Diversey Holdings, Ltd.

Greetings, and welcome to Diversity Holdings' third quarter 2021 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn this conference over to your host, Mr. Grant Graver, Investor Relations. Thank you, sir. You may begin your presentation.

Thank you. Hello, everyone, and welcome to Diversi's third quarter conference call. With me today are Phil Wieland, our CEO, and Todd Herndon, our CFO. Our earnings release and the slides we'll reference on this call are available on Diversi's website at ir.diversi.com. Please take a moment to read the cautionary statements in these materials, which state that this teleconference and the associated supplemental materials may include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the Risk Factors section in our filings with the SEC. On this call, we will reference certain non-GAAP measures. Please see the accompanying slides and our filings with the SEC for definitions and reconciliations to the most closely comparable GAAP measures. And now I'm happy to pass it over to our CEO, Bill Wieland.

Thank you, Grant, and good morning to everybody. I'm happy to report another quarter of strong progress against our strategic plan. Let me update you on the five key headlines for the quarter. Firstly, the top line. We're showing good momentum in both our institutional and F&B segments. In F&B, our very high win rates during 2020 and 2021 plus the introduction of water treatment are paying dividends. In institutional, the recovery of our base business continues to be encouraging with strong Q3 growth over prior year. This is fueled by share gain from new business wins, investment in commercial excellence, and our global accounts infrastructure, strong innovation, pricing, and, of course, reopening in some markets. Page six of the presentation highlights our progress returning to pre-pandemic levels as we see a strong recovery in North America, an improving position in Europe, and a slower recovery in the rest of the world. Whilst the remaining COVID impacts around the world frustrate our customers, we remain confident in a full recovery, and this will be one of our levers for growth as we head into 2022. We continue to see infection prevention well ahead of 2019, with many countries more than double 2019 on a year-to-date basis, and others with a slightly lower increase versus 2019. This segment of the market has seen normalization from the strong growth we experienced in 2020, but it's still significantly above pre-pandemic levels. Although difficult to judge exact trends given the complexity of the overall environment, we are encouraged by increased hygiene standards and market receptivity to our differentiated infection prevention portfolio as we deepen penetration in North America and expand into new geographies. In summary, we believe we will drive growth in our business in Q4 and acceleration into 2022, and we are increasingly well positioned for long-term growth. The second key element of the quarter is around pricing. Pricing remains critical for us as a result of the cost inflation that we've seen build through the year. We continue to step up pricing in the third quarter and have good pricing momentum for the fourth quarter and into 2022. We've realized roughly 3% top line growth from pricing actions year to date and expect to reach mid single digit percent in the fourth quarter. We expect this increased level of pricing to continue into 2022. The third element, margin. Diversity continues to execute well in a challenging environment, and we are pleased to have increased EBITDA margins from 14.7% in Q1 to 15.6% in Q2 to 16.0% in Q3, as we signaled we would when we last reported. Our margin improvement has been solid and consistent for several quarters now and provides confidence around our longer-term target of 20%. Number four, customer value proposition. We continue to be encouraged by our winning customer value proposition with a stronger than ever pipeline of opportunities, very high customer retention, and record net promoter scores. Based on our progress to date, we remain very confident in our ability to take share and drive long-term operating leverage in the large and fragmented markets we serve. And finally, number five, M&A. we continue to execute against our strategy with M&A. In Q3, we closed the Tasman acquisition in Australia that we announced last quarter, and we've recently closed a deal that we're excited about in Canada. The acquisition pipeline has never been stronger. Now I'd like to highlight progress on ESG. We recently filed our annual sustainability report, which we've done annually for more than 15 years. However, this year, we're resetting our strategy and goals. Our enhanced sustainability strategy is called Protect, Care, Sustain, and it follows the ESG framework commonly used today. It's set out on page eight. Protecting the environment, caring for society, and sustaining good governance will be the focus of our new approach. We are committed to ambitious goals in this area and will measure and report on our progress annually. Throughout our history, our commitment to sustainability hasn't changed. It's deeply embedded in the culture of the company. It defines who we are and what we stand for. I'd also like to state how proud I am of our global teams for the way they're responding to the current global challenges. Our supply chain teams are managing freight issues. Our procurement teams are managing a difficult and fast-changing raw material landscape. and our R&D teams are working tirelessly to reformulate products. All of this is aimed at limiting the impact on our customers, which is being very well handled by our customer-facing teams. This is a time of truly exceptional circumstances. Diversity's deep-rooted behavior of being customer-driven is putting us in a great position to deliver a fantastic 2022. Finally, you'll remember that our medium-term growth algorithm is to grow organic top line faster than the market rate of 3%, to add 2% to the top line through M&A, to expand margins to 20%, and to generate significant cash to de-lever and fuel investments in growth. We're confident that we will enter next year with great momentum due to our market share gains, effective management of inflation through price and cost actions, ongoing market reopenings, higher post-pandemic cleaning and infection prevention standards, and a very robust pipeline of M&A opportunities. And with that, let me pass over to our CFO, Todd Herndon, to discuss Q3 financial results in more detail.

Thanks, Phil. Let me start on page 11 with a summary of our consolidated results. Q3 net sales were down 2.4% versus prior year as reported. but increased quarter over quarter as expected with sales increasing by 14.7 million or 2.3% versus Q2. As Phil mentioned, the recovery of our base institutional business is progressing well and we continue to win new customers with significant recovery still ahead of us as reopenings progress around the world. Our F&B business continues to win new customers and grow revenue while improving margins. Consolidated adjusted EBITDA for Q3 is in line with 2020 and is 2.1% above 2019. Overall, we are very happy with the progress we're making on margins despite inflationary and supply chain pressures. On page 12, let's review our segments starting with institutional. Institutional revenue declined 6.7% versus Q3 2020. as the strong recovery in the base business was more than offset by the tough comp to the increased level of infection prevention that we experienced in Q3 of last year. We have seen strong recovery in the more developed geographies with much more to come as developing geographies and sectors, such as facility services and hospitality, continue to recover. We also believe our infection prevention business is stabilizing after the one-time effects of COVID and is well positioned to grow with our investments in new products and regions. In Q3, institutional revenue has recovered to within 3.4% of pre-COVID 2019 levels. Even with lower revenue and challenging raw material and supply chain environment, we were able to increase our adjusted EBITDA margin over both 2019 and 2020 through operational efficiency programs and pricing. We are also now at the inflection point where the combination of stronger customer retention, new business wins, continued reopenings, and increased hygiene intensity will drive further quarter-over-quarter growth in Q4 and into 2022, absent further supply chain disruption. Before moving to F&B, I'd like to quickly highlight one of our environmentally friendly products, Oxivir TB, which was rated by Newsweek and the Leapfrog Group as a best infection prevention product in 2021. Oxivir TB is a hospital-grade disinfectant that contains our patented accelerated hydrogen peroxide technology. It's rated as the lowest level of hazard and requires no safety warning or PP&E. It's great to be recognized, but more important is the feedback from our customers that our infection prevention solutions lower infection rates without compromising employee safety. It's also better for the environment than other disinfectants, breaking down to just oxygen and water. On page 13, let's review our food and beverage segment, where revenue grew by 12% compared to Q3 2020. More impressive was the 29.9% growth in our adjusted EBITDA over that period, given our continued scale and focus on cost improvements. As a result, our FMV segment ended the quarter with a strong margin of 19.3%, which was up 270 basis points compared to 2020. When comparing to 2019, revenue expanded by 9% and our adjusted EBITDA grew by 25.6%, exhibiting the continued momentum we're experiencing closing new business winds around the world, along with increasing traction in water treatment. One of the innovations I'd like to highlight for FMB is Deosan HH+, which is a sustainable footbath solution to help prevent lameness in ruminant farm animals. It's estimated that 25% of cattle suffer from lameness. Traditional treatments use copper sulfate to repair the esparages and hoods, which is an environmentally damaging heavy metal. HH Plus uses copper nitrate, which is water soluble, and therefore has a much lower environmental impact. This presents a great upsell opportunity across our global agricultural business. On page 14, you'll see our financial bid from Q3 2020 to Q3 2021. I've already discussed the institutional and F&B movements. You'll also see we had small favorable FX and a benefit from M&A. One other item to note in the quarter, During Q3, we had a change in the way we account for income taxes. It had the effect of increasing our rate in the quarter, does not change our full-year outlook on adjusted ETR, and has no impact on cash flow. With that, let me turn to the balance sheet, cash flow, and liquidity on page 15. Beginning with free cash flow, Q3 2021 had an outflow of $41 million compared to free cash flow of $6 million in Q3 2020. Within the $41 million Q3 2021 outflow is $8 million for the purchase of Tasman Chemicals and $12 million of higher cash interest payments, which were accelerated around the refinancing. Our recent refinancing lowered our interest rates and extended the loan maturities out to 2028 and 2029. Assuming interest rates on the floating rate debt remain constant, we anticipate annual interest expense savings of more than $11 million, which could increase to $14 million when we trigger a step down of the interest rate upon achieving a net leverage ratio of 4.5 times. The overall cost of our debt is relatively low at less than 4%. We have a strong liquidity profile with over $500 million available as of quarter end, which we view as a strong asset given the fragmented market we operate in and the very robust M&A pipeline Phil noted earlier. Our leverage remains stable at 4.85 times net debt to adjusted EBITDA compared to 4.74 times last quarter. The 0.1 times increase was driven by roughly 33 million of refinancing fees. We believe we'll delever by year end as our LTM EBITDA improves, inclusive of the significant investment in our new facility in Kentucky we announced in Q2 and a provision for some M&A in the quarter. In Q4, we expect to generate more than $70 million of free cash flow net of strategic investments in M&A and our supply chain strategic investment. So let me conclude with some comments on our general outlook. Our business is expected to be a positive comp year on year in Q4. Absent further supply chain disruption, and continues to improve as markets reopen and we continue to implement new business that we've won over the last year. For Infection Prevention, we're seeing demand lower than what we experienced in 2020 during the pandemic, but still much higher than pre-pandemic levels, which is likely to continue in the future due to elevated hygiene standards. In the fourth quarter, we expect to continue quarter-over-quarter progressive growth in sales, adjusted EBITDA and adjusted EBITDA margin, as mentioned last quarter, and accelerating momentum into 2022. And with that, I'll pass it back to Phil for a closing summary.

Thanks, Todd. As a leading provider of hygiene, infection prevention and cleaning solutions amidst the pandemic, we are well positioned to capture significant growth due to elevated cleaning standards as markets continue to reopen. We're building great momentum for 2022 and beyond with an improving top line, aggressive pricing to combat inflation, and a strong funnel of acquisitions. And now, I look forward to your questions. Operator, would you please begin the question and answer session?

At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove your question from the queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys one moment while we pull for questions. Our first question comes from the line of Vincent Andrews with Morgan Stanley. You may proceed with your question.

Hi, and thank you. Good morning, everyone. Just wondering, as we look into the fourth quarter, if you could just give us a little bit more of a sense of what type of top line growth to expect, and maybe just a little bit more thought on the price-cost trade-off in the fourth quarter and how that will trend.

Vincent, thanks for the question. Phil here. Let me start with the price-cost part of the question. So, look, we've seen sort of 5-ish percent cost inflation in the period to date, about 3% on price. We think our price is going to step up more like sort of mid-single digits in Q4, as we talked about quite a lot of extra actions going in there. But it's also likely that our costs are going to step up as well. So we do think that we're going to see some more accretion in our margins. But it's not going to necessarily accelerate very significantly as we're managing that further cost inflation against the price we're putting through. On the top line, look, I think we will see some growth, as Todd just mentioned, in the fourth quarter. We've been delivering somewhere like $15 million to $20 million improvement each quarter. It may not be as much as that in the fourth quarter. As you know, we've got reopening happening. It's not obvious that there's going to be a huge amount of reopening more in Q4 versus Q3, as some of those countries with the lower rates rates of vaccination are not necessarily improving in that period. So in summary, I'd say, you know, both margin and top line continuing to get better, but not necessarily huge steps forward.

I hope that helps. No, that's very, that's very, that's very helpful. And then maybe just on infection prevention, do you think we're now sort of at the run rate where this is sort of where it's going to sort of, you know, bounce around at, you know, plus or minus? but that, you know, it is going to indeed normalize at a higher level than you originally anticipated. And this is a good, you know, once we lap this rate, we'll stop talking about it.

Well, I'm not sure I want to stop talking about it because we feel good about our product. Fair enough. But to get to the core of your question, honestly, it's just so hard to say because as we look at different countries, you know, as we look from month to month, you know, there's just some real, you know, diversity and spread of performance. So, look, it's certainly true that we've seen a reasonable amount of normalization and infection prevention so far. Whether there's a bit more to come, you know, I think there certainly could be. But, you know, offices really globally not yet reopened. And until we see that, again, it's going to be hard to get a full picture. So, not a very complete answer, but probably the best we can do at this stage as things are still unfolding.

I appreciate that. Thank you very much for your comments.

Our next question comes from the line of George Tong with Goldman Sachs. You may proceed with your question.

Hi, thanks. Good morning. I wanted to dive deeper into whether or not you're seeing impact from supply chain disruptions. Are you seeing any delays or changes difficulty in obtaining supplies or seeing pricing impact or cost impact from some of the supply chain disruptions that we're seeing across the economy?

George, the short answer to that question is yes. It's really tough out there. And I think anyone that says otherwise is probably living in a different world. We do see labor challenges. We do see raw material challenges. Transportation is difficult. It's just a daily, weekly, monthly, ongoing challenge. We're assuming this is going to continue as well into 2022. So whilst we are focusing on all elements of our strategic plan we talked about before, this is something that we are extremely focused on and managing. I think if I was looking for a positive, I'd say, you know, we're well equipped to deal with this versus some of our smaller competitors, but I don't want to understate, you know, this is a challenge. I think we're, we're doing well, but, um, yeah, it's not going away anytime soon.

Okay. Maybe just to follow up on that point a little bit. Um, what are some strategies that you have to, um, to mitigate the risks of supply chain disruptions and, um, And what kind of impact could further supply chain disruptions or an elongation of the timeframe of those disruptions have on either top line or margin performance?

Yeah, so look, we're doing a lot, as you'd imagine. So for example, our R&D team are working on a whole range of reformulations outside of the registered products. to make sure that we've got the more readily available materials going into our products. We're also reducing the SKU range where we can, where it doesn't have a significant impact on customers. Really just focusing on making sure that the materials that are available we can use as flexibly as possible to make sure that we're getting and satisfying all the customers as fast as possible. So, you know, we're really focusing across every part of the supply chain, but we're basically being pretty creative with some of the solutions here as well.

Got it. Very helpful. Thank you.

Our next question comes from the line of Andy Whitman with Baird. You may proceed with your question.

Okay, thanks for taking my question. I thought I would ask about the food and beverage segment in particular, and the margins there, I think, kind of stuck out to me as being fairly positive. So I was wondering, Phil or Todd, if you could talk about what are the reasons for the margin expansion? Obviously, you had decent top-line growth here, so I have to think some of it was leverage, but is there a mix? Are you seeing other factors that are driving that? If you could talk about the sustainability of the margin profile that you realized in the quarter, basically asking, was there anything kind of unique to the quarter that wouldn't be expected to recur?

Yeah, let me tell you that. Let me start by saying our F&B leader would take issue with fairly positive. I think he's somewhat more excited about that with the momentum he's driving. But look, why are we doing well in F&B? At the heart of it... we have been winning business, some of which is last year that we've rolled out this year, more than that we've won this year. So that's adding to the top line, but also we're winning at nice margins. So that in itself is helpful, and the additional volume is obviously giving us some leverage through, as I think you were suggesting. As for whether it's sustainable, they certainly expect us to continue to deliver some really nice top-line growth, albeit we're certainly not immune from these inflationary challenges. And I think it's fair to say that the cost pressure in F&B is even greater than it is in institutional. So it's going to be a battle to continue to drive the margin accretion that we've seen, and that's

likely probably to slow a little bit but but you know it will keep going forward that's helpful thank you for that for just for my follow-up question i guess i wanted to talk about the overall kind of um outlook for growth in terms of like a net new basis you mentioned high retention i don't know if there's any more detail you can give on your retention rates overall and certainly i think you know last year there wasn't a lot of switching but things are getting more normal. So I'm wondering if retention has changed from those very high levels that we realized, you know, during the depths of the pandemic. And then if you could talk maybe about kind of Salesforce productivity, you mentioned kind of subjectively a couple of times that, you know, new sales have been good. Maybe there's other commentary you can give us that give us a little bit more detail on that so that we could just kind of assess that as well.

Yeah, sure. So, so on retention, I'd say no change, you know, we've been up a, We talked about 98, 99%. That's really continued. We really haven't seen any material losses. I can think of one off the top of my head, which resulted from a bit of pricing that we pushed through where a competitor was prepared to take a price cut, which we wouldn't. Outside of small examples like that, the retention remains really strong. In terms of new business, I'd say despite the fact we've won a lot, our pipeline has also got much stronger. It's very hard to give predictions there, but all I can say is we feel we've got momentum and we feel it's going to keep going. We've got new leadership in our global accounts business. We've focused a lot on commercial excellence, and it's early days, but It seems to be moving in the right direction.

All right. Thank you very much.

Our next question comes from the line of Edlain Rodriguez with Jefferies. You may proceed with your question.

Thank you. Good morning, guys. Good morning. You've talked about the cost pressure in F&B being greater than institutional costs. Is that where you're trying to push most of the price in? And is it a little more challenging to get price in there than on institutional?

Well, look, our job here is to maintain percentage margin. So to the extent that the cost inflation is higher, so are price needs to price increases need to be higher because over time, you know, that's the only way we can maintain percentage margins. So yes, to the extent that the costs are higher, uh, in F and B, so our prices, uh, need to be higher too. And that's what we're, that's what we're getting on with.

And just to follow up on that, I mean, clearly, I mean, I think for this year, your price is still going to lag, uh, the work, the, uh, the cost inflation, Like as we get into next year, like how long do you think it's going to take you to kind of recover all the costs?

Yeah, look, it's a really tough one because what we don't know is how much more cost is coming. So, you know, when we were sitting in the summer, you know, we were thinking, you know, with the inflation that we could see then, we were going to have it fully passed through probably in the first quarter of next year. But what's unfolded, of course, is another wave of cost inflation. So that obviously is going to take another wave of pricing to recover. But it's really hard to predict what's then going to happen with further cost pressure. We are now planning, we're assuming we're going to have further cost inflation right through 2022. And therefore, we've got further price time. But if that happens, Then, of course, it's going to be beyond that before we fully get the margin recovery, although we feel good that we'll certainly get the dollars in the year as it comes through.

Okay. Thank you very much.

Our next question comes from the line of Jeff Sakakis with J.P. Morgan. You may proceed with your question.

Thanks very much. I think infection prevention protection revenues were $815 million or so in 2020, where are they going to be this year?

Jeff, it's impossible to give you an accurate answer on that question.

I mean, if I step back and say, you know, how are things unfolding versus what we expected, you know, I would say that infection prevention has probably normalized a little bit faster. than we would have expected. But exactly what happens beyond is hard to say. Overall, new business, water treatment, pricing, M&A, good. Infection prevention, a little bit lower than we expected at this stage. We plan for it to come down further in 22. How that pans out is really, really tough to say. But, you know, we'll update you when we can as the facts lay out.

Well, order of magnitude, like what's the revenue decrease? And when do you expect the quarterly revenue in infection protection to begin to go up?

So I think we'll probably see further reductions in infection prevention in into Q4 this year. And I think we'll see a little bit more normalization certainly into the first part of next year. And then I think we'll start to see it growing. I think we'll flatten out. And then the investments that we've made outside of North America, I think we'll start to see those accelerating and infection prevention globally starting to grow a little bit more The other thing that's hard to predict is what's happening with hand sanitizer because what we're seeing is as markets reopen, certainly the hand sanitizer picks up in line with that. And as those markets in the developing world reopen, let's see what happens there too.

Great. Thanks so much.

Our next question comes from the line of John Roberts with UBS. You may proceed with your question.

Thank you. Would you expect any primary shares to be part of any follow-on offerings?

John, I can't answer that question at this stage. I think all options are open, but it's tough for me to answer that clearly at this stage.

Okay. On slide six, is that the combined institutional and FNB excluding infection prevention? or is that just institutional excluding infection prevention?

Yeah, good point. That's institutional, John. So on SMB, you know, the COVID impact was more modest. We did have some, but, you know, that was in the single to low double-digit millions, so not that material. This page really represents institutional.

Thank you.

Our next question comes from the line of Gary Bisbee with Bank of America. You may proceed with your question.

Hey, good morning. I guess the first question, just on margins, obviously you're doing a nice job delivering expansion there despite the cost headwinds and certainly understand the pricing dynamic and how that can help, but can you give some color on what strategies are really the key drivers of that? I know you've called out a number of them in the pre-IPO process, and Have you stepped on the gas faster on some of those strategies such that maybe you're pulling some of that future opportunity forward into this year? I guess I'm just wondering if, given all these things, how you're thinking about the medium-term margin story from here relative to how you told it in the IPO process? Sure.

Todd, do you want to pick that one up?

Sure, I can do that. I think that our outlook for our margin opportunity is not any different than it was at the time of the IPO. The things that we control are clearly still in our control. There were three or four different areas that we said we would focus on. We've focused on those areas and are driving them, whether it be our operational effectiveness program or or Earnings Improvement Program as we call it internally. You know, we're making significant progress this year on G&A in particular as we look at, you know, how we deliver continued functional cost savings. The current supply challenges with respect to acquisition of raw materials has actually helped us accelerate some of the work we're doing on portfolio, which we mentioned was an important component going forward of generating further procurement synergies because we're now looking at ways to harmonize the portfolio potentially faster so that we can aggregate that demand and look at the composition of the cost of our products that we go to market with. We announced in Q2 the establishment of a lease in Kentucky related to a footprint opportunity in North America, which we see as a significant opportunity to improve margin more in the 2023 period. And so all of that work that we're working on in a continuous improvement, one of our key five behaviors that Phil launched last year is on plan with what we had viewed in the IPO as an opportunity for us to reach our mid to long term target. You know, so we believe that we're doing a good job controlling what we control and executing well within the company on that. And, you know, with the challenging, you know, environment this year, you know, we're pretty pleased with where we are on the cost base. The other thing I would say, just as we think forward to 2022, you know, we would hope that with our outlook to 2020, some growth next year that we've become a more efficient company during the COVID time and can leverage our fixed costs over growth that we fully anticipate coming in 2022. Okay, that's helpful.

And then if I could go back to infection prevention, just with one more question. Can you give us an update on how the global rollout of the AHP product's going? And is reopening helpful to that, you know, in that it's easier to get in and sell? Or is it a challenge to the extent that you start to be past the worst of it. There's less incentive for people to aggressively upgrade and change what they're doing or add more use of these products. Thank you.

Sure. In terms of global rollout, we are now manufacturing right around the world and selling right around the world. In terms of reopening... Look, it's mixed because clearly, you know, businesses that are closed are not buying anything. So there's no opportunity. It's certainly true outside of healthcare that, you know, when businesses are open, but there's a heavy focus on COVID, that's the height of the opportunity. And that comes down a little bit with the normalization we talked about earlier. And we're seeing that trend, you know, both in North America where the product was first launched and in the other places around the world.

Okay, if I could just sneak one more quick one in. The tax commentary, does that imply that the Q4 tax rate would likely be lower? I think you said the full year unchanged, but it was much higher this quarter? Or could you just level set what might be a reasonable expectation of Q4? Thank you.

Yeah, let me take this, Todd.

You know, in the – I guess what I would start with is saying our nine-month adjusted ETR lands at about 31%. As of Q2, on a year-to-date basis, we were at 20 on our ETR. So a higher ETR was expected in the back half of the year. While we originally expected the higher ETR to blend in over Q3 and 4, our tax accounting change we described in our 10Qs required we take the full impact of the differential rates into Q3. Our full year view hasn't changed. We continue to expect to land at 30% to 31% for the full year adjusted ETR. So it's really a quarterly phasing comment.

Great. Thank you.

Our next question comes from the line of Arun Vishwantan with RBC Capital Markets. You may proceed with your question.

Great. Thanks for taking my question. Good morning. I guess two questions. So first off, on the ROS side, what can you do to mitigate the impact there? Are there surcharge mechanisms that you'd want to implement? I guess I'm just asking mainly about chlorine and caustic, just given some tightness there that looks like it will persist into 22, just given capacity rationalization and logistical issues. Yeah, maybe we can just address that first. Thanks.

Yeah, you're absolutely right. So we've been taking a lot of price as we talked about. There are certain materials, example being the one you mentioned, where some element of surcharge also exists because sometimes it's faster for us to get a surcharge into the market and the movement in these rows is fast. It's also true to say that on some of those products, particularly in the F&B business, our contracts with customers are directly related to the index, and therefore there's a natural movement and reflection of what's going on in the underlying index anyway.

Okay, great. Thanks for that. And then just maybe if you could review kind of how we should think about leverage and how that evolves over the next year. Thanks.

Yeah, I can take that one. You know, in our, you know, our thought process is following, you know, our, we aspire, of course, to reduce our net debt leverage and that hasn't changed. With respect to how we think about it with M&A, tuck-in acquisitions will require cash but won't material increase our leverage profile on a pro forma basis. As post synergies, they get to roughly that level that we have today and create a lot of equity value. We do understand the importance of de-levering over time. The uptick in leverage in Q3, again, was driven by the refinancing, which clearly has... a benefit going forward of roughly $14 million in cash interest savings going once we hit the four and a half times net debt level. And we were able to extend those towers out to 2028 and 2029. We do expect to de-lever in Q4 in addition to funding our investment in the Kentucky facility and M&A, which we referenced. We would also expect to further de-lever in 2022 as we generate strong free cash flow and grow EBITDA. you know, we're going to continue to focus on delivering in the mid to long term towards three times as we communicated earlier this year. So that's how we think about leverage, you know, going forward.

Thanks.

Our next question comes from the line of Christopher Parkinson with Misuho. You may proceed with your question.

Good morning. This is Kiernan for Chris. I was just wondering overall for the business if you could discuss the opportunities that you're seeing on a regional basis and if you're seeing more opportunities for new business wins as well as to gain market share, I guess, in some of the reopening economies as opposed to the more mature economies or if that's just broad-based and you're winning in most geographies. Thank you.

Yeah, sure. Look, the – I think we've seen good momentum and good progress around most of the world, certainly across North America, across Europe, India. I think the tougher areas right now have been Southeast Asia and ANZ, just because they've remained in a tough lockdown situation, and that's sustained for a long time. But, you know, we're pretty confident, you know, Australia's just started reopening with very early signs of Southeast Asia coming out of that lockdown. So hopefully we'll be able to get stuck back into some more growth over there. But really, that's been the story of the last couple of quarters or so.

And then maybe just a quick one on sustainability. It seems like there's a big demand pull for more sustainable solutions from customers. I mean, can you discuss a little bit what your kind of new product pipeline looks like in terms of sustainable solutions and how we should think about mix from those new products as well as your ability to gain share through those products going forward?

Yeah, look, this is big. I mean, we put on page seven in the pack, how we're starting to think about ESG and the new plan that we've put in place. This is really big. I think just in the last six or 12 months, the amount of customers coming to us asking for help, how can we be at the heart of their ESG strategy and seeing us as a really key partner to helping them make progress is actually really heartening and really encouraging. So, you know, we're really redoubling our efforts on ways to, you know, save water, energy, packaging in particular. And look, it's going to be, it's going to take some time. You know, some of these developments take some time and rollout takes some time. But I think this is going to be an even bigger driver of growth going forward than probably we thought 12 months ago.

Great, thank you.

Ladies and gentlemen, we have reached the end of today's question and answer session. I would like to turn this call back over to Mr. Phil Whelan for closing remarks.

Yeah, look, thank you for that. In summary, I'd just say that we're really pleased as we close out the third quarter in where we are on new business and share gains, on our pricing, on our cost and efficiency drive, on M&A and the base market. and the base coming back. We have, as we talked about, seen some normalization in infection prevention. We think that as this rolls out, we're going to see some growth in Q4, both in revenue and margin. And then we're going to see an acceleration of our top line in 22, as that reopening that we showed in the pack really starts to come through, particularly in Europe and the rest of the world. And that, allied with the ongoing price share and M&A, makes us feel really good about the top line as we head into 2022. So, look, thank you for listening. Thanks for attending. I hope we've answered your questions. Have a good day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.