Univar Solutions Inc (UNVR) 2015 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Univar third-quarter 2015 earnings conference call. My name is Heather, and I will be your host operator on this call.

(Operator Instructions)

I will now turn the meeting over to your host for today's call, Kerri Howard, Vice President of Investor Relations and Treasurer at Univar. Kerri, please go ahead.

Good morning, and welcome to Univar's third-quarter 2015 conference call and webcast. Earlier this morning, we released our financial results for the quarter ended September 30, 2015, along with a supplemental slide presentation. The presentation should be viewed in conjunction with the earnings release, both of which can be found on our website under the investor relations section on www.univar.com. With me today are Erik Fyrwald, President and Chief Executive Officer, and Carl Lukach, Executive Vice President and Chief Financial Officer.

As referenced on slide 2, the Company may make statements about its projections or expectations for the future. All such statements are forward-looking statements; and while they reflect current expectations, they involve risks and uncertainties, and are not guarantees of future performance. You should review the Company's filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. The Company does not plan on updating or revising any forward-looking statements during the quarter.

In addition, the Company also refers 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, which has been posted under the investor relations section at www.univar.com.

I will now turn the call over to Erik for his opening remarks.

Thank you, Kerri, and good morning, everyone.

In the third quarter, Univar executed well against our three strategic priorities: one, to grow organically in attractive end markets with chemistry and value-added services; two, to improve operational excellence; and three, to continue to make bolt-on acquisitions. I'm pleased that our results were in line with our expectations and the guidance we provided to you last quarter. We achieved growth in markets outside of oil and gas, benefited from higher margins, and closed on one bolt-on acquisition. As expected, our growth was offset by two headwinds that have challenged us all year: lower demand in upstream oil and gas, and foreign currency.

Please turn to slide 4 for our third-quarter highlights. Univar adjusted EBITDA of $156 million was down 8%. On a currency-neutral basis, it was down only 2%. Gross margin rose 150 basis points, and EBITDA margin rose 60 basis points. Now, outside of oil and gas, we achieved solid year-over-year growth in our high-margin services and in several target markets including personal care, food ingredients, pharmaceuticals, and water treatment. We also continued to benefit from pricing and product mix improvements, and a successful implementation of productivity initiatives, including our European restructuring program.

Our cash flow has been strong, and has more than paid for our year-to-date capital expenditures and acquisitions. And with our improved debt profile and solid cash flows, we have the financial strength to execute our strategy, including acquisitions. In July, we completed the acquisition of Chemical Associates, a leading blender and distributor of oleochemicals, many of which are based on sustainable resources. This broadens our product offering in several target markets like personal care, food, cleaning and sanitization, and coatings.

On October 2, we announced our acquisition of Future Transfer and BlueStar Distribution in Canada. Future Transfer has high-quality ag chemical formulation capability they use to service some of the world's leading ag chemical manufacturers. With Future Transfer, we enter this high-value market and expand our leading national presence in Canadian agriculture third-party logistics. As we continue to execute on our acquisition strategy, we are deploying our free cash flow to fund attractive investments to help us better serve our suppliers and customers, and drive earnings and cash flow growth.

I will now turn the call over to our CFO, Carl Lukach, who will provide more details on our third-quarter financials. Carl?

Thanks, Erik, and good morning, everyone.

Please turn to slide 5. Before taking you through the numbers, I would like to highlight that foreign currency rate variance versus last year was, again this quarter, so significant for the euro, Canadian dollar, and Brazilian real that I need to call out our results both with and without the impact of currency translation. This will give you a better understanding of our performance.

Starting with sales, third-quarter sales were $2.2 billion, down $403 million or 15%. Excluding foreign currency variance, sales were down 8%, largely because of lower demand from upstream oil and gas markets, mostly in the US. Total volume was down 5% due to lower oil and gas sales, and from exiting certain low-margin businesses in Europe as part of our restructuring program. Excluding the impact of these two factors, our global volumes in the third quarter were essentially flat with last year. Total average selling price was down about 4%, reflecting decreases in certain commodity chemical prices. Outside of oil and gas, global sales for the quarter were down about 9%, but on a currency-neutral basis were down 2%, reflecting lower prices for certain commodity products, as well as our European restructuring activities.

Gross profit of $451 million was down just under 9%, but only down 1% on a currency-neutral basis. Our gross profit per billing day during the quarter was down about 2% from last year. Excluding oil and gas, however, GP per billed day was up 5%, while oil and gas GP per billed day was down 36%. Gross margin was up 150 basis points to 20.4%, reflecting improved product mix, lower cost for certain commodity chemicals, our European restructuring, and gains from productivity initiatives.

In Q3, our conversion ratio, which we define as adjusted EBITDA divided by gross profit, was 34.7%, up 10 basis points from last year and up significantly from prior years, reflecting our higher margins. Adjusted EBITDA of $156 million was down $14 million or 8% from $171 million we earned last year, but down only 2% on a currency-neutral basis despite the drop in demand from oil and gas markets. Year to date, our adjusted EBITDA of $471 million was down 5%, but on a currency-neutral basis was up a bit more than 1%. All four of our segments' year-to-date EBITDA margins are up over last year; and in total, adjusted EBITDA margin was up 50 basis points to 6.7%.

To sum up the quarter, despite the headwinds we effectively managed the Business and essentially reached last year's results excluding foreign currency by increasing our gross margin, holding our improved conversion ratio, increasing our EBITDA margin, and increasing our cash flow from operating activities. This all reflects well on the broad diversity of our business model that provides stability and less cyclicality even in the face of headwinds.

Let's move now to each of our segments, starting with the USA on slide 6, where the impact of lower oil and gas was most pronounced. US sales of $1.4 billion were down $214 million or 14%, reflecting the significant decline in oil and gas volumes, and lower selling prices for several basic chemical products. In response to the lower oil and gas volumes, we reduced our headcount and operating costs in that end market in phases this year, in line with the overall oil and gas industry. Total USA gross profit decreased 6%, although gross margin increased 160 basis points to 20.6%, benefiting from changes in product mix, lower cost for certain chemicals, and successful implementation of productivity initiatives. We also saw year-over-year growth in end markets outside of oil and gas, such as personal care, food ingredients, pharmaceutical and water treatment.

Regarding our value-added services -- that's ChemCare, ChemPoint and MiniBulk, which are mostly in the US, and represent about 6% of our global sales -- we continue to allocate resources to these businesses for future growth. Year to date, we are seeing solid profitable growth. Our USA year-to-date adjusted EBITDA margin increased 20 basis points to 7.5%.

Turning now to Canada on slide 7, our Eastern Canadian industrial chemicals business posted strong volume growth from Canadian-based manufacturing customers, as they experienced increased demand from US buyers taking advantage of the weaker Canadian dollar. We expect this to continue. Our ag business had a good quarter, with increased herbicide sales due to optimal seasonal growing conditions. Sales growth in industrial chemicals in Eastern Canada and good performance by our ag business offset the decline in demand from oil and gas markets in Western Canada. Total sales in Canada for the quarter were $291 million, down $49 million or 14%, but on a currency-neutral basis were up 5%.

Gross profit of $53 million was down $11 million or 18%, but essentially flat on a currency-neutral basis, reflecting the benefits of increased volumes and margin management offsetting the impact of lower margins from changes in product mix. And adjusted EBITDA of $24 million was down $5 million or 17%, but essentially flat on a currency-neutral basis. Our Canadian year-to-date adjusted EBITDA margin increased 10 basis points to 6.7%.

Moving to slide 8, our sales across Europe, Middle East and Africa in the quarter were $433 million, down $113 million or 21%, with 15% of that decline attributable to the translation of the weaker euro and certain other currencies into US dollars. Most of the remaining 6% decline in sales is attributable to our exit from low-margin business and contracts in certain European countries, and from lower pricing for certain commodity chemical businesses. Gross margin increased 150 basis points, and adjusted EBITDA margin increased 90 basis points in the third quarter. Despite lower sales and sluggish economic conditions, our adjusted EBITDA on a currency-neutral basis grew 10% in the quarter and is up 28% year to date. Our EMEA year-to-date adjusted EBITDA margin increased 160 basis points to 5.5%.

Moving then to our rest of the world segment on slide 9, this segment includes Mexico and Brazil, and to a lesser extent, China. Third-quarter sales were $118 million, down $27 million or 18%, but on a currency-neutral basis were up 7%. Gross margin improved 630 basis points to 20.6%, and adjusted EBITDA margin improved 530 basis points to 8.3%. Adjusted EBITDA doubled for the quarter and year to date versus last year, reflecting our successful acquisition of D'Altomare in Brazil in November 2014.

On slide 10, I'd like to cover several total Company financial highlights. Our year-to-date free cash flow -- that's cash flow from operations, less cash flow from investing activities -- was a positive $38 million. By comparison, during the same period last year we had a $93 million cash outflow. Most of our improved cash flow came from lower working capital, especially accounts receivable, but also lower inventory values reflecting lower purchase cost per unit for certain commodity chemicals.

Regarding taxes, our year-to-date cash taxes of $32 million are higher than last year, but still quite low as a percentage of EBITDA, reflecting the net tax effect of our increased US tax profitability offset by our utilization of US tax loss carryforward. We continue to project a full-year cash tax amount of about $50 million to $60 million, based on our most recent forecast, recognizing that this depends highly on geographic mix of pre-tax income. The third-quarter year-to-date effective tax rate is higher than our prior year-to-date effective tax rate primarily due to tax accounting impacts on a low amount of earnings before tax.

Earnings per share in the quarter versus last year were heavily impacted by the higher share count and costs associated with our debt refinancing. Since becoming public, we have reduced our leverage, enhanced cash flow by lowering interest expense by nearly $100 million per year, and extended our debt maturities, while maintaining nearly $1 billion of liquidity. We are comfortable with our improved capital structure and the flexibility it provides us as we pursue our three strategic priorities that we communicated to you during our IPO road show.

With that, I will turn the call back to Erik. Erik?

Thanks, Carl.

When I look at our third-quarter performance, our team did a nice job executing our strategy and improving our EBITDA margin in a very challenging environment. The diversity of our Business, including our unique services and our productivity improvement initiatives, continue to help offset large headwinds from upstream oil and gas, and foreign currency.

Before we take questions, I would like to summarize our three priorities for growing the value of Univar, on slide 11. First, we continue to focus on attractive growth end markets. We've been adjusting resources to strengthen our commercial capabilities with more focused, highly trained sales and technical reps on our target markets. And we continue to expand our full chemistry solution sets by bringing new, innovative products and services into our portfolio.

For example, in the third quarter we added DuPont's enzymes to our cleaning and sanitization portfolio in the US and Canada, expanded our relationship with Ingredion for specialty starches in Europe, and added key products from Bostik, Corbion and Afton to our exclusive ChemPoint portfolio, and we have strengthened in oleochemicals and ag chemical blending formulations and distribution with the strategic bolt-on acquisitions. Being able to offer one-stop access to a total product solution set, complemented with our services, is a competitive advantage that helps set us apart from smaller distributors who make up the majority of the fragmented chemical distribution market.

And we continue to make progress on our lean six Sigma productivity initiatives, which help profitability. We recently completed ideation sessions with each of our businesses and functions, and have reloaded our pipeline of projects for 2016. We also recently hosted a strategic supplier conference where we outlined our initiatives to better serve them and our customers. Our suppliers like the actions we are taking to help them grow.

And finally, we remain committed to growth through bolt-on acquisitions. Our November 2014 acquisition of D'Altomare in Brazil continues to have a favorable impact on our EBITDA growth in Latin America, and our acquisitions of Key Chemical, Chemical Associates, and Future Transfer/BlueStar Distribution also further expand our specialty chemical and service business in attractive end markets. And we have a solid set of opportunities in our pipeline.

Now we will move to our outlook on slide 12. We expect the fourth quarter to reflect its usual modest year-end seasonality dip, and we see continued strong headwinds in upstream oil and gas, and foreign currency. In the fourth quarter last year, we earned peak gross profit per billed days in oil and gas, so we face tough comparisons, and our lower-cost position will only partially offset that. We are, however, well positioned to benefit from a rise in drilling activity whenever that does happen.

Now, despite the headwinds, we continue to expect our full-year 2015 adjusted EBITDA on a currency-neutral basis will be essentially flat to modestly below the prior year, as margin improvement and productivity gains continue to offset lower demand from oil and gas markets. As we look to 2016, we are assuming no increase in demand from upstream oil and gas. However, we expect easier oil and gas comparisons after the first quarter, and milder foreign currency headwinds. We also expect a modest EBITDA boost from acquisitions we completed in the last 12 months, and from those in our pipeline. We will have more to say about 2016 in three months when we report full-year 2015 results.

Now, as CEO of Univar, every day I ask three questions. Do we have the right strategy in place? Do we have the right team in place to execute that strategy? And are we executing well? I am pleased to answer a strong yes to the first two, and continued progress at getting better with execution. And I am confident we are on our way to growing the value of Univar for our employees, our customers, suppliers and shareholders.

With that, the operator will open the lines for your questions. Thank you.

(Operator Instructions)

Ryan Maguire, Goldman Sachs.

Good morning, and thanks for taking my questions.

Good morning, Ryan.

Some of the energy headwinds seemed like they accelerated a bit in the quarter with the rig count having been under a little more pressure. And I was wondering if you could comment on your own businesses, inter-quarter trends, and (inaudible) activity -- could it pick up or tail off into September and into October, and just kind of how we should expect the lag from the decline in rig count and activity to impact you guys so that we can continue to monitor that and expect when your business might improve when that stabilizes.

So we have seen continued decline in our upstream oil and gas business as reflecting the reduced rig count. It's continued to be more challenging. What I would say is October continued to come down some. We expect November to be about the same. And December, we very well might see even further curtailment of some of the companies not bringing back some of their operations after the Thanksgiving shutdown -- so December could be tough.

Then we think first quarter of next year we will be flat. And what we are basically assuming for next year is no improvement in the upstream oil and gas situation. As we develop our plans, that's our assumption. Obviously, we're hoping for better than that from the market, but we've got to assume and a plan for no improvement. And we continue to work very hard at further driving productivity in our oil and gas business, making sure that we've got just the right people to service the business, no more, but be ready for when the turn eventually happens.

And following up on that point, if the outlook is for no real improvement, does that imply there might be some additional cost actions to try and improve the margins from where they are today, even if sales were to bottom out here?

Absolutely. We continue to work that very hard. We have made some additional adjustments in the last month, and we will have additional adjustments between now and the end of the year.

Okay. Thanks very much.

Duffy Fischer, Barclays.

Yes, good morning, fellows. A couple of questions. One, the run rate of your productivity plus restructuring programs, what was that in the quarter? And then, as we go through next year, what is the run rate of that additive to each of the next several quarters?

Okay. Hi, Duffy. Duffy, thanks for that. Duffy, we are operating right now with about 100 open projects in the cost-productivity area in the US. We put the Lean Six Sigma program in last year in the fourth quarter.

Our run rate is still in the low-hanging-fruit stage, and it's running about low-double digits millions per quarter, to size it for you. I don't want to say that will continue, but -- because we are in the early stages here, and we are getting the low-hanging fruit. But we are encouraged by -- we had a very rigorous ideation session just the last month or two and reloaded the pipeline with more projects, and we do that for every business and every function that we've got in the Company. It's rolling out very nicely, and we are confident that it will continue to help offset inflation and labor cost, and contribute to productivity gains.

And my sense is that we're strengthening our productivity muscle to be able to find more, even as we get the low-hanging fruit -- with the stronger muscle you find more fruit.

Fair enough. And then, just to go back to oil and gas, and to think through what decremental margins could look like. So, one, if you look this year as a baseline, the margins in oil and gas relative to the rest of the Company; two, what happens next year?

Obviously, you'll try to take some cost out, but my guess is the Schlumbergers and folks like that are going to push back on the chain to cut cost for them. So, how does that headwind of your pricing going into that play off of what you can cut for cost, and would you expect your margins to actually improve even if the run rate of revenue stays at this level?

What I would say, for the whole Company, the gross profit margins vary depending on market circumstances, and we manage our gross profit margins to maximize EBITDA and return on capital. In the oil and gas business, yes, there is a lot of pressure on costs. And that will continue through next year, especially if the rig counts do not start to come back.

But what we are doing to respond to that is bringing more ideas on how we can work creatively with our customers to reduce supply chain system costs and take the value that we brought in some areas -- for example, with a full set of fracking chemicals, distributor-managed inventory-type model -- and bring that to more locations. So I see us as holding our position or expanding our position somewhat in a very tough market but also working the cost side very, very hard to maintain or expand our margins across the Company. And, Duffy, I'll just add, that's on the gross profit margin. If you go down to EBITDA margin, as Erik said, we've rolled out cost reduction initiatives in our oil and gas market vertical, sequentially, in phases, and we are up to phase five now. So we are taking it step by step as the market deteriorated and, as we believe, we are also positioned well for when it recovers to snap back.

Terrific. Thanks, fellows.

Thanks, Duffy.

Allison Poliniak, Wells Fargo.

Hi, guys. Good morning.

Good morning, Allison.

Just touching on gross margin in the US. Obviously, a strong performance there in the face of some of these pricing headwinds. Can you maybe help us quantify or even give us a framework? I know there is a lot of moving parts there with mix and different pricing and productivity efforts in terms of what is the largest driver, what were some of the offsets there?

The negative, as you know, was the oil and gas drop, and some of the pricing activity in that space. Our services businesses, in aggregate, represent a meaningful amount of our USA sales. They had good growth in the quarter, as we hoped and as we have been allocating resources to.

Our specialty products businesses additionally had a good market in particular verticals that we've been focused on, pharmaceuticals in particular. Acquisitions, while not a giant headwind -- or tailwind, did help boost up margins as well. So we have a bit of a bias in our acquisition pipeline towards higher-margin businesses, and that's starting to become visible, too.

Great, thanks. And then, just on EMEA, the exiting of lower-margin businesses, where are you in the process of that? Are we closer to the end of those kinds of contracts? How should we think about that?

We're getting toward the end. We are well more than halfway there. And, I would say, by earlier part of next year we will be complete with that activity. But on the other hand, at the same time as we've been exiting some poorer markets or areas that we couldn't have a decent return, we've also been enhancing our capabilities and resourcing more into areas that we can win -- coatings, personal care, food ingredients, and other areas where we focus more of our sales force on our specialty-product capabilities. And we are starting to see growth markets develop areas where we can grow, top line and bottom line. So we will see that decline in volume slow down and stop in the first half of next year, but you will also see the increase in business, with some very attractive margin business, going forward as well.

Great. Thank you.

Thanks, Allison.

Jamie Cook, Credit Suisse.

Hi, good morning. You mentioned on your commentary I guess when you are talking about 2016 that the acquisitions that you've done to date could be -- should be incremental to 2016, and it just sounds like M&A, obviously, will continue to be a focus in line with your strategy. So, one, can you talk about what is incremental to 2016 in terms of EBITDA, based on what you've done so far? And, just the broader M&A pipeline, how big is that and have you seen multiples contract that you could be potentially a little more aggressive?

My second question, can you talk broadly about the competitive environment, and should that be -- are you concerned that, that will be an incremental headwind? Thank you.

Okay. Thank you, Jamie. Let me start with the M&A question and Carl can chime in here. First of all, the Chemical Associates, Future Transfer/BlueStar, and Key Chemical acquisitions were all very strategic. They're specialty product -- and with Future Transfer we get some really nice service business -- but they are all fairly small. So the impact for next year will be low digits EBITDA enhancement of the total Company.

But they are in the right areas and we are putting more resources to them to accelerate the growth and impact that they can have. At the same time, we are getting better at these bolt-on M&A deals and moving our pipeline forward. So I expect that you will see at least one more deal finish this year, and then as we head into next year there will be more deals done that will increase the impact on our EBITDA for 2016. Carl, do want to add to that?

Just would add to -- before we go to your competitive question, just to point out that we are funding these acquisitions out of cash flow from operations. I know that the world is different here today, in November, than it was back in July when we refinanced, and we are pleased that our cash flow was strong in the quarter and that our free cash flow after CapEx and acquisitions and taxes and pension was still positive, a big change from last year. So we are funding these acquisitions internally.

Your question on competitive environment?

Competitive environment obviously is challenging around the world with the global economies not doing very well, but I would say that the value that we are bringing to customers can help them when the times are tough. We can go to customers with a broad product line and our services, and find ways to reduce their costs, to reduce the complexity of them getting the chemistries they need to run their businesses, reduce their acquisition costs, improve supply chain, and do the kinds of things to reduce their total cost of ownership and complexity that make them more competitive in a tough environment.

So, yes, things are tough. But I believe our business model, as we keep strengthening it, brings more value and will position us well relative to the competition during these tough times, and then position us well for when things get better.

All right. Thanks. I will get back in queue.

Thank you.

John Inch, Deutsche Bank.

Good morning, everyone. Carl, what is the FX impact on adjusted EBITDA for the year that is implied by your guidance? Just to start with that.

It's -- that would be -- let me just recount a couple numbers: $11 million in the third quarter; $29 million year to date, nine months; and moving towards, we think, about $35 million, $36 billion for the full year.

Okay. So this implies -- what does this imply for -- because you, obviously, do addition and subtraction, what does this imply for, then, the fourth quarter adjusted EBITDA, roughly?

Well, let me back up. We are targeting full-year results. And, as we went out on the road with the IPO in June, we said that our goal -- and we think we are tracking well towards essentially flat results with last year, ex-foreign currency translations. So, yes, I would have to back-do the math, as you said, but I think that we can lay that out. I think that, singly for FX in the quarter, that means about $6 million or $7 million, but I think you're asking what the adjusted EBITDA (multiple speakers).

I think it's like 130 to 135 implied for the fourth quarter adjusted EBITDA. I'm just trying to make sure we got the numbers --

130 to -- that would be on a currency-neutral basis.

Okay. So then subtract the six to seven from that, right?

Yes.

Okay. What did the value-added services growth in the US, those three companies you called out -- what was their growth in the US in the third quarter?

We don't take them all down to EBITDA, but it was mid-single-digits-type growth. And, what I would say is, at higher margins, so more impact to the bottom line. But the nice thing is that, as we put more resources into these -- strong leadership on to these services, we are seeing nice steady growth of them, and that is very encouraging for the future outlook.

Okay. So mid-single digit. If I remember from the IPO, there's sort of longer-term targets to get these to double digits on a growth basis. Is that still reasonable or would you want to beef them up a little bit through some other acquisitions or -- I don't know, at some point, when do you expect maybe to possibly see double-digit and value-added services? Does the economy have to get better or do you think they're actually going trend that way?

The economy doesn't have to get better. The great thing about the services is I think they are even more valuable in a down economy, but obviously they also help in an up economy. So I think, in the next couple of years, what we are trying to build towards a double-digit, consistent-type approach -- and, yes, we are looking at acquisitions to enhance that. And one example -- it's a small example to start with but lots of opportunity -- is, Future Transfer/BlueStar has a formulation business for agricultural chemical suppliers. So they do this service for the agricultural chemical supplier where they make the right formulations for the Canadian market. We think that's a very nice business -- very complementary, very high value, very complementary to our distribution business in agriculture, and geographically scalable.

I hear you. One last question. The bullet on slide 6, strong performance in industrial chemicals, is that -- I want to make sure I am understanding what you are saying. Obviously certainly the non-consumer industrial-facing economy in the US is pretty challenged -- possibly not even in a mild recession. So, when you're calling out industrial chemicals for you, exactly what does that mean? Because that would be a very different performance then, broadly speaking, the United States industrial economy --

Oh, I see, John. Okay. I'd say that our comment is focusing really on gross profit dollars. And this is because we have -- you know that, with oil and gas, let's put that to the side. So we are talking about non-oil and gas volumes and the result in gross profit dollars and, really, elaborating on one of the earlier questions, too, our productivity initiatives come into play when you talk about gross profit dollars.

We were very actively managing margins, very conscious of margins on a product-by-product basis, and we executed, I think, very well there in the quarter. So, strong performance in industrial chemicals is meaning that, on that slide, John.

It did not mean strong volume growth in the marketplace (laughter).

Correct.

I get it. I'm looking at it now. It's a subset of the higher profitability comments about --. Okay. Got it. Appreciate it.

Thank you, John.

Laurence Alexander, Jefferies.

Good morning, Laurence.

Laurence Alexander, your line is open.

Good morning. Sorry about that. Two quick questions. One is for the new categories that you have signed up, can you give a sense for what the size is of the addressable markets if you lump them all together? And secondly as you look back -- go ahead --

Are you asking about our pharmaceutical vertical and food ingredients? Those market segments we called out?

Yes.

Or the Future Transfer/BlueStar?

If you lump together the sign-ups, the Dupont enzyme business, Ingredion, and so forth, what is the market niche that's opened up by those agreements, or is it significant?

For the set of them, over time, it's several hundred million dollars of revenue opportunities. So, yes, it is a nice move in the right direction of enhancing our full product solution set capability that helps the base business and adds new things that get customers excited. So what I would say, by itself, has hundreds of millions of dollars of opportunity over time but also enhances our base business and ability to bring the total solution set. That's what gets us so excited.

You know, also, Laurence, I would just add that we called those out. We get authorizations -- new authorizations, continuously we hope, and those were the ones we were particularly proud of in the quarter. We also mean to call it out because it is evidence of the continuation of outsourcing by the suppliers to us. And Erik mentioned the strategic supplier conference that we had recently in Chicago and how well that went. And so we are continuing to invest to strengthen that value proposition to our suppliers.

And it is demonstrating suppliers buying into our strategy of focusing on strong capability in specialty products in target verticals, being also very good at basic chemicals and services, for them to plug in their products into that model and the specialty area is very, very motivating for our sales force in our customers.

And, secondly -- I might have missed it, did you disclose your year-over-year or quarter-over-quarter segment volume gain?

We did not call that out, Laurence, I would have to go global on you what I said in the call, but maybe we can follow up and talk about that in a follow-up call.

Okay. Thanks.

Ryan Merkel, William Blair.

Thanks, good morning, everyone.

Good morning, Ryan.

Tell me how much was oil and gas customers down in the third quarter, and then, what are you expecting for the year-over-year decline in the fourth quarter, roughly?

It is primarily US -- a USA event, and we've got volumes down, strong double-digit and in the 20% plus -- 20% to 30% by customer -- of volume declines from our large US oil and gas customers. Price is always down -- also down, that is some mix. Some of the products we sell into oil and gas, like hydrochloric, are down quite a lot in price. So, a combination of the two in the third quarter, and I would say the track that we are tracking for the fourth quarter and for the year is in that range of percentage decrease.

So --

If you back up, Ryan, we said on the IPO road show that oil and gas would be about a 10% headwind to last year's EBITDA, and we feel that it is running at least that, maybe a percentage or 2 higher than that versus total last year EBITDA.

When we said that, remember oil price was $62 a barrel.

Right, in June.

Today it is $46 for WTI.

Okay. So volume's down strong double digits, sounds like 20% plus, plus you've got price down, and that's probably another 10 points plus?

Yes. So the net impact on EBITDA, as Carl said, before -- when it was $62 we said it was going to be roughly 10% and now we are saying 1% to 2% more than that. So a big headwind.

And, Ryan, we will issue our 10-Q here later today, and we should have some more color about that in the document for you.

Okay. And then, moving to Canada -- that was a better performance than I was thinking, and I'm sort of curious, this ag offset, given the optimal growing conditions, how unique is this? And is this going to be a tough compare when we hit Q3 next year?

No, I would say this year's ag season was a little bit better than last year and more kind of normal. We can have better seasons and we can have worse seasons, but this was more -- if you look historically, this was more of a normal-type year in Canada ag. I think the thing about Canada this year is oil and gas was down.

You can imagine that the oil sands are hit negatively, impacted by the oil price decline. But, at the same time, the industrial economy in the eastern part of Canada, with the very competitive Canadian dollar, has been expanding. We've got a nice position there, and we are growing our position there. So that gave a nice offset that covered the oil and gas, and the ag was a little bit better than last year, but more normal.

I see.

Ryan, I will just add that there is a lot of reports out there on ag in your industry right now, and I think it's very focused on corn and soybean. And, just to remind you, that our Canadian ag business is really canola and wheat.

Okay. That's helpful. Okay, last one, are you assuming year-over-year sales in the fourth quarter are a little worse in the third quarter? And is the big driver oil and gas, sequentially, or is there anything else?

I would say, yes. The comps versus last year. When you say down you are comparing to last year. The comps versus the fourth quarter last year will be the toughest of the year I would say. September, October, and even November were peak years, last year --

-- in oil and gas. So oil and gas was ramping up towards the end of last year. January was also very strong, and then it started to fall pretty precipitously in February, March, April, and then got very low from there. So, yes. The fourth quarter oil and gas will be our toughest quarter comparison, and we just have to get through that. But that is what we are trying to offset with all the other actions that we are taking.

Yes. And that should -- as you know, it should taper down sequentially into the quarters of 2016.

As a headwind.

Right. As a headwind.

Got you. Thank you very much.

Okay.

Steve Byrne, Bank of America.

With respect to that BlueStar or Future Transfer/BlueStar acquisition, what is it that you find most compelling about it? Is it the additional relationships in that geography, or is it more physical in nature, with the blending and formulation capacities that you are picking up with this?

Earlier in my career, I ran the DuPont agriculture and nutrition division, and I always thought that the formulation of the ag chemicals was a critically important step in the process. You needed very high-quality, high-value activity that you had to get right. We got to know the Future Transfer/BlueStar people as we were looking around at opportunities and got to know their quality systems and their capabilities. And they are really, really good at this ag formulation process and capability.

Their customers are very complimentary of their capabilities, and we see that as a high-value activity service that we can provide and build on the capability that Future Transfer has for Canada, and then it can go to geographies beyond that. There is a need for outstanding formulation capability for ag chemicals, Future Transfer is providing some of that today, and we think that they can be bigger players in it.

The other great thing is it's was very complementary to our ag distribution capability, and Future Transfer/BlueStar also has some distribution capability. And, together, we can not only formulate the chemical products for our suppliers but we can get them to the market -- to the independent retail market very, very efficiently. So it's a great combination.

So, presumably, these are some of the same suppliers that you are using currently in your US crop chemical distribution business. And, in order to expand into more of a formulation role in the corn belt, do you need to acquire? Or can you just grow that organically, given what you are learning from the Future Transfer acquisition?

Future Transfer is very small today. They do a great job and very, very well liked by their suppliers -- their customers. What I would say is, the first step we are doing is making sure that we are doing a great job in Canada -- supporting them to do a great job in Canada, expand the opportunity in Canada. And then, yes, we're going to look broader geographically -- whether we can do that organically, or whether we need to do a bolt-on M&A, what the opportunities are. But our first focus in 2016 is, let's get it right for Canada.

And, lastly on this one, do you own the inventory in this formulation business and, therefore, take on the price and volume risk heading into the next growing season?

Steve, it is under contract. It's a contract formulation arrangement with the suppliers, and so the answer simply is, no.

It's a service business.

Okay.

We get paid for the service, and we do not take the inventory.

Okay, thank you.

You next question comes from Jim Sheehan, SunTrust Robinson.

Good morning. I was wondering if you could comment on your caustic soda outlook for the fourth quarter. It looks like pricing went up in October, and maybe volumes will be down seasonally. Do you expect to be doing better in caustic soda in the fourth quarter?

Well, that is a product forecast for the fourth quarter. I will give you some data points. Price is down, year to date, mid-single digits and, more than that, in September results. So, I think that is a headwind as we look at the fourth quarter. Demand and supply imbalance, I'm not -- I don't have any information for you there.

What I would say is we have been encouraged by the price increase announcements and are supportive, and we would like to see that move forward.

Great. And in your Canada herbicides business, with your strong results there, I'm just wondering about what inventory levels are like in that channel.

I would say normal. I don't -- in Canada, we don't have -- I think maybe what you've heard in other channels may be in other countries, but I would say normal. Interacting with our team up in Canada on this point, we feel it's pretty normal, and the season ended up a little bit better than what we thought, so I think we are okay there.

Great. And, Carl, how is your Univar value-add metric looking?

Thank you, Jim. Thank you for remembering and for asking. It's a very active metric across the Company, business by business. Naturally, as you would expect, it is taking a hit around oil and gas. We do have working capital invested there and some hard assets around tanks and the like.

So, that is a negative; however, the margin increases and profitability increases in Europe from our restructuring program is offsetting that, and actually a bit more than offsetting that. So those two factors, plus services, which are a big contributor when you look at return on capital metrics like UVA. And so we are very encouraged by the upward ticks in UVA dollars around our services business as well.

So, one big pothole this year, on a short-term basis, and two nice recoveries and increases offsetting that.

Thanks a lot.

Okay. Thanks, Jim.

(Operator Instructions )

Roger Spitz, Bank of America Merrill Lynch.

What kind of working capital cash inflow are you expecting in Q4 2015?

Q4 is a little tricky, Roger. We have a good, I would say, distributer model working right now with a lot of cash inflow year to date. You saw that. Some of the variables in the fourth quarter, for us, are the -- actually ag, we've talked a lot about ag today, and the way our working capital works in Canada, with the end-user customers and our suppliers. So we're watching it very carefully. We, as you know, are putting this cash to work with the acquisitions. I mentioned that earlier. It is always a tough quarter to call, the fourth quarter, and we are very actively managing that right now on the receivable side and on the payable side.

And I would say we've improved our control of our inventory.

Oh, yes. Inventory, right. I think -- you know, Roger, we ramped up inventory intentionally to get on-time deliveries up in the past couple of years, and we think we have corrected that. Our on-time delivery rates are terrific right now. We are adjusting that now down to a little more optimal level of inventory. So I think we will be okay. We're watching it week by week.

Great. Secondly, would you look at any larger chemical distribution M&A or just stick to bolt-ons? And would you ever consider looking at Interpolymer distribution?

We won't comment on any specific opportunities, but what I would say is we really like our bolt-on strategy. I know the deals that we've done so far have been very small. I think we can do a little bit bigger deals and have them tuck right in and keep on going and add a lot of value. So, our focus is to stick with our strategy and just do more of these bolt-on M&A deals in a way that enhances value very quickly.

Thank you very much.

Thank you, Roger.

There are no further questions at this time. I will turn the call back to Management for closing remarks.

I just want to thank everybody for being on the call today. I feel very good about the progress that we are making. We've got a lot more work to do to start to realize the full potential of this Company, but the oil and gas headwind has been a huge challenge for us.

I'm very proud of what Chris Oversby and his team are doing to do the best we can in a very tough market. And I am also very pleased with how we are performing outside of oil and gas, and including enhancing our service businesses and doing the bolt-on M&A. I like where we are. We're not far enough along. We are pushing hard to do that and we appreciate your support.

Thank you.

Thank you, ladies and gentlemen, for participating in today's conference. This does conclude the call, and you may all disconnect. Everyone, have a great day.