Q1 2023 Ecolab Inc Earnings Call

Speaker 1: as we help them reduce the overall operating costs, usage of natural resources, and their environmental impact.

Speaker 1: Delivered product costs continued to increase versus last year, but the rate of inflation began to ease.

Speaker 1: This, along with strong pricing execution, allowed us to drive modest cross-margin expansion a bit earlier than expected. That being said, our margin recovery journey has only just begun. Despite our expectation that inflation remains stubbornly high, we remain fully committed to recovering our margin over time.

Speaker 1: done the right way, one that builds further customer loyalty as we continue to deliver more value.

Speaker 1: The repositioning of our institutional business, which is a big priority for us, is progressing well, as demonstrated by strong sales growth and margin leverage within that segment.

Speaker 1: Let's hear life sciences organic sales growth strengthened while operating income remain under pressure, near term at least, as we continue to invest in growth and transformation.

Speaker 1: There are two very different businesses and stories within that segment. In healthcare, we continue to take actions to improve profitability, whereas in life sciences, we're making further investments as we add capacity and capabilities in pure light to capitalize on very attractive and profitable long-term growth opportunities.

Speaker 1: While we continued investing in our long-term capabilities and in digital technology, we also continued to make solid progress in SG&E productivity. The combination of improved gross margins and better operational productivity led to strong organic operating income growth of 19%, up from 10% in the fourth quarter last year.

Speaker 1: Our adjusted earnings per share growth improved to 7%, which includes a 13% headwind from FX Fate raised.

Speaker 1: In summary, we started the year exactly the way we wanted, with strong top and bottom line momentum despite a challenging environment.

Speaker 1: Looking ahead, we anticipate inflation to remain high for the foreseeable future, interest rates to have a strong impact on global demand and continue geopolitical tensions.

Speaker 1: Although none of this is new, the good news is that we are very well positioned to win in this environment.

Speaker 1: Over the last few years, our expertise grew as we focused on supporting our team and developing innovative solutions.

Speaker 1: Our customer retention rates remained high as we protected them from supply shortages. Our margins started to recover and our organic operating income accelerated as we drove pricing in thoughtful ways while increasing customer value.

Speaker 1: And now, as micro trends are softening, we will continue to accelerate our shift to offense by accelerating new business, by executing extremely well, and by driving productivity improvements and continuing to invest in our major growth engines to drive profitable growth. This will ensure we deliver stronger sequential learning performance.

Speaker 1: exactly as we've indicated during our previous calls.

Speaker 1: With this, we expect adjusted earnings growth in the second quarter to be in the plus 5 to plus 14% range and to end the year, as expected, with adjusted earnings growth in the fourth quarter that reaches low double digits.

Speaker 1: And finally, we will remain good stewards of capital by continuing to invest in the business, increasing our dividends, reducing our leverage, and returning cash to shareholders, as we've always done. And most importantly, with the best team, science, and capabilities in the industry, we were prepared to grow our share.

Speaker 1: of this high quality 152 billion growth market. I believe our future has never looked brighter. I look forward to your questions.

Speaker 1: Thanks, Christoph. That concludes our formal remarks. Operator, would you please begin the question and answer period?

Speaker 2: Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to only one question per caller so that others will have a chance to participate. If you have additional questions, please rejoin the Q&A queue.

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Speaker 2: One moment please while we poll for questions.

Speaker 2: Our first question comes from Tim Mulrooney with William Blair. Please proceed with your question.

Speaker 1: Good afternoon, Kristof. Hi, Kim. Good afternoon, everyone. I'm Chris

Speaker 3: Alright, so for my one question, I think I'll have to go with gross margin. You know, it looks like the adjusted gross margin expanded 20.

Speaker 3: basis points year over year in the first quarter. Now we weren't expecting to see that expansion year over year until the second or third quarter, so that was great to see that taking into account what you're expecting for pricing in raw materials.

Speaker 3: I'm curious what you're thinking for the cadence of gross margin expansion as we move through the remainder of this year. Thank you.

Speaker 1: Thank you, Tim.

Speaker 1: I'm very pleased with the progress that we've made and we know that's an outcome of what the team has done the past two years. It's been a long journey. We wanted to reach the point where we could turn the corner and then rebuild and expand on our gross margins and operating income margins as well.

Speaker 1: Quite pleased, as you said, with what we've delivered in Q1. Operating income went up 90%, as said just before, which led to a 50 basis points improvement as well of DOI margin, which is the first trigger for me. And the second is this cross margin of 20 basis points.

Speaker 1: It came a bit earlier than we had expected. We thought it would happen during the second half of the year because ultimately pricing got stronger than what we thought initially, which is good news. Volume was better than feared, especially because of what happened in Europe , but did not happen because of the higher temperature.

Speaker 1: good, why operating income margin turning good as well. But we're just at the beginning of that journey because our mission is really start to get back to our high watermark, as we call it, and then to keep expanding from there. So we keep improving quarter after quarter, as we've promised and committed as well. But that will also depend. You cannot get human rights Compact?

Speaker 1: But it's still going up and I don't see it turn negative anytime soon. So for 2023, I think we will be facing continuous DPC inflation. So with that, well, we will keep working on pricing. We will keep working on volume. We will keep working on productivity in order to...

Speaker 2: Ashish Sabhadra with RBC Capital Markets. Please proceed with your question.

Speaker 4: Thanks for taking my question. I wanted to focus on the SG&A leverage that we saw in the quarter, pretty strong leverage there. I was wondering if you could talk about the productivity initiatives and the cost takeout initiatives, but also how the digital innovations are driving better SG&A leverage. Thanks.

Speaker 1: Thank you, Osis. I like a lot the progress we've made on SG&A. We've made great progress last year in 2022. As you know, we improved our 200 basis points in the past year. We will continue on a very good trend in the quarters and years to come.

Speaker 1: as we automate much of the transactional work that we're doing either in the field with our sales and service people, so they can focus really on creating value for our customers, which is where our investments are best focused on, obviously, and as well in the whole backbone infrastructure, as we call it.

Speaker 1: This is the implementation of SAP. We're north of 80% of the company on SAP as well now, and we're trying to leverage all that critical mass in shared services. So it's helping on the GNA side while we improve on the selling side as well. So it's not gonna be every quarter of usually the same improvement.

Speaker 1: but the trends long term are going to remain the same. And I think that we are probably midway on that journey. So for the years to come, we will still have some upside coming up out of productivity.

Speaker 2: Our next question comes from the line of Seth Weber with Wells Fargo. Please proceed with your questions.

Speaker 5: Hey, good morning. I wanted to ask about the pricing commentary you made, Christophe. I think I heard you say the 13% in the first quarter was probably peak. Can you just talk to

Speaker 5: how you're handling the energy surcharge, whether that's starting to roll off or whether you're trying to merge that into more structural pricing going forward, just how we should think about the mix of pricing coming off of this 13 percent number. Thanks.

Speaker 1: We'd love to, Seth. Thank you. So, pricing. The team has done a remarkable job over the last 18 months making really sure that the pricing we were delivering was really so backed by value that we're creating for customers as well because we will never go down in pricing. It's been true for the last 20 years that's not going to change.

Speaker 1: so in 22. As mentioned, half of it will be carried over in 23, which is unchanged. The 13% that we have in Q1, you're right, you understood well, so it's going to be the peak for 23.

Speaker 1: We will keep having strong pricing in the quarters to come, but the rate of increase will ease as we lap, obviously, so year over year. Now to your point on the energy surcharge, we've been working with our customers over the past 12 months to merge as much as we could of the surcharge into structural pricing.

Speaker 2: Our next question comes from the line of John Roberts with Credit Suisse. Please proceed with your question.

Speaker 1: Do you need to shrink the sales of the European healthcare business in order to turn around earnings? John , it depends on how you mean it's turning earnings for the overall company now, but for purely healthcare in Europe .

Speaker 1: This is not my first priority, obviously, but this is an important priority for me. So when I think about healthcare, I've committed that in 23, we will see a turn. It's going to take some time to get to the right place. But the first action that we've done, are doing and will be doing is to right size the cost structure. We've announced it with our restructuring.

Speaker 1: which is the most institutional like business, the infection prevention, it's a bit of a dish machine obviously because it's instrument and endoscope reprocessing as well we know how to run that business we know how to make money with that business it's not where we focused in the past but that's where we're going to focus as well in the future

Speaker 1: 5% of the overall company. So it's not going to move the needle, obviously, for the earnings of the overall company. But I'm committed to make it work.

Speaker 6: Thank you. Our next question comes from the line of Josh Spector with UBS. Please proceed with your question. Yeah, hi. Thanks for taking my question. I'm just curious on your thoughts on a volume as you walk through a number of puts and takes I guess with Europe being an easier comp, same thing with Asia.

Speaker 6: North America may be a bit more challenging. So do you see this kind of minus 1% persisting into next quarter? Do you have a different view on the second half, given where comps are? Just curious on your thoughts around that. Thanks.

Speaker 1: Yes, thank you, Josh. So on volume, as mentioned, we've been slightly negative. It was kind of the same trends as what we saw in the fourth quarter. So honestly, better than feared, if I may say, because Europe was less bad than we saw in the first quarter.

Speaker 1: news. If I look at overall volume for the company, if you exclude Europe , as mentioned just before, so we slightly positive, which is a good news as well. And the third point, which is most important, is the shift to offense that we've initiated a few months back.

Speaker 1: while we wanted to really make sure that pricing was done the right way in order to enter 23. Very well positioned to improve our margins. Well, that was taking a lot of time for our sales team that they were not focusing on generating even more new business.

Speaker 1: That being said, new business in 22 was stronger than in 21. So it's not that it was not good, it was good actually, but I'd like to have much more. Now we've made that shift. It's what our teams like to do. It's where we are best at ultimately. So I like a lot when I see the new business that's been generated. We had the record eye in Q.

Speaker 1: with new business, with innovation, investing, so behind our growth engines as well. So it's going to improve quarter after quarter. And I think that that's the journey that we are on. And you will see that in the quarters to come, especially in the second half of the year.

Speaker 2: Our next question comes from the line of Mike Harrington with Seaport Research Partners. Please proceed with your question.

Speaker 3: Hi, good morning. Sorry, good afternoon, I guess. Christophe, I know you're reluctant to put numbers around the full year outlook. The wording compared to three months ago is pretty much unchanged. But can you talk about how confident you are?

Speaker 3: in that outlook today versus three months ago? What are some components that have changed for the better? And maybe what are some areas that you're more concerned about? Thank you.

Speaker 1: Hey, thank you Mike and good afternoon. You're right. My wording hasn't changed, but my level of confidence has risen in the meantime, which is a net positive. We're off to a good start in 23, but let's face it, it's the first quarter of the year, three more to come and a lot can happen.

Speaker 1: still, obviously. What we can control, I like what we're doing. Fundamentals are strong. That's new business, that's pricing, that's innovation, that's productivity, that's investments and so on. All the things that are all in our hands, obviously. And I think that the team is executing very, very well. So we keep improving quarter after quarter.

Speaker 1: as we've done in the past few quarters, we will be doing in the quarters to come. But you know the honest truth is I'd like to see what happens in QT.

Speaker 1: to in the world, not in what we can control in terms of inflation, in terms of interest rates, in terms of war in Europe , in terms of debt ceiling, you name it, the list is pretty long, obviously here, and I want to understand what happens on the delivered product cost inflation because of all those elements.

Speaker 1: You're right, unchanged wording, unchanged outlook, higher level of confidence to deliver as I've committed to as well here, but we will know much more after the second quarter and I will share with you what I'm seeing and if things are getting better, I'll share that with you as well, but we're gonna have a good year. Our next question comes from the line.

Speaker 7: The main question I had was just any update you have on a lot of the data initiatives you talked about a while back where that was today.

Speaker 1: Help me understand, Manav. I really want to understand. When you say data initiative, what is it exactly that you'd like to know? Just broadly, all the data collection that you've done and all your on-sites, I think you hired a chief technology officer and the productivity, etc., whatever the outcomes there were. Okay, got it. Thank you. That's helpful. Two questions here. basSupers

Speaker 1: we had in the past few quarters and even compared to Q4 as well. So the fact that new business is accelerating year on year is a good news, obviously, for the new business generation. Then once we have sold that new business, we need to install it, as you know, so we don't sell for the most part.

Speaker 1: New business pipeline Major refocus of our team on your business if you want to think about it So in the past two years our team was 80% focused on pricing and 20% on your business now It's the other way around it's 80% on your business and 20% on finishing the price and keeping pricing for the future as well so that's

Speaker 1: We're still focusing on three major pillars that hasn't changed. The first one is really so to generate value for our customers The the way we've done it in the past with 3d tracer is going really well Ecolab 3d which is the Ecolab cloud one of the largest in the industry

Speaker 1: the site that's having the best performance and how to lead to that performance and then expand it across that customer. We can do it within industry, across the industries, and that's we're really focusing on with our team. And just for perspective, we have over a thousand people in digital today, so we have quite a bit of firepower for that.

Speaker 1: that we can automate all the transactional work. We early on that journey, but it's progressing well. You can see it in the numbers. And the last component is really the customer experience, really making sure that they can have a real time, data driven type of experience, e-commerce.

Speaker 1: is something that has expanded very well over the last 12 to 18 months. But it's also what we call digital industrial bulk has been an interesting project as well, where ultimately saw all our distribution to industrial customers is connected to the cloud and can be.

Speaker 1: So, sorry for the long answer on that, but good progress on the digital front as well, and we're still on our journey here.

Speaker 2: Our next question comes from the line of Chris Parkinson with Mizzouho. Please proceed with your question.

Speaker 8: Great, thank you so much. Just in your supplemental, when you break down the water business, it's pretty clear that you're still enthusiastic about pricing gains as well as new business wins. But Chris, just given what you understand, you don't have a crystal ball, but just given what you're seeing right here right now, what you're hearing from the customers of those various substrates, can you just comment on what your expectations are for the evolution of those?

Speaker 1: is doing really well and has been doing really well in the first quarter as well. It's our largest single business. As you know, it's been growing 14%. Volume has been nicely positive as well. Very nice new business in that field because customers

Speaker 1: need always more what we're offering, which is basically helping them produce better products, more products, while reducing their water usage. And why do they do that? It's not only to reduce the impact on the environment, but when they reduce the water usage, they reduce the energy usage, reduce their carbon footprint, reduce their cost as well, and that's why they invest even more.

Speaker 1: industrial as a whole. The OI margin was up 80 basis points, cross margin was even better than that, so very nice margin improvement, good sales momentum and within that sales momentum, like just to mention a few interesting highlights, our global high-tech business went up.

Speaker 1: 36%, power was 20%, mining was 40% plus. So a lot of very good things happening in water. I love what the team is doing in that field.

Speaker 2: Our next question comes from the line of Jeff Zukoska with JP Morgan. Please proceed with your question.

Speaker 9: Thanks very much. I have a two-part question. I understand that you'll be annualizing the price increases of 2022, but in the course of 2023, do you expect to raise prices? Normally Ecolab's prices go up 1 to 2% a year.

Speaker 9: But my general sense is you think it should be greater than that, maybe 3%. Is that what you planned for this year?

And second, secondly.

SG&A costs went up 8% in the quarter.

Isn't that too high? I understand that the overall SG&A margin was a little bit better. But given the restructuring efforts that you're making, shouldn't SG&A be growing at a more moderate rate? Is that your target or no?

Thank you, Geoff. So let me take pricing and then I'll give the floor to Scott who needs to work a little bit here as well during that call on SG&A. On pricing, you're right. We've always increased prices over our history 20 plus years. It's not going to change in 23 in the years to come.

So there will be a combination of a few things that are going to happen. As mentioned before, 10% was the pricing we had last year. Half of that will be carry over, that math, since we're not going to give it back in 2023. And we will build on that some incremental pricing. So you do the math.

Depending on where inflation is going to be in 24, I don't know how it's going to be, but it's going to be north of 2%. I'm almost sure about that. Jeff, I think that our incremental pricing will be higher than what we had in the past before this inflationary cycle. So if you combine both the carryover and the new pricing, you can see more.

and backed by value with our customers and we're going to continue to do that in the future. It's going to be good for customers, it's going to be good for us and it's going to be good for shareholders, especially as inflation will be easing since our margins will improve as well at the same time. So that's the general picture on pricing. Now for SG&A. So Scott, you might......

comparing against a very strong quarter last year where the SG&E ratio improved by 200 basis points. So, and also, if you know, seasonally, just from a ratio perspective, it's our lowest quarter in sales, so obviously that's gonna drive less SG&A leverage, as well as just timing of investments and spending. So we feel very good about where SG&A is. The programs we're doing expect to continue to drive that SG&A leverage through those productivity.

Thank you. Christophe, in institutional we are seeing some better trends amongst your customers. Are you yet seeing those trends in your volumes? And actually in Q1, were your volumes down in institutional? Thank you. So David, I like the progress we're making in institutional. We've seen the numbers.

behavior has changed quite a bit. If I take the example of restaurants, which unfortunately are the same numbers as the ones that I've mentioned, so during the past few calls, the dining in traffic, which means people going in the restaurant and sitting at the table.

is down 30% versus 2019. And we were all hoping that that would improve quarter after quarter. Well, the only truth is that it's not. And people, so I have gotten used to order online, to do some pickup or being delivered as well the food and that's.

Amazingly sticky, interestingly enough. So it's been good for our customers and I'm really pleased for them because at the end of the day, well, they're selling the same or more at a lower service cost because they have less people staying in the dining room. Very good deal for restaurant operators and I think this is a very good thing for them.

as well. We had to change, obviously. So for us, when I think about it, so versus 2019, so if you take in restaurants, these minus 30% of food traffic in their dining room, well, our sales in comparison in North America are up 12%. In a

in 2023, so the first quarter. So we've gained market share, our teams has managed to really sort of drive share, drive pricing, drive innovation to make sure that we could get ahead of the curve, but the baseline has changed quite a bit.

A bit similar in hotels as well because we're all experiencing that. Our room prices are higher. Good things are for the industry, obviously, but the services provided have gone down. This is helping the margins. This means less natural demand for what we're doing. And our teams...

is and will be offering more services in order to drive penetration of all we do for the lodging customers we have around the world in order to make sure that we keep growing in an industry that has changed a bit what they're offering for their guests and for perspective that the rooms sold are versus 2019

in North America up 8% and our housekeeping business is up 18% for instance as well. So showing as well that we gaining share. But a lot needs to be done in an industry that has changed because guests demand has changed as well. I like what the team is doing.

So offering Ecolab Science certified, which means offering the whole Ecolab offering to customers in order to make sure that their guests are safe and satisfied in a way that's reducing costs as well. We need to reduce our own costs as well at the same time, which is why we've announced this restructuring program in institutional that is done for the most part as well and is going to pay off in the quarters to come.

question. Yeah thanks for taking my question and my question is on the global health care and life sciences businesses. You know the margins in the third quarter were in the single digits they spiked back up to mid teens and then again this quarter they're back down into the single digits.

Can you help us to understand what's driving the big volatility that we've seen there over the past few quarters in what I would assume is normally a pretty stable business? And then I guess to one of the points you brought up earlier, you indicated that you're looking to strengthen the core of the specific healthcare side of healthcare and life sciences.

I guess, can you can you flush that out a little bit? Does that include potentially M&A? Or is it really just internal self-help? I guess, how should we think about that? Good question, John . So Healthcare Life Science, it's one group, but it's two very different businesses, as we both know.

One is doing really well, equal life science, and the other one, not so much. And I've been very outspoken about my view on the performance of this business and my commitment to improve it. So when you talk about volatility of earnings in healthcare, while we're talking about the small base, unfortunately…

is doing quite well. So I want to make sure that healthcare gets to a better place by driving the three things I mentioned before. So the cost structure, making sure we refocus on our institutional-like business, speaking infection prevention, and third, to your point, so strengthening the core. Overall, healthcare is a very important part of the healthcare system. And we're very excited to see the impact

is not going to get bigger for the company in the years to come, so to answer your question on the M&A piece, but we will keep working on adding new offering, new expertise, new capability. I want to make sure that the future is going to be focused on a business that we truly understand.

we will be doing, but you will see a change of performance in 2023.

Our next question comes from Slomo Rosenbaum with Stifl. Please we'll see with your question.

Hi, good afternoon. Hey, Chris, can you talk a little bit about whether you're seeing any tangible results yet from splitting the sales and services role within the institutional segment? That seems like a pretty big difference from the way you guys have operated from before and I'm not sure if it's...

It takes a while to see results. If you're actually seeing the results right now, when you would expect to see a significant change, maybe you could just flesh that out a little.

Yeah, thank you Slomo. So it's a change that we've initiated in 2021, if I remember right. So it's been quite a while ago. It's something that we have been preparing very carefully. It's a large business. It's a successful business.

in an industry that is changing and that will be changing in the future. So it's combining a repositioning towards what our customers truly need while making sure that we're improving the performance of our overall business. And that's what we're doing in that in a very careful, thoughtful...

manner might be taking a bit more time than some would wish, but I will make absolutely sure that the institution after that cycle is in a better place than it was pre-COVID or pre-cycle. This is my objective number one. And as mentioned before, when you look at the numbers I mentioned on restaurants…

traffic in dining so down 30% and our own sales up so 12% versus 2019 so pre-cycle as well same on hotels as mentioned before as well is showing that we gaining share at the same time our margins are improving

as well in that business. So the fact of splitting sales and service has reached or is reaching, because we're still on that path, our two objectives. The first one is to gain share, as mentioned before, so we did. And second is to reduce our cost because we have a service organization that is really...

reduction of our cost structure that leads to better performance for the business. So, work in progress, but I like the way we're going here.

All right, next question comes from the line of Andrew Whitman with Baird. Please proceed with your question.

Thanks for taking my question. I guess, first off, I had a question about the gross margin. You talked about your targeting getting back to the prior gross margins and eventually even exceeding that. I guess with the business mix has changed over the recent years, certainly.

in the waning days of your energy ownership, you know, it was weighing on margins. You know, pure light goes the opposite way. That was a very high margin, gross margin business. So I guess I don't know what the target gross margin to get back to the prior levels is. And I was hoping you could.

kind of clarify what that gross margin is that would be equivalent on today's mix of business to

kind of where it was pre-inflation or pre-COVID, if you understand what I'm asking here. I think so, Andy. So what we've said is that we want to reach first our 20% operating income margin. And we've been pretty clear that that's where we want to get to. The quicker, the better. And that's not the sound barrier. Once we reach that, it's going to be a lot of work.

to keep going further after that. So to your point, yes, job one is to recover the margins that we have lost over the past two years during this inflationary time. That's always been true. As you know, in the past we get dollars first, we get margin second.

It's lasted longer this time because inflation was way higher than what it used to be mentioning. So earlier as well on that call, so 27% in 22 only, which adds to 20% as well. So in 21 of delivered product cost inflation as well that we had to face as a company while a mistake and rely on bumper vehicles related to fuel is actually risk management, right? I know it's only Research side mind as well. But in general, the folks who are from single state companies prioritise the construction of a cleaning and Ravens anal aliens problem andothy actually take Res reference to those

was the most behind of the COVID, just the fact of having institutional recovering will really help our gross margin and operating margin as well as a company. And that's an old business kind of performing better in the future. That's not a new thing.

On top of it, yes, you have businesses like Life Sciences that are above the average of the company that are growing fast as well at the same time. That's going to help further. So overall, good pricing work delivers product costs that hopefully is going to ease, but I'm not expecting to turn negative.

anytime soon and certainly not in 2023. Portfolio that's going to keep improving, innovation that's always above the company's average. And last but not least, so the new businesses like Life Sciences that are going to contribute. So we're going to get back to where we used to be in terms of margin and we will keep expanding from there.

not necessarily a needle mover in the near term, but I wondered if you could give us any update on the rollout of the Home Depot initiative and how that's tracking relative to your expectations.

Great question. Thank you, Ryan. It's not our biggest business, obviously, but it's quite a fascinating journey because we all see obviously those products when we get to the stores of Home Depot. I hope, Ryan, that you've participated as well. So to our new venture here, it's been a great journey.

that we do exclusively for them. So it's a big deal for the Home Depot. And it's an interesting deal for us. We take it extremely seriously. We have a great team after it. We're doing it very thoughtfully. We're trying to learn as much as we can. What the consumers, what the pros, since it's the main focus of that whole business, how it looks. It's just the same topic every day. And as well we make sure to look properly at how businesses aren't medication and how these companies are Village CAT

but down the road I think it's going to be a nice growth engine for the company.

Our next question comes from the line of Lawrence Alexander with Jefferies. Please proceed with your question.

Good afternoon. Just a follow up on your discussion around sort of the pricing environment, particularly in a more inflationary environment. As you've done experiments around the world, do you get a sense that your ability to take share and your pricing initiatives have kind of a linear relationship or is there a kind of a nonlinear relationship?

kind of break point where if you push too hard the share gains really deflate very quickly. Just can you have a sense for how you see the customer psychology playing out based on what you've seen over the last couple of years? We haven't felt any elasticity issue, which is good news.

And the reason why is because our focus is really making sure that at the end of today, the customer is better off. Even if it takes us more time, more effort to get to the right place, we want to do it in a way that we can keep the customer for life, which is the mantra that we have in our company. Not to win a quarter.

it's to win a lifetime together with our customers and many of them we've had for decades, as you know as well. So we start focused on creating even more value for customers and honestly we've discovered ultimately value that we've been creating for customers.

that we've not been merchandising as well as we should have in the past because pricing was not such a big deal in the past well has been an argument in order to get a bigger share of what we were creating as well but always making sure that the return for the customer remains very strong.

This EROI of 25% return for the customer is our mentor. It's always the same for every customer everywhere around the world. But it's showing that it's pretty high from a return perspective. This is good for us. This is good for the customer. And ultimately, it's good for our share gains as well, because when customers get better outcomes, both from a product perspective...

and from a performance perspective as well, while reducing their impact on the environment, well, they want to buy more. So this is helping us as well gain further share. So overall, I think it's been a very positive journey for everyone. It's been a learning process, and it's always a painful process to learn, but at the end of the day, it's been good for everyone.

Our next question comes from the line of Kevin McCarthy with Vertical Research. Please proceed with your question. Yes, good afternoon. Christophe, would you comment on your volume experience in the life sciences business?

in the quarter as well as what you think it might be for the year. The reason I ask is on slide number 10 you cite sales growth of 10% including robust pricing which seems to imply that there wasn't as much volume and I found that to be counterintuitive following the

capacity expansions you've done in the US and UK. So just wondering if there's anything anomalous there with regard to, you know, the comparison or customer behavior that could help us put that in context. Thank you.

No, in general it's been a very good story. It's not going to be every quarter the same because in life science obviously we're half is our pure like business. We're building new foundations, we're expanding the capacity as you mentioned before, we're investing as well in the team that requires.

time to do it very thoughtfully. But when I look at the capacity built, we exactly on schedule. It's going really well. We're learning while we're doing it. But for the most part, it's going well. When I look at the whole new business generation, good progress being made here as well at the same time.

and driving it towards customers. So take time for us to do it really, really well. We had as well that shift obviously from pricing to new business, which impacted as well life sciences, good on margin, and it's a shift that's required in order to get more volume going forward.

But the stars are aligning very nicely in this overall life science business. I like a lot where we're going long term. It's not going to be every quarter the same, as mentioned a little bit early on, but the trajectory, very good, very promising, and we're going to do that really well. All right, next question comes from

not discarding the effort that your sales force is putting in, but is this new customers, or is this expanded treatment for existing customers? Is there something particularly driving it, such as increased regulatory or legal scrutiny on your customers?

Yes, David, it's mainly three things.

Those you've just mentioned, obviously. So a good business doing really well and that keeps improving. So a very good story. It is the leading water business in the world. So enjoying a very special situation in the industry, even though we're small versus the whole market that we saw.

and that's driven by cloud consumption, obviously by the high tech companies, and they've all made commitments to get to net zero in the foreseeable future for the most part in 2030. Well, that's growing fast because the industry is growing fast and at the same time, they're trying to get less water consumption. Well, that's a double win for us. Think about microelectronics as well.

require a lot of ultra-pure water. It's a fantastic business. So for us, well, that's driving growth as well at the same time. It can be as well more traditional businesses like mining, as I mentioned before as well, huge amount of water that's being required. We've shifted years back, away, thank God, from the coal business towards fertilizers and...

premium high-tech materials like copper and nickel all related to renewable EV technology. Well, that's driving very nice growth as well. So we have first and foremost an end-market focus that's helping us drive growth. The second is...

Most of our customers have made commitments in terms of carbon and water. And they all have, or most of them have, a hard time. So to get to their commitment, we are best positioned to help them get to where they want to be the right way. Which means while saving money as well at the same time, we don't believe in the green premium, we believe in the green benefit. And that's the way.

We're partnering with our customers. Well, that's driving more demand for what we're doing. And last but not least is innovation. We keep innovating in our world business in a remarkable way, especially on the digital front, which is high margin, by the way. It's something that's connecting our customers as well, increases the stickiness.

Our next question comes from the line of Vincent Andrews with Morgan Stanley . Please proceed with your question.

Thank you. Kristof, I just wanted to follow up on delivered product costs. I heard you earlier in the call say that they would be up for all 2023. I'm wondering if you can just disaggregate them a little bit. I believe there's some labor included in your delivered product costs as well as freight. I'm assuming labor is up. Freight I would think would be down.

cost for us that's outside those numbers that we've always been talking about and that I've been talking about as well. But just maybe a comment on labor and wages. I feel really good with how we've been able to manage that, the fact that we've had.

very high retention of our team has helped us as well keep our labor cost within a good framework ultimately and driven by the digital automation as mentioned before we managed to drive the productivity that you've seen as well in our numbers so

On the labor side and wages, I feel really good. When we talk about the delivered product cost, which is ultimately raw materials, freight, logistics, and technology dispensing equipment and all that that we are bringing to our customers as well, that's what we mean with delivered product cost and that you see in our numbers that represent roughly

product cost of 27% in 2022. We had a further increase of 9% in the first quarter of this year, so better than the increases we've seen in the past, but still an increase. And I hope that in the next two quarters this rate of increase will ease.

But we do not expect that it's going to cross the zero line to become negative in the quarters to come. And, well, when it comes, and if it comes earlier, Vincent will take it. But this is not what we're seeing right now. Our next question comes from the line of Scott Sneeburg with Oppenheimer. Please proceed with your question. Thanks very much. Good afternoon, Christophe. I think, let's go to the pest category.

in the segment. I'm just curious if you could share a little bit about what that means. Thank you.

Thank you, Scott. You know that the other segment is a little bit of a weird combination of things because you have our pest elimination business, we have our textile care business in there and we have our colloidal technologies business. Three businesses.

three businesses, sorry, that have nothing to do together, but that are all part of one same segment for simplicity reasons. So when we talk about the mix, it's the growth mix of those three businesses that are very different. Colloidal is very related to microelectronics, which is very different than what we do in textile, which is very different than what we...

over the past few years, it's true today and it's gonna be true tomorrow. The big reason for that, as mentioned, so our great team, great position in a few markets where we have very good, strong positions. We are very focused on commercial, so we have now residential business, as you probably know as well in there, so a very pure player.

in Europe with the vast capabilities that we have in digital in the company, that's a primary area where we could improve the work we do and making sure that we send our teams where there is truly something to do and not just to go and check in places not knowing if there is some best activity as well.

or future with all that's being done. So a good contributor of the performance of the Campanisa for 23.

And, Mr. Hedberg, there are no further questions at this time. And I would like to turn the floor back over to you for closing comments. Thank you. That wraps up our first quarter conference call. This conference call and the associated discussion slides will be made available for replay on our website. Thank you for your time and participation and hope everyone has a great rest of your day. Ladies and gentlemen, thank you for your participation. This concludes today's teleconference.

You may disconnect your lines and have a wonderful day.