Q1 2023 Ashland Inc Earnings Call
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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Notable polymers are a platform of polymers that can be debated and safety broken down by the body. This means that we as chemists can predict or program the chemistry to degrade and break down over a set period of time. This allows formula it is to take their drug molecule incorporated within the Palmer depot.
Live without people and to the patient and then allow the depot to slowly break down overtime. So the advantage here is you can sustain release over several weeks or several months based on the programs people using the chemistry that Ashland provides and that has a huge advantage for any particular molecule for a disease like a chronic long term disease, where you want to.
Deliver the dose and get the concentration within the bloodstream or a localized area at the target levels not blowing out of box. So did you get the effect that you want without any outcomes that you don't want and this is Palmer depot will allow you to do that based on the chemistry that we program.
This particular type of chemistry is really at the cutting edge medicine. So if you look at diseases like oncology cancer, everyone would be aware of the impacts of cancer and the significance for medicine the forefront.
<unk> has many different therapies being used certainly the use of these types of polymers are particularly attractive. So for example, if we talk about a tumor tumor is obviously something that we want to try to target in the body.
Typically want to deliver something potent to try and disrupt or damage or destroy the tumor size. The problem with those types of therapies are non target tissues getting damaged also which leads to some negative side effects. If you take this drug molecule and if you formulated into a targeted delivery system, which is also sustained in terms of its release profile.
Using a vital type virus Oracle Palmer, you can improve the targeting effect to get more of the drug to deliver itself into the tumor and because it's sustaining released you can build up that drug concentration at the tumor site and overall have a better patient compliance better patient treatment better therapy with lower side effects.
In terms of growth. This particular market is growing quickly with a CAGR of about 10% to 14%. We also see growth in the longer term in terms of growth in new applications and the opportunity for us to take these polymers and apply them in new areas, such as medical devices and regenerative medicine outside of Pharmaceuticals.
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Good day and thank you for standing by welcome to the Ashland, Inc. First quarter 2023 earnings Conference call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one one on your phone you will then hear an automated message advising you hand is raised to withdraw your question. Please press star one one again.
Today's conference is being recorded and I would now like to hand, the conference over to your speaker today Mr. Sal.
<unk> director of Investor Relations Sir Please go ahead.
Thank you, Chris Hello, everyone and welcome to Ashland's first quarter fiscal year 2023 earnings conference call and webcast. My name is Seth Mrozek Director Ashland Investor Relations joining me on the call today are Guillermo Novo Ashland Chair, and Chief Executive Officer, and Kevin Willis.
Senior Vice President and Chief Financial Officer.
We released preliminary results for the quarter ended December 31, 2022 at approximately five P. M. Eastern time yesterday January 31.
The news release issued last night was furnished to the SEC in a form 8-K.
During today's call we will reference slides that are currently being webcast on our website Ashland Dot com under the Investor Relations section and we encourage you to follow along with the webcast during the call.
Please turn to slide two.
As a reminder, during today's call we will be making forward looking statements on several matters, including our outlook for fiscal year 2023.
These forward looking statements are subject to risks and uncertainties that could cause future results or events to differ materially from today's projections. We believe any such statements are based on reasonable assumptions, but cannot assure that such expectations will be achieved.
Please refer to slide two of the presentation for an explanation of those risks and uncertainties and the limits applicable to forward looking statements. You can also review our most recent Form 10-K under item one a for a comprehensive discussion of the risk factors impacting our business. Please.
Please also note that we will be referring to certain actual and projected financial metrics of Ashland on an adjusted basis, which are non-GAAP financial measures, we will refer to those measures as adjusted and present them to supplement your understanding and assessment of the financial performance of our ongoing business.
non-GAAP measures should not be considered a substitute for or superior to financial measures calculated in accordance with GAAP.
The most directly comparable GAAP measures as well as reconciliations of non-GAAP measures.
Those GAAP measures are available on our website and in the appendix of today's slide presentation.
Please turn to slide three.
Guillermo will begin the call. This morning, with an overview of Ashland's performance and results in the fiscal first quarter.
Next Kevin will provide a more detailed review of financial results for the quarter.
Guillermo will then provide additional commentary related to ashland's financial outlook for fiscal year 2023, We will then open the line for your questions.
Now please turn to slide five and I'll.
I'd like to turn the call over to Guillermo for his opening comments Guillermo.
Thank you Scott and Hello, everyone. Thank you for your interest in Ashland and for your participation today.
As stated in our earnings release last night.
Results in the fiscal first quarter were consistent with the earnings update we issued last week.
During these times of continued global uncertainty, we will strive to provide transparency and timely communication on company results and performance.
As we plan for the December quarter, we recognized that several external dynamics could impact demand and performance the impact of Central bank actions to combat inflation The war in Ukraine, and the China and the Covid reopening in China.
Our forecast was based on a more recessionary environment developing and did not include factors that we could not control or forecast.
The drivers of our results for the fiscal first quarter are a great example of how uncertain events significantly impact market dynamics in a very short period of time I'd like to spend a few minutes, providing my perspective on the overall results.
First disciplined pricing led to price versus inflation cost tailwind in the quarter as we had expected our commercial teams moved quickly last year to recover the increased cost we experienced in energy great logistics raw materials and other input costs. The continued with its disciplined.
In this quarter.
On a constant current basis that pricing carry of over and additional new pricing resulted in double digit percentage price improvements for all segments compared to Q1 of last year.
In addition.
Our three consumer focused segments life science personal care and specialty additives.
Realized strong mix improvements, which supported the company's overall margins.
Second the results in life Science segment was particularly strong.
Team saw strong global demand and our leading pharmaceutical ingredients and was able to capture additional market share at leading pharma customers.
As you saw in the video at the beginning of today's call Ashland continues to expand its leadership position in some of the world's most important pharmaceutical applications.
And third.
<unk> serves resilient end markets and geographies across the globe the U S consumer.
Our U S customers.
Continued to demonstrate resilience in demand in the face of global economic uncertainty many emerging.
<unk> markets also demonstrated growth.
The historic long term resilience of the end markets, we serve gives us confidence in our financial outlook for this year and beyond.
In contrast, we also experienced several headwinds during the quarter that yielded overall results that were below our original expert expectations.
First global macros factors, certainly impacted demand in China and Europe during the quarter.
The changes in government COVID-19 policies, and the resulting acceleration of infection rates clearly impacted demand as well as business and living activities for everyone in China.
The speed and impact of these developments was much greater than anyone expected.
As a result sales in China were significantly below our expectations.
And although we expected some level of economic downturn in Europe , driven by both recessionary trends and general uncertainty on the impact of the Russia, Ukraine War demand in Europe was below our expectations.
Second inventory management, and Destocking, primarily by distributors in Europe , and China was real and it happened quickly.
While sales to distributors only represent about 20% of ashland's overall sales.
Distributor inventory Destocking actions were a significant driver and roughly 50% of our revenue gap versus prior year.
The vast majority of this was in China.
And Europe .
We also saw certain customers takes similar inventory management actions.
So these were isolated.
And we believe very company specific with no specific market patterns.
The weaker demand in China, and Europe , as well as the Destocking impacted mostly specialty additives and personal care and our personal care business.
It is important to note that while <unk> overall margins remained in line with prior year margins in our specialty additives segments were in.
Impacted by plant turnarounds, both planned and unplanned during the quarter.
We are thankful that our team in China is healthy and are grateful for the resilience. They demonstrated following the outbreak of Covid in December .
And while the U S. <unk> did impact operations at several plants during December and January the financial impact will mostly come through in the second quarter.
Our teams are working on actions to offset the impact of the unplanned shutdowns and the freeze including plans to rationalize some of our planned maintenance work companywide in the third and fourth quarters.
I will discuss a bit more.
We will discuss a bit more when we review our outlook for fiscal 2023.
Later in the call however.
All indications lead us to believe that the China reopening will have a positive impact on the back.
But the pace and breadth of the reopening should be an important factor in our financial outlook for the remainder of the year.
Finally.
Foreign exchange rates again had a negative impact on ashland's overall results the impact of the strong dollar continues to be realized on our business overseas.
Current exchange rates are improving when compared to our original forecast.
At the beginning of the year.
Please turn to slide six before I ask Kevin to discuss our quarterly results in more detail I would like to sum up the key takeaways.
Despite global uncertainty and macroeconomic volatility Ashland delivered consistent results in the quarter.
Sales growth.
<unk> growth EPS growth were delivered along with nearly flat EBITDA margins compared to prior year.
While there are many puts and takes delivering consistent results.
As an important component of our long term strategy.
Please turn to slide seven.
As you can see in the chart in the left year over year sales growth in life Science was very strong while the topline for personal care and specialty additives was below prior year due to the factors referenced earlier.
Overall margins for option remain healthy and in and generally in line with our expected.
With our expectations.
While there are many global uncertainty uncertainties season their horizon.
The Ashland team is performing well and executing on the actions that are within our control.
I look forward to discussing the outlook for fiscal year, 'twenty, three and reviewing broader progress by the company later in the call in the meantime, I'll turn over the call to Kevin sure.
Q1 results in more detail Kevin.
Thank you Guillermo and good morning, everyone. Please turn to slide nine.
Total Ashland sales in the quarter were $525 million up 3% versus prior year, driven by continued inflation recovery and mix improvements.
Sales increased by 7% on a constant currency basis gross margin remained consistent at 31, 4% as cost recovery and mix improvement actions by the commercial teams offset increased input costs and the turnaround expense at a number of our global facilities, which Guillermo previously discussed.
<unk>.
When excluding key items, SG&A, R&D and intangible amortization costs of $116 million were essentially flat compared to the prior year.
In total ashland's adjusted EBITDA for the quarter was $108 million up 2% from the prior year adjusted EBITDA of $106 million.
It is important to note that unfavorable foreign currency negatively impacted adjusted EBITDA by $14 million, while the planned facility turnarounds resulted in $12 million of incremental cost during the quarter.
Ashland's adjusted EBITDA margin for the quarter was 26% and consistent with the prior year.
Adjusted EPS, excluding acquisition amortization for the quarter was <unk> 97 per share up 10% from the prior year quarter.
Ongoing free cash flow was a negative $21 million for the quarter a reduction from the prior year, primarily reflecting an increase in working capital driven by increased inventory balances globally now.
Now, let's review the results of each of our four operating segments. Please turn to slide 10.
As Guillermo referenced at the beginning of today's call life Sciences delivered very strong results in the quarter driven by our global pharmaceutical ingredients business.
Pharma demand remained strong product mix was favorable the team executed on disciplined cost recovery all contributing to margin expansion.
Unfavorable currency impact was a partial offset to the strong performance in life Sciences in total life Sciences sales increased by 22% to $207 million while.
Adjusted EBITDA increased by 44% to $52 million adjusted EBITDA margin increased meaningfully to more than 25%.
Please turn to slide 11.
Personal care sales were down by double digit percentage in China due to COVID-19 policies inventory destocking by distributors, particularly in Europe also negatively impacted sales as with life Sciences. The team continued to realize disciplined cost recovery through pricing and favorable product mix.
<unk> for the quarter personal care sales declined by 6% to $138 million, while adjusted EBITDA declined 11% to $32 million.
Adjusted EBITDA margin also declined to roughly 23%.
Unfavorable currency impact was also a headwind to personal care results in the quarter.
Please turn to slide 12.
Specialty additives also felt the impact of reduced demand primarily related to inventory destocking, among distributors and certain customers in China and Europe .
Sales outside of these two important regions were up by mid single digits versus the prior year quarter, the reduced demand more than offset improved cost recovery and mix for the segment, particularly within the architectural coatings end market.
For the quarter specialty additives sales declined by 8% to $143 million, while adjusted EBITDA declined by 39% to $23 million the cost impact from both planned and unplanned facility shutdowns was about $7 million and represented nearly half of the year.
Over year decline in EBITDA.
Adjusted EBITDA margin also declined to 16% for the quarter.
Please turn to slide 13.
Intermediates reported sales were $54 million up.
Up 2% compared to the prior year, driven by higher merchant market pricing and improved product mix management of higher value derivatives.
Intermediates reported adjusted EBITDA of $23 million, an increase of 21% compared to prior year and adjusted EBITDA margin improved to 42, 6%.
Please turn to slide 14.
As we discussed at our last Investor Day capital allocation discipline continues to be an important component of ashland's value creation strategy.
The actions we have taken over the past year have improved ashland's financial position and provide for increased flexibility.
Last night, we announced plans to execute a new $100 million share repurchase program under rule <unk> five one.
This program will be executed under the existing $500 million evergreen share repurchase authorization that was approved by Ashland's Board of directors last year.
We expect to begin executing trades under the new program in early February .
With the strength of our balance sheet, our growth outlook for the year and the fact that we continue to believe that Ashland shares remain significantly undervalued now is the right time to begin a new open market purchase program.
As of the quarter closed on December 31, we had cash on hand of more than $530 million with total available liquidity of roughly $1 2 billion.
Our net debt stands at $784 million, which is about one three turns of leverage.
We have no floating rate debt outstanding no long term debt maturities for the next four years and all of our outstanding debt is subject to investment grade style credit terms we.
We are investing in our existing business to grow organically and continue to pursue our strategy of enhanced profitable growth through targeted bolt on M&A opportunities focused on pharma personal care and coatings.
Against the backdrop of global uncertainty Ashland has a strong balance sheet with the flexibility to pursue our targeted growth strategy.
With that I will turn the call back over to Guillermo to discuss our outlook for fiscal year 'twenty three Guillermo.
Thank you Kevin Please turn to slide 16, I'd like to take a few minutes to provide some perspective on the current fiscal second quarter and the second half of our fiscal year outlook.
For the second quarter first regarding demand our global pharma business continues to demonstrate strong resilience in our order book for personal care ingredients and architectural coatings additives is rebounding so far this quarter.
Although most of the regions are experiencing demand strengthening demand in China remained weak in January .
We expect to see the demand pick up following the Chinese new year.
Additionally, during January we began to see the regional Destocking dynamic stabilizing notably in Europe .
While volume demand levels have not returned to prior year levels. The sequential improvement has been meaningful as we exit January our sales in open orders were slightly above prior year with price up and volume down relative to prior month, both volume and revenue were significant.
Up even with the weak demand in China.
Second as previously communicated the winter storm that impacted much of the U S. In December and had significant impact in our facility in Calvert City, Kentucky.
As well as several other facilities in the U S.
Okay.
Fortunately Calvert city and other locations have been back online and fully operational.
For most of January while the storm did not have meaningful impact.
<unk> results in Q1, we expect to recognize approximately $15 million of incremental cost in the March quarter.
These costs.
Well most directly impact results in life science and personal care segments of the business. However, we expect the timing of the ops set actions will be mostly impacting our third and fourth quarter.
And finally for the next few months there continues to be an elevated level of uncertain globally.
What happens over the next two months from China is reopening to geopolitical and economic developments in Europe to Central Bank actions across the globe will have an import will have important implications for the global economy and Ashland results.
All of these factors could further influence our modeling and outlook for the remainder of fiscal year 'twenty three.
As we move into March we expect to have increased visibility into many of these factors and the actions that our customers are taking heading into the second half of the year.
For the second half of 2023.
As we look at the back half of our fiscal year some of the key issues that we look at our.
The expected magnitude and impact of the recessionary momentum.
Will there be more recent impacts.
As we've moved from a high demand and tight supply to a more recessionary environment.
And certainty around the impact of China's COVID-19 reopening and potential changes in Russia.
The Russia, Ukraine War dynamics.
With regards to the recessionary environment.
In the absence of new data.
We believe that the markets our business will continue to perform in line with their historic resilience.
Our question is more about the reset developments as we move from the 2022 tight supply demand dynamics into a more recessionary 2023 environment.
This reset driven by China's COVID-19 reopening and Destocking clearly impacted demand in the first quarter, but should be transitory.
Note that several of our key technologies.
Several of our key technologies capacity for the industry and Ashley remain tight with operating rates above 90%.
While I'm not ready to say that Destocking is over trends in January show significant improvement unless there are new developments, we expect them to paid off by the end of the second quarter.
The impact of China's reopening or changes in the Russia, Ukraine or dynamic is more difficult to forecast given the lack of clarity on how they will develop.
For China's Covid reopening, we do expect improved demand developments in China.
What broader impacts could develop will depend on the pace and the magnitude of the reopening.
This uncertain environment.
This uncertain environment, we will continue to focus on what we can control, while planning and building resilience to react quickly to developments similar to what we did in 2022.
Notwithstanding our current outlook.
As we did doing the of certain types of times of Covid, We will continue.
To look at a more conservative outlook for our internal assumptions that will drive our actions and plans.
Yeah.
Our priorities will be on.
While we do not ultimately control demand, we will remain nimble to react to positive or negative developments and we will continue to focus on innovation and share gain activities to support growth.
We will maintain focus on disciplined pricing mix and cost management to support to sustain margins.
We demonstrated this ability in a very challenging inflation or inflationary environment in fiscal 'twenty, two and we will maintain this disciplined in fiscal 'twenty three and beyond.
We will drive actions to offset incremental cost.
From unplanned shutdowns and the freeze.
We will monitor market developments and take appropriate actions to maintain inventories in line with developing supply demand dynamics.
Please turn to slide 17.
Consistent with our earnings update from last week, we are maintaining our financial guidance range for sales and adjusted EBITDA margin for the fiscal year 'twenty three.
Indicated our current models put our EBITDA outlook below the midpoint of our range.
We expect to have better visibility on the impact of Chinas reopening post winter Europe , and Central Bank actions to combat inflation at the end of the second quarter.
Critical deliverables in our models are clear.
To sustain price margin management discipline.
To offset the unplanned shutdowns and freeze impact in Q3 and Q4.
And to continue to invest in our innovation pipeline and capacity to.
To drive growth.
Critical assumptions in our model are we.
We assume that the reset items like Destocking are transitory.
Assume that demand in our core market perform in line with historic Recessionary resilience.
Assume that demand in China picks up and normalizes with it with the ongoing reopening.
And as we did in 'twenty to 'twenty, two we continue to build resilience to react quickly to uncertain and unplanned external developments.
Our outlook for the year takes into account the known macro operating environment in ashland's unique position within that landscape.
Speculation on the potential impact of highly uncertain macro factors that are out of our control or ability to forecast are not factored into our models.
Please turn to slide 19.
Overall.
The last decade.
Ashland's journey of transformation has sharpened our focus.
As in additives and specialty ingredients company.
As we systematically identify and tackle the <unk> problems, we concentrate on areas rich in opportunities to innovate and drive value for our customers, where innovation and expertise in one business unit can be leveraged and others.
In closing I want to thank the Ashland team again for their leadership and proactive ownership of their business in an uncertain environment.
We have solidified our portfolio as a global additives and specialty ingredients company with exceptional businesses businesses that have leadership positions in resilient high quality consumer consumer driven segments.
I am pleased by the resilience and execution demonstrated by our people and our business and look forward to the opportunities that lie ahead.
Thank you and operator, let's open it to Q&A.
Thank you.
As a reminder to ask a question. Please press star one one on your phone and wait for your name to be announced.
To withdraw your question. Please press star one one again standby.
Standby as we compile the Q&A roster.
And one moment. Please go ahead first question.
Our first question will come from Christopher Parkinson from Mizuho Securities. Your line is open great.
Thank you so much Guillermo can you just give us a little bit more color on your remarks in January and how you see the quarter shaping up on the Destocking kind of focusing on Europe , and China, and perhaps just as important.
<unk> seems to be holding in on a relative basis can you. Just also hit on your expectations, there and where you would assess inventory levels with your distribution and as well as direct customers. Thank you.
Well, let me, let me start with a general markets, then I'll comment on on China, and Europe , and some of the headwinds we saw and how theyre changing overall, if you look at it.
We did a lot of analysis.
First quarter and looking into January .
For most of the world the U S.
And a lot of the development.
<unk> actually remained pretty solid, especially if you look at.
At our core customers any it was softer than we had expected overall, so demand, but relative to prior year, they were able to hold up.
And if you look at by market segment. So it was pretty pretty general a lot of the destocking actions at our customers were very specific to customers.
And in a specific market one customer.
Brought down inventories, but others did not.
Even I would say, even if you look at <unk>.
Coatings and some of the specialty additives business that we've got a lot of questions.
We saw softness in the DIY market.
But in other areas. We saw we saw strength in some of our major customers. So again, we sell the additives were not the major high volume ingredients. So some of the dynamics that happened to us a little bit different than other players.
For China, obviously.
The reopening.
Now the big impact I don't think we're any different than anybody else.
We saw it with our plants 91 point in time, 95% of our team.
King.
<unk> reported.
In fact, it so we shut down for an extended period of time I think that happened.
To our customers to a lot of our suppliers and even distributors. So I think what's happening in China is more about the COVID-19 there was some destocking, but I assume that even.
Across the chain everybody had the same problem, we did in terms of shutting down operations.
And we continue to see that in January we saw significant improvement in demand in our.
Our orders and sales in January .
But China was down significantly so we're hopeful that as we get now beyond the Chinese new year, we will see that that that pickup.
And then the same thing in Europe , we're seeing it.
Stabilize, especially the distributor Destocking I think most of that should be behind us.
Again, the demand at the customer level was customer by customer so.
I think if you look at the core market resilience. This is why we're talking about what's the resilience of the market versus these reset items.
Obviously, the reset items, where the bigger driver.
And the cloud a lot of the underlying dynamics in many of the markets. So our take is that the things have slowed down but the dynamics are.
Our solid in many of the markets. It's just an issue of where each player was in terms of.
How they were managing last year with a tight supply and demand in their inventory positions.
And that should be transitory as we said.
And just a little bit more of a long term question just whats youre, obviously theres been a little bit of noise. The results due to storms and outages maintenance, so on and so forth, but you've been pricing well it seems like youre growing in the right areas in terms of being a beneficiary of mix.
And then it seems like some of the inflationary headwinds that.
The entire platform is facing throughout the last fiscal year are beginning to ease and in some cases improved. So can you just give us a very quick update on your latest assessment of the margin the margin potential across the entire portfolio and your confidence there with them. Thank you. Yeah. I think the team has been very focused on that area that is as we highlighted acreage.
<unk> deliver deliverable for our models in terms of outlook remember, we don't have a lot of capacity. So volume was never a big driver. Obviously, we're looking at it on the negative side what could happen.
If volumes come down a little bit, but they were never a big driver on the upside just because of where we are most of our capacity will be coming on in 'twenty 'twenty four we need it even with the slowdown.
Production rates in many of the key.
<unk> technologies are still very high.
So we need that need that capacity to drive growth, so pricing and pricing and margin management is a critical critical deliverable and I think we're in a good place because we've captured everything that we needed to both from the carryover from last year and actions that they took.
During the first quarter.
So the issue really now is how prices develop I think this is where there could be some noise with the China reopening on.
That impacts global demand and that's probably where there's more uncertainty I think we see.
Just the reopening will drive better demand in China, but the pace and magnitude obviously could have other implications around the world, which we're going to we're going to monitor so I think we're in a good place on that pricing margin side.
No.
<unk> did not impact our revenue or sales we had inventory.
Sure.
It was more of the financial impact of the shutdown maintenance and those kind of things that did impact.
Sure.
The margins, but the underlying margins even in specialty additives.
Our expected to rebound they were fine in the quarter. It was just that added cost that came through so in the things that we can control we feel good I think the issue now is we know as we said we're not immune to the external dynamics. Our biggest issue right now is making sure that we perform in line with our peer group I mean, we're all selling to the same.
If you're going to solve into product X whatever cosmetic as an example, we sell different ingredients, we should perform in line with our peers that are also focused on these resilient.
Market segments, and I think we.
We're confident that we are doing that.
And our issue is going to be like last year. If you look at our results last year they were very good but.
Versus what we expected at the beginning of the year a lot of different actions, we reacted very quickly to changing dynamics and I think as has been the case for the last three years.
It's about being nimble and assumptions change very quickly in this uncertain environment.
And I'm confident the team has performed well and we will continue to perform well as we move forward.
Thank you as always.
Thank you.
Thank you.
And one moment please for our next question.
Our next question will come from Josh Spector of UBS. Your line is open.
Yes.
Yes. Thanks for taking my question just on the mix improvement.
Part of your earnings growth over the last year, you talked about markets remaining tight they were tight last year Youre limited capacity just wondering given the double digit volume declines I think you saw in some of your segments. This quarter. If we see more of a prolonged destocking for a longer period of weaker demand does that change that mix dynamic.
Give some of that back or how do you react to that.
I think in some of the areas. It gives us some flexibility if we have to go back in for some markets if volumes come down that's flexibility.
That we have but for the majority of the key ingredient. So if you look at the settlement next line things are still really tight for the foreseeable outlook.
Outlook.
This is in Europe are still very challenged.
And we're in a very strong position there hec remains tight in the market even with the slower demand.
So it's going to vary by by segment and product line, but our critical ones I think remain we see a lot of.
That strength.
Our issue I think it's going to be looking at if volumes come down and we need to take actions to maintain inventories were not going to be building a unnecessary inventory just for absorption if we need to take actions to bring that down.
What were holding as raw.
<unk> come down a little bit that we can offset that with raw materials.
So in general the although our outlook is based on that resilient.
Market profile that these markets have historically had our planning and the actions that we're taking internally around costs.
And how we manage our plants is taking a much more conservative outlook and saying look.
Need to be ahead of the curve as we did in 2022 and 2021 and 2020 plan ahead to be conservative.
But don't start changing our outlooks.
On speculative for me information react.
And plan and react as needed based on developments.
Thanks, Kevin if I could just ask specifically on personal care I mean, it's interesting double digit pricing. So that stepped up from where you were I think a lot of other specialty markets, we've seen pricing what level off.
Is there any risks that you are losing share going after that additional pricing.
I think if you look at the numbers and we're seeing it already in.
In January .
Again.
We can't.
Initial like everybody else additional initial view was look.
<unk> was down it must be the market.
We try to align the first explanation to the narrative of the market that markets are down therefore, it must be that the markets are down.
As we did our analysis, what we saw as well now, it's China and Europe distributors, where the majority so 50% probably the gap was China and 50% was with distributors I mean, there is an overlap in the two.
But it's these reset items, obviously, where the big impact I would say versus prior year versus expectations. We have seen some softening in demand, but if you see January .
The orders have bounce back for personal care.
If we look at demand and we put control.
Yes.
Upper and lower control limits, we're just not looking at one number.
But demand has bounced back to the mid point of our control limits in terms of demand for personal care and <unk>.
And and and.
In January .
Contrast that in.
Specialty additives, we have seen an improvement, but demand has bounced back into the control limits, but theyre more at the bottom end of the control of it. So our view is pharma remains strong personal care normalizes as we move forward. These reset items get more behind us and performance more in line with historic parameter.
And and our specialty additives is going to be a little bit of a mix.
The depending on the segments that we're on but it's going to continue to improve but probably it will be a little bit softer than we expected at the beginning of the year.
Okay. Thank you.
Okay.
Thank you.
Again, one moment please for our next question.
Okay.
Our next question will come from David Begleiter of Deutsche Bank. Your line is open.
Thank you good morning.
Guillermo just on price cost tailwind what were they in Q1, what do you expect for Q2 and what's embedded in the guidance for full year.
Okay. So so our assumption is that we will continue to.
Recover any any.
Inflationary pressures that we get.
We did it last year I think in the first quarter, it's more it wasn't broad based like last year more specific to <unk>.
Product lines that can be said caustic for example was a significant.
Cost increase for us in the first quarter and we took action on those items. So I think as we move forward, it's going to be much more surgical.
If needed, we probably will see things slow slowdown from an inflationary pressure.
But again that will have to react as that go that moves forward most of the inflation.
<unk> has been around energy, especially in Europe and specific raw materials.
Where the supply demand imbalances had a big impact and again a lot of that has mostly been driven and in Europe .
So I think we're starting in a good point, we don't have to recover we're not behind the curve where on the curve.
And as we said last year we.
We took actions to protect our margins we didn't improve through through inflationary pricing. We just did what we need to do to stay whole and the improvement was driven more by that mix mix improvement.
And we will continue to the mix improvement is not just because of the supply demand dynamics, that's part of our strategy of which areas. We want to focus focus on long term where are we going to be investing.
That mix improvement is driving our portfolio to the areas, where we're making all the capital investments.
In the coming year.
Thank you for that and just on your outlook Slide you talked about the potential need for more inventory control.
Actions could you give a little more color what you mean by that.
I think although we're forecasting that we're still in the bank. This quarter for example, as we said.
We said in our last call, we werent going to take we were not going to take significant destocking actions. Because we were there was a lot of uncertainty and we didn't want to get caught into.
A situation like 2021, where something happens.
And suddenly things get very tight.
So so that's that was sort of our position there. So the issue is going to be more if demand comes down.
The one thing thats not in our model as if we had to reduce production.
To meet us up that would be a headwind for us that is not in our model.
And we did want to highlight that for everybody that that's just one of the risks.
Everything we're trying to do now is given the uncertainty is make sure that we're transparent and we don't know where it's going but let our investors decide if they want to what perspective. They have on some of these areas and I would say absorption would be a potential headwind.
If things continue to be or get softer.
As we move forward I don't think that Thats not our current model right now, but it's something that we continue to monitor we are not going to rebuild we're not going to drive absorption by building inventory.
Capital discipline is something that's very important to us that we're going to maintain.
Thank you.
Yeah.
Thank you.
One moment please for our next question.
Our next question will come from the line of John Mcnulty of BMO. Your line is open yes.
Guillermo I know last year, a lot of the big issues, you had were around freight and logistics and it looks like those channels are those all of those issues have largely been resolved can you speak to what kind of cost relief, you're seeing there I know we've seen the availability of things like freight.
To improve but but on the cost side I guess I'd be curious how much of a tailwind that actually might be for you at this point.
So definitely we've seen.
Improvement.
Into the last quarter of last year, we were starting to see improvement throughout this quarter.
Our first quarter, we continued to see that so I think that's stabilizing our inventory and that's allowed us to rebuild a lot of our inventory levels are there still is not back to normal it's still on time shipments.
We're still catching up and it really depends on which lines.
Youre talking about.
But clearly a big improvement on the cost side. We're also seeing some improvement just a reminder, as we did our shipments are from Europe and the U S out so some of the.
Ultra high.
Cost from exporting from China out, we're not the big driver for US our biggest bigger problem was the on time.
The reliability of the supply chain was bigger a bigger challenge. So it is it is an improvement area, but it's not relative to maybe other companies. It is not the same same size given where our channels are.
Float.
Are going to.
Got it Okay fair enough.
Those costs those costs continued to ramp through a lot of 'twenty two just based on energy prices et cetera, So for our Q1.
Yeah.
Freight and logistics was was still higher than prior year probably call.
Call it around $10 million give or take so that was that continued to be at.
Negative from a cost perspective, again, obviously thats that slowed down as the year progresses, those comps should get better.
Got it okay.
That makes sense that's clear.
And then I guess with regard to the buyback that you guys have in place the $100 million.
<unk> I guess can you help us to think about the timing or how it like the duration of that of that buyback and how much you're you're kind of committing to for for your fiscal 2023, how should we be thinking about that and just given higher rates at this point given the markets.
Unwinding, a little bit over the last whatever nine to 12 months in terms of valuations do you see more opportunities at this point to put capital into into M&A I know, it's a target for you, but I guess can you can you help us to think about whether it's a more target rich environment at this point or or maybe not.
Let me, let me comment on the M&A side, and Kevin you can comment on the buyback process.
I think our focus right now is driven with bolt ons I think we're in a good position.
To do that.
And in terms of our cash position.
Our overall.
Uh huh.
Capital availability.
So this does not change.
Sure.
The interest or opportunities I think the reality is it takes a little bit of time for the valuations to reset.
And we're looking at specific opportunities that we're continuing to work on.
But we're going to be patient.
Our view is we got.
<unk> growth has to be the big driver innovation the capital has to be where the engine is.
And we want to do these bolt ons to augment our portfolio, but we don't want to be we don't want to be in the mode of having to do it or going and paying.
Prices that we will not create value in the long term. So we're going to be patient, we're going to be disciplined as we move forward and I do think the environment will improve as we move into.
The back half of 2023 from an M&A perspective, so I don't think were changing.
Our ability or interest to do that but Kevin do you want to talk about the process.
Sure sure so.
In terms of the value we are committed to the $100 million.
Strictly speaking these plants can be turned on and off but our intention is to is to spend the $100 million.
Terms of how long it'll take it'll be a function of.
Price and the volume of Ashland shares are traded.
The way. These programs work is we will have in it and agree to grid.
Price and volume grid was with the bank it's executing by.
Buybacks for us and they will be in the market each day.
The amount of shares that they buy will be dependent on how many shares are trading and at what price.
I would expect us to be able to complete this.
By the end of the quarter.
That would be my expectation, but we'll remain to be seen.
Now by the end of the quarter certainly by by early in the June quarter.
Got it okay. Thanks, very much for the color yeah, that's actually a bit faster than we were thinking so good to hear thanks very much.
Yes.
Thank you.
And again, one moment for our next question.
One moment please.
Our next question will come from Mike Harrison of Seaport Research Partners. Your line is open.
Hi, good morning.
I was wondering if you can give a little bit more color on the strong demand that youre seeing in the pharma business is this increasing.
Our penetration or share of wallet with existing customers new customers.
New products and I guess, maybe what are you seeing in terms of underlying market growth.
It really just trying to get a sense of whether its this growth that youre seeing their strength is sustainable through the rest of fiscal 'twenty three.
Yes.
Underlying market has remained resilient so so.
It's not that the overall market is growing at the same pace, we clearly have gained share.
And this segment as we said last year, we did not expect a lot of reset there.
Significant concerns.
Phil about availability of product.
Both supply chain was a headache prior year, but obviously in the situation.
In Europe , specifically in Germany has had a lot of impact on availability of product reliability of supply so as.
Broad base that the entire industry has been.
Focus on reliability.
Given the products and the importance of their products to society and to the <unk>.
<unk>.
Welfare of people that's been the big driver and we saw that as we move forward now looking out we expect demand to continue to remain strong we probably will not see significant.
Resetting.
Stocks or things of that nature.
And.
We will continue to do well as we look out.
Will.
Things normalize in Europe , and the supply Im sure towards the backend of the year there could be some some improvement.
And we will normalize some of our growth rates.
Towards the back end of the year. The question is going to be what's going to happen in Europe , and I don't think theres a lot of certainty.
So we made commitments to our customers and to us.
To make sure that we're guaranteeing.
As best we can.
The supply reliability.
Alright, and then a question on the Calvert City.
Disruption that you had is part of the $15 million impact related to.
Winter is Asian or backup power or other measures.
Help make sure that that facility is more resilient and future cold weather.
And then do you expect any insurance recoveries associated with that outage.
Most of it and Kevin you can comment a little bit more but its maintenance to repair bring it up to speed and the absorption impact.
This plant is not a new plan.
Ben and Thats, whether this whether it was not worse. It was a very unique problem. We had in one unit that had.
Later on implications with others and that's why.
Maintenance and downtime was much more significant.
Than expected.
So it was really <unk>.
Very specific too.
A unit that.
Our compressed air.
You think of freezing weather about liquids and things like that there is probably not not the area that you're more concerned and there was just a failure in a specific area that had.
Downstream effect in boilers and other other areas. So.
That's really the big driver.
Platte historically has done very well in this kind of weather. So it's more of a unique situation but.
Kevin if you want to give a little bit more color on the numbers.
Yeah.
The biggest chunk of it is lost absorption repair costs.
We are going to be smaller a smaller piece of the equation from an insurance perspective, we actually maintain a pretty high deductible to keep our rates as low as possible. We have historically been very very comfortable with that simply because we just haven't had that many issues over over the course of time and so.
We think a lot of saved premium as a result of that.
It's probably three to three to five of the total impact is going to be repair cost and then the rest is going to be lost absorption.
And this is where for the third and fourth quarter. We had plant shutdowns. Obviously since we had shutdowns we tried to do as much other maintenance as possible too. So that's what the team is working as what work was completed what do we what can we avoid in terms of future shutdowns and that's why the timing of the offsets will be.
Not in the same quarter its going to be more around what we had some of those other activities plan.
I'm, sorry, Kevin to the Calvert pioneered the Calvert plant specific.
Mike for the Calvert plant specifically.
We typically do a kind of a June turnaround there.
Often typically last several weeks.
So part of part of what we're working on right now we cannot just mentioned.
What can we avoid later later in the year as a result of.
What we've been doing at the Calvert City plant to.
To make these repairs not only these repairs, but also some of the things we would have we would have done in June as well.
I'm sorry, you had another question.
Sorry, I just wanted to clarify on the insurance recovery are you, saying that the deductible is so high that you are not going to get any recovery or.
It'll just be very modest compared to the $15 billion.
Yes, there is no expectation of recovery in multiple categories of deductible involved in an event like this.
You've got you've got the <unk>.
Pretty piece and you've got business interruption and you've got to hit those limits on both it's not a it's not an either or kind of thing. So we.
We don't expect any insurance recoveries from this event.
Okay understood alright, thanks, very much gentlemen.
Thank you.
Thank you.
One moment for our next question.
And our next question will come from John Roberts of Credit Suisse. Your line is open.
Thank you well most of the business saw Destocking do you think pharma ingredients saw any restocking activity.
I know you had some logistic issues last year and do you think there was any timing issues that helped pharma.
Sometimes I know, sometimes it falls one quarter or the other and these are large and high value shipments that occur.
If we look at January I mean, we continue to see strong demand I think it's more of that share gain.
Was.
The bigger impact I don't think there was overstocking it was.
More ensuring our customers ensuring that they had the stock at the right place I think.
Between Covid and the European situation, there is a lot of.
Uncertainty around supply.
And some of these areas and for for this type of industry.
There.
Our risk management has been a top priority I think in the last call I mentioned that when I was in.
In Europe in November .
One of the big.
Events for the pharma industry. It was very clear that most customers were very focused on for 2023 risk.
Our risk management in terms of supply given all the uncertainty.
That existed then and I think still remains now with some of the developments.
But we're monitoring that closely and we haven't seen any change in January .
On slide five under the resilient U S demand you listed architectural paint additives I believe most of the paint companies reporting so far have had weak architectural volume. So how do we reconcile that.
Again, several things we did see weakness in the DIY space.
I think the contractor space remained more more resilient.
And we don't necessarily follow on 100% dynamics, where additives you know when you see a lot of Destocking.
We're not a main ingredients to drive inventory levels and things of that nature.
So there is just unique situations.
And again, we're working with a lot of our customers.
While it remains tight around the world even with Softbank.
We're working to make sure. This is not just about a quarter. It's for the whole year. We've worked to ensure that they can have rates products.
The issue with that.
If you don't have one.
It doesn't matter what you have for any other raw materials can produce.
We are very focused to make sure that.
Some products last year.
Okay.
Thank you.
And one moment for our next question.
Our next question will come from Jeff Zekauskas of Jpmorgan. Your line is open.
Thanks very much.
In your press release, you said that.
Currency negatively affected your EBITDA by <unk>.
$14 million.
And I think your current the effect on sales was about 24 $25 million.
Why wouldn't the effect on EBITDA adjusting for a $5 million consistent with your EBITDA margin.
Why would be so large relative to the sales impact.
And second could you comment on the trends in Europe .
The margins of your intermediates and solvents business as that business getting weaker or stronger or staying the same.
Well, let me let me.
Comment on the intermediates and then.
Kevin you can comment on the currency.
So intermediates has has held up a reminder, most of our intermediate business is the downstream products and MP BMO.
BDO, we have the captive and we have a use.
<unk>, maybe of our merchant business, maybe 20%.
Bill.
There is 20% to 25% of our of our merchant business BDO, So I would say in BDO.
Clearly.
The markets are long prices have been coming down.
Internally for us our pharma business has been strong.
And in the personal even in personal care, our core business with customers versus distributors.
Continues to hold up so volumes internal captive volumes were good.
Although transfer pricing not so much in this quarter, but we are we are.
Forecasting them to be coming down just because markets are longer.
That'll be a negative for intermediates, but a positive for our downstream businesses as we go through through the year.
We don't see that BDO dynamics are going to change that much.
In the near term I think it really will require markets to start picking up probably in the second half of the year.
For things like fibers.
Polyurethane Theres a lot of these other bigger markets that will drive that part of that.
That's not the biggest part but on the margin will see some impact.
And in the next quarter.
If you look at <unk>.
They are different products driven by different markets, we are not pricing.
Maybe the markets were in the past just assume it's all a commodity and move it.
Downstream products are very valuable.
<unk> is going into semiconductors and to the EV market for battery production huge investments going in.
In the U S and in Europe , we're focusing our portfolio more on the U S and Europe less on Asia.
Demand is going up there is not enough product. So we are working with all of our customers and people that are investing in both regions to make sure that we have the product they need as they ramp up.
The construction of their plants.
And increased production, so the pricing and supply demand dynamics are a bit different and similarly in the BMO market. These are going.
Into active ingredient production for pharma for personal care.
Very specialized applications.
In the semi and the electronics industry to where.
We're the only western merchant player and again the dynamics there are different.
Marks have been tight and we're we're we're pricing each product on their own not just trying to move BDO in the past remember we were a big BDO House and it was just moves like most commodity companies.
You want to load the asset and just move it through across we're not a big video house anymore. Most of our production is for captive use and to support our downstream.
So we have a very different strategy and so far pricing has been holding up.
What we're trying to see is more of that demand I think on the margin, we will see softness in BDO and the other ones I think we'll have to see how.
Hmm.
Markets develop especially in Europe , and I think also with the China <unk>.
Opening up a lot of excess product that maybe it is just trying to to find homes outside of China now that there is no demand.
All of that will be pulled them back into China as China reopens.
But Kevin if you want to talk about FX.
Sure sure well just.
The impact is a little counterintuitive on surface. So as you look at it.
Our manufacturing footprint.
Pretty U S centric, especially for our higher margin products.
So not only do you have a lower selling price on a translation basis outside the U S. Because of the strong dollar.
Also have higher Cogs.
And so because we're U S dollar based manufacturing for a lot of those products. So you kind of get hit on both sides of the equation.
So you have an outsized impact on.
Gross profit and ultimately the EBITDA piece of the equation.
That's why the numbers don't.
Necessarily on the surface make as much sense almost that answers your question or not but.
But it has to do with the fact that.
We're more more U S centric on the manufacturing side.
And then lastly, you said your planned maintenance cost in the quarter was $12 million.
Is that a lot or a little what are your planned maintenance costs on an annual basis is this a year of larger planned maintenance costs are smaller planned maintenance costs.
From a plan perspective, it's pretty consistent year to year, what can what can differ what can vary as the timing.
So this year versus last year were heavier much heavier in Q1, especially in the specialty additives area.
When we were when we were prior year, but on an overall basis, it's pretty consistent the impact typically is around $40 million a year in total give or take.
Thank you so much.
The big the big variable with that one Jeff would be.
The line along.
BDO plant.
We do that one about every three years in that.
The ones that will bring some number up whenever we have to do it but otherwise it's very consistent from one year to the next and totaled.
Thank you.
Okay.
Thank you.
One moment for our next question.
Our next question will come from Michael Sison of Wells Fargo. Your line is open.
Hi, Good morning, just one question you talked about adding a lot of capacity this year, how much how much growth does that provide you over the next couple of years.
Sales growth in EBITDA and <unk>.
Depending how quickly that fills up when will you need to add more.
And so so we're adding capacity in our core segments. So hec, which is very tight globally and not just for us but for the industry. So that will come on.
Expanding in Hopewell.
And that will be significant capacity increase of course, we probably won't need new capacity there for several years.
We're expanding capacity and our burner cell lines and.
That's more targeting our mix towards pharma.
In nutrition, a lot of the plant based protein type applications.
<unk>, which is pharma driven.
And aqua flow on the coatings so.
We need the material.
Capacity the next tranche for.
Very biased by each of the product lines, but this will cover us for several years. So it's a significant number of important projects. There are other areas, where we're not investing where we believe we have plenty of capacity and as our mix changes and focus changes, we're going to be focusing on.
Strategic areas.
But our higher higher growth higher value higher differentiation areas.
It sounds if demand is there you'd be able to grow mid single digits type of growth.
Yes.
Like we said last year and this year.
Volume is not the growth driver, we don't have any more product to sell I mean.
Any hiccup in were short again.
Even with the softness.
As an example, the capacity.
Utilization for the industry will remain.
Pretty high so so I don't think the reset again.
A lot of what we're looking at is what's going on.
Core demand is that behaving per historic levels on resilience and things of that nature, we haven't seen any data that changes that even if we dig into our numbers.
The core businesses I've actually been resilient, we cannot make a statement based on what happened in Q1, we cannot say.
These segments are falling abnormally versus history. So really it's about this reset and I think this is why the next two months are very important and we really.
Having.
Few months, a month or month and a half of the China reopening is very important also the Europe post.
Winter to see how the energy situation and supply demand dynamics in Europe , I'll turn up those are big issues because they impact this reset.
<unk>.
That.
Is different if you look at historic Recessions, you went from a normal demand supply into a recessionary environment, we're not coming from our normal position, we're coming from a very tight supply demand where people were behaving in a certain way. So this reset probably is not something we've seen so it's not normal versus history, and thats where were getting the noise.
But as we put that behind we do believe its transitory.
We should see then the underlying performance of the markets and the capacity, we're adding should put us in a good position starting in 2024 to <unk> to really drive volume growth, which is.
Has to be our number one priority.
Okay. Thank you.
Thank you.
Thank you.
One moment for the next question.
And our next question will come from Laurence Alexander of Jefferies. Your line is open.
So good morning, so just to expand on that notion of the resets.
I guess first of all is it right that the volume in most of our business lines were down more than 10%.
In the quarter outside personal care and oral care.
And.
What do you think given that the inventory just given what you've seen with the European Asia inventory adjustment what is your.
Benchmark at least from your historical analysis for what this portfolio should do if there actually is a U S recession.
And then I guess just lastly, after 2024 when you have ample capacity what do you see as a reasonable range of Lumpiness.
Quarter to quarter, given the kind of swings we're seeing in inventory positions.
<unk>.
No.
Just to go we'll go through in.
And the order.
That you mentioned.
We still see.
Demand holding up if we look at underlying historic demand, we're not immune there as you know.
When you start a recession, you could get some slowdown but in general.
We are in personal care, we're not in home care.
<unk>.
In our markets those tend to be resilient and you could see.
Markets go down.
Single digits, two to stay up in the middle digit so that's really where we see a lot of the history, we're selling what we're tracking right now.
Absolute versus relative we want to make sure that in the absolute that were staying.
Flat to our longer term goal of 200 to 300 basis points over market, which would put you in the middle single digits and that youre going to vary and that level of range and relative we're looking at our peer group and many of you have.
But coming in.
You know the companies that we're training.
Trying to compare to which is are the additive ingredients company and they tend to be very resilient and I think we're seeing our performance pretty much in line with what many others in this area.
Again, if we both sell a different ingredient into the same product.
Should both feel the same relative performance relative to demand. So I would say pharma personal care, obviously, the more resilient architectural coatings, there is a little bit more reset its higher volumes.
At the beginning of the transition, but our history has been that that recovers very quickly because it's just it's much more of a consumer.
Driven type type portfolio and I think so far we're seeing that in and the recovery in January I think there is as I said in the numbers.
Pharma continues strong we're seeing demand underlying demand in personal care normalize and and then the specialty additives, where coatings is our biggest market. It is not.
Pardon me I'm afraid.
This is Noah has left.
<unk> the call for a second.
Mr. <unk> would you be able to take over.
Also when you honest.
Goldman Sachs.
No go ahead, Kevin why don't you finish up I think we lost Guillermo.
Yeah.
Yes so.
Just looking at the current situation.
The bigger the bigger volume issues.
Revenue issues for that matter were China and Europe .
China's.
In its own way compartmentalized, a lot of that we believe is COVID-19 related early in this quarter.
January certainly is less COVID-19, probably more Chinese new year.
As we finish out the quarter and Guillermo mentioned this earlier, we'll have better visibility about.
And about what we.
I believe is going to go.
The future trend in China, Guillermo you back I'm back I don't know what happened sorry about that.
Yeah.
Technology.
I was just mentioned in China and Europe .
Were really were.
The volume and revenue.
<unk>.
And again as <unk>.
You mentioned.
The distributor impact was was a huge chunk of that.
I think as we get through the quarter, we'll have better visibility about what that's going to look like going forward.
Yes.
Lawrence sorry about that.
Perfect.
Okay.
Thank you.
Thank you.
Yeah.
And this will conclude the Q&A session of the call I would now like to turn the conference back to Mr. <unk>.
Novo for closing remarks, okay, well. Thank you everyone for your participation and questions as hope Youre seeing I think the core things that the company is focused on and controlling around pricing around innovation about driving our core business.
The team is performing very strong.
I think as we look at this transition.
This reset part is creating some some challenges and we're working through them.
But I think still a lot of the fundamentals as we look forward, we feel confident that.
We have a strong portfolio in our portfolio itself I think is one of the big changes that we've had in the last few years that position us well.
Servicing very resilient and high quality markets.
Should provide us significant growth opportunities and a degree of stability not immunity, but stability relative to other areas. So we will continue to communicate openly and transparently. During this period of higher uncertainty and we look forward to.
Connecting with all of you in the coming weeks. So thank you for your time and.
Thank you everybody.
Okay.
This concludes today's conference call. Thank you all for participating you may now disconnect and have a pleasant day.
The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.
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