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spk05: Good morning ladies and gentlemen and welcome to Univar Solutions fourth quarter 2021 earnings conference call. My name is Alex and I will be your host operator on 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 call 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 Kost, Vice President of Investor Relations and Communications at Univar Solutions. Heather, over to you.
spk00: Thank you and good morning. Welcome to Univar Solutions' fourth quarter earnings call and webcast. Joining our call today are David Jukes, President and Chief Executive Officer, and Nick Alexo, Executive Vice President and Chief Financial Officer. Last night we released our financial results for the fourth quarter ended December 31st, 2021, 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 has also been posted on our website. During this call, as summarized on slide two, we will refer to certain non-GAAP financial measures for which you can find the reconciliations to the most directly comparable GAAP financial measures in our earnings release, and the supplemental slide presentation. As referenced on slide two, we will make statements about our estimates, projections, outlook, forecast, and or expectations for the future. All such 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 filings 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 the fourth quarter highlights and end market trends. Nick will walk through our financial update, and then David will close with progress on our business strategy. Following that, we will take your questions. With that, I'll now turn the call over to David for his opening remarks.
spk02: Thank you, Heather, and good morning, good afternoon, and good evening to everyone, and thanks for joining our call. I'm delighted to report another exceptional quarter, an outstanding year, thanks to our resilient business model and a hardworking, talented team that over the past three years has transformed the business. Driven by solid commercial execution and centered on the customer experience, we deliver strong year-over-year growth despite the challenges of the pandemic, transport, and constrained supply. We remain focused. on continued organic and margin growth, maximizing cash flow, as well as inorganic growth opportunities to further leverage our cost structure, strong regional infrastructure, owned assets, and digital advantage. As you've already seen, key highlights from the quarter are We delivered exceptional Q4 adjusted EBITDA of $207 million and a full-year EBITDA of $798 million with liquidity of $1 billion at quarter end. Market share grew in the quarter as evidenced by our positive win-loss ratio and higher retention levels for new customers. Our sales of higher-margin ingredients and specialties grew by half a billion dollars in the year to $3.3 billion. Our digital investments are yielding real benefits, with 45% of our U.S. customers now registered on our e-commerce channels and able to utilize 24-7 self-service capabilities. We completed the acquisition of SweetMix, one of the top five distributors in Brazil of ingredients and specialty chemicals, to expand both our food ingredients and case portfolio in Brazil. And with our strong performance and deleveraging goal achieved ahead of schedule, we returned $50 million of capital to shareholders via share repurchases. In the fourth quarter, we continued our trend about pacing prior year in both sales and margin due in large part to our committed market position in key products, as well as utilizing our extensive network of facilities and the advantage of our owned trucking fleet. We believe this quarter was a clear validation of our core value proposition of providing security of supply safely to our customers and sound product stewardship to our supplier partners. Looking at the end markets, our industrial solutions portfolio saw accelerated double-digit growth with strong performance in case, particularly in polyurethane formulation. Home care and industrial cleaning and lubricants and metalworking fluids also performed strongly due to demand in our strategic and our strategic supply positions. Despite challenges in the supply chain, we found opportunities to grow and deliver new solutions for our customers and suppliers. Personal care and food ingredients continue their trend of double-digit growth in all sub-sectors. Personal care demands saw especially strong growth in perfumes and extracts. While in food, growth has come from an increased demand in prepared foods and hospitality, as well as from our new supplier authorizations. Our value to customers in both end markets continues to grow as we formulate solutions to meet growth trends in the market and expand in more sustainable and clean label ingredients. Within the general industrial portfolio, we've seen strong demand across a variety of markets, with ongoing strength in chemical manufacturing and increasing demand in mining chemistries. Our extensive organic chemistry portfolio has supported growth in these segments, while the ability to leverage our scale has enabled us to provide customers with continuity of supply. Our facilities revenue was down in Q4, given the ongoing impact from constrained supplier capacity. A primary strategy in this market remains to leverage our distribution capabilities to provide full lifecycle chemical product management to the markets. Although now a much smaller part of our business, we saw growth in refining and chemical processing as higher oil prices have accelerated reinvestments with increased customer demand for more sustainable solutions in this sector. For 2022, given confidence in our strategic priorities, operational execution, expected market share growth, and chemical pricing expected to stay at a higher level through the first half of the year, we estimate an adjusted EBITDA guidance of $260 to $280 million for Q1 2022 and a full year 2022 of $860 million to $890 million, with resulting strong cash flows. We look forward to a 2022 where we can be solely focused on customers and on growth as we leverage our asset base, including our extensive private fleet and digital capabilities, We believe our much-improved commercial execution, as well as our long-standing commitment to our ESG goals, positions us to continued success well beyond the next four quarters. We believe we have the right people, products, tools, and strategy to grow our delivered gross profit at rates greater than general consensus in the economy, and as such believe we are in a strong position to deliver long-term, sustainable shareholder value. Now let me turn the call over to Nick. He'll walk you through our fourth quarter results and our outlook before I comment on our key strategies and we get to your questions.
spk01: Thank you, David. Good morning and hello to all. I am pleased to share Universe Solutions Q4 financial results, update you on our business activities, and provide our outlook for 2022. Sales were up 23.5% on a constant currency basis. Excluding results of the exited Canadian agricultural businesses and discipline from the prior year's financials, we estimate net sales to be up 28.8%, whereas the corresponding gross profit was up 32.7%, also on a constant currency basis. These growth rates were primarily impacted by chemical price inflation, but also reflect strong operational execution. Fourth quarter adjusted EBITDA of $207 million was up by 40.6% on a constant currency basis and adjusted for the exited businesses. This increase was primarily driven by the chemical price inflation and, most importantly, the commercial and operational efficiency of our teams to navigate through the ongoing supply chain challenges as well as strong customer demand. We also benefited from the realization of NexioNet synergies partially offset by higher WS&A in the effects of the distriple divestiture. WS&A was impacted by higher operating costs and the variable compensation. Per our detailed schedules in the appendix, adjusted earnings per diluted share were $0.60 in the quarter, an increase from $0.34 in the prior year fourth quarter. Operating cash flow of $175 million was significantly higher versus the prior year period, primarily due to the higher net income. Networking capital was a slight use as quarter-over-quarter sales rose with chemical price inflation and volumes were stronger than our typical Q4. Wherever possible, we also continued to invest in inventory in order to support strong customer demand. Capital expenditures for the quarter were $42 million, and next-year integration-related expenses were on plan at $13 million. Our ROIC was 14.4% for the quarter, reflecting the strong performance and efficient asset utilization. And net debt leverage now stands at 2.5 times, which is below our original S22 year-end target of 3.0 times, and its net of the $50 million in cash returned to shareholders during Q4 2021. On Friday, we've aggregated the key metrics across our four reporting segments, and we provide details in the appendix. Except for Canada, sales were higher across all geographies, benefiting from chemical price inflation, operational execution, and market share gains. Canada's reported decline was largely due to our exit from the Canadian agriculture of businesses. We had strong gross profit and adjusted EBITDA growth across all the regions and strong margins. In EMEA and LATAM, gross profit margins were impacted by cost inflation, and LATAM EBITDA margins were lowered as we have reallocated corporate costs reflecting the SAP implementation across the Americas. Turning over to our 2022 outlook, we expect strong end market demand throughout the year, continued market share gains, and solid operational execution building on our successes in 2021. We also estimate a continuation of current chemical price levels at least through the first half of 2022. Additionally, we expect to benefit from normalized variable compensation versus the prior year, which will help offset chemical price deflation that may occur in the second half. We have targeted gross profit growth greater than the consensus for economic growth, which is currently estimated at 3.5% for 2022. We expect to continue executing well through the ongoing supply chain disruptions, and increase our market share across all geographical segments, as well as within ingredients and specialties and chemicals and services. We expect that next year, next synergies for the year estimated $19 million and cost efficiency strategies outlined at analyst date last November will be the leading drivers for margin expansion in 2022 and into 2023. As mentioned previously, we expect to utilize our authorized share repurchase program to, at a minimum, buy back amounts related to executive compensation dilution. As a result, we are guiding a diluted share count range of 171 to 172 million shares by year-end 2022. Accounting for all these factors, our guidance for adjusted EBITDA is between $860 and $890 million for fiscal year 2022, as David mentioned earlier, with guidance for Q1 2022 in the range of $260 to $280 million. Let's look at some of our cash flow highlights of our 2022 outlook. We are targeting net working capital of 13.5% to 14% of annualized quarterly sales by year-end 2022, recognizing we ended 2021 above that range. As the supply chain disruption starts to normalize by end of 2022, net working capital is estimated to be a source of cash. Cash taxes to be paid are expected to be higher principally due to the 2022 taxable earnings level and the runoff of NOLs. We expect our non-GAAP effective tax rate to continue to be in the 28 to 30% range. We expect that other expenses will be a use of cash versus being a significant source in 2021. As mentioned in the last quarter's call, the high variable compensation accruals in 2021 tied to sales and profits will be paid in Q1 of 2022. This line item in our summary of cash flow should typically have an annual cash use of $30 to $50 million. All next year integration expenses have been completed, and we are expecting approximately $135 million of capital expenditures for 2022. Consequently, we're targeting net free cashflow of 430 to 445 million for 2022, which is approximately 50% conversion from adjusted EBITDA. Through 2024, the net debt leverage is expected to range between two to two and a half times as mentioned at our recent analyst day. And during the same period, In line with our commitment to return capital to shareholders, we are targeting an average return of 20 to 30% of adjusted net income. Our strong results for the quarter reflect solid execution of our strategies throughout the business as we seek to take full advantage of our leadership positions in the market, build on our momentum, and remain focused on growth. We're excited with our outlook for the full year 2022, and beyond, and we are continuing to implement plans to achieve an adjusted EBITDA margin of 9% for the full year 2023. I will again emphasize that our teams every day continue to drive strong performance in challenging environments. Thank you. And David?
spk02: Thank you, Nick. Nick mentioned our recent panel today, and at it we highlighted our market-leading approach to suppliers, customers, and trends globally through ingredients and specialties, or INS for short. Compared to chemicals and services, INS typically has higher growth rates, on average growing 200-plus basis points greater than economic consensus. It's largely built on exclusive supplier relationships, has stickier customers, and brings higher gross profit. In 2021, INS grew gross profit 28% year-over-year to $897 million, and it's comparable in size and scale to the so-called pure-play special distributors, but enjoys a clear advantage of levering the scale and resources of our facilities and transport infrastructure. Only the last mile of distribution as we do, we believe in a clear differentiator and value creation opportunity. And with our new authorizations, recent Sweetmex acquisition, and ongoing investments in our technical resources and capabilities, we expect continued growth across the broad range of specialty end markets. We also continue to strengthen chemicals and services by growing CNS gross profit 15% year-over-year, launching new partnerships, for example, in water treatment with Nutrien, improving on-time delivery metrics and customer satisfaction, and growing share with our customers while maintaining our impressive safety record. With our operating model fully in place, we can now be singularly focused on building the effortless experience we believe our customers deserve and are making investments in our people, our facilities, and the end market expertise that creates more value for suppliers, customers, and end consumers. We're excited about the progress of our business strategy and continued growth in our market share, supported by new product authorizations. Our valued supplier partners trust that our network of chemists, chemical engineers, food scientists, application development professionals can address growing trends. And we are integral in helping our customers launch innovative, more sustainable, and clean formulations. We recently opened our latest food solution center in the Hatchery Chicago, which is at the forefront of innovation. With key customers and suppliers headquartered in the area and over 1,200 food manufacturing companies, we consider it the perfect location to drive supplier and customer engagement, as well as attract top talent, all while helping advance the Hatchery Chicago and our commitment to diversity, equity, and inclusion. and we broke ground at a new state-of-the-art chemical distribution facility in Western Canada, which we expect will expand our reach in the region while providing improved service levels and a reduction in outbound logistics costs and a lower carbon footprint. With our strong earnings and our net leverage well below our original year-end goal of three times, we continue to evaluate selective growth and acquisitions, such as our recent deal in Brazil, which builds on existing supply and customer relationships. And we continue to target average capital return of 20% to 30% of adjusted net income to shareholders. Our commitment to being a digital leader continues unabated as we accelerate the omnichannel approach that is essential in today's hybrid working environment. We believe our current investments in the three areas of customer acquisition, retention, and self-service are enabling sales growth and reducing our operating costs, while providing a competitive moat against our regional competition. These investments help streamline the customer experience as well as increase our agility and responsiveness throughout the diverse markets we serve. And as we do serve diverse markets, it's imperative that we develop experiences and content that are relevant to our customers and are not simply generic. At that end, we've now launched dedicated digital portals for both our food ingredients and HIC business that come hot on the heels of our launch in Q4 at beautyingredients.com. These portals allow us to position our product portfolio, content, and technical expertise in a simple-to-use format tailored to the specific needs of customers in those different end markets. Customers can learn, sample, and buy products using a suite of formulation ideas and offerings with a specific focus on improving end product performance and sustainability. We are combining e-commerce capabilities, with our industry knowledge and expertise to offer what we believe is an unmatched, omnichannel support for prospects and customers, no matter where they are in the product development or purchasing journey. We've also continued to expand our self-service capabilities, provide our customers 24-7 end-to-end support. From finding products online and placing orders, to downloading supporting documentation and paying invoices, we're making it easier than ever search, source, and self-serve anytime from anywhere. We've streamlined the buying journey and creating a digitized end-to-end supply chain that is easy, reliable, and drives customer preference. Our digital vision is clear, meeting customers wherever, whenever, and however they want to engage with us. And we're beginning to realize this as the source of sustained competitive advantage. I've spoken before about putting the customer at the center of all we do and our commitment to measuring and getting insights into the customer experience through our net promoter scores. Our overall scores through December remain good with our global score holding over Q3 despite continued supply chain challenges in the marketplace. We're listening to our customers' essential feedback and captured over 13,000 responses in 2021 through our NPS process. Combining this data with our advanced analytics capabilities, we accelerate the development of our Customer 360 predictive insights tool and are excited to launch this new capability across the US this quarter. This will provide visibility of an individual customer's experience and proactively alert functional teams ahead of any issues that might be surfacing. Altogether, our digital investments and customer-centric approach is designed to maximize the effectiveness and scale our operations, turning data into a strategic asset and making it easier for customers and suppliers to do business with us. Moving to ESG, we've made strides with our agenda and outlined a clear path towards carbon neutrality by 2050. Evidence of this in 2021 includes being named by Newsweek as one of America's most responsible companies for 2022, achieving the maximum score of 100 for the Human Rights Commission Corporate Equality Index for the second year running, being awarded new supplier authorizations for a variety of more environmentally friendly ingredients and solutions, continued investments, in projects like solar energy for our sites in the US, Europe, and Brazil to reduce our carbon footprint in line with our net zero commitments. Launching a corporate philanthropy strategy to engage our communities through volunteerism, advocacy, and donations. And continue to put safety first, which is evidenced by our world-class safety record, and continue to advance our diversity, equity, and inclusion goals. ESG is a priority for us, understanding that it's our home, our responsibility. It touches each of our core values and aligns with our vision to redefine distribution and be the most valued chemical and ingredient distributor on the planet, as well as being better stewards of the Earth's resources. So before we come to your questions, I want to recognize and thank our employees who are critical to the universe solutions transformation over these past three years. But in the customer, the center of all we do remains our North Star. It's our people that continue to make the difference and our purpose that drives us to help keep our communities healthy, fed, clean, and safe. We have rebuilt the business from the inside out and have developed a strong commercial culture based on growth through customer preference. We upgraded our asset footprint, expanded our private transportation fleet, augmented our sales force and customer service coverage, and enhanced our technical capabilities through a broadened set of product application and formulation expertise with a dedicated end market focus. We divested non-core businesses, which has allowed us to focus on our core chemical and ingredient strategy and reduce leverage while becoming an easier story for investors to understand. We've invested in digital tools that will help us attract new customers, retain existing customers, and streamline our processes, reducing our operating costs, but centered on the customer experience. And through our purpose, values, and relentless talent focus, we strive to be a place where the best people want to work, growing our people to grow our business. Today, we are a business offering the full line cut of opportunities and solutions. serving a diverse range of end markets, making us as resilient as we are valuable, and leveraging our strong regional infrastructure to deliver on global trends. So to summarize, we delivered exceptional Q4 and 2021 full-year adjusted EBITDA, We expect 2022 full-year adjusted EBITDA guidance in the range of $860 to $890 million, with resulting net free cash flow between $430 and $445 million. We delivered $25 million in next year's synergies in 2021 and remain on track to achieve our commitment of $120 million in net synergies by early 2022. We delivered divestment proceeds and effectively delevered to 2.5 times. Additionally, we laid out new 2024 financial targets of $960 million of pre-acquisition adjusted EBITDA driven by organic gross profit growth and productivity improvements with adjusted EBITDA margins greater than 9% and 50% net free cash flow conversions. We plan to use that cash to fund growth initiatives through a combination of high ROI capital investments, selective accreted Bolton acquisitions, and return of capital to shareholders. We believe we are perfectly positioned to deliver enhanced shareholder value while fulfilling our purpose and commitments to our people and communities. Thanks for your attention. Please stay healthy and safe. And with that, we'll open it up for questions.
spk05: Thank you. At this time, if you'd like to ask a question, simply press star, then the number one on your telephone keypad. If you'd like to withdraw your question, press the pound key. Please limit yourself to one question and one follow-up question only. Thank you. Our first question for today comes from Bob Court of Goldman Sachs. Bob, your line is now open. Thanks. Good morning.
spk08: David, you guys obviously had a very strong quarter and gave very strong guidance. I was a little curious about the cadence of that guidance. I know you mentioned pricing is going to be very strong through the first half, but it looks like the sequential lift into the first quarter is going to be something like 30%. Typically, it's only about 6% or 7%. And You know, year over year, it looks like 30% as well, but the first quarter is typically about a quarter of the annual EBITDA. So can you tell us what's going on in terms of the cadence where you come shooting out very strongly at the beginning of the year and then maybe soften a bit as you go through the year?
spk02: Sure. Good morning, Bob, and thanks for the question. I mean, we're very proud of what we delivered in 2021, and we go into 2022 thinking, um with a good degree of momentum and you know we're really focused on those strategic priorities of putting the customer at the center of all we do and taking every advantage we can to drive growth we've got really good demand and strong commercial action execution going into q1 you know we have visibility really for the first half of the year q1 we do think will have some benefits from some extraordinary pricing, probably something around $30 million. So if you back that out, it gives you kind of a more normalized spread. But we are performing incredibly well. I couldn't be more proud of this team.
spk08: Great. And on Canada, I was just curious. I know you're emphasizing the INS exposure across the company and the growth opportunity there. I noticed Canada had very, very strong margins, and yet maybe the lowest INS concentration among your regions. Can you tell us what's going on in Canadian profitability and what we might expect in 2022? Sure.
spk02: I mean, Canada, Canadian business is a really good business, and you know we've transformed that over the last 24 months or so, exiting the agricultural business. You know, I think that the restructuring and the transformation that we've made in North America is really now foundational and broad-based. And in Canada, we've got a really strong team that's executing well. It has really good geographical coverage in both the east and in the west. Our investment in a new facility in the west really backs our commitment to the chemicals and services business. So we like chemicals and services. We think it's a really good business. We're going to back it. right across our portfolio. But we also like our ingredients and specialties business. It has a higher growth profile. You saw that business. We grew that half a billion dollars last year, 39% something growth. And so we see great opportunities in Canada to continue to develop that growth there as well.
spk08: Great. Thanks so much.
spk05: Thank you. Our next question comes from Josh Spector of UBS. Josh, your line is now open.
spk03: Yeah, hi. Thanks for taking my question, and congrats on a good quarter and solid year. I wanted to kind of try again on Bob's question, and maybe not necessarily the cadence in the 1Q to 2Q, but can you give us a thought on the EBITDA guys' first half versus second half, trying to get a feel of where that normalized EBITDA kind of is, where you see things settling out out here
spk02: Thanks for the question, Josh, and good morning. Look, we exited the year 8.4% EBITDA margin. We're on track to exit this year at 9%, and we're very confident about our ability to do that through share growth and also through our productivity. We do have good visibility for the first half. We don't have visibility really into the second half, So we're very confident about what we're seeing for the first half of the year. I think we're being a little more circumspect about the second half until we get better visibility in there. And certainly world events over the last couple of days, you know, who knows where that's going to lead us the second half. So we're trying to share what we do know, but we feel very confident in bridging that 8.4 to exiting this year and 9% EBITDA margin.
spk01: Yeah, I would just add, Josh, and thanks again for your question and your research report out this morning, that we expect Q4 of this year to be a normal seasonal period, as it has been in the past. Clearly, Q4 of 2021 was very strong. When you look at our prior Q4s, I think you'll see that our Q4 this year will evidence the continued growth in the business. And also just to clarify, the 9% that David references is going to be a cost structure that gets us to a 9% for a full year 2023. Our expectation for EBITDA margin this year is higher than where we ended up in 2021 and on that path to a full year 9% in 2023.
spk03: Okay. Thanks for that. And I was just wondering if you could expand a bit on your plans for cash use in 2022. I mean, given you're at your targeted leverage range at lower EBITDA on 2021 versus what you expect for 2022, could you deploy all of that $400-plus million in free cash flow this year, or do you see a need to delever towards the bottom of your range before you do that? Thanks.
spk02: Well, we're going to balance between high ROI capital investments and inorganic growth, and we do see some good inorganic growth opportunities out there. And then returning cash to shareholders, we do want to continue to pay our debt down. Our target that we stated at our analyst day last year was two to two and a half times. We're at the upper end of that. We'd like to get to the lower end of that. But we do see plenty of opportunities to deploy capital for really high ROI growth, which is our primary concern, both organic and inorganic. as well as maintaining that commitment to return 20 to 30% of adjusted net income to shareholders.
spk03: Okay, thank you.
spk05: Thank you. Our next question comes from Lauren of BNP Paribas. Lauren, your line is now open.
spk04: Yes, thank you, and good morning. David, on the slide 11, where you provide the updates on INS versus the chemicals and services, I was wondering if you could tell us about the split between volumes and pricing in the 28% for INS. Is it mostly pricing? In the guidance, are you assuming that normalization of pricing is mostly in CNS, or do you also expect pricing to normalize in INS? Thank you.
spk02: Good morning, Lauren, and good afternoon to you. Thanks for the question. I think I'd point you on that slide to the 110 new authorizations that we delivered in 2021. They deliver meaningful share growth for us. So there's a blend there of good volume growth, good share growth, as well as some pricing benefit. We're really pleased with the way that group is organized and is delivering. You know, it's a really important channel now within our business. And I think it's very comparable with anything else out there. And I think it's starting to be recognized by the markets that way, the way it's being recognized by our customers and suppliers. I mean, the chemicals and services business, that has some bigger volumes in there. And so some of the price swings in there are a little more apparent. But we've seen strong pricing and strong price dynamics right across the whole portfolio, not always all at the same time. We would expect that to continue through at least the first half of this year and into we'll see what happens in the second half. But INS grew share, it grew volumes, and as I said, I point you to the 110 new authorizations. That's meaningful share growth.
spk04: Thank you. That's actually on my follow-up on the new authorisations in 2021. 110 is obviously a big number. Is it a sign that you've had more suppliers looking to reshuffle their supply chains after the nightmare of COVID? Or is it more a case of you gaining more share of a new authorisation number, which is normal? Or is it a bit of both?
spk02: Look, I think it's a bit of both. I think certainly... What we've demonstrated is through owning our facilities and our own trucking fleet that we can have more control of our supply chain, therefore be more of a reliable channel partner for many of our partners, as well as now working with them to see how we can connect those supply chains to help drive their ESG goals. So I think there's quite a lot of things that we have there and, again, quite a competitive note that we have around those assets and trucking that we have. But also, you know, having this global channel that we now have in INS, we have some partners who want to work with us on a global basis to be able to drive the trends that they're following right across our global basis. So that organization that we now have and managing that in a truly global structure but still going to market in a very, very local way is quite a compelling thing for our suppliers, and they are choosing to use that channel more and more. Thank you. Thank you very much, David.
spk05: Thank you. Our next question comes from Kevin McCarthy of Vertical Research Partners. Kevin, your line is now open.
spk08: Good morning, and thank you. Question for you on market share gains. In your materials last night, you referenced share gains in, I think, several areas, and I was wondering if you could expand on that. How much do you think that distribution industry volumes grew in 2021, and where is Univar seeing premium volume growth versus the industry in terms of regions or product categories, perhaps?
spk02: Kevin, good morning, and thanks for the question. Look, I think that when we look at our share gains, I mean, I think in a very constrained supply, A market, you know, we were able to grow volumes year over year. Not massively, but that's around a very constrained supply. We were able to provide products, get products, and we have brilliant suppliers and great partnerships with us that put us in an advantage position. Our win-loss ratio is up in all regions. Our new customer attraction is up in all regions. Our digital channels are bringing in customers that we couldn't have got to before. So we're seeing customers coming into us and staying with us right across our portfolio. In increasing specialties, you know, we have higher retention levels there, and that's helping and supporting that as the INS business becomes a a larger and more significant channel within our business. That also helps customer retention. But you know that we're focused on putting the customer at the center of all we do, of driving customer preference. And that's, you know, reflecting our NPS goals. And now our really, you know, internal ruthless pursuit of improving our core to be so much more easy to buy from and improve that customer experience, really growth, And through that customer experience and putting the customer at the center of all we do, which now all the transformation is behind us, we can really singly focus on, is a tremendous fillet for growth for us.
spk08: Okay. Thank you for that. Secondly, I was wondering if you could comment on pricing trajectory. Would you expect your average selling prices to continue to increase sequentially in the first quarter versus the fourth quarter? And if so, how much might that be the case? Just thinking about the bridge into the first quarter, if I understood your prior comment correctly, David, it sounded like price was expected to help you by $30 million. And I guess I'm curious as to where the balance of improvement comes from as well. It looks like your EBITDA is expected to improve perhaps 60 or 65 million sequentially.
spk02: Yeah. So as you rightly quote, we're highlighting sort of $30 million in this quarter over the previous quarter of, you know, pricing from unusual selling prices on certain chemistries. I mean, pricing is a difficult one to assess at the moment. The oil price is going up, and so, therefore, that's going to firm the prices on some of the petrochemicals that we sell, some of that whole hydrocarbon chain. So, you know, I think we've got reasonable visibility there. into the first half. I mean, again, I have no idea what's going to happen if energy supplies in Europe get disrupted and German manufacturers struggle to produce and what that does for them. I just can't even imagine what that is. What we can see right now is we see some unusual pricing, in the first quarter, which we think will go away through the second quarter. We're seeing a firming of pricing in other markets, and so we're not seeing chemical price deflation. We're seeing chemical price stability, but that will just erode our margins slightly as the opportunity to take a stock profit on a rising price goes away.
spk08: That's helpful. Thanks, and congratulations on your results. Thank you very much.
spk05: Thank you. Our next question comes from Lawrence Alexander of Jefferies. Lawrence, your line is now open.
spk07: Hi, everyone. This is Kevin for Lawrence. Thanks for taking my question. I just had one question on incentive comp. It appears to be a pretty big swing factor, and I just wanted to get a sense of what a more normalized level was. And I guess any color around incentive comp, I would appreciate. Thank you.
spk02: Kevin, thanks for the question. I think the results last year will demonstrate that Sensitive Comp was paid out right across the business very well, and I'm really delighted that our people's hard work has been reflected in what their bonus check's looking like. They've worked very hard over the last three years to transform this business, and that transformation has been you know, I just earlier on foundational and broad-based and led to the numbers we're at today. I think we flagged in Q4, or maybe at our anniversary, that was about a 60 million.
spk01: Well, we flagged, David, we flagged 40 in Q4. Given the continued outperformance, the differential is really 60, 2021 versus 2022.
spk02: Okay. So that gives you the kind of spectrum of numbers. So you can build your model on that for 2022 and beyond.
spk00: Thank you.
spk05: Thank you. Our next question comes from Steve Byrne of Bank of America. Steve, your line is now open.
spk06: This is Matt Dio on for Steve. So you talked a little bit about the supply chain issues, and I totally get it constricting volume, but how much demand in the market do you think is going unmet given the lingering supply chain headwinds? Do you think volumes are underperforming by 100 basis points, 200 basis points, 400 basis points? What's your view there?
spk02: Good morning, Matt. Thanks for the question. I'm not sure I can answer it. What I can tell you is that demand is very strong and supply is constrained. And we are very fortunate with our facilities and our own trucking fleet. and this great supply relationships that we have, we are probably in an advantage position and have a really competitive moat around those assets which allows us to perform better than certainly some of our smaller competitors. I'm not sure whether it's 100 basis points. I have no idea. I have no way of measuring that. But I do know that supply is tight. Supply is constrained. We do have a large number of products on audit control and have had, you know, really since the big freeze in the U.S. Gulf last year. But how big demand could be, I don't know. How long is the piece of string? I've got no idea.
spk06: I guess maybe a different way to ask the question is, like, how much, what percent of your inventory is below what you would consider to be normal stock level? Do you have a feel for that?
spk02: Well, again, it depends on what normal stock level would be. I mean, certainly what we're choosing to do is take inventory where we can and then feeding it out appropriately to customers who have been loyal to us and supportive of us over a period of time. So, you know, I think our inventory is a is probably in balance to where we'd normally expect to have it, but our selling patterns will be different because we're not selling everything out of the door. We're being very careful and cautious about how we sell to make sure that we support our customers and support their demand.
spk06: Understood. Thank you.
spk05: Thank you. As a reminder, if you'd like to ask a question, it's star one on your telephone keypads. Our next question for today comes from Michael McGinn of Wells Fargo. Michael, your line is now open.
spk08: Hey, good morning, everybody. I'm sorry if I missed this. Do you provide any financial parameters around sweet mix in terms of growth contribution, mix, and then if we were to kind of pro forma the business and looking at slide Actually, I don't have the slide number, but if we were looking at the business and pro forma, what is LAM-IMS exposure now with that contribution?
spk02: Good morning, Mike. Thanks for the question. I mean, we didn't disclose details on SweetMix. You know, it is a very exciting deal for us. It only came in on December the 1st. So, you know, for 2021 numbers, it's de minimis, really. What I can say is, you know, we're thrilled to have that business. The team, a really strong team. The suppliers that come with it are partners for us in other parts of the world, and we've already extended with those suppliers in product range there. So it's been a very good first, you know, five, six, seven weeks of that acquisition.
spk01: And, Michael, you'll see in the 10-K the transaction value is around $50 million, taking into account all factors. We feel it's accretive to our business and a good add to the LATAM portfolio, strengthening their INS mix.
spk08: Okay, great. I appreciate that. And then can maybe – Can you remind us how the business performs and what are the kind of swing factors in a rising dollar environment right now?
spk02: So, Michael, help me with the question. In a rising dollar environment?
spk01: Yeah, basically about 35% of our business, Michael, is non-U.S. And so clearly when the rising dollar is, you'll have less foreign currency coming in. And that would be a headwind. Consequently, we also have the offsetting of expenses overseas. So we do actually break out in our 10K the differential impact on our performance and growth rate for FX. I don't have that in front of me, but it'll be in the 10K.
spk08: right so you're you're mostly in region for that region so you're translating expenses uh from a weaker currency back into a stronger currency so that's right yeah so i guess what i was getting at is you have some sales headwinds but then you have some cost tailwinds and it just i was trying to walk through the mechanics of that okay anyway
spk01: Yeah. And so I haven't just pulled up for me, you'll see on page 38 of 10 K, which will file layer later, you know, 10% strength of the US dollar is about a negative $2.3 million impact to our net income.
spk08: Yeah, I think that's what I was looking for. Appreciate it.
spk01: See that you'll see that in the 10k.
spk05: Thank you. Our final question for today is a follow-up question from Bob Court of Goldman Sachs. Bob, your line is now open.
spk08: Hi, guys. Thanks for letting me back in. I was just curious, why not a more ambitious share purchase program given the substantial free cash flow?
spk02: Hi, Bob. Again, very good question. Firstly, we only But authorization to do that in the back end of last year, and we executed $50 million of the $500 million authorization that we have in November, which I think is getting out of the blocks fairly quickly. As I said earlier on this year, we've gone to balance our capital priorities between high ROI capital investments. some M&A, some good inorganic M&A, and you see good opportunities out there, and then returning cash to shareholders. So, you know, I think that share buybacks will be part of that capital strategy in 2022, as we've outlined with the share buyback authorization, but returning 20% to 30% of adjusted net income to shareholders is a commitment, and we'll see as the year goes how we balance that between the options to do that.
spk08: David, would that still take precedence then over initiating a dividend at some point?
spk02: Well, the dividend is something the board are consistently reviewing, and that's something we'll continue to do.
spk04: Okay, thanks.
spk05: Thank you. We have no further questions for today, so I'll hand back to Heather Koss for any closing remarks.
spk00: 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.
spk05: Thank you for joining today's call. You may now disconnect.
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