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spk10: Hello and welcome to the RAMPAC Holdings fourth quarter and full year 2021 earnings call. My name is Emily and I'll be coordinating the call today. During the presentation, you will have the opportunity to ask a question by pressing star and then one on your telephone keypads. I will now hand the call over to our host, Sarah Horvath, General Counsel. Please go ahead.
spk02: Thank you and good morning, everyone. Before we begin, I'd like to remind you that we will discuss forward-looking statements as defined under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those forward-looking statements as a result of various factors, including those discussed in our press release and the risk factors identified in our Form 10-K and our other filings filed with the SEC. Some of the statements and responses to your questions in this conference call may include forward-looking statements that are subject to future events and uncertainties that could cause our actual results to differ materially from these statements. RAMPAC assumes no obligation and does not intend to update any such forward-looking statements. You should not place undue reliance on these forward-looking statements, all of which speak to the company only as of today. The earnings release we issued this morning and the presentation for today's call are posted on the investor relations section of our website. A copy of the release has been included in a Form 8K that we submitted to the SEC before this call. We will also make a replay of this conference call available via webcast on the company website. For financial information that is presented on a non-GAAP basis, we have included reconciliations to the comparable GAAP information. please refer to the table and slide presentation accompanying today's earnings release. Lastly, we'll be filing our 10-K with the SEC for the period ending December 31st, 2021. The 10-K will be available through the SEC or on the investor relations section of our website. With me today, I have Omar Asli, our chairman and CEO, and Bill Drew, our CFO. Omar will summarize our fourth quarter results provide an update on our growth strategies, and issue our outlook for 2022. Bill will provide additional detail on the financial results before we open up the call for questions. With that, I'll turn the call over to Omar.
spk05: Thank you, Sarah, and good morning, everyone. I hope everybody is staying safe and healthy. Rampak had a strong fourth quarter and robust results for the calendar year 2021. I'm extremely pleased with our overall results and the execution of our team members. who delivered strong growth in our top line and meaningfully grew our profitability against a tough Q4 2020 comparison. We've accomplished a tremendous amount this year, not only in the financial results, but also in advancing key initiatives for our company. We had a number of significant projects going on in 2021. In prior calls, we mentioned our digital transformation and investment in technology. the most impactful component of which was upgrading to our new ERP platform, SAP. This is a project that stretched across the entire organization and took one year for us to implement. We went live with the new system in January of this year, and I'm genuinely impressed with the hard work and dedication I witnessed by our global team to accomplish this gargantuan task. It took buy-in and dedication from all involved, working late nights, weekends, and holidays to accomplish. As we get up the learning curve associated with an ERP system as sophisticated as this one, we expect that the benefits to the organization will be tremendous in terms of better processes, access to data, and visibility into the business. It also significantly improves our ability to scale the business globally and onboard acquired companies as we pursue a more robust M&A strategy going forward. IT infrastructure does not always get the limelight, but given the critical role it can play in a successful growing organization, improving this area has been a priority of mine. I'm pleased to report RAMPAC now has world-class ERP, CRM, financial planning, human resources, and data analytics software and information systems. It's been a tremendous undertaking to get all of these systems implemented and talking to each other. and most of this activity has taken place in the past year, while the team has also been focused on executing and growing the business. I could not be more excited about our new systems and processes, as well as the efficiencies we will hopefully extract due to our additional insights. My hat is off to the global team that really drove these processes. Overall, the theme for us the past couple of years has remained the same, stay focused on executing in the short term while investing in the business for the long term. Capital allocation decisions are critical to the long-term success of any company and creating shareholder value. Our mindset is always focused on maximizing value for the long-term, but we are also cognizant of maintaining strong performance along the way. It's a balancing act as we weigh the sequencing and depth of investments due to their impact on near-term results, while making sure we are being aggressive enough to really pursue the opportunities that provide maximum upside for shareholders in the next five years. We feel we have been very prudent in our strategic decision-making the past two years. And as we will discuss later in the call, our guidance for 2022 shows that this year we plan to continue to take a more aggressive approach to investing in the business to support our growth objectives. We finished the year with solid momentum in the business and with the acquisition of Reticold, a manufacturer of sustainable gel packs. These drain-safe and plant-based gel packs are a great addition to our cold chain offerings, and we're excited to plug Resicold into the RAMPAC network to help expand the business and bring these solutions to the United States. Now, a few words on the quarter. I'm pleased to report consolidated net sales on a constant currency basis increased 21%, driven by broad-based growth in all product lines, bringing full-year sales to up 26% on a constant currency basis. Europe and APAC experienced exceptional demand in the quarter, exiting the year with good momentum. Net revenue on a constant currency basis was up 24% driven by strong growth across all product lines. Our North America business also delivered excellent top line results at 18% for the quarter, marking the third quarter in a row of double digit growth. Overall, I'm really pleased with the activity levels we see in the region and believe that in 2022, North America is on a real path to sustainable growth. Adjusted EBITDA of $35.7 million was up 8.2% in constant currency terms year over year and resulted in a very strong margin of 32.6%. Our growth in adjusted EBITDA was due to higher sales compared to a year ago, offset somewhat by increased input costs and investment in personnel. For the year, constant currency adjusted EBITDA was up 26% to 117.8 million and in line with our revenue growth. Overall, really excellent performance to finish the year in the face of a challenging supply chain environment and inflationary headwinds. I'm very proud of what we have accomplished in 2021, and I'm even more excited about 2022 and beyond. We continue to navigate well and believe we are well positioned for further success. The additional investments in the business are beginning to pay off, and we look forward to an even greater impact going forward. The backdrop for 2022 is a positive one for RAMPAC, as RAMPAC's three key structural tailwinds remain in place. E-commerce activity remains robust, as the share gain from brick and mortar appears structural. Sustainability continues to gain momentum globally, and increased wages and labor shortages drive the need for further automation and efficiencies. We'll take you through our guidance for 2022 after Bill's remarks, but to summarize, we're focused on achieving double-digit growth again this year, and we'll further invest in the business to position ourselves to maximize the opportunity over the long term. With that, let me turn the call over to Bill. He'll give you further details related to the quarter and full year 2021. Thank you, Omar.
spk04: In the deck, you'll see a summary of some of our key performance indicators. We'll also be filing our 10K, which provides further information on RAMPAC's operating results. Machine placement continued its steady and broad-based increase, up 13.5% year-over-year to over 133,000 machines globally. Pressioning systems increased 4.8%, void-fill installed systems grew 14%, and wrapping continued its expansion path, growing really well at 29.7% year-over-year. Overall, net revenue for the company in the fourth quarter was up 21% year over year on a constant currency basis, driven by strong double-digit growth in all regions. For the quarter, combined revenue in our Europe and APAC reporting division increased 24% on a constant currency basis, bringing full year 2021 combined revenue in those regions to 34% on a constant currency basis. Europe and APAC finished the year on a strong note, experiencing robust growth across all categories versus the prior year. North America posted another strong quarter of double-digit top-line growth, reporting net revenue of $45.8 million, which was up 18% versus the comparable period in 2020, bringing full-year results to up 15%. For the quarter, all categories were up double-digit percentages, exiting 2021 with solid momentum. Execution in North America continues to improve, and sustainability is growing in importance. We have bolstered the team with key talent across the board and provided additional resources to enhance growth and improve the way we serve customers. The reported gross margins of 35.6% for the quarter were lower versus 42.1% in the prior year as we experienced incremental input and production costs that surpassed our year-to-date pricing actions, contributing more than 3.5 points of the decline. We are implementing targeted pricing actions in the first half of 2022 to claw back a significant portion of the increased input and production costs we absorbed in the last few months. Additionally, we took a one-time write-off of consumables related to our SAP conversion, which represented another roughly 1.8 points or 1.9 million of pressure. Important to clarify, the consumables write-off was purely a new accounting mechanism that we're adopting going forward that will expense these items directly versus carrying them in inventory and then expensing them. Also, it is helpful to keep in mind that from a profitability standpoint, the fourth quarter of 2020 was exceptionally strong as craft paper pricing was extremely favorable, volumes were robust, and staffing levels at our company were significantly leaner as there were still gaps to fill for key initiatives. Now let me elaborate on our input cost and margins. In response to rising cost of craft paper, freight, labor, and pallets, we have taken pricing actions at various points throughout the year in different parts of the globe. We've been strategic in our actions, triangulating between accelerating top line to grow share, preserving margins, as well as being mindful of how and when pricing might get passed on in different geographies. Fortunately, the volume elasticities have been better than expected following our price increases in 2021, as many businesses are experiencing similar inflationary pressures. Given how dynamic the commodity markets have been, we did face a bit more pressure in Q4 than prior periods, as our pricing actions lagged the movement in craft paper and energy markets to finish the year. Already in 2022, we have announced additional pricing actions to recover some of the margin pressure we experienced in Q4, and as always, we continue to analyze whether conditions warrant further increases in the future. To support growth initiatives, SG&A continued to build last year, driven by increasing headcount from approximately 645 to finish the year at around 850. As Elmar mentioned, we added talent in senior management, sales, operations, and finance personnel, as well as began building out our internal automation effort, resulting in an increase of 2.9 million year-over-year per quarter. Many of our team members have been dedicated to SAP over the past year, so we are looking forward to integrating them back in their roles and some of the efficiencies they may be able to bring as the year progresses. As expected, and consistent with seasonality in years past, the fourth quarter was our largest from a revenue and adjusted EBITDA standpoint. Although it was a challenging comparison and we had our largest input cost headwinds for the year, the team did a great job managing the P&L, achieving meaningful constant currency adjusted EBITDA growth of 8.2% on top of last year's exceptional results, bringing full-year constant currency adjusted EBITDA up 25.7% versus 2020. Moving to the balance sheet and liquidity. We completed 2021 with a strong liquidity position, including a cash balance of 104 million and no drawings on our revolving credit facility, bringing our net leverage ratio to 2.6 times on an LTM basis. We are pleased with the continued progress in our capital structure in 2021 as we paid down debt and reduced our interest expense. We believe our cash balance and conservative leverage profile provide us with excellent flexibility to pursue growth initiatives and M&A. With that, I'll turn it back to Omar before we move on to questions. Thank you, Bill.
spk05: Over the past year, we made a strategic decision to invest further in accelerating share gains to hopefully emerge with more momentum as market disruptions lessen. In 2022, we plan on maintaining this approach and accelerate our investment in some areas to maximize opportunities in 2023 and beyond. This year, on a constant currency basis, we are anticipating revenues of $425 to $445 million, reflecting top line growth in the area of 13 to 18%, and adjusted EBITDA growth of 9 to 12%, implying a range of 128 to 132 million. Our expected outsized top line growth for the year reflects our expectations of continued volume growth as we expand our business, as well as 2021 pricing actions and planned increases for 2022. Our growth in adjusted EBITDA of 9% to 12% reflects investments in key areas such as automation, as well as our expectation that some of the input cost inflation pressures we experienced in Q4 to persist in the first quarter and then our offset through additional pricing action. In earlier calls, we shared our plans for meaningful investments in capacity related to automation. This involves our new European headquarters, which will consolidate our PPS and automation operations in the Netherlands, as well as a new automation and R&D facility being built in Shelton, Connecticut. Both of these facilities are new builds, and we anticipate them opening hopefully in Q4 2022. From a capacity standpoint, these investments will increase our ability to produce automation equipment by three to four times what it is today. For 2022, we're targeting more than 20 million in sales, which is more than 50% above last year, and which maxes out the capacity of our current facility. This implies the ability for automation to contribute 60 to 80 million in top line as we ramp up activity at our new facilities and gain some efficiencies in our processes. To position ourselves to hit the ground running when we open our facilities, we are ramping up our hiring in 2022 in areas such as engineering, sales, assembly, installation, and service to achieve greater scale in 2023 as quickly as possible. 2022 is a pivotal year for RAMPAC. We're investing in the infrastructure that will enable us to continue to grow organically, and should we decide to do so, scale up through M&A over the next number of years. These investments are in the form of renovation of our headquarters in Concord and three new facilities, one new automation center in Connecticut, our new headquarter and automation center in the Netherlands, and lastly, a new production facility in China. The second leg of our investments in our IT infrastructure, including SAP, CRM, and other business apps, as well as a number of operational projects to enhance our capabilities. All in, These projects, which I consider to be non-recurring, will be roughly $35 to $40 million in 2022, bringing total CapEx closer to $75 million for the year, including our converter spend. These one-time investments in real estate and technology will enable us to target outsized growth in future years and capitalize on the strong end-user demand we continue to see in our business. Overall, I'm very excited about the business for 2022 and beyond. Within PPS, Europe continues to execute well and benefit from a strong sustainability tailwind. The fervent push to replace plastic and foam that initially began in Northern Europe continues to spread throughout the rest of the continent. In North America, many of the enhancements we have made over the past couple of years in sales, engineering, and digitalization are taking hold resulting in improved performance as well as a passionate workforce and reinvigorated network of distributors and end users. Encouragingly, sustainability is showing signs of increasing in importance in the decision-making process in North America as companies are feeling pressure from boardrooms, employees, and shareholders to reduce their plastic output. In Asia Pacific, the team continues to expand and further penetrate the region. We are thrilled to be opening up a production facility in China in the second half of 22, which will reduce our lead times as well as our freight and logistics costs. Removing the additional cost burden from serving this region out of Europe will enable us to be significantly more competitive and help us drive growth. On automation, I mentioned earlier our goal for this year to surpass 20 million in sales, which is the max capacity of our facilities. We expect that much of this growth will be within Europe, where the majority of our existing automation infrastructure is. But we have ramped up hiring plans in North America, focused on automation as well, and are pushing to expand rapidly in this market as quickly as possible. We are celebrating Rampak's 50th anniversary this year. Our PPS business has been the consistent high-margin growth engine for Rampak over our first five decades. With our focus on R&D and innovation, as well as sustainability tailwinds, I believe BPS will continue to be a critical growth driver and robust cash generator for RAMPAC going forward. For RAMPAC, the structural demand I see unfolding for automated solutions provides what I believe is the biggest opportunity to step change growth over the next decade. Although in the near term it impacts profitability, we believe allocating the capital and resources to this area including the build-out of service, assembly, and installation organizations, will provide us the best opportunity to more rapidly execute on our plan to expand our automation platform when our facilities open. And now, just a moment to share with you some things that we are seeing on the sustainability front. Globally, we continue to see a push to tackle the plastic waste crisis. Later this year, world officials will meet at a United Nations Environment Assembly Conference, also known as UNEA 5.2, to start negotiations on aligning UN member states on legally binding policies to address plastic pollution. This includes initiatives that are both upstream and downstream, with goals of reducing the use of versioned plastic and speeding up the transition to a circular global economy. More than 70 signatories, including many of the world's biggest brands, have joined this effort to come up with systemic solutions to stop plastic leakage into nature. Initiatives such as this one, as well as continued rollout of EPR laws in Europe and now in the United States, including in California, could do wonders for the environment and for demand for paper-based protective packaging solutions. We at RAMPAC are very excited about being part of the solution and doing our part to deliver a better world. This is a special journey that we're on. In closing, I will reiterate that we are proud of what we did in 2021 and are excited about our plans for 2022. Thank you all again. At this point, we'd like to open the line for questions.
spk06: Operator?
spk10: Thank you. If you'd like to ask a question, please do so now by pressing star and then one on your telephone keypad. If you change your mind and wish to withdraw your question from the queue, please press star followed by two. When preparing to ask your question, please ensure that your device and your microphone are unmuted locally. Our first question today comes from Ganshan Panjabi from Baird. Your line is open.
spk06: Thank you. Good morning, everybody. Morning, Ganshan. First off on the paper consumable volumes, you know, up 5.5% in the fourth quarter, up almost 17 in 3Q. Can you just give us some color on what's going on with that dynamic? Was there a pre-buy ahead of price increases? And if so, what are you seeing for paper consumable volumes for the current quarter? And how much volume are you assuming for consumables as it relates to your top-line growth guidance for 2022?
spk05: So in terms of what we saw in the last quarter, you know, we've had a number of closes that helped drive quite a bit of growth. So there was a number of sort of, you know, organic growth that drove part of that volume. Given the SAP and the ERP announcement, we believe with some of our partners, there was a little bit of buy-in. just to make sure that whatever they got in terms of supply in January of this year was seamless. And then what we've seen since then and since implementing the new system is a pickup back again to just normal rates of volume and growth, and frankly, a continued growth in our trials, which hopefully will lead to further closes that will continue to drive sort of the volume going forward. So we continue to see strong trends in terms of volume and in terms of end-user demand. Bill, I don't know if you want to add some color to that.
spk06: In terms of volume, yeah.
spk04: Yeah, and Gautam, the other thing I'd point out just on the volume side is the fourth quarter of last year was extremely frenetic environment from an e-commerce perspective. So I think you had a pretty dramatic increase last year. So a little bit of a challenging comparison on the volume side.
spk06: Got it. And for 22, what are you baking in for volumes?
spk04: We're looking at roughly, if you look at our guidance, Gontram, we're looking at roughly kind of 50-50 in terms of price-volume contribution on the top line there.
spk06: Okay, perfect. And then for my second question, Omar, maybe for you, on automation, a lot of companies, including those in our coverage, They're talking about wrapping up their investments there. Can you just sort of share specifically about how Runtime is differentiating itself from a competitive standpoint, specific to automation? What capabilities are you bringing to the table for your customers?
spk05: Sure. So we're very focused on what we call all end-of-line activity for automation. That is anything from, frankly, putting the item in the box, erecting the box, customizing the size of the box, to leading, labeling, and frankly, with some of our partnerships all the way to loading the truck, if you will. And we have solutions that can do all of that in an automated fashion, Gansham, or some solutions that, let's say, are semi-automated and reduce the amount of labor that you do. The biggest challenges we have is in equipment that we make, which is box customization, pad insertion, robotics, and automated void filth. is we've been hitting capacity in our existing physical footprint. And we've been saying for a while that we want to invest in real estate to expand that capacity because, frankly, the demand we're seeing from our existing customers as well as prospects surpasses our capacity quite a bit. So we are working hard on expanding that in Europe as well as building our facility here in the U.S. I wish there was a way to do that even at a faster rate given the robust demand that we need. And once we do that, this will enable us to basically increase our production by three to four times for just that equipment. There's a number of other solutions we have where we work with other external parties on sub-assembly and assembly that we're also increasing capacity there. And what that would put us is in a position to, we believe, be a leader in end-of-line solutions that our customers want. And that's sort of really the focus and the investments that we're making in a fully robust organization from installation, project delivery, all the way to services and parts so that we can meet the demands of our customers.
spk06: Thanks so much, Omar.
spk09: Our next question comes from the line of Adam Samuelson from Goldman Sachs.
spk10: Your line is open.
spk08: Yes, thank you. Good morning, everyone. Good morning, Adam. Me first. I wanted to just make sure to follow up on Gautam's question on the revenue guidance and maybe think about it this way. So the installed base at the end of the fourth quarter was up about 13.5%. You had 12 points of price on your paper consumables. You're talking about incremental pricing actions, right? moving forward so i pricing you got some pretty easy comps on pricing especially in the first half of the year um the 13 18 constant currency revenue guidance had i think if i took the automation piece that you talked about that's like a point point and a half of revenue growth and so i guess i'm trying to make sure why are implied volumes per machine and the install base declining. Are you finding that those new placements are considerably less productive from a throughput perspective than some of your legacy? Are you finding kind of reduced throughput with existing customers? Because otherwise I'm struggling to really figure how we get to that 13% to 18% constant currency revenue guidance.
spk05: Sure. We watch our revenue per machine very, very closely. It's an important metric for us. One of the things that get lost when you do things sort of at the overall company level is what type of converters and equipment are you sort of investing in and growing. So I'll give you an example. We see a lot of opportunity in wrapping. We see a lot of opportunity in ship from store. Some of that equipment, um is smaller equipment uh just by definition has less revenue per machine compared to some of the larger industrial stuff so we're taking part of that as part of our calculus i think your numbers are generally correct where you're talking about a point point and a half of automation and then the rest of the growth roughly speaking this is not exact we think it's a mix between between price and between volume. One of the things I want to highlight on price, we've instituted some price increases. We will be doing some more. I would say given the inflationary environment we're seeing and given a lot of noise out there with what could be transitory, what isn't transitory, we are asking for price increases. We're not pushing on that lever all the time as much as we can. to continue to see where the world settles. So we're being a little bit patient, and you saw that in our numbers in Q4, and that's part of why we're giving the guidance that we're giving. Could there be some room for further price increase? Yes, potentially, but I think we're taking the position of let's see what happens in the inflationary environment and supply chains before we start doing that across our different markets.
spk08: Okay. All right. That's helpful. A couple of kind of maybe quick hit kind of model questions. One, what was the 5.6 million adjustment to adjusted EBITDA in the period? That was a big kind of item that wasn't really defined or just, or detailed in the press release. Second, what would the, what would your reported revenue and EBITDA be for 22 at current exchange rates? I know you just got constant currency. and then maybe if i could just finally um just any thoughts on kind of free cash conversion i'm looking at 2021 just even just cash from operations versus your adjusted ebitda there's a very meaningful gap and just how we should think about that into um into into 22.
spk04: Sure, Adam. So I'll start with the EBITDA ad back. So the biggest chunk of that is related to SAP and the digital transformation. A big chunk of that is related to the consumables write-off that I mentioned in the prepared remarks. There's also some backfill costs and extra professional fees associated with that. So that was about three and a half to four of that ad back. And then the others were largely driven by expenses related to the RECI cold acquisition and some other legal fees. So it recognized it was bigger than normal, but a lot of it was related to SAP. As far as the free cash flow conversion question, this year we did invest a lot more in our working capital. We've talked about that on a few of the calls where we were building up inventory of converters and paper to be ready to serve our customers just given all the supply chain. constraints that are going on in the world. So that I think was a big driver of what the disconnect between the EBITDA and the cash from operations. We expect that to normalize going forward right as we've built up sufficient safety stock and expect to be selling out of stock now rather than building up inventory. But for 22, we do expect to generate meaningful cash with these investments that we're talking about. With 75 million of CapEx and the growth profile that we have in the cash generation from our PPS business, we are expecting to generate cash going forward. And then on the EBITDA question, at current exchange rates, I'd have to get back to you on that. I don't have that handy in front of me, but we can follow up.
spk08: Okay. All right. I appreciate all that, Clark. Thank you.
spk10: Our next question is from Greg Palm from Craig Hallam Capital Group. Greg, please go ahead.
spk01: Yeah, thanks. Morning, everybody. I guess just wanted to dig into pricing just a bit more, just unclear. So do these newly announced price increases, can that completely offset the input cost inflation or will there be a continued sort of lag or headwind in 2022 based on what you're seeing today?
spk04: Yeah, Greg, this is Bill. I'll start with that. So there's been a lot of movement in the commodity markets recently and continue. So we are constantly analyzing those and making sure that we're clawing back the margin where we see fit. You saw some impact in the fourth quarter. We've already announced some pricing actions to take place. I think if you're just thinking about the cadence of it, we do expect some of that pressure to persist in Q1 and then improve going forward as the announced pricing actions are implemented. Just given the transition to SAP, we're not able to implement those as quickly as we normally would, but we are expecting to claw back meaningful amount of margins, particularly as the year progresses.
spk05: The plan, Greg, is ultimately, as the year goes on, you'll see us implementing enough price increase to sort of offset the inflationary environment. that we're seeing. And one thing I want to highlight on that, and you guys obviously know this, yes, paper price increases have occurred in the marketplace. There's inflation vis-a-vis labor and labor costs and so on. From a competitive landscape standpoint, we actually are getting into an area where our competitors that are doing more with plastic and plastic substrates are facing more pricing pressure and asking for more price increases, and that is helping us from a competitive standpoint. So when Bill says it's dynamic, we're watching it, we're trying to decide what to do, part of our calculus also is to balance that with what we want to do from a market share standpoint. and what we want to do from a volume standpoint. Do we want to sort of push a bit more on volume and wait a little bit on price because we have that choice? Or do we want to just implement price increases to offset everything we're seeing? That's part of the stuff that we're reacting to in the marketplace, depending on what we're seeing out there. But from a competitive standpoint, it's important to highlight we're seeing advantages. Like I'll give you one example with foam in the industrial channel. the price increases there have been significantly higher than paper. And that's an area that we're focused on gaining more market share in the industrial channel.
spk01: Yeah, that makes sense. And I'm guessing some of these price increases for the alternatives don't even take into account the recent move in energy and crude prices, right? That's correct.
spk05: So that's another added relative benefit, if you will. But this is why we're watching things and we're making decisions based on new data and based on what we're seeing out there and the market reaction from some of our customers and competitors.
spk01: Yep, makes a lot of sense. And then I'm curious, what do you think the current demand profile of automation is today? So you're maxed out right now. I'm guessing demand is quite a bit higher than the $20 million that you said you'd be able to fulfill this year. So I guess better said, how much revenue do do you think you'd generate this year if you had more capacity?
spk05: I think if we had the capacity, we could have delivered double the machines that we have from a demand standpoint honestly easily. The limitation has been us, our capabilities, our physical footprint. It has not been the end users, and that demand is robust. In Japan, in Korea, in Australia, in Europe, in North America. So the demand for automation solutions, I think, is quite large. By the way, for us and for our competitors. And the question is who's going to be ready and crack the code to provide the right solutions at the right price and time. And that's sort of the race that we're in.
spk01: Got it. So we probably shouldn't be expecting just some growth next year as that capacity comes online, but pretty meaningful growth in automation.
spk05: That's why we highlighted in our commentary just the capacity, the 3 to 4x, you know, that we are recruiting to get ready for that. As you can imagine, let's say if all of our physical facilities are ready by end of 2022, There will be a little bit of a ramp-up period in early 2023. We're hoping we would do enough planning that that ramp-up period is short, and then you should start seeing us hopefully operating at a much meaningful larger capacity and try to sort of meet the demand at those elevated levels.
spk01: Great. All right. Well, best of luck going forward. Thanks. Thank you.
spk10: My next question comes from Stefanos Christ from CGS Securities.
spk07: Please go ahead. I want to address one of the previous questions. You talked about taking share from customers of plastic as oil prices are rising. Are you taking share from existing customers who use both paper and plastic, or is that helping you gain new customers?
spk05: We are very focused on gaining share from customers that are utilizing plastic solutions today. That's a big part, both in industrial and in voyage fill, of where we're targeting some growth opportunities and helping them switch from plastic to paper-based solutions. obviously with sustainability being a key part of it, but frankly, trying to push on pricing where it makes sense, given what we discussed with sort of the inflationary environment. So our key focus is on switching a lot of customers over time from plastics to paper, and that is similar to what we've seen in Europe. And frankly, this is why we mentioned EPR regimes, the Extended Producer Responsibility Regimes, where that's been implemented in the state of Maine, in Oregon. There's discussions about it in New York and in California. If these regimes are implemented and implemented in a way where there are, let's call it, more taxes or fees associated with virgin plastic and less with paper solutions given the high recycling grade of paper solutions, that's gonna continue to help us shift more customers you know, from plastic to paper. And frankly, that's precisely what happened the last number of years in Europe with their EPR regime. And that's been something that you guys can see our numbers and what we delivered in terms of growth out of the European continent. And we're hoping that that's something we can duplicate in North America in the upcoming couple of years. So Steph, to answer you in a nutshell, there's a big focus on switching folks from plastics to paper.
spk07: Great, thank you. And then I just want to follow up on cold chain. Could you give us a sense of, you know, what percentage of revenue that is currently and the potential of that end market?
spk04: Yeah, so right now cold chain is low single digits, right? But we see a lot of potential for this, and we are excited to invest in ResiCold and package that with some of our existing Rat Pack solutions. We think it's a really nice combination and a nice solution to offer to customers. We think that the growth opportunities there are meaningful, and we're continuing to invest and add solutions to our profile. add the summer profile to our current cold chain offering in the future and continue to grow there. So, you know, just the food and beverage, I think passive cold chain market alone is roughly about a 5 billion market, growing high single digits, you know, 10% area. And then you can add some, you know, passive cold chain on pharma, but that's, you know, longer ways away. So we think that there's meaningful opportunity to expand this business with our current offerings.
spk09: Perfect. Thanks so much. Next, we have a question from Alexander Leach from Berenberg.
spk10: Your line is open.
spk03: Morning, everyone. Thanks for taking my question. I know you usually agreed on pricing for the year with mills, but given the volatility in pricing, can you discuss a little bit more of the conversations you've been having with your mills recently and how How have negotiations fared for the growing prices for 2022? And have they spoken much about the expectations for pricing through the year?
spk05: Yeah, I mean, listen, obviously, the last few months, many of our suppliers and mills have been very focused about, you know, the inflationary prices that they're enduring. And that has been part of the conversations we're having with them, in particular on the energy side. where in addition to all other labor issues, et cetera, on the energy side, you've seen quite a bit of pressure. We have secured the supply that we want for 2022. So we've negotiated on the volumes that we want. We have negotiated with folks at prices that we feel good about. And as I said, with some price increases that we would be doing, we feel we would be maintaining the financial profile In some cases, we have a number of suppliers where we also agreed on indexing things based on like the grocery bag index, etc. But it's infrequent where it gets re-rated. So call it with some suppliers every six months or so. We may revisit depending on what's happening with some of the indices out there. And the reality, that's just more a reflection of how volatile the world is. So maybe if things ease up, we see some favorable pricing. If not, it'll be a mechanism for our mills to continue to get respectable margins. And that would be something that if that happens and prices go up in, let's call it six months with some of the vendors, we would be adjusting for that in our own price increases with our customers. But in general, we feel very, very good about securing our supply for this year. And we've locked in, I think, at rates that we're comfortable with that will maintain our financial profile.
spk03: Okay, great. And you made some comments on M&A going forward in this year and next year. Can you just discuss a little bit about the pipeline that you're seeing for 2022?
spk05: yeah we continue to look m a right now is really largely driven by what we think our solution our solutions that our customers want so we continue to look for certain situations that beef up our our automation capabilities uh we will look for products that enhance our you know suite of offerings in in pps uh The world is a little bit uncertain right now. I wouldn't say we are aggressively looking at anything. We are more always sort of keeping our eyes and ears open and looking for things that our customers want. And we feel we can offer those products to them or those solutions to them. So that's really what we're looking at. It's not different than what you've seen from us in prior year. The biggest difference is today, From a technology and platform standpoint, given all the digital investments that we highlighted, our company is a lot more robust to take on bigger M&A if an opportunity like that arises. But we all know M&A is dynamic. It's fluid. It depends on valuations and a lot of factors out there. We're going to be very, very disciplined. It's part of our allocation of capital strategy. And when we think something makes sense, and in particular makes sense for our customers, we will pursue it. But in the meantime, you have a sense of what we've done, whether it was the investment in Pickle, in Creapaper, buying Reticold. These are all things that were driven by us trying to have better offerings for our customers, and we will continue with that strategy.
spk03: Okay, great. And if I could just slip one more in, how much of a benefit are you expecting from your digital transformation on margins? And I'm assuming that all the benefit will be sort of used to reinvest back into the business as you scale, but just trying to get an idea of how much, you know, how much of a leeway it's going to give you in terms of being able to reinvest back in the business whilst maintaining the margin profile.
spk04: Yeah, so, you know, it depends on the different areas that we're in, right? There's real opportunities when you implement a system like this in procurement. You know, the data that we have on that is really attractive, where we might be able to extract efficiencies meaningfully there, as well as a number of our other process flows. So we think that, you know, going forward, this will provide us a nice opportunity to reinvest in the business, to drive growth and maintain that, you know, kind of 30% EBITDA margin profile that we like to target. As far as, you know, giving you specific, you know, numbers on what that margin opportunity is, you know, it's hard to say at this point because we just implemented the system, but we think that, you know, from the benchmarking data that there's real opportunity for savings here. Okay, great.
spk09: Thanks, guys. Next up, we have a follow-up question from Adam Samuelson from Goldman Sachs.
spk10: Your line is open.
spk08: Yes, thank you. Just want to follow up on the outlook for 22 on the base business. And if there's any delineation or kind of distinction you draw in terms of the price volume outlook across the different parts of your installed base chain cushioning, void fill and wrapping in terms of what areas where you're more optimistic on growth versus maybe a little bit more guarded and corollary. Can you just disclose or what your direct exposure is in Russia and Ukraine?
spk04: Sure. So on the outlook, if you think about our major PPS categories with cushioning, wrapping, and void fill, the outlook that we have on each one of those categories is attractive. Where we think there are real opportunities is to continue to grow that cushioning business. Just what's going on in the foam-in-place market, we think that there's a real opportunity for our paper solutions to expand there. So we're optimistic about improving the growth rate within our cushioning solutions. Void fill e-commerce remains strong and the share shift from brick and mortar is real. So we're continuing to see nice growth opportunities there, particularly in North America where we may be a little bit more under indexed. And then Wrapping, that's a product that gets great traction across the globe. So the growth profile there, I think, is consistent with what we've seen in the past. There's real opportunities to expand that business, particularly as the ship-from-store opportunities expand.
spk05: And on your Russia and Ukraine question, in terms of customer exposure, it's de minimis for us across the company. It's very, very small. I think the exposure is a few basis points of our revenue. So that's not really an area of concern for us. We do have some suppliers of paper out of Russia. We're monitoring that closely. We feel pretty good, again, about securing our supply. And if needed, you know, given our negotiations, we can flex with others. But we're watching that piece.
spk08: All right. That's really helpful. Thank you.
spk05: Thank you.
spk10: As a reminder, for any further questions, please press Start, followed by 1 on your telephone keypads now.
spk09: We have no further questions, so I'll hand back to the management team for any concluding comments.
spk04: Thanks a lot, Emily, and thanks, everybody, for joining us today. We look forward to getting together in the first quarter.
spk10: Thank you, everyone, for joining us today. This concludes our call. Please now disconnect your lines.
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