Q4 2022 Mativ Holdings Inc Earnings Call
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Thank you and good morning.
Director of Investor Relations.
Thank you for joining us to discuss our fourth quarter of 2022 earnings results.
Before we begin I would like to remind you that the comments included in today's conference call include forward looking statements.
Actual results may differ materially from the results suggested by these comments for a number of reasons, which are discussed in more detail and our securities and Exchange Commission filings, including our annual report on Form 10-K, and our quarterly reports on Form 10-Q.
Some financial measures discussed during this call are non-GAAP financial measures reconciliation of these measures to the closest got measures are included in the appendix of this presentation and the earnings release.
Unless otherwise stated financial and operational metric comparisons to the prior year period.
The earnings release is available on our website at <unk> Dot <unk> dot com as are the slides for today's presentation, you can download the slides and or click through the slides at your own pace during the call using the webcast interface.
To clarify some aspects of how Mad results were reported and how we will be discussing them with first remind everyone that the SWM and Nina merger closed on July 6th 2022.
The fourth quarter reported results reflect the combined company for the full period.
Reported results for the full year only reflect the combined results for the period after the merger while the first half of 2022 in all of 2021 reported results reflect only the legacy SWM results.
As a result year over year comparisons reflect the addition of the Nina operations and typically resulted in large reported year over year increases in sales and profits.
On today's call, though and in our earnings release, you will provide some comments referring to comparable performance to illustrate how're results compared to prior year periods on a like for like basis.
Figures are shown in tables in our earnings release in the appendix of this presentation as well as full reconciliations.
As previously disclosed mattered report results and two reporting segments advanced technical materials or ATM and fiber based solutions are FBS ATM is essentially comprised of the legacy Swm's advanced materials and structures segment and the <unk>.
<unk> technical product segment, while Sps is essentially comprised of legacy SWM engineered papers segment and the legacy Nina buying papers and packaging segment.
Please follow up with us for any further needed clarification as we want to make sure you understand our business trends financial results and reporting processes.
With that I'll turn the call over to Julie.
Thanks Mark.
Morning, everyone and thank you for joining today's call. We have a lot to cover today. In addition to our normal quarterly results and highlights.
View of the current operating environment and some commentary on what we see going forward. We will also share some additional color on our newly align strategic framework.
This work stream at the combination of months of rigorous assessment since the close of America.
We've worked with our board and our leadership team and recently shared this messaging and direction with our employees.
We are excited to now bring it to the investment community to help establish and build a straw mat of identity.
Let's start with Q for results.
Last call, we indicated fourth quarter EBITDA would be consistent with third quarter results of $93 million and that is where we landed.
The quarter that represents 30% growth compared to last year.
This also puts madder at $370 million of EBITDA in 2022 on a combined basis.
Additionally, we remained confident in the resilience of our portfolio near term cost synergies as a controllable profit catalyst and longer term value creation opportunities ahead for Madam.
I'd like to touch on a few key fourth quarter highlights.
This was another strong quarter of top line gang.
With constant currency organic growth of 6% driven by disciplined pricing actions.
Consistent with our strategy our growth platforms of release Sliders and protective solutions delivered the highest growth in the portfolio.
Second price versus cost has been a theme throughout 2022 as manufacturers battle raw material inflation and past prices downstream.
During the quarter pricing exceeded input cost increases by over $35 million on a comparable basis for the combined company.
I'm pleased with the teams pricing disciplined and agility as we implemented new approach to pricing throughout 2022.
And third we delivered as expected synergy execution exiting the year with a little over $20 million of executed synergies most of which will be realized and hit the P&L in 2023.
We are highly focused on synergy capture as our $65 million synergy plan is largely within our control and offers built and profit improvement regardless of external factors.
I want to commend our global operating teams and our transformation office later for parallel passing the high value set of opportunities while navigating a very dynamic macroenvironment.
Beyond cinergy delivery, we've made tremendous strides in all facets of integration from finance and accounting two HR, an IP two organizational design and operation.
We know integration can create a risk of disruption and executed at scale and I can confidently say are thoughtful planning and discipline has paid off with a relatively smooth process and our first six months together.
Beyond our amount of laws is a fairly choppy economy. There are mixed signals on the direction of inflation and indications of softening demand at least in the near term from customer Destocking.
Concerns of a recession, coupled with inventory drawdown from customers, who built excess inventories during supply chain uncertainties are impacting manufacturers and clouding near term visibility.
While we have confidence in there.
It is definitely a dining.
Time with several drivers influencing the global economic climate.
In some respects inflation seems to be cooling.
Seeing some moderation in both prices and forecast of key input like pulp resin and energy.
However, indications of continued interest rate increases continued away on sentiment.
We are also seeing reduced demand if customers take down inventory levels.
Coming out of a period of supply chain uncertainty and availability many customers built much higher than normal levels of safety stock in an effort to assure supply and a willingness to carry excess working capital.
At supply chain constraints ease and concerns about availability of lesson customers are aggressively working to reduce excess inventories.
Additionally, customers are also cautious about that.
Broader economy.
Forehead.
Focusing on internal elements, we can control.
Certain environment include.
Working capital reduction.
<unk>.
Nation.
Looking at other areas of demand trends and indications from customers.
A mixed bag there is some softness in transportation filtration.
Navy delaying aftermarket filter replacements.
Fox inflation driven spending pressures.
In addition, we are staying tough cops on some COVID-19 driven products like face mask.
Home Air filters is Covid concern E.
Water and industrial practice filtration fail performed better.
They expect more resilient and deep category.
Release liners delivered a very strong quarter at the man remained healthy with sales up over 20%.
Are diversified offering a relief.
Industrial and consumer market continues to be a leader in the portfolio and we expect it to remain resilient in the face of potential economic volatility.
Similarly, protect a solution sales were up over 20%.
We are also confident in the resilience of this business is it relies far more on global product penetration and consumer adoption that we believe will remain largely in caps and are challenged environment.
Also demand for engineered papers remained relatively predictable with a minimal impact some inventory destocking at the customer level.
We know there are various and markets and product categories across the enterprise.
Summarize destocking as a broad topic again.
Dot impact in the fourth quarter, which will likely peek in the first quarter before normalizing by midyear.
And with respect to demand, we systems softness mostly in very economically correlated product areas.
Resilience and several others.
We continue to believe that over 60 per cent of our portfolio should exhibit recession resilient.
One of my favorite topics synergies.
The longterm value, we can create with the merger we have solid plans in place.
Executing I'm $65 million of cost synergies, which I believe represents an insurance policy for profit growth in 2023.
Andy will elaborate shortly but I went ahead a few highlights.
First we are living up to our commitment to end 20 twenty-two with at least $20 million of executed synergies.
Do you recall this is one of our goals as well as executing half of the plan a year from close meeting over $30 million and run right by mid twenties twenty-three.
We remain on track for this as well.
Realized synergies that will hit our P&L in 20th twenty-three create a full year profit growth buffer against the impact at the first half destocking or potentials further economic turbulence.
And perhaps the most appealing aspect of these action.
They are within our control.
We aren't laser focused on finishing realization.
Tire company is heavily incented synergy delivery.
And our execution, thus far gives me confidence and successfully achieving our objectives.
With that I'll turn it over to Andy to review, the quarter's financial and comment on 2023.
Thanks Julie.
Earlier reported consolidated.
<unk> reflect the company for the fourth quarter.
Only for the legacy S. W. One in the prior year.
Making.
Reported growth.
A comparison meaningful.
Comments will try to focus on current trends.
Comparisons on a comparable or like for like basis.
And price versus input cost runs for the business of the whole.
In addition.
You reported results.
<unk> <unk> business.
July clothes and legacy there'll be one.
The first two quarters also limiting comparability.
We have provided extensive reconciliations and the earnings release to help with comparisons on a like for like basis for both the fourth quarter.
Four years.
My comments here, mostly on the corner.
Total of fourth quarter sales were $660 million.
Growth at 6% on a constant currency basis, and 2% with the impact of currency.
Six per cent growth was split between 9% growth in the a T M.
Three per cent growth and F B I.
With the best performance coming from release lineups and protective solutions is truly discuss.
Price increases versus last year drove all broke metrics.
Going forward, rather than detailing adjusted operating profit and EBITDA, We will center or comments on EBITA.
You'll see the relief we reconcile.
Operating profit to adjusted operating Crawford.
EBITDA.
<unk>.
Basis.
For Justin EBITDA on a comparable basis, we were up 30% to over $92 million in the fourth quarter with margin expansion of 310 basis points.
Driven by over $35 million, a favorable price versus cost.
These games were partially offered by the impact of software volumes.
Other inflationary pressures.
And distribution.
Overall.
<unk> performance was encouraging from a marketing standpoint.
Cos perspective.
We have made great strides, what's your recouping inflationary pressures.
Give some perspective on the magnitude of some of the input cost inflation.
But we saw in the fourth quarter.
Total pole and Barbara.
Approximately $10 million.
<unk> and plastics were up nearly another $10 million.
Energy increased nearly $15 million, but again more than offer visa increases with pricing options.
Looking at the segments in the fourth quarter.
<unk> <unk> a T M. Adjusted EBITDA was up 45%.
Margin expansion of 460 basis points.
Primarily driven by favorable verse.
First call.
Four F B S. Adjusted EBITDA was up 7%.
Margin expansion of 140 basis points.
Price cause was favorable here as well.
We also want to highlight early stage SG&A synergies contributed to margin expansion across both segments.
Moving to non operating items interest expense was approximately 27.
<unk>.
Approximately 75% of our total debt.
Fixed rates.
Other expense was five and a quarter and while we normally wouldn't comment on this line item.
Note that the rise maduro impacted our balance sheet exposures during the quarter.
Expenses are non-cash mark to market entry.
I'd have had been moderately favourable through most of 2022, but reverse in the fourth quarter.
Based on the board.
We don't expect material expensive like this repeat in 2023.
Bottom line adjusted EPS was 56 cents.
Oh.
Just a few metrics for the full year on a comparable basis.
Currency organic sales growth was 11%.
Even across both segments and for the year adjusted EBITDA.
$370 million offer up 11%.
Lastly.
Credit facility net leverage ended the year at 3.7 times.
With the expectations, we discussed on the last call.
Net leveraged benefited from the receivables securitization program, we initiated in December to lower our borrowing costs.
Recall that our credit agreement net leverage includes adjustment for plans synergies on top of our combined trailing 12 month EBITDA.
As we look into 2023, let's take a moment to recap where we stand on synergy delivery.
Trotline, the 25 million incremental 20, twenty-three cinergy realization we reference.
Is comprised of $15 million from actions taken by the end of 2022.
And another $10 million from expected continued synergy execution and twenty-three.
To help reconcile these figures from our 20 million exit run rate for 22.
5 million of those executed cinergy to hit the piano and the second half of 2022.
This leave an incremental $15 million below through 2023.
Actions already taken through this past December .
Majority of these synergies.
Reductions.
Next we said, we'd execute half of the 65 million and synergies within a year of closing.
And that will be a mix of continued SG&A optimization, coupled with supply chain and procurement synergies.
Taking into account the timing of birth top execution.
Second half projects, we expect 2023 absence to result in another 10 plus million dollars synergy flow through this year.
Bringing incremental realisation to the 25 million level in 2023.
Hopefully that gives some color synergy timing.
It is consistent with the expectations, we originally outlined.
Give some examples of early savings we have executed.
The elimination of duplicative executive positions and other public company cause.
We have insurance savings.
Fits consolidation elimination of redundant professional third party services that support HR legal.
As well as some procurement opt.
<unk>.
Our teams are working diligently to not only execute on the originally targeted synergies, but also identified new cost savings.
<unk> opportunities and keep building a pipeline of ideas for bedding and implementation.
With respect to input costs commodity brokers like polypropylene retreated throughout 2022.
Based on current industry forecast are expected to be fairly stable and twenty-three.
At these levels.
Costs should be favorable versus prior year throughout most of 23.
Prices appear to be coming off the mulch.
Hi.
The trend lower however, they are projected to be meaningfully lower versus prior year until the second half of 23.
Costs have also moderated, especially in Europe .
Russia, Ukraine conflict.
The actual volatility.
Lock and much of our energy needs for 2023 and are pleased that we did not lock in prices at peak levels.
Since backed off significantly, but we still expect higher energy spent and twenty-three compared to 22.
Factoring in all aspects of inflation, including chemicals, great and other materials.
Approximately $100 million cost increases however, we expect to more than cover those increases with pricing actions.
We want to be clear that we are optimistic that we can deliver solid profit growth on top of a combined 370 million and EBITDA that we generated in 2022.
Those incremental $25 million of synergies would put the 2000 twenty-three baseline nearly 400 million of EBITDA.
We consider this a reasonable baseline assumption.
As we have noted.
It is a challenge to provide a range around this level given the uncertainty around your Tom Destocking.
Broader macro demand outlook.
Just reference we would also expect more than awkward input cost inflation with price increases.
Considering all these factors and limited visibility, we don't Wanna be too aggressive or potentially too conservative at this moment.
After first quarter or mid year might be a better opportunity to clarify and EBITDA outlook for the full year. Once we have better line of sight.
From a quarterly perspective factoring in the peak impact of Destocking first quarter EBITDA is likely to be the lowest of the year and not indicative of the business run rate EBITDA, we would expect in the following quarters.
Furthermore, we did experience some isolated inefficiencies at a few plans during the fourth quarter, which will have a negative impact on first quarter results.
Inventory flow through the piano.
Lastly, there.
Or had been strikes in France related to the government's efforts to increase the retirement benefits age requirements, which resulted in some lost sales and inefficiencies thus far in the first quarter within our business.
Which will also contribute to assault quarter.
While we ordinarily would not comment on analyst estimates and these circumstances, we think it's fair to say that the whole year 2023 consensus EBITDA estimate of nearly $390 million appears reasonable.
To help with model building, we also offer a few high level estimates to help translate and adjusted EBITDA estimates into adjusted earnings and cash flow.
First pure depreciation is expected to be approximately $100 million based on our latest evaluations of <unk>, which was stuffed up as part of the merger accounting.
This figure exclusive purchase accounting amortization, we normally exclude from our adjusted financial metrics.
In addition.
Talk based compensation expense, which is another non cash item excluded from adjusted EBITDA.
<unk> to be approximately $15 million.
No problem EBITDA two adjusted operating profit you would deduct these.
These two non-cash items totalling $115 million.
Second based on current and forward rates of our debt structure interest expense should be just north of $100 million.
In addition, due to the accounting treatment of our new receivable securitization program.
Possibly $7 million of additional interest will actually be recorded and other expense.
Additional components from other income and expense are difficult to project, but are not currently expect it to be material based on board right to the euro.
Lastly, we would expect a tax rate in the low 20% range.
JV income and the 5 million dollar range.
Sure count of approximately 55 million shares.
With respect to cash flow, we would expect working capital to be more normalised in 2023, especially with unit sales growth and potentially deflating input costs.
<unk> you can assume approximately 90 plus million dollars now back to Julie to wrap up.
Thanks, Andy.
Wrap up I'd like to spend a few minutes highlighting some of the work we've done around our strategy and identity.
Since the merger closed we have dedicated significant resources to refining our enterprise strategy for all of our stakeholders.
<unk>, our employees customers suppliers and of course the investors.
The legacy SW Lamb, and Nina businesses shared many attribute.
But we stopped articulating the matter of identity was paramount for providing the direction and inspiration for who we are and what we aspire to be.
Star as we call. It includes our ambitions statement core advantages strategic pillars.
Values and growth platform.
We believe these things are generally self explanatory, but will briefly captured them. So you can best understand how we will manage the business going forward.
First ambitious statement it to be the global leader in specialty materials consistently driving growth by engineering bold innovative solution that solve our customers complex challenges.
It has long been the underlying inspiration for both legacy companies and I believe this captured what we aim for in the heart of our business model.
Providing premium solution that starve, our customers complex design and engineering challenges.
Madam has an expanded setup technologies and capabilities using a variety of materials to design solution across a diverse set of industry and premium applications.
The second element is our core.
Competitive advantages or how we win.
We consider these are extensive material science knowhow across diverse technologies.
[noise] to customer collaboration putting customers at the center of everything we do.
Robust global manufacturing and supply chain capabilities.
Ultimately leveraging these advantages in tandem well underscore our ability to achieve our ambition.
The third element.
<unk> pillars.
Lean into growth focused our efforts and drive value creation, which all tied together.
We have a diverse business, meaning prioritization is key.
Strategic imperative will guide our decision.
Will investment strategies for growth streamline and focus our efforts, where we feed the best opportunities and identify and execute projects and initiatives to increase madam value to all stakeholders.
Our values are how we will work together to achieve our goals.
Down all of the incredible values that are people in body and sign inspiration and it was no easy task, but.
But we boil them down to the five most important an overarching values that speak to who we are and who we aspire to be.
We arrived at prioritize safety be curious when with customers.
And make it happen.
These are simple straightforward and speak to our culture of a strong bias for action customer data center and rolling our sleeves up to work together to get things done.
Are people drive the success of the business and these cultural values are emblematic of our motivation and the passion, we bring to the business every day.
While I believe these elements of our Northstar are important for us to review. This one time with you and extremely important for alignment internally I believe the most meaningful part of our strategy for investment community is our approach to our portfolio and growth platform.
Insight on how and where we will buy sir investments for growth So let's shift to that part of the enterprise strategy.
As you know.
Dinner operations with two segments and seven categories.
Technical materials focus design filtration protective solution release minor healthcare and industrial loft.
Fiber based solution is divided into the engineering paper and packaging and specialty papers.
And I'll begin these comments by saying unequivocally that all of these categories are attractive and profitable.
They are complimentary in many ways.
Since they share common asset technology and materials science capabilities. However.
However, they have different financial profile market growth dynamics, and competitive landscape and required tailored management philosophies.
That said both segment in all categories are expected to profitably grow.
As you might imagine at different trajectory and through various actions.
Without rehashing, all the product applications and growth catalyst within each area at simply highlight that are more mature <unk> areas continue to generate strong cash flow and efficient return and each has the potential to leverage emerging trends such as increasing demand for sustainable eco friendly.
My solution.
On the left side of the pyramid or industrials, and healthcare, which we believe operate balance.
Revenue growth prospects and margin expansion opportunities from optimizing our mix and focusing on high value products and customer relationships.
There are some real pockets of strength in these areas and that is where we will focus their effort.
And lastly at the top of the pyramid, our our growth platform.
The areas, we see accelerated growth outlook and the <unk>.
Significant opportunities to differentiate and win in the marketplace.
These three areas filtration protect escalation and released liners operate with strong global Mega trends, such as consistently growing demand for cleaner air water and industrial processes.
An increasing global usage of high performance filmed and released minors across a variety of premium market like auto paint protection, especially adhesive material.
Going forward all growth opportunities across maddock will be evaluated rigorously.
Initiatives like capacity expansion, new product investment and potential bolt on acquisition will likely be weighted towards these growth platform as we sharpen our focus on the most attractive profitable growth opportunities and value creation catalyst.
While in the past both companies strategies were focused on investing in Adjacencies combined as Matt and we are pleased with the growth potential of the market in which we currently compete.
We will shift our strategies that we're focused on using M&A to diversify into new markets to business unit, let strategies that can accelerate organic growth and our current categories.
Bottom line, we see GDP plus longterm growth in total sales given our portfolios wading toward growing and market.
We can amplify are resolved by aggressively investing in our three growth platforms.
I hope this message has helped clarify a strategic approach and priority and how you can expect us to manage a matter of going forward.
We enter 2023 at first full year together at the combined company with complete strategic alignment a cornerstone of successful longterm execution.
So to recap the key points before taking questions.
A few takeaways.
First we hit the EBITDA with Debbie wouldn't Q4, and we executed on the synergy plan exiting 20 twenty-two as we said we would.
Second we believe adding the $25 million of incremental cinergy realisation, two or $370 million of combined EBITDA in 2022 gives a reasonable baseline for 2023 with a range of outcomes, depending on how macro factors and first half distracting.
<unk> total demand for the year.
And to reiterate although we see a challenging first quarter, we see profit growth in 2023.
Third while macro factors may influence our results are.
Synergy plan is within our control and we are confident in delivering this savings and a world full of uncertainty. We are encouraged to have such a substantial and achievable catalyst to drive profitability.
And fourth we are excited about what the future holds and clarifying or ambition strategic pillar value and growth platform has further unified and align the company from top to bottom as we head into the new year.
The road ahead is rich with opportunities to lean into growth sharpen, our focus and drive value creation.
That concludes our prepared remarks, please open the client questions.
He will announce don't today's Q and a session.
Like to ask a question <unk> followed by one on your telephone keypad now if you change your mind. Please <unk> celebrated.
First question today comes from John John .
C J.
Your teeth new line.
<unk>.
Hi, Good morning, Thank you for taking my question.
My first one is and thank you for all the detail information to you guys.
Very helpful. But the first one is it sounds like you're expecting a sequential decline during the first quarter.
I was wondering if you could give us a little more detail on the expected magnitude.
Revenue March perspective, and if you could provide any more color on just switch.
Got to be a segment is going to be.
Especially just given your underlying send your pricing efforts there.
Yeah, I would I'll start Jonathan Andy add anything and then I might Miss and also I should probably recognize I understand there's a little bit of audio glitch in the call. So if there's any extra questions are happy to take those.
As far as sequential improvement we are expecting from a revenue standpoint slight sequential improvement versus Q4, I mean, we mentioned were feeling destocking impact.
Impact, particularly in paper and industrials and maybe some of our construction area.
There will be the impact of the strike in France and are those are on assets that are sold out.
Bottom line standpoint, the combination of the strike in France, Destocking and some normalization of that through Q too.
Some softening in Europe , we are expecting a soft Q1 softer than we would expect for our long term normalization and if I would think about that versus maybe last year Q1, it'd probably in that 10% range.
Yeah I would agree.
<unk>.
Okay, great. Thank you that's that's very helpful.
You mentioned improving their pricing for nurses inflation forecast of this year.
Questions around there how much did you recover Q for dessert target recovery of 23.
Yes in Q4, we recovered $35 million over recovered and for the full year, we over recovered about $75 million, we need a double recover and we do have a target.
For this year is while we're expecting some moderation in input costs, but we're expecting to over recover again in 2023.
And then my comments I mentioned that we would expect.
Look at some of the different buckets about the order of magnitude of input costs year over year, where you sort of think about.
NRG some of the pulp, particularly.
And the front half that's going to be an order of magnitude remodel $100 million. So.
We know the order of magnitude that we have to do in terms of to go get the price.
Okay and is there is there an over recovery target.
What I would say is when we think about the margin profile Europe or.
For 22, you know, we would expect of a modest margin.
Movement as we go into twenty-three from it no that will be a combination of both synergies and then additional sort of pricing actions. If you will so that's probably the best sort of color I can give you yeah I would think about a minimal very minimal over recovery John I mean, we got a lot of the over recovery. This year as they start to moderate we're expecting to hold on to pry.
Missing and continue with some of the discipline with we put in place and then deliver on the synergies, but moderate or minimal over recovery on pricing and same thing from a margin standpoint.
John .
We sort of closed out Q4.
We really followed that recovery that we sort of think of Ah.
T M margin.
Just about 15% the FBS margins, where about 20% so.
That was sort of representative of some of the pricing options that were needed and we knew that the fourth quarter B the bus sort of year over year, and we're happy with deliberate.
Great. Thanks, that's that's helpful. I also appreciate the color on the depreciation dot com.
To the amortization in person County.
<unk>.
It's about 50 $560 million.
Okay, Great and then finally, Julie can you give us an update longer term just done.
Senators beyond the identified costs once you've talked about I'm gonna have to serve a quarter, but.
Sure within the religion.
Yeah, one of them one of my favorite topics. So as I mentioned, we ended 2020 Toyota run rate of $20 million that was expectation most of that you know most of the early synergies are SG&A and or design. Some early procurement will execute another $10 million to $15 million by midyear.
That will flow through at least 10 million through the P&L. This year said those are primarily are short term synergies, which are heavy procurement. This year. They were heavy SG&A to begin with another heavy procurement and supply chain longer term I'd say, there's a lot of opportunities that would be centered around in sourcing of capabilities materials that we buy on the outside today that.
Likely have the technical capabilities to internalize as well as footprint optimization <unk>.
Consolidation potentially how we operate our assets to serve our customers to maximize profitability and reduce costs. There's innovations synergies from our share technologies and then there's revenue synergies and those are they take longer to materialise with those are in the process right now, particularly the revenue synergies, where we're working with some key customers.
That one of the former companies may have had a relationship in the past, but the other one didn't or that where are we now have extended technologies with those existing customer so.
A lot of opportunities from a short term and long term standpoint, what I love about synergies, particularly in this uncertain environment is that they are really within our control and we have clear line of sight to delivery really rigorous tracking of transformation office that is leading the effort. So I kind of consider synergies as an insurance policy.
That we can continue to deliver even during this tough economic environment.
Thank you I'll take our next question is from <unk> from today's date.
<unk>.
Yes, hi, good morning thinking of questions and again I really appreciate the detail.
<unk> first one just on the price increases in inflationary environment, you've had great success dispatch here in terms of.
The high cost and I know you mentioned, you're still considering additional price and actions or surcharges.
In in the face of potential slowing demand softness.
How confident are you to to.
Be able to compete.
Continue to.
Recoup a lot of the.
<unk> cause you're facing.
Yeah, I think a couple of things they were feeling softness, but I will tell you were feeling it primarily as destocking right now and we still have some some strong <unk>.
Demand elements within our portfolio and I think about consumer products, and released ladder and protective solutions and.
Engineered paper at this very stable demand water and air process filtration is very stable demand. So we're we're feeling softness.
About a third of our business more heavily in Europe Mustoe in North America. So I do think we have continued opportunities from a pricing and mix standpoint, and other than synergies pricing is the number one topic in this building and it's important that we continue to flex our agility understand how we <unk>.
Contract terms, which the team has done a great job of increasing items that we flex modifiers, increasing transparency with customers in our discipline in our tracking of pricing. So while we will feel some softness. We also know we have some very sticky pricing catalyst as well, particularly in packaging and specialty paper protective.
Solution.
Anywhere where there's a great technical solution that provides a barrier we tend to have very sticky pricing and so over time, we've demonstrated our ability to hold on to pricing I would expect nothing to be difference in this environment as well.
Okay. Thank so that's very helpful. I'm, just an synergies you highlight to the $25 million.
You expect to get this Ciara soup, that's really just wanted to call side and this curious under revenue synergy site. If you are seeing any traction year from cross selling or new geographies et cetera.
Yeah, the $25 million is on the cost side on the revenue side I'd say, there are longer term and a little bit more a little bit more.
And process now, but they'll take us a little bit longer to recognize and that's really from primarily cross selling opportunities and technology.
Complementary technology opportunities, where we can provide different kinds of solutions than we could previously a stand alone company, but they'll take a little longer because much of our portfolio requires customer qualification, so designing products with our customers and that qualify and will take us a little bit of time, but it's a really exciting opportunity for and won the team is extremely focused on.
Maybe just one other thing I would add to that point is when we talked about the $65 million in synergies revenue synergies were not part of that so this would be something that would offer above and beyond that so we're really just focused on.
Getting to that first 65, and then commenting on additional to introduce beyond that after we get that threshold.
Okay. Thanks for clearing that up and then on M&A. Julia you mentioned is obviously something you'll be looking at and again in this environment I'm not sure. If you can maybe touch on potential opportunities, you're sending out theater valuation discretion into higher interest rate environment and is there a consideration I think you mentioned about 60.
Percentage of the portfolio.
Economically resilient would there be.
Part of the strategy in terms of M&A too high.
Higher.
Yeah, I have over time, I mean, clearly right now our number one priority for use of cash or is it going to continue to be delevering and we demonstrated that in Q4 will continue to focus on that in 2023 as well.
We talked about our strategy I would tell you in the past both company strategy was heavily dependent on M&A and on diversifying into new categories. The categories in which we compete today are really strong and we have a strong portfolio over 75% of our portfolio has GDP plus underlying market growth. So that's a great spot to be in.
As we think about M&A in the future it will be more aligned.
Those categories, where we compete today and really biased towards those three growth platforms that I've mentioned, so that's released miners protective solution.
And filtration over time as we accelerate growth in those areas. Those are some of our most economic resilient areas are resilient team will continue to grow as well. So that's how we will get there both organic growth by biasing, our investments towards those high growth accelerators as well as in the future bolt on type of.
Acquisitions in those high growth accelerators.
Mmk, Thanks, I just finally.
Obviously do you mentioned the first quarter is going to be very challenging and you expect the cadenced improved willing for just on a SEC.
Second half will sort of gives you the.
The heightened confidence that it'll be much better than.
What you're going to see in the first half.
Yeah, I'll take I'll take the first one to withdraw the add ons. So when we talk to the business leaders.
I think universally.
Everyone's saying that the.
Band is going to be pretty strong I think when we talk we talked about some of the bulk of Q1. It really is a destocking sort of inventory destocking. So I really do sort of isolated to that.
And then when I think about all for Q1 there.
One off sort of inefficiencies that we had.
Into the into the start of the year and then also.
He likes the robbing of France, which we don't expect that to continue but I think the comments about destocking.
Probably something that you've heard from others talk about it it's something that we've seen leaving sauce.
Coming a little bit into Nova.
Remember when we spoke we thought coming into in the queue for as well.
But you know we feel really confident when we look at the end markets terms of protective solutions filtration released whiners.
All those businesses, we feel really confident in terms of what the what that growth outlook is I think the second thing I would say look about the input environment. When we get to the second half of the year of input environment should be much more favorable.
Then when we were on the phone have thrown upon up solar energy will be up year over year materials like pulp should be going about your book.
M B F K and that should be more favorable as we look into it to the back half of the year. So before we think about the entire complex we see.
Good second half sort of setting off work you could have good demand with a favorable input environment.
Yeah, I think Andy head off like the key elements. The only one I would add is the addition of potential percentages to continue to ramp and so when you think about procurement contracts they'll wrap down over the year supply chain efficiencies and capabilities will ramp then over the years and will continue to build dot out throughout the year as well and have a higher run right at the end of the year.
Then we start to deal with.
Okay noted scraped again.
Look forward to the rest of the year and congratulations getting a mortgage a darn it looks like you set up nicely.
12, 24 months so.
Thanks, again, a particular questions.
<unk>.
We now have a follow up question from John timeline 10-C, J S Securities. Your line is Nathan.
Alright, Thanks for the follow up I was just wondering what your expectations capital in cash or through the year.
Assuming their pocket, obviously Q wanted it's casual covers with the second half.
Also is there any particular lumping. The contrast restructuring costs over integration in capital spending just add how do you see that we use a cast of the year.
Sure.
When we think about I would say.
Just free cash flow you'd want to talk about the elements in terms of.
Really the walk when I talked about the depreciation be interesting there can be some of the assumptions Ron tax and Gv's et cetera.
That really would blunder itself around a free cash flow of about $150 million.
And so when I when I think about.
One time sort of continued restructuring charges coming through.
Nothing like it wasn't.
The back half of the year so.
So.
It's not going to be meaningful, although I would say an order of magnitude between 10 or $15 million.
As we sit here today on a working capital.
Oh, let's see because of the receivables facility.
That we put in we put in place I don't think receivable would actually be that big of a drag this year and I would think about inventories of potentially being.
I had one in the front half of the year, but then it's Amanda assortment of tailwind in the bathtub because of the dynamics, we talked about in terms of thinking about the input cost.
Going down year over year.
And then capex.
I mentioned in my comments.
About $90 million for the year.
And then just given the higher for longer.
The people expecting from the sudden interest rates.
How much more is it important to pay down debt using excess cash flow versus.
A little sore at this point.
Well.
That's what we're focused on.
Expect to continue to pay down debt.
And twenty-three afterward.
Normal cash for your 22.
And that is a focus so net leverage ended up three seven for this year, we would expect to be between three and three five.
As we close out the year and we're really high.
Confident about.
Okay got it thank you.
Thanks, John .
And is that a question that has turned island now <unk> closing remarks.
Yes. Thank you for your interest today, we appreciate your time and questions and look forward to talking to you soon.
Good afternoon.
That concludes today's <unk> 2022, Julie May now disconnect your lines.
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