of $53 million was down from $93 million for 2020. The difference continues to be driven in large part by working capital, reflecting the strong top line along with higher foreign.
Income tax payments.
2021, adjusted EBITDA was $117 million compared with $101 million in 2020, as we saw the benefits of our continued growth and the impact of the <unk> acquisition offset by higher input costs not completely recovered by pricing realization.
Adjusted net leverage was three seven times at year end up slightly from Q3, reflecting the impact of the input cost increases on EBITDA.
<unk> 2021, Capex was $28 million versus $19 million last year as spending returned to more normal levels. After a tight 2020.
For 2022, we expect to be at 4% to 5% of net sales as we invest for growth.
Our annual effective tax rate was a benefit of 16% in 2021 and in 2020.
Both periods were impacted by the unusual costs, which resulted in pretax losses each year.
Absent these unusual items our tax rate on non-GAAP earnings was 21% in 2021 and 19% in 2020.
This increase was driven primarily by higher non-GAAP earnings in 2021, which slightly diluted the impact of new R&D tax credits.
Looking ahead 2022 is starting off with continued inflation and volatility in raw materials energy labor and other supply chain elements.
Fiber prices started to moderate in the fourth quarter recently that moderation has reversed course and there is now upward momentum in part due to transportation issues. Once these issues are resolved we would expect gradual declines.
In terms of specialty chemicals, we're seeing cost declines from the 2021 peak in some base materials used as inputs to many of our chemistries, notably butadiene and propylene.
But these costs remain elevated from pre pandemic levels and many downstream chemicals are still very tight.
Energy cost volatility continues to be challenging, especially in Europe , where aggressive increases were seen in late 2021, we're implementing surcharges to cover the increased costs from our supply chain availability standpoint widespread supply shortages are much improved.
But a few key materials are still structurally short of our demand in most of these cases supply constraints are expected to ease in the coming quarters.
That said other near term supply challenges remain plentiful such as roadblocks at the border and Covid impacts at our suppliers. Our teams remained active and agile to adapt to the changing conditions, but near term manufacturing efficiencies will continue to be impacted.
With this backdrop Q1 will be characterized by a strong top line driven by growth in both segments, including the impact of the January 1st filtration pricing agreements and pricing increases broadly across the rest of the organization tempered by continued input cost.
And supply chain issues previously mentioned.
Combined with the loss from the Brownsville fire, where we could have up to $3 million of impact Q1 performance is likely to be more consistent with Q4 of 2021 and below our comparable Q1 of 2021, where the input costs and supply chain environment, where more norm.
<unk>.
Is the pricing momentum continues and supply availability expands we expect to see margin improvements over the course of 2022, particularly in the back half of the year.
That said no matter the timing, we have strong pricing and other cost containment actions in place. We're seeing positive momentum have a strong volume demand and top line and are confident that overtime, we will achieve our margin objectives.
And on that note I'll turn it back to Julie.
Paul as you can see we are very focused initiatives to drive performance in our business now I'd like to spend some time talking about how we're activating our strategy for the future.
As we've mentioned on previous calls we have longer term goals for neenah, 5% topline growth, 10% bottom line growth and greater than 15% EBITDA margin, we have a clear strategic framework to achieve these goals focus on our four key growth platforms filtration specialty.
Coatings engineered materials and image and packaging within this framework, we disproportionately focused our resources and efforts, allowing us to lever, our technical expertise and customer relationships and to logical growing markets in which we have a strong right to win we add.
Activate these growth ambitions through our efforts in innovation, the neenah operating system organic capital investments and M&A.
First I'd like to highlight a couple of developments regarding our organic investments.
I am pleased to announce a $25 million euro investment and melt blown capacity and our German filtration facility.
As we continue to grow in industrial air and HVAC filtration markets, our three existing melt blown lines are approaching full capacity utilization.
This capacity expansion support some of our highest margin business.
<unk> will support our continued strong growth trends and targeted filtration markets. We expect to start up this new asset in early 2024.
This expansion is in addition to the $13 million investment, we previously announced to increase our specialty coating capacity with another state of the art asset and our facility in Mexico.
This project is underway on track and expected to start up mid year of 2023.
Moving now to innovation, we revamped our innovation process in 2021, aligning our projects with our growth platforms and connecting our key efforts with megatrend themes, such as sustainability and health and wellness. While early we are beginning to see increased traction from our efforts.
A couple of recent examples.
During the quarter, we launched a new specialty coating application used in radiation protection clothing for medical personnel.
Also in the fourth quarter, we joined the so Terrier battery innovation consortium, a global organization promoting late safe and cost effective solutions for lithium ion batteries.
Our innovation team will leverage our technologies and material science Knowhow for electric vehicles and other battery market.
M&A also continues to be a priority for our business. We have a very active pipeline and we proactively approached targets that we feel will accelerate our strategy through capability scale or greater market access the Costa acquisition was a great addition, in 2021 and it's <unk>.
Performing ahead of plan, we couldnt be happier with the strong talent and the financial results.
We look forward to using the <unk> transaction as a foundational acquisition as we grow the specialty coatings platform.
Lastly, we continue to make solid progress on our deployment of the Neenah operating system.
Over the course of 2021, we implemented the approach some of our largest facilities and we're pacing ahead of target.
We've seen this benefit in our safety performance and we've unlocked capacity on some of our key assets.
Supporting our topline growth.
Anyone who has lost a lean type of initiatives such as the Neenah operating system knows it is a journey and I am encouraged by the early traction.
In summary, 2021 of the foundation building year for Neenah, and we took decisive and significant actions to drive value in 2022 and beyond <unk>.
Including achieving record safety performance.
Delivering 30% topline and 16% adjusted EBITDA growth with volume growth in both segments.
Taking aggressive pricing actions to euro and expected net $25 million of benefit in 2022.
Acquiring a tester at GDP plus growth business with mid teen EBITDA margins and strong cash flows providing a foundation and specialty coatings.
Revamping, our innovation process and demonstrating our ability to quickly pivot by sourcing alternate materials and re formulating about 20% of our entire portfolio.
Closing, our Appleton facility generating an expected $6 million of incremental savings in 2022.
Increasing organic growth capital investments in both filtration and specialty coatings.
Refinancing our debt to give us a more flexible capital structure and lower interest expense.
Implementing the neenah operating system to drive significant long term value creation in our manufacturing facilities.
Driving improvements on our ESG initiatives and raising our dividend for the 11th consecutive year.
We are expecting to see the benefits of these actions as we move through 2022 and will continue to remain agile in our approach to the markets in which we compete I'd now like to open the call for questions.
Okay.
Hi, This is Julie if you can hear me in to ask questions.
Hi can I ask a question.
Yes. Thank you I think our operator may have dropped off for a second.
Hey, Julien John John One thing, it's Hey, Jeff how are you.
Hi, John good.
Doing well thanks, Thanks for taking me.
Sure I'll take it one if that's okay.
I was just wondering if you could clarify that brown, who will comment on the $3 million impact is that an EBIT impact of our revenue impact how should we think about that.
It is a bottom line impact and Thats, our current expectation Jon It happened in late January So we're still working through testing the equipment for damage and we're transitioning a number of products to other facilities. It is covered by insurance as well so thats our current estimate for Q1 bottom line.
Act.
Okay, great. Thank you for that and then Julian you mentioned the $25 million net pricing benefit I assume that's just catching up to the <unk>.
37% from last year, and the 13 you realized.
In 'twenty one.
Should I take that to assume that anything else, you'll see $25 million better just from pricing alone this year or it has inflation already gotten away from that.
First two months of the euro so far.
So what we're seeing right now John is it is it is an effort to catch up from 2021, and then run forward and recover in 2022 based on our current view of inflation.
All of us are seeing the volatility.
Moving pretty quickly everyday and in different areas and we've seen traditionally to a greater degree of like energy, particularly in Europe , and some of our specialty chemicals. So we are expecting to recover and we're seeing that recover really recovery really nicely in our fine paper and packaging business, it's been a little bit more lagged in technical products.
Alex where we have annual agreements.
We also made some changes in our pricing mechanisms this year and how we approach pricing so meaning in filtration, where we have annual agreements that go into effect on January 1st.
We've made those semi annual for the most part this year, which gives us greater flexibility to have another round of pricing discussions should we need to and then in our industrial solutions business, which is heavily driven by pricing modifiers. We've changed those to include other elements such as energy.
And some of our specialty chemicals and added surcharges again, giving us greater flexibility as we move through this year to be a little bit more agile in our technical products business on pricing so even as it unfolds in Q1, and we see additional raw material cost, we're addressing that with additional pricing actions and <unk>.
Charges.
Got it that's helpful and it's good to hear that Youre able to change the filtration price a little more frequently than than yearly now.
Okay, Hello can I get a sense of how much.
Inflation has outpaced the price maybe you said in January 1st at this point already.
I don't know if theres any metrics that we can use usually get these zones.
Your your.
Inflation recovery costs or do you have that.
For the last two or three quarters.
John I have so I mean, I think what we're thinking about for 2022, we said a net $25 million a favorable benefit.
And what we're what we're looking at right now is pricing of about 60, 66 zero million and costs rolling over particularly in the first half of the year of $35 million.
So if you think about how the cost increases unfolded in 2021, they really started in the second half of the year and so we've got a rollover of that effect. So Q1 and Q2, we'll see the higher cost increase we've got the momentum on our pricing coming through and so net net we're expecting to $25 million bench.
<unk>.
As we work our way through the year, but it'll unfold quarter by quarter, a little bit differently.
Okay. That's helpful. Thank you for that.
And then finally I was wondering if you could talk about just the labor situation I know you had some.
Short supply.
In the tactical business.
Assume that can't be getting better just given the <unk>.
Earlier this year.
Labor wage inflation, just give me a sense of how youre dealing with that and when that that bottleneck improves for you guys.
And then kind of what the timing of that is.
Sure. So when we were when we were addressing labor I mean, it was a combination of labor availability raw material availability inefficiencies that are created in our manufacturing environment by having new operators running very challenging sequences as we're hand to mouth on some chemicals that results in extra waste.
And training costs lost efficiencies and overtime I would tell you staffing is stabilizing and so we're seeing a moderation in some of those supply chain constraints.
From a labor standpoint, and on some of our most key chemicals, we've increased staffing levels in anticipation of higher turnover, we've implemented new training programs and retention programs and we are accelerating our automation efforts to pull in some projects into our capital lift.
To move more quickly towards automation. So we are seeing some stability more recently all in that impact was about $8 million in 2021, and we believe we will continue to climb out of that as we move through 2022, it will get better as the year moves on we're not actually seeing.
Facilities going down are losing shifts for the most part because of Covid, it's more turnover availability of labor and raw material availability.
Okay got it if I could squeeze one more and just on that.
Usually you have in the past given a bogie for SG&A. How are you thinking about this year with just the inflation in.
Labor costs.
Yes, so right now our SG&A estimate in total is about $120 million for 2022.
Keep in mind, when you toss that came over they brought about $20 million and so on to neenah equivalent basis, roughly $100 million going back in time for total SG&A.
Okay got it thank you guys.
Thanks.
I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad next we'll take a question from.
Once again Thats Star one if you have a question.
Next we'll go to Chris Mcginnis with Sidoti <unk> Company.
Thanks, <unk> good morning.
Hey, great. Thanks for taking my questions I appreciate it.
I think just to start off on the around the pricing can you just talk about how your customers are handling the price increases has there been any pushback or how it was being implemented given timing et.
Et cetera.
Yes, I mean, I would tell you no one loves the magnitude of the increases we're taking and the multiple increases we're taking.
I would also tell you intellectually they understand them because they are being impacted across their business in a similar manner for many suppliers.
And obviously, we're hearing and seeing inflation all around us in the markets in which we compete.
Our traditional paper customers can pass through pricing and we have the leading brands in that space, so that business implement and execute and realize the value very quickly. They want the customers that are on modifiers and agreements are more of a negotiated prop.
Process that we go through so.
It's always tough conversations as you would imagine, but I think the team has taken bold actions and made significant structural changes in our pricing strategies as we head into 2022 that will be responsive to the market and create some agility for us that we need in the dynamic market that we're competing in.
And just.
One of them.
The answers earlier around <unk>.
Changing up the structures of the.
Of the contracts on pricing.
Are they open to that conversation given your own I think historically, it's been on a annual for a long time.
It's a challenging conversation and I think right now is the time when customers remember how you treat them and it's important that we communicate in an open honest and transparent manner and we will work to meet our customer needs and Nina does that really well and we've mentioned a couple of times the innovation and reformulation, we've used to ensure.
Sure that we keep our customers in stock even when supply has been very challenged there is clearly.
<unk>.
Openness and warm thats associated with that from a customer relation standpoint so.
It's not easy to do difficult conversations, but its also the environment Red and if nothing else. This environment creates the opportunity to say, we cannot do things to say, we have to do things dramatically different and we need to take more bold actions than we have in the past in this area. So I think again intellectually they get that and then it's just working through the emotional.
Conversation, even though is the most emotional conversations and some of our largest customers.
There were challenged and taking those actions they are still working with and even a very closely and giving us new business. I mean, we've won new business at our largest most strategic customers and have programs out 10, plus years with some of them for opportunities to grow further.
Just around the task I don't know if you can give this but what was the organic growth that you saw in Q4 with its awesome.
Yeah.
Total total <unk>, excluding a task, though you mean, our total growth total.
Yes, yes.
Sorry, I might just specifically on a task or the growth rate you're seeing there. If you did mentioned that I apologize.
It's almost in the low double digits.
Here, so they've grown for about 8% over the past 10 years consistently and we expect that 8% to 10% growth rate to continue and that's part of the rationale for investing in the new coder in Mexico is to continue to unlock the capacity we need.
As they've been hit with any of the supply chain issues or the other.
<unk> environment that you've talked about.
Yes, they have definitely been hit with the supply chain issues from an availability standpoint with significant COVID-19 .
Surges and with the energy volatility that we're experiencing primarily in Europe .
That is a team that continues to exceed our expectations, so having record performance topline and bottom line. This.
This year, it's really spectacular to see and I think thats a great way to further solidify that's the foundational acquisition that will continue to build upon that build out our specialty coatings platform.
Great and then just.
Two or three more quick ones.
The investments that Youre, making in Europe .
Congrats on.
Those facilities up as high as they are in terms of operational.
Is that demand that you see coming in that Youre working with now can you just talk a little bit about the.
Yes.
Sure It is.
Exactly what you described so a couple of things it's to support to support our highest growth most profitable business our filtration business. It's the fourth sister asset and our German filtration facilities. So it's very similar to the other assets in that facility. It is driven by growth in industrial filtration.
<unk> Air purification air pollution control HVAC.
And its growth primarily with existing customers and existing products that is qualified on our existing three melt blown lines. So we're excited about the investment opportunity. It will start up at 20 mid 2024, and we're looking forward to growing that business more.
Great.
And one of the new product offerings, you were talking about you talked about the EV solution can you just talk a little bit about.
What that is.
I know you have a lot of different things happening.
With new products, but can you just explain that and the potential there.
Sure I mean, as a reminder, EV with less than 2% of technical products business sales goes into new cars and about 4% of filtration. So we're primarily secondary market in heavy duty, but we want to make sure that we're engine agnostic and that we continue to move forward with solutions for our customers to meet their needs.
As they continue to evolve to the consortium that we've joined the leadership team that we've joined as a part of that and we work together to develop those unique solutions and with our customers to develop their unique solutions for the EV market.
And then just last question around potential M&A, just the balance sheet is improving this year should be better.
Your thoughts on the M&A environment that's out there.
Yes, it continues to be a healthy M&A environment and I think EMEA has a great list of targets that we continue to to review and work on and look at.
Given our current leverage we're at about three seven we would not be looking to do something as large as like an a task, but we will continue to build upon our growth platforms as we continue to bring our leverage down.
Thanks for taking my questions and good luck in Q1.
Sure thing thank you.
And next we'll go to go cooler Kannan with Infosys.
Good morning.
Your line is open.
You may be muted.
Okay.
Good morning.
Good morning.
Hi, This is Dan Perlin from Illinois.
Not sure.
It took my name or not but I'm going to ask my questions now while I have the while I have the floor. Thank.
Thank you guys for the call.
Okay.
I just wanted to ask quick question just conceptually.
There's a lot of moving parts last year.
So Julien as you pointed out.
All in for the year, there was a $117 million of EBITDA.
And then if you included <unk> contribution for the first quarter that would have been another $5 million.
And then savings from Appleton would've been six.
So you put that altogether euro at $128 million of sort of like a pro forma EBITDA number.
And then you noted that $25 million of pricing actions.
We're input.
I want to make sure I understood. This correctly, there was $25 million of net pricing actions that will.
2022, but how much of those were reflected in 2021 versus how much of those.
Haven't been reflected yet and will only sort of begin flowing through in 2022.
Sure.
I'm, hoping I understand your question correctly, but I think what you're asking is pricing last year versus this year, what's the incremental amount of that is <unk>.
Last year, we ended up taking about $20 million of pricing. This year, what we have planned and announced and are implementing is roughly $60 million of pricing of additional pricing. So that net 25 is net of our expectation around input cost inflation and in EFT.
For it to recover the shortfall from 'twenty, one and run ahead of what we're seeing in 'twenty two.
That reflects the filtration annual price increases that is correct yes.
117, LTM plus the five for <unk> first quarter contribution plus the 6 million savings from Appleton is 120, plus 25 net would be which is reflects higher costs in the first half of the year I think so that gets you to a 140 to 153 million pro forma adjusted if you think about the price impact.
The impact of price increases.
I'm not asking for guidance I, just wanted to make sure.
Yes.
Mind, you I think you are taking all of the positive.
<unk>.
That's where I want it.
And then I wanted to make sure that I understand all the negatives so.
$3 million, but that includes higher cost as well I would think in the first half because like you said it was 60 million of pricing net of $35 million of higher cost. So what are some of the other.
Headwinds just sort of a net against that number which.
Sure.
So to think about more of like on a normalized basis.
Sure I think it does include the higher input costs. What it doesn't include our things around continuing challenges on labor availability raw material availability getting our new operators up to speed getting our efficiencies back to where they've been because we have new operators and are seeing extra waste and training costs and over time.
Availability of chemicals, so that we can run more efficiently in our facilities and it doesn't include the fire in Brownsville that we mentioned that happened in late January that we're still assessing and testing the equipment for damage I would say the other thing is theres a lot of volatility, particularly in LNG and particularly in Europe and so.
It's moving pretty pretty dramatically and can move pretty quickly we do forward by a portion of that but not the majority of it. So there is some volatility that we'll see from that as well.
Okay.
So all of those issues how much of that.
Was reflected in the second half of 2021, so we will put the first half away.
A lot of labor issues did start perking up and obviously all the inflationary issues. So we saw a lot of that already begin sort of rear its ugly head in the second half of the year is a lot do you think that it's going to be materially incremental to what we saw in the second half of 'twenty, one or it will just be similar and it just has to flow through for the <unk>.
First half of the year.
Yes, Dan where we start really start to hit was in the fourth quarter and we calculated about $8 million impact from those those different areas I mentioned about five over five of that was in the fourth quarter and then we know no no light switch occurred on January one that changed everything.
So we're continuing to see those challenges are labor market is starting to stabilize but it will take us some time to come up to speed with new employees to get chemicals lined out to get some of the raw material availability issues lined out. So Q4 was where we really felt that I expect that to continue particularly in the first half of 2000.
'twenty two.
Got it so maybe a better.
A way to think about it.
There's a lot of other issues would be if you annualize the fourth quarter.
And providing some benefit for Appleton and the net pricing benefit is that maybe a better way to look at it.
Dan Dan I think part of what we're trying to do is we're trying to say look we've done all these foundational things in 2021 to set the business up including Appleton like you mentioned, including the <unk> acquisition, including trying to get out ahead of pricing in the back half of the year.
I don't think we really want to speculate on what that's going to look like each quarter as we roll through 2022, because like Julie said, we've got an expectation for addressing the efficiency issues that we talked about so that's underway.
We've got we've got all sorts of pricing actions that we've got going on.
But it's an unstable inflationary environment I think as you know out there right now and so as we're trying to get work our way through the year, we're putting the foundational pieces in place and we're going as aggressive as we can against that.
Pricing for to offset all the raw material costs and impact, but we really don't want to put ourselves in a position of trying to come up with a number that we would then be talking about externally for where we think 2022 could be given the amount of volatility and uncertainty in there. So we're telling you each one of the components.
But we're not going to tie that together into a number and say that's our number.
I appreciate that and as a public company. We've never wanted to back you into that that's really not I'm just trying to figure out is a snapshot in time.
Pricing actions were severely lagged because the annual contracts and so 2022 on a net basis should look different.
And I agree that there is a lot of other things kind of flowing through and so what I'm really just trying to figure out from here today, if I was I just looked at today.
Net impact of those pricing impacts.
And I can sort of we can all sort of thinking about all the other things but.
And so that's ultimately my objective I don't think that if you look at the fourth quarter Okay.
And it was roughly 25 million of EBITDA to me, that's clearly not indicative of what the business looks like even when you crossover from 'twenty, one 'twenty two because of material changes to your pricing agreements and well.
Thanks, Dan.
Right and I think that I mean, we.
I think we made this comment I know I made it in my prepared remarks, but if you look at the first quarter of 2021. When you look at the first quarter of 2020, so before Covid hit and before we had all this crazy raw material inflation, we were sitting at mid teen EBITDA margins.
In the business, which is our goal we want to get back to so I think the question is.
Since that time, we've repositioned the business with the <unk> acquisition with the closure of the North American facility that that I think help strengthen the foundation of the business. So the question is when do we get to that kind of margin again, and thats going to depend a lot.
On what's happening with that unstable inflationary environment, if it if it calms down in the back half of the year. Then we've got all of these pricing initiatives that will look one way. If it continues going up all year and we have to continue to chase that it's going to look like something different so the business.
Itself can perform and has performed at those levels and the question I think from our.
Our point of view is we're doing everything we can to address the issues that we see and get out in front of them.
We know what the business can do from a performance perspective.
Yes, I agree with Paul I think what we're trying to messages, we expect progress toward our goal as we work through 2022 demand is very strong our assets are running full we've taken aggressive actions and pricing in 'twenty, one and more aggressive and bold actions in 'twenty two.
The issue is we are not in a stable supply chain or inflationary environment and that is really the wildcard and our goal is to take the actions of the other things, we can control and remain and improve our agility and flexibility in this environment that is more volatile than we've seen in the past I believe.
All of those things combined means we will continue to make progress toward our goal from a margin standpoint.
Alright, I appreciate you guys.
Walking through that with me. Thank you.
Sure. Thanks.
There are no further questions I'll now turn the call back over to Kyle Anderson for any additional or closing remarks.
Thank you for your time today to recap demand for our products is strong however, the global supply chain and manufacturing environment remains challenging we've taken a number of actions to address these near term pressures to support recovery of our margins and we continue to advance our strategic agenda, making investments to position the company.
For long range growth and value creation.
We're looking forward to updating you on their continued progress next quarter. It will also be attending the upcoming JP Morgan High yield conference on March one thanks and have a great day.
Okay.
This concludes today's conference call you may now disconnect.
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