藝康 (ECL) 2020 Q4 法說會逐字稿

Greetings, and welcome to the Ecolab Fourth Quarter 2020 Earnings Release Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mike Monahan, Senior Vice President, External Relations. Mr. Monahan, you may begin.

Thank you. Hello, everyone, and welcome to Ecolab's fourth quarter conference call. With me today are Christophe Beck, Ecolab's CEO; and Dan Schmechel, our CFO.

A discussion of our results, along with our earnings release and the slides referencing the quarter's results are available on Ecolab's website at ecolab.com/investor. Please take a moment to read the cautionary statements in these materials, which state that this teleconference and the associated supplemental materials include estimates of future performance. These are forward-looking statements, and actual results could differ materially from those projected. Factors that could cause actual results to differ are described under the Risk Factors section in our Form 10-Q for the period ended September 20, 2020 -- pardon me, September 30, 2020, and in our posted materials. We also refer you to the supplemental diluted earnings per share information in the release.

Starting with a brief overview, fourth quarter earnings continued to show sequential improvement despite the negative impact of a greater-than-expected second COVID wave. As earnings per share decline narrowed once again, we -- as we leveraged our new business wins, increased customer penetration and digital technology, along with lower costs to show the sequentially better results. As before, roughly 80% of our aggregated business showed good sales and strong income growth.

Our Institutional division, which is roughly 20% of our current sales, remain the most impacted, reflecting the effects of COVID-driven restrictions on global restaurants and hotels. But we also note that Institutional is the business that could benefit the most over the coming years as long-term hygiene standards continue to rise.

In 2020, we took a number of actions and made targeted investments for post-COVID success. We believe we emerged from 2020 better positioned as our business wins, new product development, digital platform and our improved field sales force effectiveness should lead to a more effective and profitable Ecolab business.

Looking ahead, we expect global efforts to reduce COVID spread and the expanded rollout of vaccines will lead to further global economic improvement in 2021. We believe our strengthened business will deliver full year 2021 earnings above 2019 results from continuing operations. For the first quarter, year-on-year percentage decline showing modest sequential improvement from the fourth quarter, and the remaining quarters of 2021 showing strong year-on-year growth.

In a world challenged by COVID, we saw the value of Ecolab's premium product and service expertise was, once again, underscored through strong new business growth as well as our strengthened existing customer relationships despite the difficult market conditions. Our position as leader in food safety, clean water and healthy environments has become even more important. We believe that this position, along with our long-term growth opportunities remain robust, driven by our huge remaining market opportunity, our leading global market position, our focus on providing our strong customer base with improved results while lowering their water, energy and other operating costs, and our strong financial position with resilient free cash flow. We believe these sustainable long-term business drivers will continue to lead superior long-term performance for Ecolab and our investors.

And now here is Christophe Beck with his comments.

Thank you so much, Mike, and good afternoon, everyone. It's a pleasure for me to lead my first quarterly conference call as CEO to share with you our results and our expectations for the future.

It's no understatement to say that these are exciting times to lead this great company and what we do. And most importantly, the way we do it matters more than ever. Ecolab is an exceptional company built on solid foundations and strong values. I had the chance to be part of shaping where we are today and where we're going tomorrow. So do not expect any sharp turns as I will keep building on what made us strong, resilient, predictable and successful.

The challenges the world faces today are ultimately also long-term opportunities for Ecolab, and I believe that the best is still yet to come. So I look forward to sharing with you our progress and ambition in this and other forums.

Now on to our results. Our performance continued to improve in the fourth quarter in spite of the short-term reversal of global market trends, unlike what we and most actually thought coming out of the third quarter earnings call. COVID cases went up, lockdowns expanded and restrictions got tighter in most places. For instance, right after our Q3 call, Germany moved from 40% of restaurants being close to 100%, and 1/3 of the U.S. states tightened restrictions.

Nonetheless, our adjusted EPS continued to improve and narrowed its decline, decreasing 15% in Q4 versus the minus 24% in Q3. We could have easily delivered more in Q4, but we decided instead to keep increasing our growth investments in innovation, digital technology, sales capabilities and backbone infrastructure in the quarter to be ready for the rebound and the opportunities post-COVID.

Our consolidated sales trend held stable versus the third quarter, which is a good indication as well that our investment strategy is working. And importantly, our cash flow remains strong, and fourth quarter free cash flow improved versus the prior year.

Excluding the Institutional division, 80% of our aggregated business grew sales 2%, and operating income increased a strong 17%. Healthcare & Life Sciences posted 22% top line growth and a very strong 65% operating income growth. And our largest segment, Industrial, delivered a robust 18% operating income growth with a modest sales decline of 3%. So while we will keep improving the performance of all our businesses, Institutional will remain our primary near-term focus. And here, too, progress is being made.

While temporary closures and on-premise traffic both got worse in the fourth quarter versus the third quarter in the U.S., our Institutional sales trends remain unchanged, and our margins continue to recover. In 2020, as COVID hit, I believe we responded really well to unique situation in a global restaurant and hotel industry that's historically been highly consistent and predictable. We protected our team and our business to make sure we were ready to capture the growth when the market reopened.

We took great care of our key customers and enjoyed one of our strongest years of both retention and new business wins. We immediately provided all of our customers with world-class scientific expertise and comprehensive programs like the new no-rinse range of premium sanitizers. It's a program that kills the COVID-19 virus in 15 seconds, we believe, faster than anything else in the world.

And we help our customers protect their business while we are assuring their guests with Ecolab Science Certified, a new program that has quickly established itself as a leading certification program in the U.S. We've also accelerated the work started a few years ago, to continuously augment our critical field sales and service capabilities. We used 2020 to accelerate implementation of our latest digital field technology. And we expect this technology to further improve our field service effectiveness, customer experience and operational performance.

At the same time, we finalized the fine-tuning of our field sales organization started 18 months ago, so pre-COVID. And we expect this to further increase sales firepower and drive units and penetration share gains, as we've mentioned over the past few calls. With all of this, I believe Institutional is well positioned to benefit from the markets reopening and from the rise of global hygiene standards.

now more broadly, we entered 21 in a position of real strength. While we expect COVID-19 will continue to have a significant effect on the economy and our end markets, especially in the early part of the year, we expect to see the beginning of the COVID-19 recovery for our global markets to start in the second quarter. It will then take a few quarters to fully realize the new normal. However, we believe that our strong new business wins, product and service innovation, investment in new hygiene and digital technologies and successful sales and profit initiative will deliver full year 2021 earnings above 2019 results from continuing operations.

We expect the first quarter to show a modest improvement in year-on-year percentage decline versus the fourth quarter, while the remaining quarters of 2021 will show very strong year-on-year. In other words, 2021 should be a strong rebound for Ecolab.

With hygiene standards that are rising fast, we're ready to respond to these new trends with breakthrough solutions and a brand that inspires trust. With water and climate challenges that have just gotten tougher, we're uniquely positioned to help our customers reach the sustainability ambition at a high financial return. And with an unbeatable global team, supported by state-of-the-art digital technology, we look into the future with a great deal of confidence. I look forward to your questions.

Mike, floor's back to you.

Thanks, Christophe. That concludes our formal remarks. Operator, would you please begin the question-and-answer period?

(Operator Instructions) And our first question will be coming from the line of Tim Mulrooney with William Blair.

I really only have one question, one thing I want to talk about, which is this. You mentioned improvements in your field services organization implemented over the last 18 months. I think that's part of your institutional advancement program. And I'm not asking you to give away any competitive secrets here, but can you talk about what those improvements were? Specifically, I think you mentioned improving sales firepower, which should drive both new unit sales and market share gains.

We'd love to. Thank you, Tim. Great question. So as you mentioned, and I've mentioned in my intro as well, those are developments that we have started a few years ago. And we've made those developments as well by working together with our field teams and our technology partners as well. We've tested that as well at numerous occasions, really making sure that everything is working really well because it's so important for our team.

And we were really aiming at 2 objectives that we've accelerated during the past few quarters because we had a unique opportunity during COVID to get it done faster. We could train our people as well during times that they had as well available.

And the 2 things are, first, it's really to help the service delivery. What does that mean for our teams is, ultimately, that these digital tools are helping them get their daily program that's being optimized by the system. If they get an emergency call as well that's coming within the daily program, well, it's rerouted and making sure they can do that with the minimum time and the minimum mileage as well to get there. They get all the customer information in real-time when they go and visit, as well the customer. They get tools as well to sell better any new solution, and they have training tools as well that they can share with the customers in order to make sure that those programs are being used really the best way. So this first objective is really about improving the customer experience. It's improving the work performance of our teams and ultimately so, for them having more time to spend with the customer.

The second objective, and I'll conclude on that, is really on the sales side of our team. It's to help them sell more. We've shared many times our ambition to increase penetration. Well, those systems are helping do that because they give you real-time customer information. Our teams know how the customer is performing, the products they're using, the new products that we could be adding as well to them. And they can merchandise as well the results that have been accomplished. So at the end of the day, it's easier for our team. It's better for the customer, and it costs less as a whole as well for the company.

Our next question is from the line of Manav Patnaik with Barclays.

I had a question on -- around breakout areas. So you now have Life Sciences, has become a very nice growth area for you guys. I think at your last Investor Day, you talked about several new ones. And I was just wondering if you could give us some color there and if anything else has popped up during the past year clearly?

Thank you, Manav. Well, expanding our TAM has always been so part of the Ecolab strategy. So finding new growth avenues, new growth markets and lining up resources behind them has been part of the way the company has been growing.

You're mentioning Life Science. We started this business a few years ago. It's turned into an exceptional performance. It's been obviously helped by COVID as well at the same time because the need of our pharma customers have grown so much. It's driven as well great innovation as well, so for them in order to make sure they could produce vaccines, for instance, in the safest and most profitable way at the same time.

But interestingly enough, that way of approaching things, Manav, has helped us as well, opening new markets like data centers. We've started that 2 years ago when we saw that companies were ultimately outsourcing all their IT to larger companies like Amazon, Microsoft, Google and so on. And we were dealing with them, providing them with some solutions because those computers generate a lot of energy and need to be cooled down while we are providing solutions for them as many other customers. And ultimately, we've said, "Well, that's a critical market for the future." It's going to keep growing. We're going to create a division as well behind it, which is exactly what we did. That was before COVID. Then COVID happened, everyone used the cloud, and it's a market that's been booming as well since then. It's been a good play.

And the last one I'll mention, Manav, here is animal health, where we knew as well that antibiotic is something that consumers, that you and I don't want to have in our food, ultimately. So how do we help animals staying healthy in the food chain at the very beginning, and that's how we've created as well a division. We've made a big acquisition as well early last year with CID Lines, which is creating that critical mass for that new market opportunity and which is leading to double-digit growth since we've done that as well. So just a few examples like that.

Got it. That's helpful. And I was hoping you could just help us with the cadence of costs and maybe margins for the first part of the year at least with respect to the rising cost of your raw materials, please?

And Manav, just to make sure that I understand that well, you mean '21 here or 2020?

No, '21, just with the recent increase in all the raws, and how should we think about how that flows through your numbers?

Yes. So margin have been improving so over time in our businesses for a very long time. That was the case as well so in 2020, since low in Q2. Obviously, we see that continuing in the quarters to come in '21, keeping really in mind that we see the year '21 in 2 parts. They will be the first quarter, which will be very similar to what we've experienced in Q4, and then there will be so the reopening of the end markets in Q2, and then the clear ramp-up, so in Q3 and Q4. So it's kind of slightly better in Q2. And as of -- in Q1, sorry. And as of Q2, you will see a rebound as well there.

We have good pricing power, which is good. We have raw materials that are expected to be benign right now, but the indications that we see in the last few days/weeks ultimately saw going up in terms of raw materials. So we'll have to mitigate that, but this is something that we've been doing very well for many, many situation similar that we've experienced in the past few years.

Our next question is from the line of John Roberts with UBS.

Congrats on ranking the top of the Barron's sustainability list last weekend.

Thank you, John.

A few vacation locations have actually seen pretty solid hotel occupancy and restaurant traffic, not a lot, but some have. Do you have any data to show in those specific areas that the overall cleaning product revenue per room or revenue per diner has structurally increased since the pre-pandemic levels?

Yes, I don't have detailed numbers to share with you, but it's very clear that in the places where it's reopened, the one you mentioned, for instance, we've helped those customers out with more solutions in order to prevent the risk of infection. That leads to better sales than what we had before.

But to your point as well, so those are individual areas like vacation groups that you described. Unfortunately, so those are just selective ones. But those are good indications at the moment that the overall market is going to reopen and set up hopefully or that's the way we expect it. So in the second quarter, it will compound, obviously, so our growth opportunities in those units that we either used to have or didn't have yet. But we'll have more solutions as well to them.

Our next question is coming from the line of David Begleiter with Deutsche Bank.

Christophe, Industrial had a very strong quarter and full year. So looking at Industrial in 2021, can that segment expand margins? And how much of a headwind will the discretionary costs be as they come back into the numbers in 2021?

Yes. So Industrial will keep developing its margins. It's been the case, as you've noted, in 2020. In '21, we're expecting as well, so pricing to remain kind of at a similar level than what we've seen. The raw materials are going to be probably a bigger headwind than what we had in 2020. So net-net, margins will be similar, but operating income will keep growing.

Very good. And Dan, just on the cash flow, any thoughts or comments on working capital and CapEx in '21?

Dan, you want to answer this one?

Sure. Thank you. Well, maybe to ground us in the very strong performance that we had in 2020, first of all, working capital was a net contributor to strong cash flow because although we saw a little deterioration in collections and an increase in inventory on hand from a day's perspective, the very favorable to cash flow at least, impact of declining volumes made working capital a net contributor. So 2021 will be somewhat the opposite of that, meaning as the business continues to rebound, we'll invest more in receivables and in inventory. So not significantly, but we'll invest in working capital in 2021.

Having said that, we'll remain very focused on collections. And I've said before in earlier calls, we are very determined and have been sure to be paid for the value that we're creating for customers. And frankly, on the inventory side, just a personal comment almost, my expectation, and I know Christophe shares this sort of vibrantly, is that our goal on inventory in 2021 is to make sure that we're building the right stuff for the right customers in expectation of the rebound. And so the favorable inventory in '20 will reverse in 2021, but it won't be a big drag on overall cash flow performance.

Our next question is coming from the line of Gary Bisbee with Bank of America.

I guess the first question, just going back to the Institutional initiatives here. Can you provide a little more detail? Because what I'm really trying to get at is how much of it is about rightsizing costs versus other changes that would promote growth? Certainly, that -- your prepared remarks talk about spend to deliver this and cost savings after the fact. So part of it clearly is cost driven, but what you discussed earlier was much more, I think, on the growth, positioning for growth end of it. Just a little more color.

Yes. Thank you, Gary. It's not cost driven. What we're doing in Institutional is part of what we've been doing for years. It's driven by 2 things, as I mentioned earlier. The first one is really so to increase our sales firepower. We always want to have more dedicated people towards selling new customers, selling new solutions to existing customers. We've shared earlier as well our ambition to increase penetration by 20% as well over time. Well, we need to increase as well our sales firepower, which means people and hours behind that in order to deliver it. Technology is obviously helping as well, so for that.

On the other side, on the service, it's to improve the customer experience that when one of our service rep is going to one of the customers, well, she or he doesn't spend a lot of time collecting data or getting papers together. Now she or he can really get in and have all the information, can really work immediately with the customer or the customer issues that they might have as well. And as mentioned before, so if their day is organized better, if we can really route them in a way that minimize hours and mileage, at the end of the day, they can service more customers, spending more time with the customer instead of internal administrative staff or fixing equipment that we have.

And if that works, well, it's good for the customers, and it's good for us that, in other words, we have more sales firepower, we have improved operational efficiency in service, which net to an improvement of cost structure as well at the same time.

Okay. That's helpful. And then the follow-up, can you help us think or discuss how you're sort of thinking through volumes you've earned in areas that have benefited from the pandemic. So whether that's sanitizers or disinfectants or other, how those could persist versus maybe moderate at some point in the future? And I guess as part of it, are you signing new long-term contracts for these things with the volume expectations? Or is there the risk that a lot of the incremental revenue could go away at some point in the future when the pandemic's in the rearview mirror?

Yes, long term, we always have contracts with the vast, if not all of our customers around the world. That's part of our business model, and it will remain as such as well going forward. And we have plans, obviously, so to increase as well the demand with all of them. That's why we invest as well so behind all those customers.

So to Mike's point before in saying, so 80% of our aggregated business has been growing in 2020, well, those businesses will keep growing as well in 2021. When you think about it, this 80% have been growing. So 5% top line in 2020 and 14% operating income. Well, they're going to keep growing as well so in '21. The mix is going to be a little bit different, as mentioned. So in Life Science, the demand was higher for natural reasons. In Healthcare, we got those national government deals as well. But underneath, you still have this 5%, 6% growth, which is good.

Industrial is going to move towards positive growth as well. And sanitizing products, they're going to stay at a fairly high rate of growth. It's not going to be the same as in 2020 because I don't expect people to sanitize their hands the same way as they did during COVID. That would be too nice, but it's going to be more than what they did before COVID's peak in 2019. So overall, I think that the trends are going to be similar or better for most of those products.

Next question comes from the line of Rosemarie Morbelli with G. Research.

So just going back to the demand, the high demand in Life Science and Healthcare, do you have the feeling that there may be some inventory build in some of the channels? And actually, you could see a decline in revenue for full year 2021?

I don't think so, Rosemarie. So Life Science is kind of a direct business. So there is no in-between distribution, and it's mostly bulk product as well that you can't really store as such. So inventory is quite much so just in time in Life Science. And it's been growing strong in 2020. It's been growing strong before that as well, and we're planning for great growth as well in '21. So Life Science is going to be the continuation of a great story.

But we need to keep in mind as well that, well, they had an exceptional year in 2020, so the comparisons that we will make in '21 will look a little bit softer. That's why it's going to be important to look at the underlying growth, which is the way we run the business anyway.

And it's even more true for Healthcare because the growth of 20% plus that we had in the last quarter was partly driven as well by those national deals that we've made, so for some of the governments in order to fight COVID. Underlying, it's going to be 5%, 6%. That's the way we measure it.

So when you do the comparison, Rosemarie, '21 versus '20, it will look like a much lower growth but it's just because the comparison is kind of unfair. But we will look at the underlying growth, which is ultimately what's going to be long term, and we expect it to be within the range of 5%, 6% for Healthcare.

Okay. That's helpful. And then Christophe, if we look at 2021, you expect that your results will approach those of 2019. So do you expect this to be the case for all segments and both for revenues and operating income?

So the 80% that we've talked about with Healthcare, Life Science, Industrial, well, they're going to be ahead of '19 because they've been ahead in '20 versus '19. And they're going to be ahead of '20 in 2021. They're going to keep improving, obviously, whereas Institutional is the one that needs to grow from a much lower level started in Q2 2020.

You've seen in Q3 an improvement; Q4, not so much; Q1 is going to be the same, and Q2 is going to continue afterwards. But at the same time, we need to keep in mind as well that we have investment in the business that we're going to make in '21 as we did in 2020. And I'm going to keep increasing those investments as well.

The mix is going to be unfavorable, so in '21 versus '19 just because Institutions is going to be lower because it's going to be recovering towards the end of the year. And the last point is that we have some cost rebuilds. People are going to start traveling and entertaining again. We'll have merit as well so coming in there. So it's going to be a different story in most businesses that ultimately, we feel confident that '21 can deliver earnings that are adjusted ahead of '19.

Our next question is coming from the line of Chris Parkinson with Crédit Suisse.

Great. Despite a fairly choppy 4Q, 1Q, which I'd say is overwhelmingly expected, there were signs of life, which you highlighted across your supplemental. When speaking to your teams, can you speak to maybe 2 or 3 end markets for which you're now, let's say, incrementally more confident or constructive just given pent-up demand once the world truly opens back up? If you can hit on that and just any potential comments on preliminary share gains would be greatly appreciated.

So just to make sure, Chris, that I understood the question right, so the end markets that we would estimate would be rebounding, so during 2021?

Yes. And any comments around market share?

Okay. So the biggest one is obviously so Institutional, so restaurants and hotels. And the way we measure performance in this down market today is how many units do we have compared to the low point in Q2 and how many solutions do we sell to existing units as well is really so to make sure that we improve our base the moment it reopens that we can accelerate.

And in Institutional, we have more units, much more than we had in the second quarter last year. We have much more solutions as well. So the moment the demand is coming back, that's going to compound, which is really good news. And we expect that not to happen in the first quarter, but it's going to happen sometime in the second quarter.

Another one is Downstream, which is related to the oil and gas demand when cars are going to be used more, when planes are going to be flying more, when boats are going to be more traveling as well like cruise ships, obviously, so the demand for oil and gas is going to accelerate. So our objective here is the same as what we did in Institutional, more refineries and more solutions to those refineries. And that looks quite good as we speak right now.

So those are 2 big ones that are expecting so to rebound in the second quarter. All the other businesses, major businesses, Chris, are ultimately on a good path, no matter what.

The next question is from the line of Vincent Andrews with Morgan Stanley.

I wanted just to follow-up on the new business wins, maybe in particular, in Institutional, but you can touch on the other segments as well. And I guess what I'm wondering is that there was a clear opportunity as COVID hit to go get new business. And I'm just wondering if there's sort of a second phase of new business opportunities that will be unique to COVID, but it will come more during the reopening as maybe customers make -- come to a realization that they want to change providers or trade up or what have you? How do you see that playing out?

That's a great question. Well, starting first with the net new business in 2020 has been quite ahead of 2019, which honestly, personally, I didn't expect that we would be that good. But we've managed so in 2020 to sell more new business than we sold in 2019.

And to your point, in Institutional, that's been the best new business generation that we've had across the company. So Institutional has done an exceptional job in terms of new business, for 2 reasons mainly.

One is obviously so the focus of our team on new business during that time. But the second is the one that you touched just before that during those difficult times of COVID, customers were looking for expertise, for scientific expertise. They didn't know what COVID was to begin with, how to address that issue, how to get ready for the reopening, how to get ready for the future as well. And we are the unique company that could provide that support to them in the U.S., like anywhere as well around the world. So many came to us as well, so during that time.

And the last point I'll mention is also our capability to supply as well. So especially in sanitizing products, growth has been outstripping the supply so quite a bit. We've built a lot of capacity as well, so during that time. Well, this is capacity that customers have been asking and that we've been able as well to sell to them. So good new business in most -- in all businesses, actually for the whole company and especially in Institutional. And I think that, that's going to be even more true in '21 because we've demonstrated to our customers that we're here for them when they truly need us.

Okay. And Dan, if I could ask you a quick question on the balance sheet. Just seeing that the post-retirement health care pension benefits was up, looks like $140 million year-over-year. Is that a function of discount rate assumptions or return on plan assets? Or what happened there?

Yes. The -- really, the year-on-year change is discount rate-driven, okay? Likewise, to this other income line that you see down below operating income. So rates have such a big impact, both on the liability and on the accrued expense, okay?

The next question is from the line of John McNulty with BMO Capital Markets.

So the push on the ESG front, especially from industrial customers and players out there, seems bigger than I think most of us would have thought a few years ago. And I guess with that in mind, like when you think about the water platform that you have and especially on the Industrial side, can you speak to the level of engagements that you're having? And is it higher than what you would have thought, say, a couple of years ago when you guys gave the longer-term outlook for the business of 6% to 8%. Like, I guess, have we reached a tipping point where we may see multiple years where that business accelerates at a level that is maybe faster than what we've seen or what you may have expected? How should we be thinking about that?

It's definitely bigger than what we thought. And honestly, I thought that during COVID, that would really take a back seat. And none of that happened, thankfully, actually. So for the world in general and especially so for our business as well.

We've had always more customers coming to us for 2 reasons, interestingly enough. On one hand, saying, "Well, can you help us get towards our ambition in terms of ESG, in terms of water usage, in terms of climate, so CO2 emissions, waste that we generate as well?" And there was the second dimension, which is an interesting new one for us. Many customers coming to us and saying, "Well, you guys as a company have done so well from an ESG perspective. Is there something we can learn from you that we could implement as well, so within our own company?"

And I can give you so 2 examples in here. On one hand, a large consumer good company out of Europe with whom we've been working for a few years towards the end of last year said, "We need you to help us build a plan to become water positive by 2030." Well, those are new questions, which we know how to answer that. No one else can.

And on the other hand, so you've seen Microsoft as well announcing their ambition to be water positive by 2030. We've done that plan together with them. We are helping them getting there as well. So those are examples that are 2 of many of those companies so coming to us. So yes, there is an inflection point that's turning bigger, better than what I would have thought.

The next question is from the line of Justin Hauke with Robert W. Baird.

So I just wanted to ask some questions on the restructuring program just because it's changed a couple of times, and it's somewhat difficult to track where you are. Relative to the $355 million of total spend that you're talking about now through 2023, what's been spent under those programs as of the end of 2020? And then similarly, to the benefits, the $365 million of annual savings that you're looking for in 2024, what's the current run rate that's in the 2020 base just so we can kind of think about how that builds?

I think I'll let you, Dan, maybe start the answer, and I'll build, if anything's needed.

Sure. Of course. So just to make sure that we're talking the same numbers here, right, I think that we've disclosed an actual cost associated with the $365 million of anticipated savings of $335 million, of which at the end of 2020, $275 million has been accrued, okay? So a very good start across all of these programs.

And from a run rate perspective as of the end of 2020, we've recognized about $200 million of total savings. So I'd expect significant pickup in 2021, as you might guess, and then it will kind of more or less stabilize or bleed out over 2022 to 2024.

That's helpful. And then my second one was just to make sure that we're all level set. When you talk about '21 adjusted earnings being in excess of the comparable 2019 level, I think you disclosed a pro forma number that excludes Champion that was 5 20. So is that the number that we should baseline your comments on?

Yes. The number that we would steer you toward is the continuing ops number, which is 5 12 in 2019, okay?

The next question comes from the line of P.J. Juvekar with Citigroup.

In your Institutional advancement program, whether you're investing in field reps and digital technology, is that all for gaining share? Are your customers demanding this? And then how do you charge for it? Or is it all through market share gains? And also lastly there, where do you think is your competition in regards to this?

Great question. Thank you, P.J. Obviously, when we think about share, this is self-serving. This is not the way we think about it. It's much more what's right for the customer. And if there's one thing that we've learned during COVID, especially in Institutional, is that customers need comprehensive solutions. When you think about an infection risk, well, it's not just about sanitizing your hands. It's making sure that the tables are being sanitized. The floors, the drains, the water, that the food is safe, that you don't have any pests in there. It's really -- infection is related to the weakest point that you would have in that unit. And seen from the customer side is basically who is the partner that can help me protect everything I have in my unit? And the only one that can do that today at least is Ecolab as such.

So that's the way the customer is looking at us. So it's really making sure that we offer programs that answer that. And the Ecolab Science Certified as well is ultimately bringing it all together. If a unit has all the programs, is as safe as it can be, well, they get the feel, and we promote that as well. So it's good for the customer, it's higher demand for us, so it's good for us as well at the same time. So the whole organizational development that we're making is ultimately helping to address that customer need.

The next question is from the line of Mike Harrison with Seaport Global Securities.

If I can ask about your competitor, Diversey. They recently entered into a partnership with a water treatment provider to really go after the food and beverage market a little more aggressively. Do you think that could lead to some changes in the competitive dynamics that you're seeing in food and beverage or in water going forward?

Well, 2 things here, Mike. First, we know that water and hygiene together is a winning proposition. We've demonstrated that, so for years, but we know that partnership do not work. It's the second time that they are trying that. By the way, the first time was with Nalco many years ago, and it didn't work.

So it's hard enough within a company to get all the businesses working together towards one customer need. Doing that with partnership is really hard. This is interesting to see. Theoretically, it's a good idea. In practice, well, I wish them luck.

All right. And then on the Downstream portion of the business, obviously, that's under some pressure because of driving activity. But I wanted to ask, the trend in refineries is toward larger and more complex integrated refineries that have petrochemical production as well. Can you talk about the relative opportunity for Ecolab at one of these larger, more complex refineries versus, say, a handful of less complex refineries that have equal capacity?

The petrochemical sites are definitely the sweet spot of our business in Downstream. That's where we sell most of the solutions. That's where there is most demand from customers. That's where the margins are the highest and where the outcome is the best as well. And many of those companies, to the ESG point that was made before as well, are interested in driving as well a better outcome from an impact on the environment as well at the same time.

So this is the sweet spot. This is our primary focus as well going forward. We're trying to get organized as well behind petrochemical in a very dedicated way, but that's a little bit more for the future as such, whereas the traditional, all the type of refineries are less of a priority for us. So you're exactly right, and that's what we're going after, and that's the way we're getting organized to really capture that growth and the margin. And I'll just conclude on one point is basically that petrochemical in 2020 has been growing as well in a difficult environment, which is a proof of that approach working so really well.

The next question is from the line of Adam Parrington with Stifel.

It's Adam on for Shlomo Rosenbaum. I was curious if you could talk a little bit about what contributed to the margin level in the Healthcare business this quarter and kind of what the interplay was between delivered product cost, mix, et cetera?

So Healthcare in 2020, in general, so has had very nice margin development. You've seen as well the comparison versus 2019, so a nice improvement. It was better in Q3 versus Q4 because the volume was higher because those onetime deals with governments were still impacting the business fairly heavily. So you've got much more leverage as such.

But that being said, the drive of program selling in Healthcare, the focus on infection prevention, the digital technology, the pricing, the work on margin improvements, well, has contributed to the margin improvement in 2020. And it's going to stick as an improvement as well in '21. So I feel good about the margin development in Healthcare when I think '21 and beyond.

Okay. And in terms of the earnings for 2021 versus the 2019 level, I know you touched on this earlier question, can you maybe just give more detail like what needs to happen there? And how much of that improvement -- expected improvement will be explicitly from like cost savings?

So in order to get there, which we feel very confident to deliver an EPS in '21 that's ahead of the 5 12 in 2019 mentioned is basically driven by 3 or 4 things. The first one is 80% of our business, so Industrial, Healthcare, Life Science, growing operating income in 2020, is going to keep doing that, obviously so in '21. Those ones need to keep moving, and they will. They have good momentum. They have good new business, and they have propositions that customers are asking for, which is really good.

At the same time, you need to have Institutional that turns the corner. As mentioned, it's not going to be in Q1. It's going to be very similar than what we had in Q4, but it's going to be some time in Q2. That's going to catch up as well. So Q2, Q3, Q4, where institution is going to get back towards where it used to be, so as well so pre-COVID. So that's going to drive as well towards that outcome.

And the third point is, as you mentioned, so we have cost savings initiatives that Dan has been presenting as well that are helping. But it's important to keep in mind that we will keep investing in the business. People are going to start traveling as well more. We're going to give them merit as well, so as we do every year as well as such.

So when you bring it all together, 80% of the business needs to keep humming, and it is and it will. Institutional needs to recover as of Q2 and the quarters to come. And we need to make sure that both on the cost savings and investment, we balance that in a smart way, and we will get to the right place in 2021.

At this time, we reached the end of our question-and-answer session. I will hand the floor back to Mr. Mike Monahan for closing comments.

Thank you. That wraps up our fourth quarter conference call. This conference call and the associated discussion and slides will be available for replay in our website. Thank you for your time and participation today, and our best wishes for the rest of the day.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may now disconnect your lines at this time. Have a wonderful day.