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spk11: Good morning, ladies and gentlemen, and welcome to Univar Solutions' third quarter 2020 earnings call. My name is Carol, and I will be your host operator for this call. Currently, all participants are in a listen-only mode. After the presentation, we will conduct a question and answer session. Instructions will be provided at that time. If at any time during the conference you need to reach an operator, please press star followed by zero. I will now turn the meeting over to your host for today's call, Heather Koss, Vice President of Investor Relations at Univar Solutions. Heather, please go ahead.
spk02: Thank you, and good morning. Welcome to Univar Solutions' third quarter 2020 earnings call and webcast. Joining our call today are David Jukes, President and Chief Executive Officer, and Nick Alexos, Executive Vice President and Chief Financial Officer. Last night we released our financial results for the third quarter ended September 30, 2020, and posted to our corporate website at unibarsolutions.com a supplemental slide presentation to go with today's call. The slide presentation should be viewed along with the earnings release, which also has been posted on our website. During this call, As summarized on slide 2, we will refer to certain non-GAAP financial measures for which you can find the reconciliations to the comparable GAAP financial measures in our earnings release and the supplemental slide presentation. As referenced on slide 2, we will make statements about our estimates, projections, outlook, forecasts, and or expectations for the future. All statements are forward-looking, and while they reflect our current estimates, they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filing for a more detailed summary of the risks and uncertainties inherent in our business and our expectations for the future. On slide three, you will see the agenda for the call. David will start with third quarter highlights and end market trends. Nick will walk through our financial update, and then David will close with progress on our next year integration and business strategy. Following that, we will take your questions. With that, I'll now turn the call over to David for his opening remarks.
spk04: Thank you, Heather, and good morning, good afternoon, and good evening to everyone, and thanks for joining our call. Our mission at Universal Solutions is to streamline, innovate, and grow, and I'm pleased to see progress on that mission reflected in our Q3 performance, which remains solid as we continue to adapt to these challenging times and deliver results. As a company that is always serious about safety, this remains our highest priority for employees, suppliers, and customers, and I'm pleased to report that all our facilities remain operational. Key highlights from the quarter are we delivered solid earnings beyond the upper end of our expectations in a challenged environment. Although sales were down versus the prior year, we were able to partially mitigate the economic headwinds by selling to new customers, practicing disciplined margin management, and implementing cost reductions. We continue to monitor changing customer demands as we operate in this new normality. I'll speak more on overall trends in a moment. We had strong liquidity for $730 million and are on track to end the year within our $750 to $800 million guidance range. Our Nexo integration remains on track, and we continue to make progress on our business systems migration. We continue to grow our digital capabilities and make progress on our Salesforce effectiveness, attracting more new customers. we advanced our newly launched S22 program, rounding out the leadership in our global specialty industry verticals and streamlining our business with a sale and exit of some non-strategic assets. We continue to work with customers as they seek to return to higher operating rates and with our suppliers as they do the same, as well as manage through some weather-affected outages in the Gulf regions. As compared to the prior year, excluding the divested environmental sciences business, July and August sales were down low teens, while September was down mid-single digits. We continue to see accelerated demand in core products within the consumer solutions business, with a robust return of business in personal care, as well as double-digit growth in our pharmaceuticals markets. Many of our general industries experienced a solid July and ended the quarter with a strong September. We benefited from the return of the automotive sector, which is lifting demand in our industrial solutions business. Refining and chemical protein markets continue to be down significantly in both the USA and Canada. However, October rig count data gives some cause for optimism that we may have reached the bottom. As an insight into current trading, October sales have continued at the same levels as a good September, but we do expect a slower period in November and December driven by normal seasonal slowdown and the potential of a resurgence of COVID-19 related shutdowns. As a result, our adjusted EBITDA guidance range for 2020 is $629 to $634 million. For 2021, we'll give more detailed guidance in our year-end call in February, but we do expect the year to show growth in line with the economic dynamics of the year with some puts and takes that Nick will expand upon shortly. Longer term, we believe the actions we've taken and the F22 program further position our business for sustainable success, even as the pandemic continues to disrupt life for the foreseeable future. We believe we have the right tools, products, people, and strategy that will allow us to continue to deliver innovative solutions that customers and suppliers value and will deliver share growth. Now, let me turn the call over to our CFO, Nikol Exos. He will walk you through our third quarter results and our outlook. Then I will close and update on Nexo integration and the Streamline 2022 progress and highlight our key business strategies.
spk00: Thank you, David. Hello and good morning to all. I am pleased to share Universal Solutions' strong financial results and update you on our business activities. Constant currency net sales were down 15.6%. Excluding results of environmental sciences from last year's financials and FX, we estimate net sales were down approximately 11.1%. Gross profit, exclusively depreciation, was lower by 9% to $496 million, or 8.7% on a constant currency basis. Our gross margin expanded by 190 basis points to 24.7, driven by a more favorable product and end market mix in our core businesses, and a lesser benefit versus Q2 from non-recurring end market volume and margin driven by COVID-related demand. We estimate gross profit, exclusive of depreciation, was down 4.1% on a constant currency basis when excluding results of the environmental sciences from last year's financials as well. Third quarter adjusted EBITDA of $165 million was lower by 10.6%, and 9.7% on a constant currency basis due to lower demand in markets globally, price deflation in certain products, the environmental sciences divestiture, and some S22-related expenses in Canada. The decrease was partially offset by Nexio Net Synergies, favorable product mix, and interim cost reduction measures. Excluding the environmental science business from last year's results, adjusted EBITDA was 5.2% lower on a constant currency basis. While we have good gross margins and we are managing our costs as planned, lower overall volumes impact our EBITDA margins. During the quarter, we captured net cost synergies related to the next year integration of approximately $11 million for a year-to-date total of $41 million, versus a revised $45 million for all of 2020. Q3 net income is $28.9 million, or 17 cents per share, compared to a net income of $2.5 million in the prior year period. The increase in net income was primarily due to the lower taxes and lower warehouse selling and administrative expenses, partially offset by lower gross profit. Adjusted earnings per share for the quarter was 34 cents, a share compared to $0.36 in the prior year period, as lower adjusted EBITDA more than offset lower interest expense and lower taxes. Working capital was our largest use of cash during Q3 as we guided on our second quarter earnings call, driven by the timing of working capital in our Canadian agriculture distribution business and a slight increase in our U.S. aged accounts receivable. Excluding the Canadian agricultural distribution business, which we are winding down and will be exiting in 2021, our net working capital would have been 14.4% of annualized net sales versus the 15.1% reported. The cash impact of higher working capital was partially offset by higher net income. Capital expenditures for the quarter were around $37 million, and Nexio integration-related expenses were around $12 million. We ended the quarter with cash on hand of $274 million in total liquidity, including availability under our asset-based credit lines of $730 million. Our ROIC was 9.4% for the quarter versus 10% last year. We expect these figures to improve as we continue to capture the synergies from integration as well as grow the business. The leverage ratio stands at 3.8, marginally down from 3.9 last year. On slide 8, we have aggregated the key metrics across our four reporting segments and provided detail in the appendix. Our three largest regions saw top-line decline primarily due to the lower overall global demand. If we exclude the impact of divestments in energy, we see U.S. and Canada trends improving in each of our core business lines sequentially since Q2. In the U.S., excluding the impact of the environmental sciences divestiture, sales were down approximately 14%, also reflecting the continued headwinds in energy. EMEA had a disproportionate benefit from COVID-related essential end markets in Q2, which tailed off what is otherwise seen solid sequential trends. LATAM continued to benefit from growth across its range of end markets. As I mentioned, in each of our geographies, we saw favorable product mix contribute to a higher gross margin with a lower impact from the COVID-related essential and markets. Our Canada segment gross margin growth was adversely impacted by a $5 million write-down of inventory as we managed down the Canadian agriculture distribution business. Total adjusted EBITDA margin expanded 50 bases. USA adjusted the down margin, expanded by 60 basis points, despite the adverse impact of energy and absorbing an increase in account receivable reserves. In Canada, margins declined primarily due to the ag inventory write-down. EMEA and LATAM were solid contributors to the overall performance. Turning to the key highlights for the rest of 2020, we emerged out of the third quarter performing better than our expectations and we are confident in our execution going into the fourth quarter. Despite strong momentum in September having continued into October, overall visibility remains limited due to increased uncertainty related to a COVID resurgence. We do expect our Q4 adjusted EBITDA to be in the range of $140 million to $145 million, and our full year adjusted EBITDA to be between $629 million to $634 million. Our capital expenditures for 2020 will be $115 to $120 million, which includes $11 million for a property we acquired this year that we now intend to sell and lease back. NXIO integration expense, which is not included in our adjusted EBITDA, is expected to be $60 million for the year, and cash use of other expenses and the timing of year-end accruals is now at $80 million, which is $10 million lower, of which $26 million has already occurred year-to-date as a use. We continue to target at least $100 million of cash available for debt paydown by year-end, pre any divestment proceeds, with liquidity to be in the range of $750 to $800 million. Key S-22 milestones through Q3 include The closing on the sale of our industrial spill and emergency response business. Announcing the exiting of our Canadian agricultural distribution business. We expect to generate over $70 million in cash, mostly in 2021, as we undertake an orderly wind down of our working capital. As of this week, we have an agreement for the sale of our Canadian agriculture services business, which is expected to close in Q4. Although definitive terms aren't being announced at this time, It will be additive to $100 million of cash available for debt paid on and accretive to our leverage multiple. We are increasing our S-22 charges to approximately $90 million versus the $50 million guidance we gave last quarter. The change is principally due to goodwill and fixed asset impairments on the ag services divestment and some additional charges related to ag distribution exits. The total cash portion related to the X22 charges, however, has been reduced to approximately $10 million from $20 million. Most of this cash portion is included in our other cash use as noted for 2020. These initiatives are integral to achieving net leverage of three times by year-end 2021 and improving our margins. Although we are not providing a specific 2021 EBITDA guidance at this time, some key factors that we expect may impact our adjusted EBITDA and cash flow for next year are as follows. Given our breadth and range of strategies, our business will grow organically, in line, or better than the economy. Our EBITDA margins are expected to expand towards our S22 target of 9% at the end of 2022, driven by operating efficiencies while absorbing a pickup for more normalized incentive compensation and variable operating expenses related to next year versus our 2020 adjusted ebitda results nexio net synergies will be an incremental 25 million in 2021 offset by approximately 25 million of divested ebitda and a 35 to 40 million reduction in volume and margin of COVID-related products from essential and markets. We are equally focused on generating strong free cash flow. Capital expenditures are expected to be in the range of $120 to $130 million as we are seeing good ROI projects in our business. Final next-year integration costs are expected to be in the range of $60 to $70 million. We also expect our ongoing working capital to stay in our target range of 13% to 14%, and our other cash uses will normalize at an average level of $30 million. Separately, net cash proceeds are expected to be $50 to $55 million from the remaining liquidation of the net working capital related to the Canadian agricultural distribution, which is net of the $15 million expected to be realized in Q4 2020. Also, the gross proceeds from planned investments will generate an additional $200 million. Here again, less amounts to be realized in Q4 2020. I would like to further highlight the expected strong net free cash flow conversion of our company of approximately 40% in 2021 as we complete the Nexio integration and execute on our S22 plans. Before I hand it back to David, I want to sincerely thank all 11,000 of our employees, as well as our many constituents outside the company, for their solid commitments during this challenging environment. David.
spk04: Thanks, Nick. Moving to our integration progress, despite the COVID-19 obstacles, we successfully delivered on several significant integration milestones, with $11 million of net sale cost synergies during the quarter and $41 million year-to-date. I'd like to highlight a few of those milestones now. We successfully kicked off the fourth wave of our business systems migration, and are continuing to successfully service our customers while optimizing our processes. Our site consolidation plan continued, closing six branches in the quarter, bringing total closures to 25. We finalized the sale of two further sites with cash proceeds of approximately $4 million, remain on schedule to close at least 15 branches in total during this calendar year. Since December 2019, our real estate site sales have generated pre-tax cash proceeds of $70 million. Our system migration plans to a single SAP system and timeline remain the same as we communicated last quarter. The USA is scheduled to complete in Q2 2021, with Canada and Mexico following up behind in the second half of 2021. We are in the early stages of realizing the full benefits of optimizing our scale, but remain wholly committed to our strategy of having a strong local presence for our customers. Moving to our business strategy progress, Salesforce effectiveness remains a key driver of business improvements as we leverage our advantage network of sellers in combination with our digital platforms. We continue to track our levels of pipeline growth, transactional activity, customer retention, margin management, and effective activity at the local business level. Even with the obstacles of COVID-19, we've maintained momentum continue to see good progress in the leading indicators. In the USA, our average customer contacts remain at the elevated levels of Q2, despite those restrictions on face-to-face visits. And I'm pleased to report that the trend started in the first half of the year, continued in Q3, as we welcomed hundreds of new and returning customers. And equally important, of those new customers we welcomed in the first half of the year, 50% purchased again in Q3. The F22 program is well underway. In addition to the portfolio optimization work Nick highlighted earlier, we've done the following. We've worked with external partners, including key suppliers and customers, to develop a leading customer experience center of excellence to ensure we deliver customers with the easy, enjoyable, and effortless experience they deserve. After the introspection of the integration process, it's good to be able to turn our complete attention externally again and put the customer firmly at the center of our activities. Leveraging learnings from key suppliers and existing customer feedback, including Net Promoter scores, our initial focus will be on doing the fundamentals really well. In our consumer and industrial solution specialty verticals, Nick Powell has now completed his leadership structure including both internal and external appointments. The team is made up of industry-renowned professionals dedicated to leveraging all our resources to innovate and grow. Our breadth and depth of knowledge, premier product portfolio, deep technical expertise, and solution centers provide differentiated benefits to our suppliers and customers. The ability this brings to ensure a consistently high level of specialty market intimacy in whatever geography we operate is something key partners tell us they want. The expansion of a dedicated approach by customer and market with a set of chemists and ingredients more commonly referred to as specialties will be an important driver of our mixed enrichment goals. A strong supplier partnership tremendous bedrock for our business and a source of competitive advantage especially in times like these. Over the last few months, we've been awarded with new or expanding product authorizations from suppliers such as Exotic North America, Comstar Refrigerants, Dalbert Chemicals, Huntsman, Novozymes, and PBS Chloralkala. These partnerships, along with the leading chemical and ingredient products they bring, are a recognition of how our partners recognize the value of our end market expertise and digital capabilities to support their growth. We continue to build and expand a robust portfolio of products and solution capabilities. And as we look forward to putting the Nexo integration process clearly in our rearview mirror, we've developed a more externally focused, customer-centric approach to dry growth. We believe the differentiated operating model we've deployed, supported by an increased adoption of our digital tools, will allow for both deeper customer intimacy and greater cost productivity throughout the end markets we serve. We continue to accelerate our omnichannel approach, better addressing current customer preferences. We expanded our podcasts and customer webinar offerings to promote the technical capabilities and stimulate demand for certain chemicals and ingredients in all regions, reaching over 1,000 customers in the quarter. Meanwhile, chempoint.com, a long-standing, dedicated, digitally-enabled sales channel, continues to advance in a marketplace where traditional sales methods are challenged. Overall, our digital footprint continues to deliver results, presenting another source of competitive advantage for us, as customers search, select, source, and self-serve in growing numbers, whatever the time of day or night they choose. And as we operationalize the customer-centric focus I spoke of earlier, our recently launched Where's My Stuff feature has received rave reviews from our customers. Altogether, our digital foundation and committed Salesforce strategy is aimed to maximize the effectiveness and scale of our operation, as well as make it easier for customers and suppliers to do business with us and deliver market share growth. We're confident that we're investing in the right tools to streamline the supply chain, innovate with customers, and accelerate growth in step with consumers' changing preferences, while always staying in tune with specific local needs of customers. So before we come to your questions, to summarize, we delivered solid financial results during these challenging times. We're maintaining firm control of our working capital and other cash needs, and expect to end the year with $750 to $800 million of liquidity. We maintain momentum on our next-year integration program and are on track to achieve our $120 million of net synergies. We delivered $10 million of cost reductions in the quarter against the greater than $40 million of additional cost savings we identified this year, half of which are year-on-year. we're investing in furthering our digital advantage, which is becoming increasingly attractive to our customers. The S22 program is tracking very well towards delivering growth in revenue and 9% EBITDA margins through global and functional excellence. We remain on track to deliver at least $100 million in debt paydown from cash pre any proceeds from divestment. We plan to progress with our portfolio management that's designed to lower our leverage to three times by year-end 2021 and focus on strategies on our core business. We continue to see the opportunity to capture new business as we target growth through Salesforce effectiveness and omni-channel approach and the digital capabilities to better serve customers. By completing the next-year integration, the U.S. business systems migration and S22 in 2021, we will drive further focus on delivering operating agility and the decisive actions to enhance our competitiveness that will increase our operational and financial flexibility. The company is positioned to capture greater value from the anticipated market recovery and growth opportunities ahead, and we believe these collective efforts will provide greater shareholder value. Thank you for your attention. Please stay healthy and safe. And with that, we'll open it up for your questions.
spk11: If you would like to ask a question, you will need to press star 1 on your telephone. To withdraw your question, please press the pound or hash key. Our first question comes from Steve Byrne from Bank of America Securities. Please go ahead.
spk05: Hi. Good morning, David and Nick. This is actually Luke Washer on for Steve. Your touch points were up 75% year over year, but sales were obviously down in the quarter. So I wanted to ask, how are you measuring the effectiveness of these touch points? Are you looking at kind of a win-loss ratio? And do you feel that you're gaining share from other suppliers?
spk04: Hi, Luke. Good morning. I think that the sales organization, I think, are in pretty good shape at the moment. So I'm very pleased with how they've adapted. to a changed sales model and how they're adapting to the sales routines that we put in place for them. So I'm pretty pleased with how that organization is going. I'm never happy, but I'm pleased. I think what you have to be mindful of if you look at our top line is that we have a headwind in our energy business, which will take some top line growth down. But if you look at the improvements in our mix, improvements in our margins, we're actually winning business and winning share in that um core distribution business so the quality of the business that we're winning and taking is is a good business and it's more than more the core kind of business for a chemical distribution company so i'm i'm overall i'm pretty pleased with uh with how things are shaping up great and just another one on nexio synergies during the quarter
spk05: and it looks like you got more nexio synergies than maybe you had expected before but your full run rate of synergies through 2021 has remained the same at 120. so when you look at 3q was this kind of just a pull forward of those synergies or do you think you potentially identified opportunities for either for more consolidation or anything like that no and we're very focused on 120 million dollar commitments
spk04: And so we were able to pull some things forward into Q3 as we go through the systems migration program and just are able to focus on a few things that we couldn't have got to earlier. But, no, we committed to 120 million commitments. However, we have our S22 program, and clearly we see opportunities there to optimize the business further. And so our focus is also on that now.
spk07: Got it. Thank you.
spk11: Our next question comes from Bob Cort from Goldman Sachs. Please go ahead.
spk09: Thank you. Good morning. David, I was struck a little bit in your partial guidance for next year about talking for organic growth to be aligned with the economic growth out there. I guess it seems a little bit out of line with the, you know, assertions of selling differentiated benefits to your suppliers and customers, especially focus the sales force traction. Why not have greater ambition on your sales development going into next year?
spk04: Well, I think we said, Bob, that we'd grow the rates are better. And that's how we see things. You know, we do see the mixed enrichment strategy working. We do see the greater focus on those differentiated end markets starting to work. But, you know, clearly the economy is going to play a part in what we do, but we believe we can grow at least in the economy or better.
spk09: All right. Maybe it's my semantics of in line versus at least in line. But, Nick, let me ask you a question. You did mention a headwind from – normalizing compensation and some of the COVID-related travel reductions this year. Can you dimensionalize that for us in the next year? How big of a delta could that be?
spk00: Yeah, Bob, thanks for the question, and thanks for your note last night as well. We aren't necessarily dimensionalizing it. I think, as you would expect, in any recessionary period, you tend to pay less incentive comp, and as you recover, you have to absorb that incentive comp and any operating expense in your growth rate. So we're just trying to make that point so that people recognize that we will balance that as we target towards that 9% target, which would mean that you might see less increase in margin next year and then the proportional increase in 2022.
spk09: If I could sneak a last quick one in. You mentioned inventory write-downs in the Canadian ag business report. How big is that and why was that required? What products? Thank you.
spk00: Yeah, I mean, essentially we decided to pursue an orderly exit of that business. And as you can see in the appendix, there's about $70, $70 million of working capital left in the Canadian business that we will liquidate orderly over the next couple quarters. Part of that is inventory. It's a small part of it. Less than a third of that is inventory. And we just reserved roughly $5 million in Q3 against that. We don't expect any material further risk against that going into the next few quarters. But it was really just taking a reserve against some of that inventory. It's all good inventory that will sell through into the season next year.
spk09: Okay, thanks so much.
spk11: Our next question comes from Laurent Fabre from Exane. Please go ahead.
spk10: Hey, good morning, Gad. My first question is on oil and gas. David, I was wondering if you could give us a sense of magnitude of the decline there. Your, I guess, closest peer talked about being down one-third. Are we talking about the same magnitude? I know you have more upstream exposure, so maybe that's even worse than that. How small or how big is the business now when we think about the second half, for instance? That's the first question.
spk04: Good morning. Hi, Laurent. So our oil and gas business last year in total, our energy business last year in total, was about 9% of our sales. As we go through this year, it's about... 6% of our sales. Of that, probably just a little over a third of that is upstream oil and gas, and that's halved this year. So it's been a significant headwind for us going into this year. We said at the start of the year we expected a $20 million headwind from oil and gas. It's going to be at least that and probably double it, maybe a little more than double it. But what I am pleased to see is that we are growing our business in other places and improving the mix to partially offset that. Whilst I said the rate count is looking a little better for October, honestly, we don't expect... any pickup in that business going forward. That isn't built into our thoughts. And the business that we have these days in that sector is more specialized products. So we feel it's a bit more robust and better margin business than we would have traditionally had. So I think we're at the bottom. Thank you.
spk10: The second question was on the 2021 Nexel integration stuff. So on one side, you're talking about cost of 60 to 70, and on the other side, you have benefits of 25. We usually see a bigger ratio of cost to benefits at the beginning of an integration, not at the end. So I'm just wondering, can you remind us what's in that 60 to 70, and are there in there some costs that are actually related also to the S22 program?
spk04: So there aren't costs related to the S22 program. We know it is. certainly in terms of the benefits from it. I mean, the last part of the benefits don't come from beginning of 2022. There's a big chunky number there, and that comes when we can turn off the legacy IT systems. So until we can turn off the legacy IT systems, as long as you've never got 5% of the legacy IT systems, I have to keep that environment up and alive. So I can't shut that down until 2022, and that's when the big benefit or the big chunky final benefit comes through.
spk00: And as you know, Laurent, there's a further incremental EBITDA pickup in 2022 in the last quarter, which is additive to that $25 million. Thank you.
spk11: Our next question comes from Lawrence Alexander from Jefferies. Please go ahead.
spk01: Hey, guys. It's Dan from Lawrence. How are you? I can't hear you. Provide color on, I don't think we've heard in a while, agreements with suppliers. I was wondering if it grows from here as it's flowed during the pandemic or, I mean, is it where you want it to be?
spk04: Sorry, Dan, I didn't quite catch the question.
spk01: Agreements with suppliers is something you guys highlighted in the past. I was wondering if you could provide color on that.
spk04: Well, we have, you know, I think we announced five or six new agreements in the last quarter. You know, certainly business is a little more complicated these days than it used to be, but we are now making good progress. We have a very focused group of people in our dedicated industry verticals, all focused on their end markets and the products and chemistries and ingredients that are required for their end markets and will bring benefit to customers. So we have a dedicated group and a dedicated team on that now. as part of our consumer solutions business under Nick Powell's leadership. And also suppliers are now thinking about how they operate in this new normal. So I think that we'll see a slightly more accelerated rate in 2021 than we did in 2020, but we continue to make good progress, you know, as we referenced in the prepared remarks.
spk01: Okay, and then you mentioned what's going on with Canadian ag. I was wondering about other potential business line divestitures. Now, obviously, you're not going to name them, but I was wondering where you are in the process. Is this type of review just getting started? Is it an ongoing thing, or is it something that's almost completed, just any color?
spk04: Well, Dan, I think we flagged up that we expect to get at least $200 million from divestitures, and we're well on track with that. The ag business contributes to that. It helps that. We do have other things that we're considering. It's never a precise science, buying and selling businesses. I would hope that we can be through that in the early part of 2021. Thank you very much.
spk11: Our next question comes from Kevin McCarthy from Vertical Research Partners. Please go ahead.
spk08: Good morning. This is Corey on for Kevin. As it relates to the ag business, I was wondering if you could give us some guidance maybe on what the EBITDA, the margin and timing of the closing of the deal is, just so we can kind of get an idea of what that was contributing.
spk00: Yeah. So, Corey, there's two ag businesses. There's the distribution business, which as we said, is being liquidated over time. That, as was broken out in our SEC filings, is roughly about a 300 million revenue business, not contributing a lot of EBITDA. So that's basically the $70 million of working capital. The ag services business that we've just executed this week, we're not disclosing the details It's less than a quarter of the total $200 million divestiture proceeds that we're targeting, and we just kind of called out that, you know, it's, you know, accretive to our leverage multiple. So I think it's a good outcome for the company and for us.
spk08: Got it. Thank you. And just a slightly different tack here. How are logistics costs trending? I think shipping costs have risen, but, you know, like domestic, shipping costs. How is that trending for you guys?
spk04: Certainly, third-party freight is a little tighter than it was a few months ago. So there is some tightness on that. But we do have most of our freight, or not most of our freight, Two-thirds of our freight is on our own fleet, and so we can get operating effectiveness out of our own fleet. But third-party freight prices are increasing because that market is tight at the moment. But, you know, I am glad that we have this fleet of our own, that we can work and sweat harder, and as we consolidate assets down and we bring efficiencies into how we can manage that freight.
spk08: Got it. Thank you.
spk11: Our next question comes from David Begleder from Deutsche Bank. Please go ahead.
spk03: Hi, good morning. This is Katherine Griffin on for David. First, I just wanted to touch on the quarterly guidance. You know, in Q3, of course, we did much better than we were expecting, just given some of the items in the bridge. It seems like with the guidance for Q4 today, that's playing out again. You seem a little bit, like, incrementally more negative, just given, you know, the potential of more COVID-related shutdowns and, you know, normal seasonality. So I guess I'm just curious, like, given... where things were last quarter and some of the puts and takes that we thought about in the bridge from 19 to 20 for Q4. Where are you seeing that upside? And, you know, can we think about this guidance as being conservative?
spk04: Well, Catherine, I think that What we can do is control our own business, and we're controlling that very well. We're controlling our expenses very well, and I think we're getting good growth and good share growth in those core chemical ingredient markets that we're focusing on. And we performed, I think, very creditably in Q3, especially given all the difficulties that we face, that we all face, just operating today. As we look forward to Q4, again, I think we said we had a good October. October in line with September. November and December are always short months. They seasonally turn down. But we are mindful of some of our European markets are already locking down or already closing down. We are mindful that there is a rising incidence of cases in other geographies as well. So we don't really have a great crystal ball about what may or may not happen. So I think we are giving guidance. We try to establish a track record of guidance that we feel confident in that we can hit. That's what we have given you for Q4 as well.
spk03: Okay, thank you. That's fair. And I was curious about the callout of the decline in some of the essentials and market demand related to COVID-19. Sorry, can you hear me?
spk04: Yeah, we can hear you, Catherine.
spk03: Okay, sorry. Yeah, so I just wanted to ask a little bit more about the call-out of the decline in the essential end markets that's related to COVID. Is that entirely the, like, sanitizer sales, like, over-earning in sanitizers? Is that, you know, equally kind of across, like, the pharmaceutical applications and water treatment? Just how should we think about that headwind?
spk04: Well, I think you should think about it in relation to our comments on quarter two where we called out We were able to, you know, make a better than normal margin on certain key products into certain central end markets simply because of the supply-demand situation on those key products. And we were able to sell, you know, kind of yesterday's stock at today's. prices. So there's some margin increase in that. And, you know, we think there'll still be a higher level of demand for essential end markets, but there won't be, but prices are more normalized as supply and demand comes back into balance. And so, you know, those markets that you spoke about, water treatments, you know, pharmaceutical, I mean, we are in business to keep keep people clean, healthy, and safe. And so those products that go into those markets will still be in demand, but there won't be the opportunity to, or there won't be the, we don't foresee the supply-demand imbalance that would distort the margin quite the way it did in Q2. Thank you.
spk11: Our next question comes from Michael McGinn. Please go ahead.
spk07: Morning, everybody. Good quarter. Mike McGinn, I'm from Mike McGinn. Hey, Mike. Hey. So I just wanted to put a finer point on the 2021 framework. I mean, with, you have, it looks like the next year synergies offsetting is a divestment EBITDA, but then you have the uptick in The comp that you mentioned in the end market, the favorable central end market headwind, you're just confirming that you guys are expecting EBITDA to be up year over year in 2021. Is that correct?
spk04: Well, at the moment, we're not giving guidance on 2021. What we're trying to do is give you some elements into our thinking as we look at that. We'll give 2021 guidance when it comes to the February call. Okay.
spk07: It's a shot. But maybe on the end market growth growing in line with the market, what are you benchmarking to? Is it the industrial production, chem manufacturers, or rail car chemical volumes? Any major metrics that you guys are calling out internally?
spk04: Yeah, I mean, it's GDP and industrial production. They're the kind of things that we look at. to try and get a view on what people think are going to happen. But GDP and industrial production are key drivers for us.
spk07: Okay. And then if I can sneak one more in on energy refining, is there any noticeable difference between your exposure, whether you're larger IOCs or you have some exposure to smaller operators, and then just your general thoughts on industry consolidation in general and where you're positioned with some of the larger players?
spk04: Well, Mike, you may remember that we backed away from some of the larger players a few years ago as we kind of extricated ourselves out of some of the energy markets. So we have, you know, we still have business with some of the larger players, but it's a much lower level than we would have had before. a couple of years ago. Now, I think there is going to be some consolidation in that marketplace, and certainly that's one place that we look at our outstanding debts very, very carefully because clearly it's a place where there is a difficulty in the marketplace and there is some underfunding. But, you know, we feel – overall, we feel very confident about our ability to grow across you know, other markets and retain that kind of specialty focus within the energy and refining business that we are and then, you know, confident about how we can really grow in some of those consumer solutions, industrial solutions, general industrial markets, which are kind of much more robust for us longer term.
spk07: Okay. I appreciate the time. Thank you.
spk04: Thanks, Mike.
spk11: As a reminder, it's star one in order to ask a question. Our next question comes from Tom Burlton from Barenburg. Please go ahead.
spk06: Yeah. Morning, guys. Thanks very much for taking the question. Just a couple of follow-up points you made, really. First one relates to those very helpful points that you gave us around this 2021 adjusted EBITDA. You called out the $40 million of cost savings that you've crystallized this year, half of which relates to Friday. I just wondered if you could give us a sense and apologies if I missed it, of the sort of quantum of that cost saving that you're budgeting for as you go into 2021. And I'm particularly thinking about the comment around getting margin expansion towards the S2022 target, so just any sort of quantifying of that year-over-year cost saving going into 2021. And then a follow-up on the point around energy. You helpfully gave us a sort of guidance on the energy headwind as we entered this year. I appreciate that's an ever-shrinking part of the business, but sort of As you see the world today, what's the best estimate for the sort of run rate headwind as we head into 2021, please?
spk04: Sure. Tom, thanks. I think that, you know, if you look at the cost savings, and we're trying to give you some bits and pieces, so 21 and our general view that we can grow at least that and ahead of market growth. We're trying really hard not to nail down a number for 2021 at the moment because we're still doing our internal maths on our budgets and our plans. If you think about the $40 million of cost savings, I mean, $20 million of those at least would reoccur into the following year. So we think those are costs which are gone-gone rather than costs which are just flexed. And so you can kind of look at that number as part of the – as a number we're having our thinking going forward. In terms of the energy market, we don't really see energy as being a growth market for Unibar solutions. We do have some interesting pieces of the energy market, those more differentiated chemistries. We have a team of technicians and technical experts who kind of work on those things. So it's a more robust business that we have now within the energy market. But we don't see, we don't expect, you know, a bounce back or growth in the energy market, and nor are we staffing for that. What we are staffing for, though, is growth in other markets, you know, much more robust markets, much more resilient markets like the consumer solutions markets, food, personal care, pharma, like the industrial solutions business, cleaning, coatings, lubricants. those kind of markets, as well as growing share just through our local network of assets. We've got some fabulous assets, and we can handle chemicals incredibly safely, hazardous chemicals incredibly safely. We see some really good opportunities to get better operating leverage through those assets, so very focused on that local business as well, as well as our services business. So we see really good opportunities for growth in lots of other places, and We really aren't just betting all our chips on the oil and gas bubble anymore.
spk06: Great. That's very helpful, Colin. Thank you very much.
spk11: This concludes the Q&A portion of our call, and we would like to turn it back to another call for final comments.
spk02: Thank you, ladies and gentlemen, for your interest in Univar Solutions. If you have any follow-up questions, please reach out to the Investor Relations team. This does conclude today's call.
spk11: Thank you, ladies and gentlemen. This does indeed conclude the conference call. Thank you once again for participating. You may now disconnect.
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