Q4 2021 Univar Solutions Inc Earnings Call
I'd like an end market trends, Nick will walk through our financial update and then David will close with progress on our business strategy. Following that we will take your questions with that I'll now turn the call over to David for his opening remarks.
Thank you Heather and good morning, good afternoon, and good evening to everyone and thanks for joining our call.
I am delighted to report another exceptional quarter and outstanding year, Thanks to our resilient business model and our hardworking talented team over the past three years has transformed the business.
Driven by solid commercial execution and centered on the customer experience, we delivered strong year over year growth. Despite the challenges of the pandemic transport and constrained supply.
We remain focused on continued organic and margin growth maximizing cash flow as well as inorganic growth opportunities to further leverage our cost structure strong regional infrastructure owned assets and digital advantage.
As you've already seen key highlights from the quarter are weaker.
We delivered exceptional Q4, adjusted EBITDA of $207 million and our full year EBITDA of $798 million with liquidity of over $1 billion at quarter end.
Market share grow in the quarter as evidenced by our policy of win loss ratio and higher retention levels for new customers.
Our sales of higher margin increase in specialties grew by half a billion dollars in the year to $3 3 billion.
Our digital investments are yielding real benefits with 45% of our U S customers now registered on our e-commerce channels and able to utilize 24, 7% self service capabilities.
We completed the acquisition of Sweet mix, one of the top five distributors in Brazil of ingredients and specialty chemical to expand both our food ingredients and case portfolio in Brazil.
And with our strong performance in deleveraging goal achieved ahead of schedule, we returned $50 million of capital to shareholders via share repurchases.
In the fourth quarter, we continued our trend of outpacing prior year in both sales and margin due in large parts of our committed market positions in key products as well as utilizing our extensive network of facilities and the advantage of our own trucking fleet. We believe this quarter was a clear validate.
<unk> of our core value proposition of providing security of supply safely to our customers and sound product stewardship to our supplier partners.
Looking at the end markets.
Our industrial solutions portfolio, so accelerated double digit growth with strong performance in case, particularly in polyurethane formulation.
Homecare and industrial cleaning and lubricants and metalworking fluids also performed strongly due to demand and our strategic and our strategic supply position.
Despite challenges in the supply chain, we found opportunities to grow and deliver new solutions for our customers and suppliers.
Personal care and food ingredients continued their trend of double digit growth in all subsectors.
Personal care demand, so, especially strong growth in perfumes and extracts wanting food growth has come from increased demand in prepared foods and hospitality as well as from a new supplier authorizations.
Our value to customers in both end markets continues to grow as we formulate solutions to meet growth trends in the market and expand and more sustainable and clean label ingredients.
Within the general industrial portfolio, we see strong demand across a variety of markets with ongoing strength in chemical manufacturing and increasing demand in mining chemistries.
Our extensive organic chemistry portfolio that supported growth in these segments, while the ability to leverage our scale has enabled us to provide customers with continuity of supply.
<unk> revenue was down in Q4, given the ongoing impact from constrained supply of capacity.
Our primary strategy in this market remains to leverage our distribution capabilities to provide provides full lifecycle chemical product management to the market.
Although now a smaller part of our business, we saw growth in refining and chemical processing as higher oil prices have accelerated reinvestment with increased customer demand for more sustainable solutions in this sector.
For 2020 to giving confidence in our strategic priorities operational execution expected market share growth and chemical pricing expected to stay at high levels through the first half of the year, we estimate an adjusted EBITDA guidance of $260 million to $280 million for Q1 'twenty two.
On a full year 2023 of 860 million to $890 million with resulting strong cash flows.
We look forward to 2022, where we can be solely focused on customers and on growth as we leverage our asset base, including our extensive private fleets and digital capabilities.
We believe a much improved commercial execution as well as our long standing commitment to our ESG goals positions us to continued success well beyond the next four quarters.
We believe we have the right people products tools and strategy to grow our delivered gross profit at rates greater than general consensus in the economy.
Such believes we are in a strong position to deliver long term sustainable shareholder value.
Now, let me turn the call over to Nick who will walk you through our fourth quarter results and our outlook before I comment on our key strategies and we get to your questions.
Thank you David Good morning, and Hello to all.
Im pretty sure Univar solutions Q4 financial results update you on our business activities and provide our outlook for 2022.
Sales were up 23, 5% on a constant currency basis excluding.
Results of the exited Canadian agricultural businesses and discipline from the prior year's financials, we estimate net sales to be up 28, 8%, whereas the corresponding gross profit was up 32, 7% also on a constant currency basis.
These growth rates were primarily impacted by chemical price inflation, but also reflects strong operational execution.
Fourth quarter, adjusted EBITDA of $207 million was up by 46% on a constant currency basis and adjusted for the exited businesses.
This increase was primarily driven by the chemical price inflation and most importantly, the commercial and operational efficiency of our teams to navigate through the ongoing supply chain challenges as well as strong customer demand.
We also benefited from the realization of next year net synergies, partially offset by higher <unk> and the effects of the disappoint divestiture.
Governor yesterday was impacted by higher operating costs and the variable compensation.
Per our detailed schedules in the appendix adjusted earnings per diluted share or 60 in the quarter an increase from 34.
In the prior year fourth quarter.
Operating cash flow of $175 million was significantly higher versus the prior year period, primarily due to the higher net income.
Net working capital was a slight use is quarter over quarter sales rose with chemical price inflation and volumes were stronger than our typical Q4.
Wherever possible. We also continued to invest in inventory in order to support strong customer demand.
Capital is currencies for the quarter were $42 million and next year integration related expenses were on plan at $13 million.
Our ROIC was 14, 4% for the quarter, reflecting the strong performance and efficient asset utilization and.
And net debt leverage now stands at two five times, which is below our original F. 'twenty to yearend target of three <unk> times and is net of the $50 million in cash returned to shareholders. During Q4 2021.
On Friday, we have aggregated the key metrics across our four reporting segments and we'll provide details in the appendix.
Except for Canada sales were higher across all geographies benefiting from chemical price inflation operational execution and market share gains.
Canada's reported decline was largely due to our exit from the Canadian agricultural businesses.
We had strong gross profit and adjusted EBITDA growth across all the regions and strong margins.
In EMEA and Latam gross profit margins were impacted by cost inflation and Latam EBITDA margins were lowered as we have re allocated corporate costs, reflecting the FEP implementation across the Americas.
Turning over to our 2022 outlook, we expect strong end market demand throughout the year continued market share gains and solid operational execution building on our successes in 2021.
We also estimate a continuation of current chemical price levels at least through the first half of 2020.
Additionally, we expect to benefit from normalized variable compensation versus the prior year, which will help offset chemical price deflation that may occur in the second half.
We have targeted gross profit growth greater than the consensus for economic growth, which is currently estimated at three 5% for 2022.
We expect to continue executing well through the ongoing supply chain disruptions and increase our market share across all geographical segments as well as within ingredients and specialties and chemicals and services.
We expect that next year next synergies for the year estimated $19 million and cost efficiency strategies outlined at analyst day last November will be the leading drivers for margin expansion in 2022 and into 2023.
As mentioned previously we expect to utilize our authorized share repurchase program to at a minimum buyback amounts related to executive compensation dilution.
As a result, we are guiding a diluted share count range of 171 to 172 million shares by year end 2022.
Accounting for all these factors our guidance for adjusted EBITDA is between $860 and $890 million for fiscal year 2020, Q as David mentioned earlier with guidance for Q1 2022 in the range of $260 million to $280 million.
Let's look at some of our cash flow highlights of our 2022 outlook.
We are targeting net working capital of 13, 5% to 14% of annualized quarterly sales by year end 2022, recognizing we ended 2021 above that range.
As the supply chain disruptions starts to normalize by the end of 2022 networking capital is estimated to be a source of cash.
Cash taxes to be paid are expected to be higher principally due to the 2020 to taxable earnings level and the runoff of Nols.
We expect our non-GAAP effective tax rate to continue to be in the 28% to 30% range.
We expect that other expenses will be a use of cash versus being a significant source in 2021.
As mentioned in the last quarter's call the higher variable compensation accruals in 2021 type of sales and profits will be paid in Q1 of 2022.
This line item and our summary of cash flow. So typically have an annual cash use of $30 million to $50 million.
All next year integration expenses have been completed and we are expecting approximately $135 million of capital expenditures for 2020.
Consequently, we're targeting net free cash flow of $430 million to $445 million for 2022, which is approximately 50% conversion from adjusted EBITDA.
Through 2024, the net debt leverage is expected to range between two to two five times as mentioned at our recent analyst day.
And during the same period in line with our commitment to return capital to shareholders. We are targeting an average return of 20% to 30% of adjusted net income.
Our strong results for the quarter reflect solid execution of our strategies throughout the business as we seek to take full advantage of our leadership positions in the market.
Building on our momentum and remain focused on growth.
We're excited with our outlook for the full year 2022, and beyond and we are continuing to implement plans to achieve an adjusted EBITDA margin of 9% for the full year 2023.
I will again emphasize that our teams everyday continue to drive strong performance in challenging environments.
And David.
Thank you Nick.
Nick mentioned, our recent analyst day and acid, we highlighted our market leading approach to suppliers customers and trends globally as ingredients and specialty or IMS for short.
Compared to chemicals and services IMS typically has higher growth rates on average growing 200 plus basis points greater than economic consensus is largely built an exclusive supply relationships are sticky customers and.
Brings higher gross profit.
In 2021, IMS grew gross profit, 28% year over year to $897 million and is comparable in size and scale for the so called pure play specialty distributors, but enjoys a clear advantage of levering the scale and resources of our facilities and <unk>.
Transport infrastructure.
Only the last mile of distribution as we do we believe is a clear differentiator and value creation opportunity.
And with our new authorization leasing sweetmeats acquisition and ongoing investments in our technical resources and capabilities. We expect continued growth across a broad range of specialty end markets.
We also continued to strengthen chemicals and services by growing CNS gross profit, 50% year over year.
Launching new partnerships for example was the treatment is initiated.
Improving on time delivery metrics and customer satisfaction.
This is growing share with our customers, while maintaining our impressive safety record.
With our operating model fully in place we can now be singularly focused on building. The effortless experience, we believe our customers deserve and are making investments in our people our facilities and the end markets expertise creates more value to suppliers customers and end consumers.
We're excited about the progress of our business strategy and continued growth in our market share supported by new ports authorizations.
Our valued supplier partners trust that our network of tenants chemical engineers and scientists application development professionals can address growing trend.
Integral in helping our customers loans innovative more sustainable and clean formulations.
We recently opened our latest food solution center and the <unk> show in Chicago, which is at the forefront of innovation.
With key customers and suppliers headquarter in the area. Another 1200 90 fracturing companies, we consider it the perfect location to drive supplier and customer engagements as well as attract top talent, all while helping advance the hatches Chicago and our commitments to diversity equity and inclusion.
We broke ground on a new state of the ops chemical distribution facility in Western Canada, which we expect will extend our reach in the region, while providing improved service levels and a reduction in outbound logistics costs and a lower carbon footprint.
With our strong earnings and our net leverage well below our original year end goal of three times, we continue to evaluate selective bolt on acquisitions, such as our recent <unk> in Brazil, which builds on existing supply and customer relationships.
We continue to target average capital return, a 20% to 30% of adjusted net income to shareholders.
Our commitment to being a digital leader continues unabated as we accelerate the omnichannel approach that is essentially in today's hybrid working environments.
We believe our current investments in the three areas of customer acquisition retention and self service are enabling sales growth and reducing our operating costs, while providing a competitive moat against our regional competition.
These investments help streamline the customer experience as well as increase our agility and responsiveness throughout the first markets we serve.
And as we do serve diverse market, it's imperative that we develop experiences and content that are relevant to our customers are not simply generic.
And we've now launched dedicated digital portals for both our food ingredient Nhi's business become hot on the heels of our launch in Q4, but beauty includes <unk> dot com.
These portals allow us to position our public portfolio content and technical expertise in a simple to use format tailored to the specific needs of customers and those different end markets.
You can learn sample and byproducts using a suite of formulation ideas and offering with a specific focus on improving the end product performance and sustainability.
We are combining e-commerce capabilities without industry knowledge and expertise to offer what we believe is an unmatched omnichannel support for prospects and customers no matter, where they are in the product development or purchasing journey.
We've also continued to expand our self service capabilities to provide our customers 24, 7% end to end support.
From finding products online and placing orders to downloading supporting documentation and paying invoices were making it easier than ever.
Help source and self serve anytime from anywhere.
With streamline the buying journey, and creating a digitized <unk> and supply chain that is easy reliable and drive customer preference.
Our digital vision is clear meeting customers wherever whenever and however, they want to engage with us and we're beginning to realize this is a source of sustained competitive advantage.
I've spoken before about putting the customer at essential we do and our commitment to measuring in getting insights into the customer experience through our net promoter scores.
Our overall score so December remained good with our global score holding over Q3's, despite continued supply chain challenges in the marketplace.
We're listening to our customers essential feedback and captured over 13000 responses in 2021 draw NPS process.
Combining this data with our advanced analytics capabilities, we accelerated development of our customer 360 predictive insights tool and are excited to launch this new capability across the U S. This quarter.
This will provide visibility of an individual customer's experience and proactively alert functional teams ahead of any issues that might be servicing.
Altogether, our digital investments and customer centric approach is designed to maximize the effectiveness and scale, our operations, putting data into strategic assets and making it easier for customers and suppliers to do business with us.
Moving to ESG, we've made strides with our agenda and outlined a clear path towards carbon neutrality by 2050.
Evidence of this in 2021 includes being managed by Newsweek as one of America's most responsible companies for 2022.
Achieving the maximum score of 100 of the Human Rights Commission corporate equality index for the second year running.
Being awarded new supplier authorizations for a variety of more environmentally friendly ingredients and solutions continued.
Investments in projects like solar energy for our sites in the U S Europe , and Brazil to reduce our carbon footprint in line with our next zero commitments.
Launching our corporate philanthropy strategy to engage our communities through volunteerism advocacy and donations.
We continue to put safety first which is evidenced by our world class safety record and continue to advance our diversity equity and inclusion goals.
ESG is a priority for us understanding that its our home our responsibility.
Such as each of our core values and aligns with our vision to redefine distribution and be the most valued chemical and ingredient distributor on the planet as well as being better stewards of the Earth's resources.
So before we come to your questions I want to recognize and thank our employees who are critical to univar solutions transformation over these past three years.
Putting the customers essentially all we do remains our north star. It's our people that can see you can make a difference on our purpose that drives us to help keep our communities healthy fed clean and safe.
We have rebuilt the business from the inside out and have developed a strong commercial culture based on growth through customer preference.
We've upgraded our asset footprint, expanding our private transportation fleet augmented our sales force and customer service coverage and enhanced technical capabilities through a broadening set of protocol application and formulation expertise with a dedicated end market focus.
We divested non core businesses, which has allowed us to focus on our core chemical and ingredient strategy and reduce leverage while becoming an easier story for investors to understand.
We've invested in digital tools that will help us attract new customers and existing customers and streamline our processes, reducing our operating costs, but centered on the customer experience.
So our purpose values and relentless talent focus we strive to be a place where the best people want to work growing our people to grow our business.
Today, we are a business offering a full line proud of opportunities and solutions selling.
A diverse range of end markets, making gives us resilience as we are valuable and leveraging our strong regional infrastructure to deliver on global trends.
So to summarize.
We did have an exceptional Q4 and 2021 full year adjusted EBITDA.
We expect 2022 full year adjusted EBITDA guidance in the range of $860 million to $890 million with resulting net free cash flow between 430 and $445 million.
We delivered $25 million in next year synergies in 2021 and remain on track to achieve our commitment of $120 million of net synergies by early 2022.
We delivered divestment proceeds and effectively de Levered to two five times.
Additionally, we laid out new 2024 financial target of $960 million of pre acquisition adjusted EBITDA driven by organic gross profit growth and productivity improvements with adjusted EBITDA margins greater than 9% and 50% net free cash flow conversion.
We plan to use that cash to fund growth initiatives through a combination of high ROI capital investments selective accretive bolt on acquisitions and return of capital to shareholders.
We believe we are perfectly positioned.
Hence shareholder value, while fulfilling our purpose and commitment to our people and communities.
Thanks for your attention, please stay healthy and safe and with that we'll open it up for questions.
Thank you at this time actually I'd like to ask a question simply press Star then the number one on your telephone keypad.
And good luck to withdraw your question press the pound key.
Please limit yourself to one question and one follow up question.
Thank you.
Our first question Postbank comes from Bob <unk> of Goldman Sachs. Your line is now open.
Thanks, Good morning.
David you guys.
We had a very strong quarter and gave very strong guidance.
What I'm curious about the cadence of that guidance I know you mentioned pricing is going to be very strong through the first half but.
It looks like the sequential lift into the first quarter.
It's going to be something like 30%.
Typically it's only about six or 7%.
Year over year, it looks like 30% as well, but the first quarter is typically about a quarter of the annual EBITDA. So can you tell us what's going on in terms of the cadence where you.
So im shooting out very strongly at the beginning of the year and then maybe soften a bit as you go through the year.
Sure Good morning, Bob and thanks for the question.
We're very proud of what we delivered in 2021 and we go into 2022.
With a good degree of momentum and we're very focused on those strategic priorities of putting the customer at essentially all we do and taking every advantage. We can to drive growth. We got really good demand and strong promotional action execution going into Q1, we have visibility really for the first half of the year in Q1.
We do think we will have some benefits.
From some extraordinary pricing probably something around the $30 million. So if you back that out. It gives you a kind of a more normalized spreads, but we are performing incredibly well I couldn't be more proud of this team.
Great and on Ken, but I was just curious I know, you're you're emphasizing the ians exposure across the company and the growth opportunity there.
Canada had very very strong margins and yet maybe the lowest Diana.
Concentration among your regions can you tell us what's going on in Canadian profitability, and what we might expect in 'twenty two.
Xiaomi, Canada Canadian business is a really good business and you know we've transformed that.
Over the last 24 months or so exiting the agricultural business and I think that the restructuring and the transformation that we've made in North America is really now foundational and broad based and in Canada, We got a really strong team that's executing well.
It has really good geographical coverage in both the east and the West are investments in our new facility in the west really backstop commitments of the chemicals and services business. So we like chemicals and services. We think it's a really good business within a market rights across our portfolio, but we also like our increases in specialties business. It has a high.
Higher growth profile, you saw that business week with a half a billion dollars last year, 39%.
On growth and so we see great opportunities in.
In Canada to continue to develop that growth there as well.
Great. Thanks, so much.
Thank you.
Our next question comes from Josh Spector of UBS, Josh Your line is now open.
Yeah, Hi, Thanks for taking my question and congrats on a good quarter and solid year.
I wanted to kind of try again on Bob's question, and maybe not necessarily the cadence.
<unk>, but can you give us a thought on the EBITDA guide first half versus second half trying to get a feel of where that normalized EBITDA kind of is where you see things settling out here.
Thanks for the question, Josh and good morning look we exited the year eight 4% EBITDA margin and we're on track to exit this year at 9%.
We're very confident about our ability to do that through share growth.
And also through our productivity.
We do have good visibility for the first half you don't have visibility really into the second half. So we're very confidence about what we are what we're seeing for the first half of the year I think we're being a little more.
Circumspect about the second half until we get better visibility in that and certainly world events over the last couple of days, who knows where that's going to lead us in the second half. So we're trying to share what we do now, but we feel very confident in bridging that eight forward. So exiting this year and 9% EBITDA margin, yes, I would just add Josh.
Thanks again for your question and your research report out. This morning that we expect Q4 of this year to be a normal seasonal period.
It has been in the past clearly Q4 2021 was very strong when you look at our prior Q4 s I think youll see that our Q4. This year will evidenced the continued growth in the business and also just to clarify the 9% that David referenced is going to be a cost structure that gets us to a 9% for full year 2023.
Our expectation for EBITDA margin. This year is higher than where we ended up in 2021 and on that path to a full year, 9% in 2023.
Okay. Thanks for that and I was just wondering if you could expand a bit on your plans for cash use in 2022, and then given your at your targeted leverage range at <unk>.
Lower EBITDA in 2021 inverse of what you expect for 2022.
Would you deploy all of that 400 plus million of free cash flow. This year or do you see a need to delever towards the bottom of your range before you do that.
While we're going to balance between our.
High ROI capital investments.
Inorganic growth and we do see some inorganic growth opportunities out there and then returning cash to shareholders. We do want to continue to pay our debt down or our target that we stated.
Our analyst day last year with two to two five times, we're at the upper end of that we'd like to hit the lower end of that but we do see.
Plenty of opportunities to deploy capital.
For really high ROI growth, which is our primary concern both organic and inorganic as well as maintain that commitment to return 20% to 30% of adjusted net income to shareholders.
Okay. Thank you.
Thank you. Our next question comes from Laura in the Hopper of BNP Paribas Burns. Your line is now open.
Yes, Thank you and good morning.
David in the slide.
And then when you provide the updates on <unk>.
The chemicals and services. So I was wondering if you could tell us about the split between volume and pricing in the 28% for.
Most key pricing.
In the guidance are you assuming that nominate additional pricing is mostly in CNA. So do you also expect.
Cranking to nominate.
Thank you.
Good morning.
Good afternoon, thanks for the question.
And I think I'd point, you on that slide to the 110, new authorizations that we delivered in 2021 day deliver meaningful share growth for us. So there's a blend there of good volume growth good share growth as well as some pricing benefit and really pleased with the way that <unk> is organized.
And is delivering its a really important channel now within our business and I think it's very comparable with anything else out there and I think it's starting to be recognized by the market that way the way, it's being recognized by our customers and suppliers.
In the chemicals and services business.
That has some bigger volumes than that.
So some of the price swings in there.
Little more apparent, but we've seen strong pricing and strong price dynamics rights across the whole portfolio.
Not always all at the same time, we would expect that to continue through at least the first half of this year and into let's see what happens in the second half, but <unk> sure.
Sure. It grew volumes and I said I'd point, you to the 110, new authorization that's meaningful share growth.
Thank you that's actually all night.
On the new authorization in 'twenty. One 110 is obviously a big number you did a sign that you've had more supply is looking to restructure a loan then.
Change the night minerals Kobe.
Is it more in case of you gaining more share.
Any new authorization number which is normal.
Both.
Look I think it's a bit of both I think certainly.
What we've demonstrated.
So owning our facilities on our own trucking fleet, but we can have more control of our supply chain and therefore be more of a reliable channel partner for many of our partners as well as now working with them to see how we can connect those supply chain to help drive their ESG goals.
So all it is.
Quite a lot of things that we have there and again quite a competitive moat that we have around those assets.
And trucking that we have.
But also having this global channel that we now have.
As we have some partners who want to work with us on a global basis to be able to drive the trends of that following rights across a global basis. So that organization that we now have a managing that in a truly global structure, but still go into the market in a very very local way is quite a compelling thing.
For our suppliers and they are choosing to use that channel more and more.
Thank you. Thank you very understated.
Thank you. Our next question comes from Kevin Mccarthy of vertical Research partners. Kevin Your line is now open.
Good morning, and thank you.
Question for you on market share gains in your materials last night.
You referenced share gains.
And I think several areas and I was wondering if you can expand on that how much do you think that distribution industry volumes grew in 2021.
Whereas univar seeing premium volume growth versus the industry in terms of regions or product categories, perhaps.
Kevin Good morning, and thanks for the question.
When we look at our share gains I mean, I think in a very constrained supply.
Market, we were able to grow volumes.
Year over year, not massively but.
But that's around the very constrained supply we were able to provide products get products we have.
Brilliant suppliers on great partnerships with it put us in an advantage position with.
Loss ratio is up in all regions, our new customer attraction is up in all regions. Our digital channels are bringing in customers that we couldnt have got see before so we're seeing customers coming into was on staying with us rights across our portfolio and increase in specialties. We know we have high retention levels.
<unk> and that's helping and supporting that is behind this business becomes.
Larger than most of you can channel within our business that also helps our customer retention, but you know that we're focused on putting the customer the center of all we do driving customer preference.
And Thats reflected in our NPS scores and now are really internal ruthless pursuit of improving our core to be so much more easy to buy from.
And an improved customer experience will be growth.
Through the customer experience and putting the customer the central we do which now all the transformation is behind US. We can really singly focused on is is a tremendous fillip for growth for us.
Okay. Thank you for that and then secondly, I was wondering if you could comment on pricing trajectory would you expect your average selling prices to continue to increase sequentially in the first quarter versus the fourth quarter and if so.
How much might that be the case.
Just thinking about the bridge into the first quarter, if I understood. Your prior comment correctly, David It sounded like price is expected to help you buy.
By $30 million.
I guess I'm curious as to where the where.
For the balance of improved.
Comes from as well.
It looks like your EBITDA is expected to improve perhaps 60 or $65 million sequentially.
Yes so.
As you rightly ports with highlights in sort of a $30 million in this quarter over the previous quarter.
Pricing from.
Unusual.
Selling prices on.
Certain chemistries I mean pricing is a difficult one to assess at the moment.
The oil price is going up and so therefore, that's going to affirm the prices on on some of the petrochemicals that we sell some without the whole hydrocarbon chain. So I think we've got reasonable visibility.
Into the first half I mean again I have no idea, what's going to happen if energy supplies in Europe get disrupted in German manufacturer struggled to produce and what that does for them.
I just can't even imagine what that is what we can see right now.
Some unusual pricing.
In the first quarter, which we think will go away through the second quarter, we're seeing a firming of pricing in other markets and so we're not seeing chemical price deflation youre seeing chemical price stability, but that will just.
Erode our margins slightly as the opportunity to take.
<unk>.
Stopped profit on on a rising price goes away.
That's helpful. Thanks, and congratulations on the results.
Thank you very much.
Thank you. Our next question comes from Laurence Alexander of Jefferies.
Your line is now open.
Hi, everyone. This is Kevin Estok on for Laurence Thanks for taking my question.
One question on incentive comp it appears to be a pretty big swing factor I guess I just wanted to get a sense of what a more normalized level was and I guess any color around incentive comp.
I appreciate it thank you.
Kevin Thanks for the question.
<unk>.
The results on last year will demonstrate to the extent incentive comp was.
Paid out right across the business very well and I'm really delighted that our People's hard work has been has been reflected in what the what that bonus checks looking like they've worked very hard over the line.
Three years to transform this business and that transformation has been.
At this earlier on foundational and broad based and led to the numbers. We're at today I think we flagged.
In Q4, maybe at our analyst day that was about a $60 million, what we flagged David reflect 40 in <unk> given the continued outperformance the differential is really 60.
2021 versus 2022, Okay. So that gives you the kind of spectrum of numbers. So you can build your model on that.
For 2022 and beyond.
Thank you.
Thank you.
Question comes from Steve Byrne of Bank of America, Steve Your line is now open.
This is Matt Deyoe on for Steve.
Sure.
So you talked a little bit about.
The supply chain issues.
Totally get it constricting volume, but like how much demand in the market do you think is going on Matt.
Lingering supply chain headwinds do you think volumes are underperforming by 100 basis points 200 basis points 400 basis points.
What's your view there.
Good morning, Matt.
The question I'm not sure I can answer it.
What I can tell you is that demand is very strong.
And supply is constrained and we are very full.
Fortunate with our facilities and our own trucking fleet.
And this creates supply relationships that we have we are probably in an advantage position.
And have a really competitive moats around those assets allows us to perform back.
<unk> certainly some of our smaller competitors.
I think I'm not sure whether it's 100 basis points. So I have no idea I have no way of measuring that but I do know.
The.
Supply is tight supply is constrained we do have a large number of products on order control and have had really since the big freeze in the U S. Gulf last year, but how big demand could be I don't know how long is a piece of string I've got no idea.
I guess, maybe a different way to ask the question is like how much what.
Percent of your.
Inventory is below what you would consider to be.
Normal stock levels.
Do you have a feel for that.
Well again, it depends on what normal stock levels would be I mean, certainly what we're choosing to do is take inventory where we can.
And then feeding it out appropriately.
Customers, who have been loyal to it wasn't supportive us over a period of time, so I think.
Our inventories are.
Is probably imbalance to wherever.
What we'd normally expect to have it but our selling patents will be different because we're not selling everything out of the Delaware we've been very.
Im careful and cautious about how we sell to make sure that we support our customers and support them meet that demand.
Understood. Thank you.
Yes.
Thank you as a reminder, if you'd like to ask a question.
One other thing can you Pat.
The next question phosphate comes from Michael Mcginn of Wells, followed by Michael Your line is now open.
Hey, good morning, everybody.
I'm sorry, if I missed this can you provide any financial parameters around sweet mix in terms of.
Growth contribution mix and then if we were to kind of pro forma the business and looking at slide.
Actually I don't have the slide number, but if we were looking at the business in pro forma it was.
IMS exposure now with that contribution.
Good morning, Mike Thanks for the question and we didn't disclose.
Details on sweet mix.
It is a it is a very exciting deal for us.
Is only came in on December the first so for 2021 numbers.
It's de minimus really.
What I can say is we're thrilled to have that business the team.
Really strong team the suppliers that come with it.
Partners, rather than other parts of the world and we've already extended with those suppliers and product range. There. So it's been a very good.
<unk>.
567 weeks of that acquisition.
And Michael you will see in the 10-K.
The transaction values around $50 million taken into account all factors, we feel it's accretive to our business and.
Could add to the Latam portfolio.
Maintaining the <unk> mix.
Okay, Great I appreciate that.
And then.
Maybe.
Can you remind us.
How the business performs and what are the kind of swing factors.
Rising dollar environment.
Right now.
So Michael get out maybe the question in a rising dollar environment basically about 35% of our business Michael is non U S.
And so clearly when the rising dollar as youll have less foreign currency coming in and that would be a headwind.
Incidentally, we also have the offsetting of expenses overseas. So we do actually break out in our 10-K, the differential impact on our performance and growth rate for FX I don't have that in front of me, but it will be in the 10-K.
Right, So youre, mostly in region for that region, so youre translating expenses.
From a weaker currency back into a stronger currency so.
Brian .
Yes, so I guess, what I was getting at is you have some sales headwinds, but then you had some cost tailwind.
Just trying to walk through the mechanics of that.
Anyway.
And so it Hasnt just pulled up for me Youll see on page 30 of the 10-K, which we'll file layer later, 10% strength of the U S. Dollar is about a negative $2 $3 million impact to our.
Net income.
Yes, I think that's what I was looking for I appreciate it see that youll see that in the 10-K.
Thank you our final question flip stay as a follow up question from Bob <unk> of Goldman Sachs. Your line is now open.
Yeah, Hi, guys. Thanks, So let me back and I was just curious.
Why not a more ambitious share repurchase program given the substantial free cash flow.
Okay.
Hi, Bob again.
Again very good question.
Firstly, we only but authorization to do that in the back end of last year, and we executed $50 million.
Of the 500 million authorization that we have in November which I think is getting out of the blocks fairly quickly as I said earlier on this year, we've done to balance.
Our capital priorities between high ROI.
Capital investments.
Some M&A some good inorganic M&A and we see good opportunities out there and then returning cash to shareholders. So I think that share buybacks will be positive.
That capital strategy in 2022, as we've outlined with the share buyback authorization.
On returning 20% to 30% of.
Adjusted net income to shareholders. These are commitments and we'll see as the year goes how we balance that between the options to do that.
And David will take precedent over initiating a dividend at some point.
While the dividend is something the board are consistently reviewing and.
That's something we'll continue to do.
Okay. Thanks.
Thank you we have no further questions.
So I'll hand back to Heather Kos for any closing remarks.
Thank you, ladies and gentlemen for your interest in <unk>.
Any follow up questions. Please reach out to the Investor Relations team. This does conclude today's call.
Thank you for joining today's call you may now disconnect.
Okay.