Univar Solutions Inc (UNVR) 2015 Q4 法說會逐字稿

Welcome to the Univar fourth-quarter and 2015 year-end earnings conference 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.

Thank you, operator. Good morning. Welcome to Univar's fourth-quarter and 2015 year-end conference call and webcast. Earlier this morning, we released our financial results for the quarter and fiscal year ended December 31, 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, we may make statements about our estimates, projections or expectations for the future. All such statements are forward-looking statements and while they reflect our current estimates, they involve risks and uncertainties and are not guarantees of future performance.

You should review our 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. We do not plan on updating or revising any forward-looking statements during the quarter. In addition, we will also refer to certain non-GAAP financial measures, for which you can find the reconciliations to the comparable GAAP financial measures in our earnings release and the supplemental slide presentation, 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. Good morning, everyone. Like many other global chemical companies, 2015 was a challenging year for Univar with the collapse in oil prices, the strong US dollar and commodity chemical price deflation. The actions we took during the year to better serve our customers' chemistry needs with our products and services and our focus on productivity helped us offset a lot of these headwinds, showing the value of our diverse and asset-light business model and the clear strategy we have in place.

Let's turn to slide 3 for our 2015 highlights. For the year, we delivered $600 million of adjusted EBITDA, down 7% on a reported basis but essentially flat on a currency neutral basis, despite a big hit to our upstream oil and gas end market from the collapse in crude oil pricing. Our gross margin and adjusted EBITDA margins were up year-over-year. In 2015, we reduced our total net debt by 19% and reduced pro forma annual cash interest expense by almost $100 million using proceeds from our June IPO and subsequent debt refinancing.

We generated $632 million of adjusted operating cash flow, significantly up from prior year due to lower net working capital and productivity improvements. We completed the restructuring of our European supply chain operations, closing non-profitable facilities to create a lower cost base, while we also improved our focus on growth and targeted industries like personal care, food and pharmaceutical ingredients and coatings. As result, our European adjusted EBITDA margin increased substantially.

After globally launching Lean Six Sigma a year ago, we drove a wide range of operational excellence projects in our warehouses, tank farms, in transportation and procurement and in our corporate services that are helping to increase our profitability and lower our cost structure, while improving service to customers and suppliers. In 2015, we also completed several bolt-on acquisitions that will strengthen our product and service offerings. We have a solid pipeline of additional opportunities.

By the way, 2015 was our safest year ever with an OSHA TCIR reportable injury rate of less than one. In the fourth quarter, we continued to execute well against our three strategic priorities to grow the value of Univar.

One, to grow organically in attractive end markets with chemistry products and services. Two, to improve commercial and supply chain operational excellence. Three, to make bolt-on acquisitions that strengthen our total offering. But our growth was more than offset by the headwinds that have challenged us all year, lower demand in upstream oil and gas, the strong US dollar and commodity price deflation.

Please turn to slide 4 for our fourth-quarter highlights. Univar's fourth-quarter adjusted EBITDA of $130 million was down 13%, on a currency neutral basis, it was down 8%, mainly due to lower upstream oil and gas demand. Gross margin rose 180 basis points and adjusted EBITDA margin rose 40 basis points year-over-year. Outside of oil and gas, we achieved year-over-year growth in our high-margin services and in several targeted markets, including personal care, food and pharmaceutical ingredients and water treatment.

We continued to benefit from mix improvements despite price deflation in many basic chemicals and from the successful implementation of productivity initiatives, including our European restructuring program. Within the upstream oil and gas market, our USA fracking makes up about 90% of our business. As you know, this end market was hammered. We were hammered too.

For the full year, the operating rig count dropped 60% and has continued dropping into this year. We have been aggressively reducing our costs in this market through headcount reductions and closing facilities, while we keep enough presence to be positioned to capitalize when the oil markets eventually recover and they will.

Cash flow in the quarter was strong as it was all year and was more than enough to fund the acquisitions we completed. These acquisitions expand our capabilities in attractive specialty products and services.

Now, I'm glad that our adjusted EBITDA results for the fourth quarter and the full year were line with expectations and the guidance we provided you in previous quarters and that our cash flow exceeded expectations. But I must say that my team and I are very disappointed that we could not overcome all the headwinds and deliver reported year-over-year adjusted EBITDA growth. Though we are highly motivated to continue to better manage what we can control to strive for better performance in any economic scenario.

I'll now turn the call over to our CFO, Carl Lukach, who will provide more detail on our fourth-quarter and full-year results. Carl?

Thanks, Erik. Good morning, everyone. Please turn to slide 5. I will walk you through our consolidated and then segment results and call out insights for your better understanding.

First point on slide 5 is about the headwinds. As we explained to you throughout the year, we plowed through two significant headwinds in 2015 that were most impactful in the fourth quarter: FX translation and lower demand in upstream oil and gas. In aggregate, both factors amounted to approximately an 18% adjusted EBITDA headwind for the full year. From that reduced level of earnings, we grew the rest of our underlying business finishing the year down 7% but essentially flat on a currency neutral basis.

Let's take a look then at each of the graphic segments to understand what factors drove the underlying growth, moving first to the USA on slide 6. For the full-year, USA adjusted EBITDA of $389 million was down 11% due to the decline in upstream oil and gas. The side of our business in upstream oil and gas decreased significantly from one year ago in all dimensions, sales, gross profit and number of employees.

For perspective, a year ago upstream oil and gas was contributing high teens as a percentage of our USA delivered gross profit. But at current run rates is now contributing in the low single-digits as a percentage of USA delivered gross profit. This reflects lower volumes and lower prices largely from changes in product mix.

Now, excluding oil and gas, however, the high point in the US was our industrial chemicals and services businesses, where we grew our gross profit and earnings despite lower average selling prices and lower volume. Several of our key industries like water, food, personal care and Pharma, along with higher growth from our service businesses were key contributors to the solid performance. Also contributing was our operational focus on Lean Six Sigma and productivity gains, where we drove down operational costs on a per unit basis.

Regarding price deflation, one-third hit headwind related to the drop in oil, we did see average selling price per pound across our thousands of products drop just over 6% for the full year. But we realized an increase in average gross margin per pound of 1%, reflecting intense margin management at both the product and market level.

We had solid growth in several value-added service businesses including ChemCare, ChemPoint and Mini-Bulk, which are mostly in the US. In 2015, these three services businesses comprised approximately 6% of our global sales. We will continue to seek opportunities to grow these revenues.

Regarding productivity, in addition to our Lean Six Sigma efforts, in light of the decline in profitability we experienced in our upstream oil and gas business, we took a $13 million charge in the fourth quarter for the cost of our resizing program that will launched in December. This program will result in about a 3% reduction of our global workforce of 9,000 employees and the closure of several smaller sites in the USA. Estimated annual savings from the program are at least $10 million per year. We expect to be at that run rate of savings by the end of December 2016.

Let's move into Canada on slide 7. The underlying performance of our business in Canada was strong in 2015, despite a weak economy, especially in the Western Canada energy markets. Like every US company with Canadian operations, we felt a 14% decline in the value of the Canadian dollar in 2015. That fact reduced our sales gross profit and adjusted EBITDA by 9% to 11% but on a currency neutral basis, sales were up 5%, gross profit was up 4% and adjusted EBITDA was up just over 5%.

This resulted from good volume growth in Eastern Canada industrial markets and from a good year in Ag especially in herbicides in Central Canada. Both factors were enough to overcome volume declines in our energy-focused Western Canada business. Our participation in oil and gas in Canada is quite different than in the USA, where our diversity lessened the impact of declining crude prices.

The fracking market is much smaller and a larger portion of our business is selling products used in processing natural gas through the extensive Canadian pipeline network. We also, to a lesser extent, supply processing chemicals to the Canadian oil sands operations.

As we mentioned last quarter, we do see a trend of higher volume in the industrial East that reflects increased US buyers of industrial products made by our customers in Canada to take advantage of the weaker Canadian dollar. We expect this to enable us to grow in the segment in 2016, even against the weak macroeconomic environment.

Let's move then to slide 7 and our results in Europe, Middle East and Africa. Like Canada, we felt approximately 15% foreign currency translation headwinds in EMEA in 2015. Excluding the currency impact, our decline sales reflects our shutdown of five facilities as part of our restructuring program and curtailment of certain sales associate with those sites. The program is now complete and was a major contributor to the 210 basis point increase in our full-year gross margin to just under 22%, along with the 180 basis point increase in our adjusted EBITDA margin to 5.6%.

Our fourth-quarter margin improvement versus last year was even greater, as you can see on the slide. Absent the curtailed business from restructuring, volumes across EMEA in general were on par with the prior year. Margins were up in a few key markets for us like pharmaceuticals and average selling price was up reflecting our mix enrichment strategy.

In 2016, we will benefit in EMEA from the lower cost structure we created through restructuring in 2015. We'll focus keenly on our sustainable growth initiatives for 2016 and beyond.

Moving then to our rest of the world segment, which is really about Latin America on slide 9. We had a very good year in Latin America in 2015. Our adjusted EBITDA grew 60% despite a 20% currency translation headwind and despite the Brazil recession.

Excluding currency variance, our EBITDA doubled. This is largely the result of the excellent acquisition and integration of D'Altomare that we made in November 2014 in Brazil, which gave us a new position in specialty markets like personal care. We also captured cost synergies from the acquisition, which contributed to our 280 basis point improvement in EBITDA margin.

In Mexico, volume growth of 8% from market penetration gains was the prime driver of strong double-digit EBITDA growth. We now have a larger, healthier business in both countries and expect that growth to continue; however, we are watchful of the weak macroeconomic environment in Brazil and the impact it is having on slower industrial production there. To sum up, our three segments outside the USA, in aggregate, grew adjusted EBITDA 25% in 2015 on a currency neutral basis.

Moving then to slide 10, I will finish up with our balance sheet and cash flow. As Erik mentioned, we had a very strong delivery of cash flow from our businesses in 2015.

We generated adjusted operating cash flow, that's adjusted EBITDA less change in net working capital less CapEx, of $632 million in 2015, up just under $250 million from the prior year. This equates with 105% after CapEx cash conversion rate and a 7% operating cash margin.

Lower net working capital of $176 million was the prime driver of the increase in adjusted operating cash flow, primarily from lower accounts receivable from oil and gas customers. But aside from that source of cash, we did have solid improvement in working capital productivity.

Year-end net working capital as a percentage of sales declined 70 basis points to 11.1%. Our DSO DPO spread improved 3.7 days from negative 2.2 days to positive 1.5 days. We continue to focus on net working capital productivity gains as a source of cash to reinvest in our business.

In 2015, we reinvested roundly $300 million in CapEx and acquisitions for future growth of our business. We are keenly focused on the reinvestment effectiveness of our capital spending and acquisitions to ensure that we earn cash returns greater than our cost of capital in a relatively short period of time.

Other uses of cash in 2015 included cash interest expense of $170 million, down $69 million from prior year due to our July refinancing. We expect cash interest to drop to about $147 million in 2016. Cash taxes and other cash outflow were $38 million in 2015 and cash contributions to our three frozen defined benefit pension plans were $60 million, which we expect will decline to about $30 million in 2016. We also had a sizable amount of one-time fees paid in 2015 for our IPO, which will not recur in 2016.

Our priorities for use of cash are to reinvest for growth in our asset-light business including digital projects that will lower our transaction cost per unit, make targeted value creating bolt-on acquisitions and pay down debt. We have great flexibility to do that with our ABL and we manage that daily.

Net debt at year end was down $701 million or 19%, reflecting our pay-down of debt from the IPO proceeds. Our leverage ratio declined from 5.8 times a year ago to just under 5 times at this year end. We are very pleased the timing and terms of our refinanced debt structure, which lowered our pro forma annual cash interest expense $100 million a year and importantly pushed out our maturities to 2022 and 2023.

Our weighted average cost of debt is currently 4.6%. As a reminder, we do not currently have active financial maintenance covenants to meet, such as the minimum interest coverage, maximum debt to EBITDA or a minimum net worth requirement. In 2015, our conversion ratio, which we define as adjusted EBITDA divided by gross profit, was 33.4%, up 20 basis points from the prior year.

For the full-year 2015, our effective tax rate was 38%, slightly higher than the 35% guidance we provided due to change in the mix of geographic earnings before taxes. As a result, our fourth-quarter effective tax rate was quite high to accrue taxes up to the higher full-year rate. Our cash taxes paid however of $38 million for the year ended up about $15 million below forecast.

For 2016, we expect cash taxes to be a bit lower than the $38 million we paid in 2015. We currently expect our full-year 2016 effective tax rate to be a approximately 35%. We will update these estimates quarterly.

Lastly, our return on assets deployed in 2015 stayed steady with last year at 21.3%. As we look forward into 2016, we expect to spend about $45 million less in CapEx this year than the $145 million we invested in 2015. We have a close watch on industrial production by country to gauge the current sluggish demand and on chemical prices as the industrial world continues to adjust the significantly lower priced oil.

We have included in the appendix to today slide, data that may be helpful to you in modeling our Company for 2016. With that, I will turn it back to you, Erik.

Thanks, Carl. When I look at our 2015 performance, Univar had a solid year and strengthened our Company for 2016 and beyond. We made progress toward our strategic goals, while responding to a very challenging market created by the collapse in oil prices, the strong US dollar and commodity chemical price deflation.

To sum up the year, despite these headwinds, we managed to essentially reach last year's adjusted EBITDA results on a currency neutral basis by increasing our gross margin and driving cost reductions. We delivered strong cash flow performance by reducing interest expense and increasing our cash flow from operating activities including improving our working capital efficiency.

We continue to strengthen our people, processes and execution to drive profitable growth and productivity going forward. We have created a stronger, more focused Company.

Now, we will look at our 2016 outlook on slide 11. On a reported basis, we expect 2016 adjusted EBITDA to be modestly below the $600 million we reported for 2015, this is based on our expectations for, one, sluggish global industrial demand throughout the year. Two, lower prices for certain commodity chemical products we sell that are tied closely to the price of oil or have over capacity. Three, a difficult year-over-year comparison for oil and gas in the first quarter, which tapers in the second through the fourth quarters and becomes a less of a headwind through the year. Four, ongoing headwind from a stronger than prior-period US dollar.

We expect these headwinds will be partially offset by the benefit of our focused organic growth initiatives, our incremental growth from the small acquisitions completed in 2015 and lower costs from our productivity initiatives. We expect first-quarter adjusted EBITDA on a reported basis to be about 10% below our $130 million fourth-quarter 2015 results given the ongoing headwinds in upstream oil and gas and the oil and gas quarter comparison versus the solid prior-year, sluggish demand across the broader industrial markets and the strong US dollar and continued price deflation in various basic chemicals.

Bottom line, our 2015 results give us confidence that even in the face of strong headwinds, our plan is working and e have the right team in place to execute it. We just need to do more faster. We expect ongoing market uncertainty and our entire team is aligned to focus on the value levers we can control including mix enrichments, productivity gains and bolt-on acquisitions.

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

(Operator Instructions)

Duffy Fischer, Barclays.

Just wanted to understand the cadence of EBITDA. If I go back and look starting Q1 of last, just looking at the year-over-year Delta, flat Q1, negative 8% Q2, negative 14%, negative 20%. Then off your guidance for Q1 this year, you will be negative 30%, in Q1. So we are getting worse and we are getting worse at an accelerating rate. But if you do the back map on that, that would imply the rest of the year after Q1 is a positive 5%. So it would seem like the very fast snap-back. Question would be first, which quarter do you think will be the first quarter this year where you turn positive? Then what gives you the confidence that we will rebound and be -- that much significantly better than the trend has been the last five quarters?

Duffy, this is Erik. I will start and then Carl can add anything. The biggest headwind for us is the oil and gas. That continues in the first quarter of 2016 to be a big headwind. We expect our oil and gas business to be down 70% to 80% in the first quarter of this year versus the first quarter of last year. So that's by far the biggest issue that we've got. Secondly, it is just a slow start broadly in the US, Europe and Latin America in terms of broader industrial demand. So things are starting off sluggishly. Some of that's possibly destocking, as customers hope for lower prices and then just some of it is just general sluggishness.

Going forward, we are assuming no oil and gas improvement or commodity price recovery, very low industrial growth but starting to see some industrial growth through the year. We are aggressively driving our productivity programs. We've already had programs that have been in place that we've been driving that will have additional benefit in 2016 through the year, plus the resizing that Carl alluded to that will add another $10 million run rate by the end of the year. We expect that to start to kick in, in the second quarter and beyond and deliver at least $5 million this year.

Plus, we see continued growth acceleration in our services businesses that Carl alluded to, our ChemPoint business, our ChemCare business, our Magnablend business, all accelerating growth and continue to expect solid growth in personal care, pharmaceuticals, water treatment and a few other areas that are less cyclical. So we've modeled it out very tightly and see us starting to -- the decline starting to lessen in the second quarter and then improve through the year. Carl, anything to add?

No, I think that covers it, Erik. Maybe I will just say that the cadence you described, Duffy, almost would mirror a chart of the oil impact and oil price. Just maybe it might be helpful if I shared with you in our release, gross profit for the year, you see in our release in the USA was down 5%. That was -- when we break that out, that was up 4% ex-OGM and down 37% in oil and gas business. So you are describing exactly that curve that we wrote down in 2015 in oil and gas and our assumption it will stay flat at this low run rate for the rest of year.

So, through that year, we haven't seen declines outside of oil and gas. All the declines have been in oil and gas.

Okay. Then in oil and gas, you talked about it being high teens a year ago, down to low single-digits today. If we don't get any volume or price improvement that in that market, once your cost programs roll through, where should that settle out at today's macro environment?

We see it, Duffy, being about -- we are assuming it's going to stay about where it is today. So if there is further decline, we think that cost reductions that we are taking will offset that. So we are assuming it continues about where it is in the first quarter of 2016.

Okay. Thanks, fellas.

Steve Byrne, Bank of America.

I wanted to ask about the six bolt-ons in 2015. What do you think the incremental EBITDA contribution from those will be in 2016? How does the pipeline of opportunities look for you given slower industrial demand? Are you seeing any more of these smaller distributors increasingly interested in discussions with you? The impact on acquisition multiples?

So let me start with the first part of your question. The six bolt-on last year should add about 2% to 3% to our EBITDA in 2016. All are performing well. All are in more specialty product and service areas that are less impacted by the cyclicality challenges. We expect them to perform as planned. In terms of the pipeline, we've got a nice pipeline. What I would say is, it continues to be focused more on the specialty product and service areas.

I think the more commodity chemical distributors are very challenged. That has been making them less interested to sell at this point, waiting for recovery. But fitting our strategy, the drive for more specialty products and more services fits anyway. So you will see us do a number of acquisitions again in 2016. We expect that -- expect it to be probably on the order of what we spent last year, so that impact will be felt towards the end of the year hopefully some of that and then into 2017.

Thank you.

Laurence Alexander, Jefferies.

This is actually Dan Rizzo on for Laurence. You mentioned that fracking makes up 90% of the oil and gas business. Do break down what that is between dry and wet fracking? Are you more focused on natural gas or oil or is it split or how does that work?

That's 90% of the upstream oil and gas business is fracking. We play across all types of fracking with different chemicals. The point is that, we provide all the chemicals needed for any frac job; therefore, we play across the different fracking technologies.

Okay. Thank you. Then, I apologize if you said this before, you had some significant EBIT margin expansion year over year, is there a targeted rate that you're aiming for? Or there's just continuous improvement? Or do you think there's a sustainable rate you can get to?

Yes. Dan, it's Carl. If you look back at 2014, our gross profit margin was 18.5% ish. If you look at the strategy we've got in place, we are pursuing three actions that would improve margins up in the 150, 200 basis point range into the 20% something range and as well as EBITDA, EBITDA margins were low 6%s. We think this strategy will get us up into the mid-7%s. On a short-term basis, we manage gross profit margins to maximize EBITDA. So quarter-to-quarter, it can be a little bit up-and-down. But trend lines should take us up into those ranges, 20% something in the gross profit zone and 7.5% ish. The three actions again, the acquisitions Erik talk about, the productivity improvement and the good organic growth that we are pursuing in some attractive market spaces.

Okay, thank you very much.

Brian Maguire, Goldman Sachs.

This is actually Ryan Berney on for Brian. I was hoping that maybe I could walk through some of those slide 13 numbers that you gave around your cash flows. So maybe starting at the top of the adjusted EBITDA, you are guiding for modestly down next year. So if I were to take that to be a mid single-digit number that would get me to a 5.75% number. If I were to take off the cash tax, the pension and the interest and the CapEx that you provide here that would give me a free cash flow number of around $260 million, is that a fair number to estimate for you guys for next year?

Let's see if you're -- let me do your math. So if -- I want to say, okay, you sounded like you had all the items, Ryan. Interest will be down 20-something, pension about $30 million down, CapEx about $45 million down. We did have a large amount of fees, ballpark, $30 million that occurred last year in 2015 that won't recur. Taxes will be a little bit below that $38 million, call it $10 million. We do have about $40 million of scheduled debt repayments, so debt will come down. Then we will be faced like we are every year with the choices between CapEx and acquisitions and debt repayment. So, at this stage in the game, I think that we are going to do more on that debt repayment. I think you can expect us to take that down in more than the 40 scheduled payments.

Okay, great. Then in your internal model, do you assume much more working capital reductions next year on the back of the continued weakness you are seeing in oil and gas?

Yes. We have dialed into our model additional cash outflow from working capital, I will call it modest off of these levels, which reflect the modest growth profile of the total Company. A lot of moving parts of there, but the short answer is yes, we are modeling in a little bit of cash for that outflow.

Great, thank you very much.

Jamie Cook, Credit Suisse.

I guess just couple questions -- clarifications. On 2016, can you talk through how we think about mix in 2016 versus 2015, what you're assuming? Also on the pricing side? I guess, can you talk about market share shifts in the broader markets? Are there any markets that you are being more successful in terms of gaining share? I'm just trying to think about how that positions you in the eventual upturn. Thanks.

Okay, I will start and then Carl can add in. First of all, the areas that we're driving very aggressively: the services area that Carl explained was 6% of our sales last year, the ChemCare, ChemPoint and Mini-Bulk. We are pushing hard to get that into high single-digit growth in 2016 and beyond. We are focused in certain market segments that are less cyclical, putting more resources to those, personal care, pharmaceuticals, water treatment, food ingredients, We expect those areas to outperform the more cyclical and more challenged industrial areas. That not only will help our growth but that will also help drive our mix in the right direction. Other than that, we do expect sluggish industrial demand broadly. We don't expect share shift in those areas. In those areas, we will be driving very aggressively in productivity and bringing our customers more value to help them better compete in this challenging marketplace, as well as working together with our suppliers to help do the same.

Okay. I would add to that, Jamie, on your question about pricing. Pricing is a tough one to figure in this marketplace right now. You know our product portfolio, very broad chemical based with about 20% to 25% of that of those products pricing in the marketplace in high correlation to oil. So those prices are down. We've seen pretty strong deflation in those prices. They are at 10-year lows. Some of these commodity chemicals, those bulk commodity chemicals that are tied to oil pricing are really -- it feels like we are the bottom there.

I don't want to be predicting price increases, but we will see how it goes, but it does feel like it is on the bottom. Going back to your mix question, the big mix impact that you will see year-on-year is oil and gas. Our oil and gas businesses being much lower in the portfolio than it was in 2015, even while the sliding down, our margins in OGM have half declined with the business so that will give a bit of a lift to margins for total Univar.

Less decrease.

Less decrease, then market share, the acquisitions will help. Then all of our growth initiatives into target verticals will help too. We've think we've got some room to grow in market share as well.

Okay, thanks. I will get back in queue.

Okay, thanks, Jamie.

Jim Sheehan, SunTrust.

What is your target for net debt to EBITDA by year-end 2016?

Let me zoom in to that. We're going to pay down some debt in 2016. As we said, we are scheduled to and we are probably do -- very likely going to do more than that, with the reasons that we've got the -- from the reasons we've got higher cash flow. Our long-term net debt to EBITDA leverage ratio goal was in the 3, 3.5 zone. We came down from 5.8 last year to 5.0. We are on that trend line. If things goes as planned right now for the year, we should make a step towards that goal at -- by the end of 2016.

Great. Carl, what is your Univar value-add metric stand at year-end?

Jim, I'm glad you asked, thanks for that. This year for the total year 2015, we've got pluses and minuses. The pluses are -- should be obvious from our report --

Anything outside oil and gas.

Outside oil and gas. In Europe, our UVA dollars out of Europe are up very significantly, reflecting the restructuring and the higher margins that we've got there. Rest of the world, UVA dollars are up, reflecting the doubling of earnings from the D'Altomare acquisition that we talk about. On the minus side, we did give some ground in USA with the decline in oil and gas with fracking.

We are taking the actions that you heard about today to rebound and get that going in the right year -- right direction. Then up in Canada, we had slightly down to maybe more FX than anything, but still for us highest UVA margin rate for us in any of our segments. You add it all up and we are still running about 150 basis points above the cost of capital. By our measurements, our cash UVA/eVA metric here down a little bit from 2014. So appreciate you bringing that up.

Thank you.

(Operator Instructions)

Karen Lau, Deutsche Bank.

Can we start with -- go back to first-quarter guide. So you talk about you are assuming oil and gas down 70% to 80%. If I look at North American rig count year-over-year taking the current run rate is probably down 50% to 60% in first quarter. So is your assumption that the rig count will continue to get worse? Or is there some pricing impact? Just trying to bridge the difference between the underlying rig counts and what you are assuming for your oil and gas business?

In the first quarter, the rig count has continued to decline. As we said last year, it declined 60% in the first quarter, it is continued to decline. We are assuming that it is going to bottom out soon or close to where it is and that our cost actions are going to allow us to continue about where it is today. So we are assuming no improvement in the oil and gas through the rest of year, in our guidance. The reason why the earnings are going to be down that level, 70% to 80%, is a combination of the drastic volume declines and the pricing challenges. So you are correct, it is a combination of both.

Okay, got it. Thank you. Then I think you mentioned that average selling price per pound was down 6% last year but your GP was up 1%. Is that -- if you look at the down 6% last year is that all driven by the bulk chemical or the 20% to 25% that is very tied to oil? Or are you seeing some pricing pressure in the more specialty side chemical as well?

No, I wouldn't say that last point, Karen. There's a lot of mix that goes on in a Company like ours. We've got, as you mentioned, bulk versus specialty. We have a healthy amount of direct shipments to customers versus a repackaged business through our warehouse, as all those margins are different. But focusing on gross profit dollars, that's what we call our revenue line. We've got very agile buyers. That's how we manage the business. So I would not go where you are going that basic versus specialty might be different on price pressure. I would say that some of those bulk commodity chemicals that are close -- closer to the wellhead have shown some of the more dramatic deflation in price in 2015 versus 2014, directly correlated with oil.

Okay. But you would assume given that you have a pretty solid performance in the GP, you would assume -- you wouldn't assume the GP dollar to start deteriorating as well if we are just in a lower for longer type environment?

That's our basic assumption, that's right. With the add-on that we manage that gross profit margin to maximize EBITDA. So where we have opportunities to grow, to gain share, to get new customer, to get new business we will think through carefully what that GP dollar result will be, as well as the operating leverage we have down to EBITDA. So it is both eyes on that.

Okay, make sense. Then just lastly I noticed the EBITDA conversion in fourth quarter was a bit lower. I realize there's fluctuations from quarter to quarter, but should we still expect the EBITDA conversion to be in the 33% to 34% for this year?

Yes. For full-year basis, that's right. By the quarters, our seasonality impacts that conversion ratio, especially driven by our ag business up in Canada. So you will see conversion ratios typically go up in the second and third quarter during our ag season. Then you are talking about full-year average there in the fourth quarter.

Okay, thank you very much.

There are no further questions at this time. I will now to turn the call back over to management for any closing remarks.

Great. Thanks, Jonathan. Thank you all for participating in the call. I will let Erik see some say some closing remarks here and appreciate your help

Thank you for joining the call. We are excited about the future. We know there's lots of challenges out there in the industrial economy in oil and gas, but we've got the right team, the right plan, the right strategy. We are excluding it well. Thank you.

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