Q4 2021 Schweitzer-Mauduit International Inc Earnings Call
While our material costs and we are actively executing multiple near term and longer term innovation initiatives to drive growth.
Including several synergy projects within Scapa.
Before moving into our results I'd like to again, thank our global team for all making this possible.
Our organization continues to impress every day proving to our customers that our innovation expertise and service our best in class.
For two years, our people have persevered through adversity, both personal and professional and I am extremely proud of the commitment they have demonstrated to our company into our customers.
Many of the themes will touch on today are a continuation of those throughout these past several quarters simply.
Simply put 2021 did not go according to plan.
While I am very pleased with our top line performance. The Bottomline results were not where we had originally projected as we finished the year with 2021 adjusted EPS of $3 10.
Inflationary pressures led by raw material cost increases peaked during the third quarter and flowed through our fourth quarter P&L pressuring our results as we closed out the year.
Other cost buckets also continued to move higher.
However, while pricing previously lag. These escalating costs continued price increases in recent months have now positioned us more appropriately and we are encouraged with where we stand.
Before going into our segments I'd like to revisit the capa acquisition and its long term strategic benefits.
While inflation and supply chain challenges have monopolized the headlines and results this year.
Cannot overstate the strategic importance of this acquisition to SWM.
<unk>.
It brings a significant portfolio of new industrial technologies and capabilities to SWM, which pair well with our existing ones and are the basis of exciting synergy work.
Second we tripled our already important healthcare business, giving us a scaled presence in this attractive end market.
We have a great portfolio of specialty products and can go to large healthcare customers with a more compelling suite of solutions than ever before.
And third from a high level view skeptic tilted our total portfolio more heavily heavily to growth markets with 70% of our company wide sales in 2021 coming from end markets and applications. We believe can deliver long term growth rates at or above GDP.
So the bottom line is we are exited.
Challenging year, but with a very positive outlook for 2022 and beyond.
To recap <unk> 2021 sales were up over 70%, including the benefit of the Scapha acquisition.
With legacy organic sales, increasing a strong 11%.
For the year, our largest gains were infiltration transportation and construction.
For <unk> 2021 sales totaled over $300 million for the three quarters since the acquisition and we're ahead of plan.
Excluding currency fluctuations in GAAP accounting conversions Scapa sales were directionally up double digits versus 2020, and we're very close to pre COVID-19 levels.
Within healthcare consumer wellness is growing nicely with successful product launches such as blister and burn cash solutions facial cleansers and Acme treatments.
Products used in hospitals, though especially materials used in medical devices are still recovering as consumers have not yet resumed elective procedures and discretionary visits to hospitals due to COVID-19 concerns.
<unk> other diversified product lines, and construction transportation and industrial all higher than last year.
Filtration grew approximately 25% for the year with good growth across water process and air.
Our water customers continued to benefit from the increasing needs for drinkable water, especially in large coastal cities with the most rapid growth in Asia and the middle East.
Our teams continue to relate bullish outlooks from our customers for new capacity additions all over the world.
We are also seeing good demand for Aro customers, serving the beverage industry as manufacturers are increasingly using filter the liquids and marketing these higher quality product attributes.
In addition.
Positive developing subplot and the CRO industry is increasing energy prices, which tend to make running older and less efficient filters more costly to run potentially increasing the changeover velocity as water filtration plant operators may choose to replace filtration cartridges more frequently.
Process filtration also remained strong with high demand for semiconductor production and.
And air filtration remains an increasingly attractive segment, where we have innovations on the way in which will further expand our offerings.
Notably we believe our filtration sales could have been even higher in 2021, if not the labor shortages in certain manufacturing locations.
Transportation was up more than 20% for the year and as we have indicated recently with actually constrained by limited access to the specialty TPU resins used in the production of our paint protection films.
Some of the raw materials further up the value chain, we're seeing heavy demand from other products.
This shortage has resulted in tens of millions of dollars in high value sales left on the table in 2021.
Demand for the product is tracking well ahead of what we are any of our competitors can supply.
It may be late 2022, or early 2023 before sufficient resin capacity comes online to fully meet the demands of the marketplace.
As the global market leader, we believe we are as well positioned as possible to supply our customers, but it will require flexibility.
Looking beyond the supply constraints. This is an area, where we see good long term demand and we will continue to invest in capacity and innovation to maintain our leadership position.
Further we see synergy potential with Scapha as new coatings, and adhesives capabilities can potentially add to our offerings in this high growth area.
In construction, we experienced a strong rebound from 2020 driving growth across many product lines, our AG and erosion control products are benefiting from highway in residential construction activity and we also continue to penetrate the solar farm construction market.
It is also important to emphasize that our strong 11% organic sales growth was off a solid 2020 performance when our resilient portfolio seem to outperform many other industrials with only 2% organic decline despite COVID-19 related demand disruptions.
However, we clearly felt the impact of sharply higher costs, especially for raw materials.
Looking back on 2021, our price cost variances were a major issue for our results and frankly in hindsight, we should have been quicker and implemented larger price increases to more closely match, the unexpected and truly unprecedented rise of input costs.
The impact was evident in our margin compression in 2021 and it was most pronounced in the fourth quarter.
So where do we sit now with respect to pricing. We are pleased that after several rounds of price increases. We are starting 2021 was selling prices that are aligned with current resin costs and expect to have improved price versus cost variances in 2022, especially as polypropylene.
Has pulled back in recent months.
Raw material costs were not the only challenge of 2021 as the labor freight in general supply chain disruptions all impacted results.
We are entering 2022 in a better position and have adapted to the new normal of inflation with more aggressive approaches to offsetting costs through a combination of operational and pricing actions.
Just one quick comment specifically to the fourth quarter's reported organic growth rate of 2% the legacy Ams.
Recall that the fourth quarter of 2020 was exceptionally strong for our transportation business.
It was up over 70% driving 20% organic growth for Ams overall.
That quarter marked the beginning of the transportation films rebound following very soft quarters at the onset of Covid.
Therefore, our fourth quarter, we just closed had an extraordinarily tough transportation comparison compressing our fourth quarter organic sales for Ams overall.
Our transportation business has had significant quarter over quarter fluctuations in both directions since Covid began.
But if you excluded from our fourth quarter numbers.
Organic growth would have gone from 2% to 8% for the quarter again, demonstrating the broad health of the business.
Switching to engineered papers the year went as expected with the exception of the rapid rise in wood pulp costs and other inflationary and supply chain challenges.
Recall, when we issued our original 2021 outlook our expectation was to return to segment operating profit in the mid to low $120 million range. Following the large 2020 benefit of several customers building.
Inventories.
While 2021 volumes were down 2% and total sales down 4%. This result was generally expected with the negative mix coming from anticipated decline in early papers as customer inventories were rebalanced.
However, wood pulp costs began rising at a steady pace at the outset of the year, which was shortly after several of our large contracts had annual price resets, forcing us to absorb the impact of higher pulp costs throughout much of 2021.
We did successfully take action with many of our customers later in the year to reflect the unusual supply chain considerations.
Unable to fully cover the variances.
We are pleased to say, however that our contracts have reset and pulp costs, while elevated have at least been stable in recent months after peaking in the fall.
Much like IMS, our selling prices now reflect recent pulp costs and we look forward to better price versus cost variances in 2022.
We also continue to take actions across the business to minimize the impact of higher freight and energy costs, including cost reductions and securing additional profitable volumes.
On a positive note working with our customers through the various issues facing global.
<unk> has actually strengthen those ties they have recognized even further the value of our global supply chain and our ability to go the extra mile to ensure a high quality products and service levels. Despite numerous headwinds.
Further and importantly, our innovation pipeline is increasingly important to our customers' ability to execute their strategic shifts to lower risk products and increase sustainability.
As an example heat not burn had a very strong year with product sales nearly doubling.
These reduced risk products are a great case study and innovation for the industry and how SWM was well positioned with our customers to capitalize on this emerging trends.
We have the development capabilities, the technical expertise and unique manufacturing technologies to capitalize on this demand.
What was once an immaterial, but rapidly expanding product line is now more than $25 million in annual sales and growing with attractive margins.
Furthermore, as we alluded to last quarter, we have made significant progress in our botanicals expansion to develop truly innovative products.
We are particularly excited about the recently publicized launch of <unk>, our industrial hemp, a botanical fiber solutions business aimed at the emerging non tobacco alternatives marketplace.
We are producing wrappers and papers as well as filler products made entirely from him with the capability of being infused with active ingredients.
Our customers can use these materials to market unique products to a growing customer base seeking innovations in this rapidly evolving space.
To illustrate our capabilities, we can produce paper and filler components such that a customer can produce a non tobacco non nicotine based pre rolled product that could be infused with CBD for example.
We are very excited about the prospects of these hemp fiber materials as we are again, proving our ability to innovate and deliver new materials to an emerging marketplace.
Much like heat not burn sales are expected to be relatively small at the start but we see significant growth potential and we will continue to invest to support this business and our customers.
Other innovations underway involve synergies with our Scapha acquisition around leveraging our paper assets with the specialty tapes business.
Second as an effort to develop sustainable specialty packaging solutions with particular focus on fiber based packaging or other products to displace less environmentally friendly single use products.
And finally, we are working with our tobacco customers to evaluate ways to make filtration more sustainable with the possible use of paper based materials to replace other materials.
We look forward to sharing more on these opportunities as our plans progress.
With that I'll turn the call over to Andy to review the financials in more detail.
Thank you Jeff.
System with Jeff's comments, I'll focus mostly on the full year results and trends and highlight key fourth quarter takeaways and then review our 2022 guidance.
Starting with Ams full year sales were up 71% with organic growth at 11% and <unk> contributed $306 million as we owned the business for nearly nine months.
We estimate that organic sales growth could have been in the range of 15% to 20% if not for the specialty resin shortages, we've experienced and some understaffing in certain sites, where we produce filtration materials.
Despite those limitations filtration and transportation each had excellent growth in 2021 and were up approximately 25 and 21% respectively.
As noted earlier fourth quarter organic sales growth was 2% as transportation faced a very difficult comparison to the fourth quarter of last year when demand rebounded sharply and we had no resin availability constraints.
Adjusted operating profit for the full year increased 17%, reflecting the high organic sales growth and the incremental profits from scatter.
However, significant inflationary cost and supply chain issues pressured margins.
Segment, adjusted operating margin contracted 530 basis points to 11, 5%.
As we indicated in November polypropylene resin input costs peaked during the third quarter and materials purchased during that period with flow through the P&L during the fourth quarter. This factor contributed to our fourth quarter.
Adjusted operating margin of seven 3% down from 17, 5% in the prior year quarter.
For the full year higher resin costs, mostly from polypropylene had a negative effect on operating profit of more than $30 million compared to 2020, we recovered less than half through price increases.
Right.
Also note that in 2020 polypropylene was historically below the normalized price, which has often been in the 60 to 80.
Per pound range, thus the year over year impact is exacerbated by the comparison to the very low prices in 2020.
With our latest rounds of price increases. We believe we are caught up by propylene and are very encouraged to see raw material prices trending towards $1 per pound well off their high in the fall of over a $1 40 per pound.
While April polypropylene is the single biggest variance driver other factors such as higher costs for other materials and freight also contributed to margin contraction on the base business during the fourth quarter and full year.
Regarding scaffolds profit contribution the acquisition boosted Ams segment, adjusted operating profits by $24 million for the year.
However, as noted in our release approximately $6 million of <unk> SG&A costs were booked in our unallocated costs segment financial results.
Thus quality originally expected the transaction to be slightly accretive to 2021, adjusted EPS, the unexpected inflationary cost and supply chain challenges causes capa acquisition to be slightly dilutive.
While not satisfied with the overall 2021 Ams segment financial performance. We are very pleased with demand fundamentals and are more comfortable with our with our current pricing in relation to raw material costs and expect solid operating profit growth and margin improvement in 2022.
For engineered papers 2021 sales were down 4% on a 2% volume decline.
Favorable currency was an offset to negative price mix.
As we've discussed all year, we knew 2021 would be a tough comparison to 2020 not only on the top line, but from a margin standpoint as well in large part due to a normalization of volumes.
For the year EP segment, adjusted operating profit was down 18% to $109 million with margin down 360 basis points to 21, 5%.
Fourth quarter results were directionally consistent with those trends.
While most aspects of the business played out this past year generally as expected the steep increase in wood pulp costs caused the significant variance in operating profits versus our expectation.
Input costs were more than a $15 million headwind in 2021 compared to 2020.
The large majority of which was from wood pulp with energy being the second biggest driver.
Our annual contracts in 2021 reflected year end 2020 pulp prices, but costs increased dramatically throughout the year, while our selling prices were locked in.
Recently, several annual contracts have been reset to reflect recent pulp prices. We are encouraged that the pulp index appears to have peaked in the fall, but have not exhibited a pull back the same way polypropylene has.
While our large contracts on a staggered renewal schedules, we are in the process of migrating towards semi annual resets for key input costs like pulp and energy and certain surcharges in the event of drastic increases in other costs such as transportation.
These terms should allow us for quicker price recovery and less volatility in margins over the long term.
Regarding adjusted unallocated expenses, we saw an increase of $5 million for the full year. However.
However, as noted we booked $6 million of scaffolds unallocated expenses in our expenses.
More than accounting for the total increase.
Excluding scapha Arenella, our unallocated expenses would have decreased in 2021 compared to 2020.
For the fourth quarter unallocated costs were down approximately $5 million due to the timing of various corporate projects as well as lower incentive lower incentive expenses, given we did not meet our financial targets for the year.
On a consolidated basis sales for the year increased 34% to 144 billion and were up 4% on an organic basis.
Adjusted operating profit decreased 7% to $159 million.
Full year 2021, GAAP EPS was $2 80 versus $2 66.
Normalizing for non-GAAP adjustments adjusted EPS was $3 10, and 2021 down from $3 68.
We estimate the cost of inflation on resins and wood pulp alone that we did not recoup through price increases had an impact of approximately <unk> 65 per share on EPS for the full year compared to 2020 when material costs were low during the pandemic.
In addition, the lost sales of transportation films alone was more than a 30 <unk> impact for the year.
To reiterate our comments from last quarter.
These are our best directional estimates and indications, but they clearly convey the magnitude of the financial impacts.
Now moving onto our guidance, we see a double digit sales increase and strong profit recovery in 2022 as a result of the actions taken in 2021 and continued strong demand.
And while we are still forecasting some supply chain challenges in 2022, we project adjusted EPS in the range of $3 50 to.
The $3 95, implying growth of up to 27%.
We are also going to provide directional guidance for adjusted EBITDA going forward as well and for 2022, we see growth of 20% to 30%.
The difference between EBITDA growth and EPS growth as an assumption for a higher tax rate in the low to mid 20% range in 2022 never.
Nevertheless, we are pleased to share our forecast with strong double digit profit growth.
After a challenging 2021.
To add additional color to our guidance, we expect very strong growth in Ams adjusted operating profit driven by the continued robust organic sales growth and margin expansion. We are quite bullish on the outlook for our diversified portfolio and end market demand coupled with the effect of price increases.
This underscores our guidance.
In addition, we will have the benefit of an extra quarter of <unk> in our results and we expect capex to be solidly accretive in 2022.
We also see the potential for resin cost to trend further down toward historical levels.
Which could set Ams up for a strong 2023 as well.
Over the next couple of years, we see a path to reach 15, plus adjusted operating profit margins or 400 basis points improvement from 2021.
For EP, we see that a minimum operating profits will be stable compared to 2021 with the potential for additional growth based on the success of our newer innovations while contractual price increases for wood pulp have taken effect, we still face other inflationary headwinds and industry attrition.
But expect to benefit from continuous efficiency improvements and growth initiatives.
Given the nature of the industry, we view stable operating profit as a solid result, though we do have actions in place that could result in several million dollars of operating profit growth in 2022.
From a quarterly view, we see we would expect to improve earnings sequentially from the fourth quarter of 2021 with an average of approximately $1 per share in the second through fourth quarters.
This implies the most difficult comparison will be the first quarter given the first quarter of 2021 had strong sales and profit levels and we're not yet materially impacted by inflationary cost and supply chain issues.
Regarding cash flow, we expect capex in the range of $45 to $55 million in free cash flow of approximately $100 million.
In 2021 operating cash flow was approximately $58 million and after Capex of 39 million free cash flow was $19 million temporarily well off our historical trend and.
In addition to the effect of lower operating profits, we incurred $19 million of cash costs related to fees and expenses in connection with the Scapha acquisition, and we saw a $56 million increase in working capital outflows from the increased sales and inventory costs.
These two working capital items accounted for approximately $30 million each of higher cash outflows compared to last year.
We expect more normalized working capital improvements this year combined with improved profitability to drive a very strong rebound in free cash flow in 2022 back to the 100 million Mark.
Net debt finished the year at just under $1 2 billion.
Net debt to adjusted EBITDA per the terms of our credit agreement were.
Four eight times at the end of the year.
Despite leverage increasing we remain comfortably below our covenants and have approximately $177 million and liquidity.
Consisting of $75 million in cash and $102 million of availability on our revolver, while not considered part of free cash flow. The sale of the spots website netted proceeds of approximately $35 million, which was used to reduce our revolver balance we expect net leverage to reach nearly.
Four times by the end of this year.
Now back to Jeff.
Thanks, Andy.
We know there is a lot to digest from this call with fourth quarter and year end results as well as our positive outlook for 2022.
So I'd like to spend a few remain few minutes recapping, what we view as the three most strategic takeaways.
Our price increases versus raw material costs, the strategic importance of Scapha and the outlook for 2022.
I'll also review some key projects around ESG and branding, which hopefully you have seen in our recent press releases.
First regarding the cost increases we've seen this year in our response.
Our midyear price increases were not significant enough to keep pace with the rapidly changing cost environment.
These actions, though have now been addressed and we are comfortable with our current pricing.
With that we continue to see escalating costs for energy and freight and are evaluating additional price increases and we will take appropriate action as required.
Second like the rest of our business, Scott or face hurdles on input costs and supply chains, and we expected 2022 accretion is not as substantial as we had originally projected.
This is a bit of a complicated explanation as from a strategic standpoint, we feel even better about the long term value creation of the deal that we did at the time of the acquisition.
And we delivered on our targeted initial cost synergies.
A lot of this optimism is based on months of integration and commercial synergy discussions I referenced earlier.
We see tens of millions of dollars of new product and new sales opportunities, which should deliver attractive incremental profits. We are very impressed by <unk> innovation capabilities, especially their ability to formulate and bring new products to market in the healthcare space and together, we bring in even more.
Robust set of solutions to offer customers in healthcare and in our other industrial end markets as well.
Once we move past some of the near term constraints, we see no reason why our original financial targets will not be met or exceeded.
In terms of our guidance I would say we are pleased to share that our outlook reflects a strong profit rebound from 2021.
But we will not be satisfied until we deliver even stronger results not only in 2022, but longer term.
As Andy referenced we see the potential for continued profit growth and margin expansion in 2023, particularly in Ams.
We have achieved a significant repositioning of our overall portfolio with more than 70% of our total sales in growth markets.
We believe our organic growth story is even more sound than ever there are so many exciting growth opportunities in various stages of execution and we look forward to advancing each one and sharing the positive results with you as we progress throughout the year.
To close out our discussion and as equally as important as the financial discussion above we want to highlight our recently issued 2021 ESG report.
It provides a broad view of the many ESG related activities underway at SWM.
This report is intended to address stakeholder interest in our progress and plans on our ESG journey.
We remain committed to implementing best practices across all ESG principles and we will continue on our journey of continuous improvements each year with new projects achievements and goals.
And finally with all the changes we have made at SWM over the last several years, we believe many do not fully understand the attractiveness of our global portfolio or the broad depth of capabilities and innovations we can bring to market.
We have therefore, just unveiled a refreshed identity building on our successful history, but emphasizing our positive future.
If you step back and look at what SWM truly does we work with our customers to provide solutions to their most critical design and engineering challenges.
And when we do our solutions help introduce products that improve our lives every day from filtration to fate advantages.
Therefore, you will hear us now referenced our companywide purpose finding ways to improve everyday life.
We believe centering our company around this theme helps univar unified our diverse global business articulate the value, we strive to provide to all our customers and their customers.
And provides inspiration to our employees no matter what their role is in our company.
Our refreshed logo and updated website design helps to convey this purpose with a more contemporary and energetic feel we invite you to check out our website, which showcases our new messaging.
That concludes our remarks Katy please open the line for questions.
Thanks Keith.
I'd like to ask a question. Please press star followed by one or no telephone keypad now when preparing to ask a question. Please ensure your phone is on mute lately.
We have a question from Chris Mcginnis from Sidoti <unk> Company. Please go ahead Chris.
Good morning, Thanks for taking my questions.
I guess, if we could just start off with guidance around Q4 that you provided in November just what was the variance there for what you ended up posting can you just walk through some of the challenges seemingly a little bit lower than expected, but the guidance for 'twenty two stronger so just.
If you wouldn't mind, providing a little more color on that thanks sure sure Chris happy to do that so.
Let me tell you what some of the sort of the key challenges were and then sort of where we are and what we're doing about it so.
The biggest issues really came from really SCAP in early two fundamental issues. There I'd say one had to do with the supply chain shortages in and around some adhesives and release liner materials and so there we lost some sales that we thought that we would be able to.
Get out.
Second factor I would say is just.
The automotive environment in Europe .
It was a little bit weaker than what we expected.
For the last few months of the year that being said.
Where we are today one we do see we are encouraged by with our 2000 Twenty's plan, where we see automotive sales.
With our customers had it so thats.
Certainly turning around and the second as it relates to supply chain challenges.
Challenges around adhesives and release liners.
We've gone down multiple paths in terms of getting multiple sources are those materials and that is being.
Fixed as we speak and I would say just loosely a third factor, which really impacted not only scapha, but I'd say EP worth some higher energy costs.
Particularly in Europe .
For the last couple of months of the year, but.
That's largely yet but again all of these costs in some of these supply chain challenges are baked into our 2022 guidance.
Great and then just thinking about 2022, a little bit stronger than I would've thought given the comments in November .
Is it just pricing.
It's impacting that stronger outlook can you just expand a little bit about from November to now whats change to provide a stronger outlook.
Yes, Chris This is Jeff how are you doing.
Full of things one is absolutely pricing is one of the major factors as I indicated in my comments was an unprecedented rise in raw materials. When we got behind the eight ball a little bit there, but we have put multiple aggressive price increases in at the end of the year that are now rolling through our product lines.
And we're seeing good take up from those and so we're comfortable about where we are in pricing as Andy mentioned, we've also been hit by disruptions in supply chains of certain materials. Many of those materials were starting to get multiple sources and addressing there'll still be a little bit rocky I think supply chain global supply chain.
But I think we put those cases to bed and then for the most part demand continues to be strong across our product line and I think that's a really important message and even in 2021 was with what we consider disappointing results. Our top line delivered exactly as we expected on our portfolio and we're continuing to see.
That demand throughout that and I'm really excited about our innovation pipeline you heard me talk about some of the stuff in EP, but Ams has a number of things as well that we think contribute to the upside as well. So we think we're well positioned the supply chain questions will be an uncertain time for everybody. This year, but I think we're.
Much more reactive and prepare for them than we were six months ago.
Great and just in relation to its capa in the sourcing there can you just talk about the qualification period and.
How long that takes to bring on new sources.
Yes, it will depend on the.
On the product line. So for instance, healthcare much longer qualification times, you can imagine I mean, thats one of the things we like about it it's a defensible business because qualifications along and it is hard for others to get in but at times like that this causes a challenge so even just replacing a release liner can take a long time for qualifications.
On the industrial side much quicker qualifications for the majority of those there is really just making sure from our perspective that the other materials meet our performance criteria, because we want to make sure that we don't do something that impacts our end use customers and so that sometimes takes a little bit longer but for the most part on the <unk>.
<unk> side, not a big headwind more on the healthcare side.
Okay.
And just in relation to.
Especially are highlighted.
Innovation coming out of EP.
The single use.
Plastics are obviously going away, but can you just talk about what maybe you're most excited about in that portfolio of the new product offerings versus the Hampton.
Okay.
Switch out.
Yes, there has been a couple of there's a couple of things going on in the EP marketplace sustainability issues are a big play and we actually have a lot of <unk>.
Activities in play that can help our customers meet their sustainability goals.
And that those are in active development right now I don't think theyre going to play out in the first two quarters at all but we're hopeful that we'll start seeing some of these incremental things I'm just excited because our end use customers need us to help them do these types of things when you hear us talking about our botanicals part of our business.
Business et cetera, I think that is another emerging growth area of <unk>, we have a number of patents and technologies that we think we can continue to expand and so I think this is an important part for the EP portfolio, because we do see normal attrition in the core but in these.
Other technologies, we think there is upside and Thats, where Andy gives you a nice car.
Constant in terms of operating income with some upside if some of these things move a little faster than we expect.
Okay and just in the outlook for 'twenty two just on transportation.
Expect that to trend into it sounds like 23, as well with strong growth you just talked about backdrop and then the sourcing issues there as well.
Yes, so on the transportation side, what we had mentioned was the.
There are some.
TPU constraints that are not able to meet the market. So I think the market demand is exceptionally strong right now and I think for US and then even some of our other competitors.
Everyone's sort of struggling from a supply chain perspective in terms of meeting that demand that being said when you look at transportation. It did grow 21% in 2021, and while we do expect growth. This year, we're being a little bit measured in terms of what that magnitude is depending on where the supply.
Chain is but as we talk to a lot of our key suppliers and there are a few of them.
I think all of them are struggling with one input precursor that goes into making TPU, but with that being said I think we're encouraged by that there should be some improvement as we move throughout this year.
Certainly next year I think we'll be able to meet this demand, but I think the key fundamental issue for this is that these orders arent going away. It's just that this market is not the market demand is not being met and since we are the market leader and we will feel confident that these arent sort of lost sales going to other people.
Okay great.
Just on the Russia, Ukraine conflict ongoing any kind of.
Issues related to the model out there for you with that construction is going on.
Yes, Chris now we have very limited exposure directly to those marketplaces I think from our perspective, it's really how does it flow through the global supply chain how does it.
How does it.
Imply energy costs, and shipping costs et cetera, et cetera, but direct the direct exposure is very minimum for us.
And just to add to that I mean, just from a high level.
It's significantly less than even 1% of our of our total sales would go to that region.
Okay great.
And I know you already touched on the pricing, but it sounds like across the industry.
And pricing from annual can you just talk about how you're approaching that change how the customer reaction has been.
How that changed going forward versus our history on the pricing yes.
It's been so let's start off by I think I made a comment saying that our customers are now recognizing we're such a critical part of their supply chain and they need to keep us healthy and so there has been a mental shift no one likes for us to compensate we want more money to cover inflationary cost as you can imagine, but the conversations have been.
Very constructive and we were actually able to get relief.
That was non contractual both from a pricing perspective and from additional volume shares and not as an alternative to give us some additional revenue to compensate for costs will also renegotiating several of our contracts. Some have just been concluded et cetera, and we put in additional terms to give us any.
Greece flexibility, we've talked about twice twice annual openers now versus annually and the past energy move through another actions and they've been they've been remarkably.
Again, no one likes these conversations so I'm not going to say they've been easy, but <unk> been very constructive.
Another thing I would add some of those price adjusters are predominantly more on pulp in E&P I would say in Ams, we have a lot more flexibility in terms of.
Being able to sort of cover our costs and so again, it's not a it's not a great conversation to have our customers, but I think everyone understands the inflationary environment that we're in.
Great I really appreciate it thanks for taking all my questions and good luck in Q1.
Thanks, Great. Thanks, Chris.
We have no further questions I'll hand back to Mr. Clemmer for any closing remarks.
Alright, Thank you Katy just a quick closing remark.
We are excited about what we're seeing in 2022, and we appreciate everybody's support and we hope to be able to continue to give positive updates in the coming quarters. So thank you everyone.
Thank you all for joining today's call. This now concludes the call. Please disconnect your lines.
Okay.
Okay.