Univar Solutions Inc (UNVR) 2018 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Univar's special investor call to review its fourth quarter and full year 2018 earnings and also highlight the closing of the Nexeo acquisition and expected 2019 results. My name is Emily, 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, David Lim, Vice President of Corporate Development and Investor Relations at Univar. David, please go ahead.

Thank you, and good morning. Welcome to Univar Solutions' investor conference call and webcast. Joining our call today are David Jukes, President and Chief Executive Officer; and Carl Lukach, Executive Vice President and Chief Financial Officer.

On February 8, we released our financial results for the fourth quarter and fiscal year ended December 31, 2018, as well as our first quarter and full year 2019 guidance, excluding the acquisition of Nexeo.

On February 21, we filed our 10-K for the fiscal year ending December 31, 2018, and last Thursday, February 28, we closed on the acquisition of Nexeo Solutions.

Today, we released a supplemental slide presentation that should be viewed along with the news release covering the comments on this call. Both have been posted on our website at univarsolutions.com.

During this call, we will refer to certain non-GAAP financial measures, for which you can find the reconciliation to the comparable GAAP financial measures in our earnings release and a supplemental slide presentation. As referenced on Slide 2, we will make statements about our estimates, projections, outlook, forecast and expectations for the future. All such statements are forward looking, and while they reflect our current estimates, they involved risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for more complete listing of the risks and uncertainties inherent in our business and our expectations for the future.

With that, I'll now turn the call over to David for his opening remarks.

Thank you, David, and good morning, everyone, and welcome to our first conference call as Univar Solutions. As many of you have seen, we closed our acquisition of Nexeo Solutions on February 28. And we'll be doing business as Univar Solutions going forward, reflecting a new company that combines the best of the best of Univar and Nexeo Solutions. I'll have more to say on that later, but first, let me briefly summarize Univar's fourth quarter and full year 2018 results and the stand-alone Univar guidance that we provided to you 3 weeks ago.

We made the decision to give you stand-alone guidance to be transparent with our projections, provide investors with a detailed update on how we are seeing the year progressing. As you saw in that report, 2018 was a year of progress and challenges as we move towards our goal to be the most valued chemical and ingredients distributor in the world.

In 2018, we grew sales 4.6% to $8.6 billion and expanded our gross profit and adjusted EBITDA margins. Adjusted earnings per share grew 16.5%, and adjusted EBITDA increased by 7.8% to $640 million.

Our asset-light resilient business model allowed us to report another year of solid profitability growth, free cash flow generation and cash return on capital. Whilst our 2018 financial results were solid, they were modest compared to our goals. This is due in part to a number of challenges we faced throughout the year, which our teams worked hard to successfully manage.

Capacity constraint in the transportation markets led to higher costs and lower availability. Whilst an uncertain economic environment, especially from September through December, led to cautious customers and oscillating demand during the latter part of the year. Through these challenges, our supply chain teams performed well as they focused on keeping our customers in stock by delivering product safely and on time.

In Canada, adverse weather conditions in our agriculture business and softness in the Western Canadian energy markets led to an 8% decline in segments EBITDA for the year.

Our outlook for 2019 includes an expectation that uncertainty and sluggish demand for most of our end markets will persist as customers remain wary of building their finished product inventory.

In the fourth quarter, demand fluctuated in the U.S., sometimes on a weekly basis, as a soft October was followed by a relatively solid November, only to see December soften again.

In Europe, we saw business conditions weaken progressively as uncertainty in the economy led to cautious behavior from customers. We have seen this uncertainty in many markets continue into January and February, and as a result are being restrained and prudent with our discretionary spending and measured in our outlook. However, against this tepid economic backdrop, we remain excited and focused on executing against our strategy and successfully integrating Nexeo. We have made significant progress on numerous fronts and have clear plans in place to address areas that are taking longer to advance.

One of the places where we have been most successful is the optimization of our supply chain, where we've made significant improvements since embarking on our transformation plan. Under Jen McIntyre's leadership, we have implemented lean programs and indirect procurements, optimized our logistics network and reduced warehouse costs. We closed a number of Univar sites, utilizing a well-developed playbook created over the past 2 years to execute on our site consolidation plan. Since 2016, these improvements have continued to contribute to a 200 basis point increase in our USA segment conversion ratio, defined as adjusted EBITDA divided by gross profits.

As we look forward, we see even greater opportunity to drive efficiencies as Univar Solutions. Over the past few years, you've heard us talk about digitizing our business, moving from manual processes to a technology-enabled company that can provide unparalleled service while lowering transaction costs. We have made meaningful progress, and with the acquisition of Nexeo, we expect a significant jump forward. The Nexeo platform allows us to accelerate our digital transformation by providing an ERP system optimized for chemical distribution that we know and understand well as it's almost identical to the Univar system in Europe. The familiarity and efficiency of the system's design allow us to migrate the legacy Univar business onto Nexeo's platform in a seamless and efficient manner, significantly reducing a key risk inherent in any ERP upgrade.

The global chemical supply chain is digitally immature. Integrating Univar's industry-leading e-commerce capability onto Nexeo's advanced ERP systems opens the door for us to create sustainable competitive advantage by making it easier for customers and supplier partners to do business with us and lower our transaction costs. It will allow us to redefine the supply chain with our partners, forming an optimized ecosystem that will accelerate growth opportunities.

The U.S. sales transformation, which we embarked upon in 2017, is advancing, though it's taking longer than expected. As we track our internal performance metrics by line of business and individual seller, there is no denying we had hoped for a faster pace of improvement.

Similarly to us, Nexeo started a sales force transformation program in mid-2015, 18 months before we began our own. The Nexeo team is, in many respects, further along in their journey, and we intend to take the learnings from their experience to accelerate growth.

Moving forward, our combined product portfolio is stronger, which gives us greater strength in our focused industries of food ingredients, personal care, pharmaceutical ingredients and CASE. In addition, we now have the scale to stand up 2 new focused industries in the U.S.: home care and industrial cleaning; and lubricants and metalworking.

In conjunction with our greater reach, we relentlessly drive a sales force execution. Succeeding on each of these fronts accelerates our opportunity for growth and profitability.

Now let me turn the call over to Carl, who will walk you through our 2018 results and 2019 guidance in detail. And then I will close with some comments about the Nexeo transaction and where the combined company is headed.

Thanks, David, and good morning, everyone. While we reported 3 weeks ago our fourth quarter and full year results, let me start by briefly giving you a refresher on those results as a baseline for understanding our revised 2019 guidance that now includes Nexeo chemicals.

In the fourth quarter last year, we reported net income of $1.2 million and GAAP earnings per share of $0.01. This included a noncash pension mark-to-market loss of $0.24 per share and acquisition-related expenses of $0.10 a share.

Adjusted earnings per share of $0.33 and adjusted EBITDA of $144 million were essentially flat with the prior year fourth quarter.

Pricing trend lines and profitability per transaction continued upwards in the fourth quarter but were offset by a significant decrease in earnings from Canada and lower demand from global industrial markets.

For the full year, consolidated gross margin expanded by 10 basis points, improving gross profit by $95 million compared to last year. This, combined with disciplined cost management, led to an adjusted EBITDA increase of 8%.

In the U.S., 2018 was a year of measured progress. Our adjusted EBITDA grew by 7.5%, and the segment increased its volumes for the first time since 2014. Our focus on sales force effectiveness continued as more than 300 sales team members completed advanced training courses designed to increase their selling skill set and know-how. After a significant change and reorganization in 2017, we were successful in stabilizing and transforming our sales team into a more effective, motivated growth force. Yet, we know there is much more to do.

For the full year, nearly 80% of our growth in delivered gross profit dollars flowed through to adjusted EBITDA, and our conversion ratio increased 80 basis points to 33.4%, a solid improvement.

In Canada, 2018 was a very challenging year for us, particularly in the fourth quarter. Double-digit growth in our core industrial chemicals business for the year was more than offset by a second consecutive year of adverse weather conditions that significantly reduced demand for agrochemicals.

In addition, reduction in demand from the Canadian energy sector led to an overall decline in adjusted EBITDA of 23% in the fourth quarter and down 8% for the year. Recognizing the challenging market conditions, our teams in Canada prudently reduced spending and working capital.

By comparison, our Europe, Middle East and Africa segment had a very strong year and grew adjusted EBITDA by 17%. Customer and supplier acceptance of our go-to-market strategy remained strong, and our focused industry approach has been well received. Our supplier partners trust our ability to drive higher customer engagement and sales.

In the fourth quarter, EMEA was our strongest growth region as adjusted EBITDA grew 8% currency neutral, despite some signs of economic slowdown as a result of Brexit worries and tempered macro growth expectations for the eurozone.

Our Rest of the World segment grew adjusted EBITDA by 16% in 2018 as our leadership team executed well, with Mexico showing improvement and Brazil posting a solid year.

In the fourth quarter, however, strong performance in Mexico was offset by softness, particularly late in the quarter in Brazil. Adjusted EBITDA grew 4% on a currency-neutral basis, but fell 6% on a reported basis due to change in FX translation rates versus last year.

Moving now to cash flow. Net working capital was a cash inflow in the fourth quarter of $197 million, reflecting our usual back end of the year release of working capital. Excluding Canadian agriculture, our 13-month average net working capital as a percentage of sales was an industry-leading 12.3%, in line with the third quarter and the prior year.

CapEx was $35 million in the quarter and $95 million for the year, an increase of about $12 million from 2017.

Our effective cash rate for adjusted EPS in the fourth quarter of 28% was higher than the prior year fourth quarter of 18%, largely due to recognizing for book purposes, more benefit in 2017 from utilization of net operating loss carryforwards than in 2018, along with certain impacts from the 2017 U.S. Tax Act. The higher tax rate was a headwind of $0.05 per share in the quarter and $0.27 per share for the full year.

We continue to earn a superior return on investment. Our return on assets deployed increased 190 basis points, 24.7% from 22.8% a year ago. Other return on capital metrics like ROIC, [PROCE] and our internal Univar value-added metrics also improved from last year. We expect these metrics to continue to increase as we implement our plan and proceed with our integration and value-capture activities associated with the Nexeo acquisition.

We continue to allocate cash flow heavily towards deleveraging. Since Univar's IPO in 2015, our leverage ratio has declined from around 5x to 3.5x at the end of last year.

As a reminder, we paid approximately $1.8 billion for Nexeo in cash and stock. Consistent with our focus on our core strength in chemical and ingredients distribution, we led a process to evaluate strategic alternatives for Nexeo's Plastics business, which resulted in an agreement on February 8 to sell the business for $640 million, subject to customary closing conditions. We expect the transaction will close sometime in the second quarter, and we will use the net proceeds of approximately $615 million before transaction costs to immediately pay down debt. We expect our consolidated net debt to be approximately $2.9 billion after the acquisition of Nexeo and the sale of Plastics.

Following that announcement on February 8, Moody's and Standard & Poor's both upgraded our credit rating. In addition, Fitch launched its review of Univar with a rating comparable to S&P. Including the acquisition of Nexeo and the sale of Plastics, we now see a leverage at around 3.5x by the end of this year. We plan on delevering to below 3.0x, and we'll reassess at that time our capital deployment priorities to maximize value for shareholders. Whether it is through increased investment in digitization, sales force effectiveness, additional smaller scale bolt-on acquisitions, further reducing our debt or directly returning cash to shareholders, our focus will be on achieving the highest risk-adjusted return.

Let me finish then by addressing our revised outlook for 2019, which now includes 10 months of earnings from Nexeo chemicals. As a reminder, 3 weeks ago, we provided our forecast for Univar on a stand-alone basis that generate adjusted EBITDA about in line with 2018 results of $640 million. With the Nexeo transaction closed, we have begun the integration now of customers, suppliers and products, and we will lose the ability to track historic Univar or historic Nexeo results. Therefore, we will not provide updates on stand-alone guidance going forward. We laid out our assumptions in the earnings press release on February 8, so I won't go through them one by one, but I do want to highlight a few key points: first, we are forecasting slower, flattish industrial production demand for chemicals across all of our segments, down from the historical projections of 1% to 2% growth. Based on what we've seen from customer ordering patterns in the fourth quarter and now again in the first quarter, we think it's prudent to expect continued malaise in demand.

Secondly, and as David mentioned, we are forecasting modest improvement in sales force efficiency. We see positive signs of improvement and remain confident in our ability to improve the effectiveness of our sales force, but we have more work to do. As we make progress here, we are mindful of the challenges our sales force will face from an uncertain demand environment.

Thirdly, higher transportation costs were a meaningful challenge to us in 2018, and we are estimating sustained high outbound freight cost per pound for this year as well. We've undertaken a range of actions to mitigate the impact of these costs. And while we have already seen improvements in the fourth quarter as a result of these actions, progress was partially offset by a shift in mix to more bulk chemicals, where we rely heavily on common carriers for transportation.

With these assumptions in mind, we expect to earn adjusted EBITDA in a range of $740 million to $760 million in 2019. This reflects 10 months of earnings from the Nexeo chemicals business and approximately $10 million in realized synergies.

We expect to generate $300 million to $350 million in free cash flow, excluding onetime integration costs of approximately $70 million.

As a reminder, we expect onetime costs to be approximately $150 million over the 3-year period, 2019 to 2021. However, we also expect to largely offset these costs with onetime gains from the sale of excess real estate and working capital improvements.

Regarding adjusted earnings per share, we are in the early stages of measuring the impact of purchase accounting on GAAP EPS for 2019, and therefore, are not providing EPS guidance at this time. We expect the first quarter of 2019 to be the weakest comparison quarter of the year, reflecting continued sluggish demand from most end markets, stiffer FX transaction impacts and tougher comparisons due to a onetime benefit in the first quarter of last year that we called to your attention at that time. Our management team is fully cognizant of the challenges that can arise in a downturn. We have defined the right actions to take if that scenario develops, and we will move quickly, while simultaneously reaping the benefits of the Nexeo acquisition.

David, I'll turn it back to you.

Thank you, Carl. In 2018, we made significant strides on our journey to become the world's most valuable chemical and ingredient distributor, and the acquisition of Nexeo is a major milestone for us.

Since announcing the deal on September 17, joint Univar and Nexeo teams have worked hard to prepare for the close and plan for integration. We created an Integration Management Office, staffed with senior, proven executives with complementary skills and cross-functional expertise from both companies, laying out detailed plans and timetables so we can hit the ground running.

To ensure that we are building sound, comprehensive plans, we hired world-leading consultants in mergers and acquisitions, human resources and supply chain management. Further, the compensation committee of our board has evaluated senior management's compensation and is making variable incentive compensation for the success of this integration, including our capture of the synergies, and importantly, our return on invested capital.

As Carl mentioned earlier, we completed our evaluation of strategic alternatives for Nexeo's Plastics business and have reached an agreement to sell it to focus on our core chemical and ingredient distribution business. Our team continues to evaluate the possibility of further divestitures to accentuate this focus and ensure we maintain the appropriate business mix, long term.

Over the past few months, we have developed detailed plans to summon leaders to workstreams to capture the $100 million in net annual operating synergies, net of any customer, and supply these synergies. These synergies were identified and confirmed through a detailed bottoms-up analysis on a function-by-function, line-by-line basis, where our integration seems to have been able to lay out the specific tasks and time lines to achieve them. With Nexeo officially a part of Univar, let me walk you through the plans we have in place to integrate the business.

In many respects, the Nexeo integration is an extension of programs we already have in place. Our Chief Integration Officer is Jen McIntyre. For several years now, Jen has led Univar's extensive internal operational improvement and consolidation programs. In her Chief Integration Officer role, she now has drawn on her experience at Univar and her earlier career in the chemical industry and has been supported and schooled by the senior partners of one of the world's leaders in acquisition integration to ensure we have a robust, pressure-tested and proven execution plan.

As I mentioned earlier, Jen also oversaw the efficient closure of a number of Univar's sites over recent years, and now has the benefit of a proven team and playbook to execute on our site consolidation plans. Nexeo provides another significant opportunity to further optimize our overall supply chain footprint. We estimate over 1/4 of our combined sites in North America are candidates for closure. Our plan is to start with some smaller sites first and work in manageable waves over the next 2 years to do this in a methodical way, but in full transparency with our employees. With Jen's leadership and expertise in this area, we are confident we will achieve this.

We also see the ability to reduce transportation costs by increasing the density of our roots and utilization of our enlarged fleet, and we will implement our lean programs across the combined organization. I have every confidence in Jen's ability to lead this integration well. We've already made meaningful progress on our I&T integration. We completed a roadmap for systems integration that ensures business continuity, manages migration risk and meets the needs of the combined business. We are well into the process of analyzing and mapping master data in preparation to load Univar's data onto Nexeo's platform. We expect this process to take a few months, and it will run concurrently with our training and change management workstreams that were preparing Univar employees to convert to the Nexeo systems.

The Nexeo IT team also has prior experience, successfully integrating acquisitions onto their systems platform, including CSD, Archway and Ultra Chem.

For our current situation, we'll be rolling the Univar locations onto the platform in multiple waves of manageable groups of Univar districts and branches. Our commercial integration is also underway. Brian Herington, who previously led Nexeo's chemicals business, has taken a leadership role as Univar Solutions' Chief Commercial Officer. In this new role, Brian will lead product management, sales force excellence and programs to work with our suppliers on a global basis. Brian has been leading integration planning for our commercial organization, leveraging his prior experience successfully integrating a large-scale acquisition, one which combined a 1,000-person sales force. And we've been clear all along during this process that the sales force is one area we are not looking at for synergies, and we will manage our sales force transition carefully. We spent the first part of this year mapping out the sales leadership and have announced changes deep into the organization to align for growth and success, using the robust, data-driven selection progress to ensure we have leaders who epitomize the values of Univar Solutions and bring together the best of the best. We expect to have our remaining organizational changes completed by the end of the second quarter, once our key leaders have a chance to work in their new roles in the combined organization. When the clean teams analyzed our combined customer data, we found there are minimal overlaps in customers who purchase the same products at the same locations from Univar and Nexeo. We've created processes to resolve any potential conflicts to reduce the risk of disruption in our sales force. Most importantly, the efficiencies we create will result in significant additional capacity within our combined sales force to prospect for new business and deliver growth.

We are encouraged so far about the excitement we are seeing from our sellers, and are pleased to report that the sales force joining both companies has declined since we announced the transaction. Our sellers see the power of the combined platform and are excited about the opportunity for each of them to grow their career and their business.

Finally, I must make comment. We are acutely aware of the magnitude of effort this integration is going to take and are not taking that challenge lightly. As I have previously said, we have been supported by recognized leaders in acquisition integration to make sure we have the most thorough, detailed and robust plan, and the work with our team has been outstanding. Together with them, this team is committed to getting it right and is intensely focused on achieving an efficient and thorough integration with Nexeo with the absolute minimum of disruptions to customers and suppliers. Of course, this will not be completed overnight. We will update you each quarter on our progress.

Overall, 2018 was an exciting year, and the fundamental elements of our strategy are stronger than ever. With Nexeo, we have an even greater line of sight and even more levers to create value for our customers, suppliers and shareholders. While there have been, and will be, bumps along the way, we are making meaningful progress on our initiatives, and our model is proving its ability to generate cash flow through the cycle. Now as Univar Solutions, we have the ability to streamline and further reduce our costs to innovate and lead the digitalization of the industry and grow in creating long-term sustainable advantage.

Thank you for your attention. And with that, we'll open it up to questions.

(Operator Instructions) Your first question comes from the line of Robert Koort with Goldman Sachs.

Two questions, if I could, David. First, you mentioned that the sales force effectiveness has been maybe behind plan. Can you give us more specifics on what measurables or what symptoms you see that are causing those conclusions and how to rectify it? And then secondly, it seems your outlook on the economy -- the chemical economy seems far more dour than maybe some of your suppliers. And so I guess I'm wondering, can you characterize it as a careful and prudent conservatism? Or do you think maybe the rest of the world's not seeing things that you guys see more on the front lines of the distributor? Maybe help me reconcile what seems to be a little bit of a parallax in views.

Thanks. Let's address the sales force first. I mean, I think we've got evidence that our plan is working, and we've made significant progress on a number of the key metrics, the financial metrics over the last couple of years. We've said before I think, the U.S. transformation's lagging on probably a couple of quarters behind where it needs to be. We faced a number of challenges on that. I think, firstly, the velocity of price changes last year meant that sellers really have to deal with price rather than I'm talking about an extra product to sell or seeing a new customer. And I think also, the legacy Univar internal processes and systems were more complicated than probably I appreciated a couple of years ago. And that sucks up time from our sellers to go prospect. Having said that, we did improve the quality of the sellers, we turned over the -- almost all the sales force and our retention levels that have been good, while we trained several hundred of them. I think 300 went through the development program last year. We've increased the call rates for the sellers by around 20%, 25%. And that's all trending in the right direction, been very positive. I think as far as the new organization is concerned, Nexeo allows us to streamline those back end processes, which will create more capacity in the sales organization and allow us to grow. And I think secondly, with the degree of overlap that we're seeing between the legacy Nexeo and legacy Univar customers, given that we are committed to maintaining the size of the sales force where it is today of the combined companies, we're going to create, I don't know, 20%, 25% free capacity in that sales organization to go grow and go sell to new customers. And I think most encouragingly, since we announced the deal, we have seen a reduction in the attrition of the sales force on both sides. So we have a lot of engagement from all our people. I mean it -- I mean just a huge amount of optimism and huge customer engagement from all our people. And particularly, our sellers are excited about the opportunities that Univar Solution brings and the ability for them to grow their business and to grow their paycheck. As far as the demand is concerned, I mean, demand is up and down. Demand is patchy right across the globe. I don't know whether we're seeing something before other people or not. I think certainly, looking through a producer lens, they see different things than we see typically. But the markets are getting more difficult because of uncertainty in the markets, so the European markets are trickier with Brexit, Gilets Jaunes, Italy, Spain, Germany, they're all more difficult markets than they were this time last year. And the U.S., some weeks are good, some weeks are less good. There's a certain amount of uncertainty in the U.S. markets as well. We have good strategies to approach that. We have good strategies to deliver on that. And what we are seeing with the big bulk chemical supplies, our customers slowing down a little. We're seeing good mix enrichment from the focused industry starting to pick up, and we're seeing that reflecting in our margins in the first quarter so far. So I think that we'll ride the market the best way we possibly can. And I'm pretty encouraged by how we're doing that. And the other thing to say is we're going to be pretty prudent about how we outlook. I think that our previous outlooks were based on us running at 10/10ths. I don't think we're going to run at 10/10ths. Things happen and we're going to factor those in, so you'll see us being very prudent in our forecast going forward.

Your next question comes from the line of David Begleiter with Deutsche Bank.

David, just on, how does the implied Nexeo guidance compare to what they did last year? And are you expecting any business loss at Nexeo or Univar from the combination?

Let's address the business loss first. I mean, I think their outlook is pretty flat with last year, but in terms of the customer and supplier reaction, I mean, we're seeing -- I mean, we're just now getting first sight of the data. The data's been in the clean room. So we're seeing first slices of the data. And the dis-synergy risk that we see in that is about what we expected in the due diligence. On the supplier side, we've been out and we surveyed 30-something suppliers as part of the due diligence to see what they wanted, to see what they were looking for, to see what their thought was. That's been at the upper end of our expectations. So most suppliers are optimistic about the new company and believe that the enhanced capabilities of both organizations really provide a compelling opportunity. They're excited about the digitization of the business and what that can bring, and the ability that we're going to have to bring them transparency through the supply chain, something that they've long looked for and has been an inhibitor of growth. So from what we've seen so far, it's pretty much in line with where we expected in due diligence. And the outlook for Nexeo is roughly flat with last year.

Yes, I'll add on to that. David, it's Carl. The way we see it is that the industrial production outlook at Nexeo prior to the acquisition was very comparable to what we see going forward in terms of this oscillating demand that we've seen month by month. So very much aligned there.

Very good. And just on the synergies, $10 billion this year, how should they ramp-up in '20 and '21?

Well, we -- I'll just repeat what we said, I guess back in September. We're very much on track with what we said back in September when we signed the contract on September 17. Ramping up to $100 million, we should be a cumulatively at a in-year savings of about $60 million, 2020. That was our previous guidance; we stick with that. And then in year 3, 2021, about $90 million to $100 million. So -- and I think as David said, everything we've seen since September gives us even higher confidence in achieving that.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners.

Just trying to bridge to your new guidance. You put out the 640 -- sorry, yes, $640 million on February 8, and you're calling out $10 million of synergies. So is it correct to say that you're baking in about $90 million to $110 million for the 10-month period that you'll own Nexeo in 2019?

Yes, that's exactly right, Kevin. It's Carl. That's about $100 million for the Nexeo chemical operations. Just to remind everyone that it excludes their Plastics business, which we'll report as a discontinued operations, and about $10 million in synergies between now and the end of 2019.

Okay. And then would you comment on what you're baking in for a volume growth forecast in 2019?

Generally flattish, Kevin. Based on what we've seen in the fourth quarter and continuing in January, February, in that 0% to 1% range, which is a notch down from where we were. So as we were saying earlier, we think customers -- we sell to the manufacturing sector of the economy. People that make things at -- versus the headlines in the media. And we think people are playing it cautious and adjusting their inventory levels.

Okay. Then last one would be in the housekeeping category. On Slide #15, in the second footnote that appears there, I think you indicated about 92 million Nexeo shares. I was under the impression that, that would be tracking closer to 90 million. And so I'm wondering if you could refresh us on what happens with the warrants and how those are being treated in the share count? If there's any change there or otherwise that would cause a little bit of upward tension in that number?

Yes, okay. The 92 million versus 90 million, Kevin, let me get back to you on that. I think it's 92 million. The warrants, we've reserved 7.6 million Univar shares to account for or be prepared for the potential exercise of those warrants. They -- those warrants, to remind you, have a limited term. They expire in June of 2011. And -- 2021. I'm sorry, 2021. So that's 2.5 year's out. And on an equivalent Univar strike price are around $27.80 as the strike price.

Your next question comes from the line of Jim Sheehan with SunTrust.

In talking about your outlook for flattish industrial production, could you just talk about what you're seeing currently and what you've seen over the past couple of years in terms of an outsourcing tailwinds for your business?

Sure. I think that's -- this is one of the questions that we addressed, and fairly frequently. I think across the course of my career in the chemical industry, the outsourcing trend has been inexorable. Sometimes it all just feels glacial. One of the things that is really inhibited to outsourcing is the ability to execute consistently well across a range of geographies. And secondly, the visibility of the business, once business passes across to distribution, one of the things that we have seen is because we are now more able to execute more consistently across a range of regions and geographies, we're becoming more attractive to suppliers, and that's driving the supplier authorizations. And secondly, with the digitization that we're about to bring and able to bring, we're able to bring a transparency along the supply chain, which is something which suppliers really value because they can see exactly what's happening to their business. It doesn't just disappear into a black hole. So we think that's going to be a source of competitive advantage for us as we continue to grow and develop and will help us win more than our fair share of the outsourcing trend.

Jim, in terms of the impact on our guidance, we are pursuing new authorizations. Some of those are outsourcing, taking business that was previously sold by the supplier directly into the market. And some is winning business from other distributors, but we have dialed into our guidance, a modest increase in earnings from new authorizations, including that factor of additional outsourcing.

And also on your free cash flow guidance, does that include debt amortization?

That does not include debt amortization. We have about $6 million of debt amortization to pay under the new debt structure in 2019. (inaudible) it's about $6 million for this calendar year.

Your next question comes from the line of Steve Byrne with Bank of Montreal (sic) [America Merrill Lynch].

I have a question for you on your comment about -- 1/4 quarter of the distribution facilities were candidate for closure, did I hear that correctly? Is that -- is it just based on the overlap of the footprints of the 2 sets of distribution facilities? And maybe what would you see is an optimal number of closings to achieve a high throughput in utilization efficiency at the existing facilities?

So what we've done is looked at -- what we are doing is looking at the -- each facility and the capabilities of each facility, the technical capability of each facility, the capacity of each facility, the customer density around those facilities, the permitting around those facilities, and so if it makes sense to combine facilities and not disrupt service, in fact, if we can enhance service, then that's we'll do. So the 25% of the sites that we're considering -- I mean, we're looking at all the sites that we have and then deciding which ones are going to be key anchor sites for us to drive growth for the future. And they're just some of the things that we're looking at around them. Some of them will require some capital expenditure if we want to do that, but some sites will have some unique capability, which we'll want to retain if the business through there is profitable. I think going forward, I don't know what the ultimate number is. I think that as we -- what we look to do is to provide a differentially high level of service to customers. So our [on-timing] full rates are up in the high 90s, and we want to keep them there. That service requirement, that reliability, that easy-to-buy-from is core part of our value offering for customers. So I don't have a number that's an optimum in mind, but we'll continue to invest in those key sites now and we'll be able to afford to invest in really making them technically more competent and digitally more capable, which will allow us to capture a lot more growth at a higher service level.

And can you comment on how much cost synergy you could achieve from some fraction of those closures? And I assume none of that is in your $100 million guidance?

Well, I think it is. So in a $100 million synergy guidance, there's a proportion around asset closures. I think it's a little under a 1/3 of the $100 million. It's around asset closures, so that's what we disclosed.

So it's 1 of our top 3 areas of synergy capture -- cost capture, yes.

How much of that is in that 1/4 of the facilities. Can you comment on how many facilities it is?

Well, we've said that we have, round numbers, about 100 facilities in the United States, and that Nexeo has about 40 ex-Plastics. When we're done, we should have about 100 facilities. And I think that it's important to recognize that we also -- we've got great density, we don't need to add to any territories, and we also operate generally one shift a day. So we have plenty of capacity to increase volume in this business plan, and we intend to do so.

Okay, and just one last one. Are you considering the merits of staying in that Canadian ag business, given the potential for disintermediation by some e-commerce platforms that are in development in ag?

Well, I know this is one that you've been keen on for a while. Look, I mean, I think the -- we're really laser focused on being the most valued chemical ingredient distributor on the planet. That's our focus. The Univar Solutions mission is to redefine distribution and be the most valuable chemical ingredient distributor on the planet. And so that's what we're going to be laser focused on, and to the degrees that any of our businesses adds or detracts from that, then we'll look at what the future of those businesses are based on their profitability, their growth and their return on capital.

Yes, and I would add to it. I know that you referenced there -- I wouldn't attribute it to disintermediation. That's a great business that we have in ag, it earns a wonderful return on capital and provides a great service to the consumers of agrochemicals in Canada. And so we continue to focus on that. And we will continuously evaluate our portfolio of all businesses, including ag.

(Operator Instructions) Your next question comes from Duffy Fischer with Barclays.

First question's just around free cash flow. In the change in guidance from originally, your EBITDA went up $110 million at the midpoint, but the free cash flow only went up $50 million at the midpoint. Why is the conversion so poor on that incremental new EBITDA, because you're excluding the cash cost for restructuring?

Yes, that's right, Duffy. We're adding about $50 million. We don't have a good field sense yet for the working capital, ups and downs of that added chemical business from Nexeo. Once -- as of Friday, these 2 businesses were merged and there is no longer a historical Nexeo and historical Univar. So we'll get a better handle on the workings of their receivables and payables and petty cash flow. Your observation is correct. It's a bit lower than what we would expect from our chemicals business, but we'll work through that in the coming months.

Okay. And then could you bucket for me, if you go back to the original $208 million of LTM EBITDA that you got with Nexeo, how much of that goes in the sale? How much of that is kind of in the pro forma? And then how much gets eaten up by, say, stranded cost when you made the Plastics sale?

Okay, roundly, Duffy, that 1/3, 2/3 is the split of that LTM between Plastics and chemicals. As far as stranded costs go, we've got a, with the buyers of Plastics, we've got a transitional services agreement in place that will provide what's needed to the buyer. And our management of those services and the cost to deliver them will be very focused on eliminating or avoiding stranded costs. Maybe the most difficult area will be IT. The IT area, where it's hard to really step it -- disengage from the fixed cost associated with IT, but for the other services provided, they're much more people related. And we've got the dedicate resources in place to provide those services. And we'll adjust as that TSA agreement expires.

So if I -- just to clarify, so if you use your 2/3 of the original, that would be about $135 million of EBITDA that's pro forma still with you, but if you back into the guide, like we did a little bit earlier in the call, you're kind of running at a $110 million rate this year. Is that $25 million delta that's coming down, is that the stranded cost? Is that the way we should think about it and that will go away over time?

No, no, no, Duffy. That's just 2 months. You're dealing with 12-month numbers, and we bought it last Friday. So that's -- we're just including in our guidance 10 months' worth of Nexeo chemicals.

Well, no, but the 2 months are the 2 smallest months of the year, and you're getting $10 million of synergy. So I'd argue that those roughly offset, that the run rate for Nexeo in your numbers this year looks like $110 million to $115 million.

I think you're a little high, but it's -- we're really just prorating 10 months of the year into our guidance.

There are no further questions at this time. I will now turn the call back to the presenters.

Thank you, ladies and gentlemen, for your interest in Univar Solutions. This does conclude today's call. If you have any follow-up questions, please reach out to the Investor Relations team. Have a great day.

This concludes today's conference call. You may now disconnect.