Univar Solutions Inc (UNVR) 2020 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Univar Solutions' Fourth Quarter 2020 Earnings Conference Call. My name is Michelle, 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, Heather Kos, Vice President of Investor Relations and Global Communications at Univar Solutions. Heather, please go ahead.

Thank you, and good morning. Welcome to Univar Solutions' Fourth Quarter and Full Year 2020 Earnings Call and Webcast. Joining our call today are David Jukes, President and Chief Executive Officer; and Nick Alexos, Executive Vice President and Chief Financial Officer.

Last night, we released our financial results for the fourth quarter and year ended December 31, 2020, and posted to our corporate website at univarsolutions.com. a supplemental slide presentation to go with today's call. The slide presentation should be viewed along with the earnings release, which has also been posted on our website.

During this call, as summarized on Slide two, we will refer to certain non-GAAP financial measures for which you can find the reconciliations to the most directly comparable GAAP financial measures in our Earnings release and the supplemental slide presentation.

As referenced on Slide 2, we will make statements about our estimates, projections, outlook, forecasts and/or expectations for the future. All such statements are forward-looking. And while they reflect our current estimates, they involve risks and uncertainties and are not guarantees of future performance. Please see our SEC filings for a more detailed summary of the risks and uncertainties inherent in our business and our expectations for the future.

On Slide 3, you will see the agenda for the call. David will start with fourth quarter highlights and end market trends. Nick will walk through our financial update, and then David will close with progress on our S22 Nexeo integration and business strategy. Following that, we will take your questions.

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

Thank you, Heather, and good morning, good afternoon and good evening to everyone, and thanks for joining our call.

At Univar Solutions, we're focused on growing together by putting the customer at the center of all we do and working to take full advantage of every opportunity to drive growth as we execute on our strategy. This is reflected in our Q4 performance, which remains solid as we continue to advance during this evolving pandemic environment. As a company that is always serious about safety, this, of course, remains our highest priority for our employees, our suppliers and our customers.

Key highlights from the quarter are: We delivered solid financial results above our guidance range, including strong cash flow generation.

As expected, although sales were down versus the prior year, we were able to partially mitigate the economic headwinds by selling to new customers, executing well on margin and cost managements.

We continue to monitor changing customer demands as we operate in this new normality. I'll speak more on overall trends in a moment as well as the immediate dynamics in the supply chain due to the storm and freeze effect in the Gulf.

We finished the year with strong liquidity of $855 million, ahead of our $750 million to $800 million guidance range;

Our Nexeo integration is on track, and we have now completed our U.S. business systems migration;

We advanced our S22 program, streamlining our business. We targeted divestitures;

We continue to improve our sales activity with both the leading indicators like customer contact and the lagging indicators like win-loss ratio trending positive in all regions compared to the same quarter last year. Our digital investments continue to bear fruit, with over 35% of our U.S. customers now registered on our e-commerce channels and able to utilize 24/7 self-service capabilities. Additionally, over 10% of U.S. customers are already regularly utilizing our digital tracking capabilities.

We strengthened our leadership in North America with the recruitment of Jim Holcomb who brings a strong record of successful execution in chemical distribution.

We expanded our Asia business with the purchase of Techi Chem, a bolt-on that builds on our existing specialty approach in the CASE market.

We continue to work with customers as they return to higher operating rates. As compared to the prior year, excluding divestments, October sales were down 6%. November sales were down 3%, whilst December sales were up 8%. 2020 is an exceptionally challenging year for many of us, and it's encouraging to see progressive growth in many of our key end markets.

The fourth quarter saw particular improvement in the Specialty Industrial Solutions vertical as automotive manufacturing demand accelerated, hitting both our lubricants business as well as automotive coatings, sealants and elastomers. Our industrial cleaning business has seen incremental growth as return-to-site activities in commercial and industrial buildings increases.

Within the Consumer Solutions business, we saw double-digit growth in Pharmaceuticals and Personal Care, and we partnered with many of the global leaders in these industries to provide them with the highest quality products.

Our General Industrial businesses returned to growth over 2019, led by growth in the chemical manufacturing industry. Other key industry sectors are stable, and we anticipate an improving market in 2021. The refining and chemical processing business was down throughout 2020 due to the significant decline in oilfield services. However, refining activity has begun to increase and leveraging our existing infrastructure to support the return of this industry may present an upside in the coming period.

In the first part of 2021, as the industrial production improved, we've seen a tightening supply for certain chemistries and raw materials as well as a tightening in the transportation market. Although not immune from these extraneous factors, we've been successful in mitigating them by leveraging our integrated platform to deliver products and services to customers by having the right products at the right price to meet the demand.

The recent storms and freezing temperatures throughout the U.S.A., especially in the hard-hit Texas and Gulf region, have caused some near-term challenges with supply, transport, and pricing dynamics. Although we lost a few shipping days, all our facilities are now operational, and we're in regular communication with suppliers and customers as the situation unfolds. Safety for our employees is paramount while we're supporting the needs of people in the hardest hit communities and are working to provide essential products wherever they're required. Globally, January sales were trending in the same direction as December, and we're assessing the immediate impact of the storms on the U.S.A. and Canada results.

For 2021, we do expect the year to show growth at a rate better in industrial production. And with some puts and takes, we're providing an adjusted EBITDA guidance range of $630 million to $650 million for the year, with net free cash flow conversion of approximately 40%, which Nick Alexos will expand upon shortly.

Beyond 2021, we believe the imminent completion of the Nexeo integration and the actions we are taking with the S22 program have further positioned our business for sustainable success, even as conditions continue to disrupt the business and personal lives in the near term. We have the right people, products, tools and strategy that we expect will deliver the innovative solutions that customers and suppliers value and will deliver share growth.

Now let me turn the call over to Nick. He'll walk you through our fourth quarter results and our outlook, then I will share some closing thoughts.

Thank you, David. Hello, and good morning to all. I'm pleased to share Univar Solutions' solid Q4 financial results and update you on our business activities.

Sales were down 5.5% on a reported basis and 6.1% on a constant currency basis. Excluding results of Environmental Sciences from prior year's financials, we estimate net sales were down 2.1% on a constant currency basis. Gross profit, exclusive of depreciation, was lower by 7.2% to $484.5 million, or 7.7% on a constant currency basis. We estimate gross profit, exclusive of depreciation, was down 3.5% on a constant currency basis when excluding the results of the Environmental Sciences.

Our gross margin decreased by 40 basis points to 23.8%, driven primarily by the inclusion of a Brazil VAT recovery benefit in 2019 results and an unfavorable margin impact of final inventory sales and costs related to our exit of the Canadian agriculture distribution business. Excluding the impact of the Brazil VAT and the Canadian ag charges, our estimated total gross margins would have been higher versus 2019 reported results. Sequentially, gross profit margin was slightly lower in Q4 2020 due to declines in margin of certain essential products related to COVID demands.

Fourth quarter adjusted EBITDA of $146.4 million was lower by 7.8% and 7.5% on a constant currency basis due to price deflation in certain products, lower demand versus pre-recessionary levels and the Environmental Sciences divestiture. The decrease was partially offset by additional Nexeo net synergies, favorable product mix and interim cost reduction measures. Excluding the Environmental Sciences business from 2019 results, adjusted EBITDA was 4.6% lower on a constant currency basis. Adjusted EBITDA margins were lower by 20 basis points. However, when excluding the unfavorable margin impact resulting from final inventory sales and costs related to our exit of the Canadian ag business, our estimated adjusted EBITDA margins would have been slightly higher versus prior year reported results. During the quarter, we captured net cost synergies related to the Nexeo integration of approximately $5 million for a full year total of $46 million, slightly ahead of our prior projection.

Q4 net loss was $33.7 million or $0.20 per share compared to a net loss of $55.1 million in the prior year period. The decrease in net loss was primarily due to lower taxes being partially offset by the S22 charges. Adjusted earnings per share for the quarter was $0.27 compared to $0.29 in the prior year period as lower adjusted EBITDA was partially offset by lower interest expense.

Sequential improvement in net working capital, primarily related to the liquidation of the Canadian agriculture business, was a contributing factor to our strong operating cash flow. As you recall, net working capital was abnormally low in 2019 and free cash flow in 2019 benefited from the timing of Canadian ag prepayments. Q4 2020 balances had 0 ag repayments and slightly higher aged accounts receivable in the U.S. but otherwise normalized levels.

Capital expenditures for the quarter were $29 million, which was lower than we guided last November. And Nexeo integration-related expenses were on plan at $14 million. We ended the quarter with cash on hand of $387 million, and total liquidity, including availability under our asset-based credit lines of $855 million. The collective actions in 2020 related to working capital and S22 set us up for higher cash flow conversion, which I will speak more about in a minute.

Our ROIC was 9.3% for the quarter versus 10.1% last year. We expect these figures to improve as we continue to capture the synergies from integration and grow the business. Our leverage ratio stands at 3.5x at year-end, significantly down from 3.8x in the prior quarter. Net cash flow available for debt paydown pre divestitures was over $150 million versus our target of $100 million.

On Slide 8, we have aggregated the key metrics across our four reporting segments and provide further detail in the appendix.

Our three largest regions saw top line decline on a constant currency basis, primarily due to the Environmental Sciences divestiture in the U.S. and Canada, lower overall global demand versus pre-recessionary levels and energy headwinds. If we exclude the impact of this divestiture and energy, we saw U.S. and Canada sales growth trends improved sequentially versus Q3.

In the U.S.A., excluding the impact of the Environmental Sciences divestiture, sales were down approximately 3.8%, significantly better versus Q3 2020 declines of 14%, otherwise reflecting the year-over-year continued headwinds in energy and bulk. Canada also performed better versus Q3 due to lower impact from the divestiture of the Environmental Sciences business, which has seasonally lower sales in the fourth quarter as well as seeing sequentially better performance in Canada's industrial chemicals business. EMEA saw a sequential top line improvement, and LatAm continued to benefit from growth in Industrial Solutions.

We saw generally favorable gross margins in the U.S.A. and EMEA due to product mix, regardless of the diminished benefits from certain essential end markets. Gross margins in Canada suffered from the final inventory sales and shutdown costs of approximately $5 million related to the Canadian agricultural distribution business exit. This is in addition to the amounts reserved in Q3, but allowed for closure on that business by year-end 2020. LatAm comparative margins were impacted by the Brazil VAT in 2019, but have otherwise performed well.

Adjusted EBITDA margin for the business declined 20 basis points versus prior year. U.S.A. adjusted EBITDA margin also declined by 20 basis points as higher medical and legal expenses offset cost savings in the quarter. In EMEA, higher WS&A versus the prior year resulted in lower margins, while in Canada, lower WS&A helped partially offset unfavorable gross margins. LatAm's margin change was negligible.

Turning to key 2021 highlights, we emerged out of the fourth quarter performing better than our guidance for 2020, and we are confident in our ability to execute on our strategies in 2021.

Starting with the 2020 reported adjusted EBITDA of $636 million, let's look at some of the impacts we expect to affect 2021 adjusted EBITDA. Firstly, we note the impact from the divested Canadian agricultural services business that closed in Q4, which is distinct from the Canadian agricultural distribution business I spoke to earlier.

Second, last month, we announced the signing of an agreement to sell Distrupol, our Europe plastics business, which we expect to close (subject to customary conditions) in the first half of 2021. Collectively, these contributed approximately $20 million to adjusted EBITDA in 2020. We also noted last quarter a sequential decline into 2021 of essential end market product demand impact of $35 million.

Offsetting these are expected further Nexeo net synergy benefits of $20 million to $25 million in 2021. Along with organic business growth from anticipated overall higher demand for our products with economic recovery, our aggregate 2021 adjusted EBITDA is expected to be $630 million to $650 million.

We view our 2021 guidance as reflecting core business growth better than general economic forecast for the year. Guidance for our Q1 2021 adjusted EBITDA is in the range of $150 million to $160 million. The recent severe weather in the U.S. and in particular, the Texas area, have disrupted normal shipping, supply and pricing in the interim. Our teams have responded very quickly, and we are currently operational at all sites. While the low end of our Q1 guidance reflects some adverse impacts, we do see opportunities to offset these in the quarter, and we are confident in our overall 2021 outlook.

In addition, excluding the impact of divestments in 2021, we expect our adjusted EBITDA to improve sequentially quarter-over-quarter, in line with consensus of economic projections for GDP and industrial production through 2021, with a slight falloff in the fourth quarter due to seasonality.

Now let's look at some of the other pieces of 2021 outlook:

Net working capital liquidation from the exit of the Canadian ag distribution business resulted in proceeds of $52 million in 2020, faster than we anticipated, and we expect to receive an additional $25 million in 2021, which is net of related payables. With the exit of the ag business, we will no longer have the fluctuations associated with agricultural seasonal working capital. Our plan is for net working capital to be generally in line with our guidance of 13% to 14% of annualized quarterly sales. Q1 and Q2 net working capital percent may end up higher due to the runoff of the ag net working capital without any contribution to sales in addition to the pace of recovery in the rest of the general business and the impact from inventory price inflation.

Net working capital efficiencies and planned sales in our current guidance are expected to result in very little cash impact from net working capital by year-end. Cash use of other expenses and timing of year-end accruals is expected to be up to $35 million, which is near our prior guidance of $30 million.

Final Nexeo integration expenses, which are not included in our adjusted EBITDA, are expected to be up to $70 million for the year.

And our planned capital expenditures will be up to $130 million. Consequently, we are targeting net free cash flow to be a minimum of $250 million with some upside to $300 million. Excluding the final Nexeo integration expense of $70 million, our net free cash flow forecast is in the range of the normalized net free cash flow of $325 million to $375 million we provided last February. The resulting net free cash flow conversion of approximately 40% is in line with our prior guidance as well. These numbers, of course, exclude proceeds from divestments or any cash uses for acquisition. Net leverage, taking into account all cash, is now expected to be below 3.0x for year-end 2021 with ample cash and line of credit liquidity throughout.

In conclusion, I am pleased with our progress against our S22 objectives and our 2021 plans to achieve run-rate adjusted EBITDA margins of 9% by end of 2022. It's been a great first year for me at Univar Solutions, and I really must thank all our employees for their good work as well as are many constituents outside the company as we work through our business transitions in a challenging environment.

David?

Thanks, Nick. Moving on to our integration activities. And despite the COVID-19 obstacles, we successfully delivered on several significant integration milestones in 2020, including delivering $46 million of cost synergies.

Other highlights include:

The completion of our SAP system migration in the U.S.A. with the final districts going live just last week. The U.S. chemical and ingredient distribution business is now on a single CRM and ERP technology platform, which significantly reduces the complexity inherent when working on multiple systems. The simple visibility for things like stock availability and service levels mean we can really hone in on providing a better experience for our customers and suppliers alike as we now move to optimizing processes.

Our SAP migration for Canada and Mexico remains on track for the second half of 2021;

Our site consolidation plan continued, closing three branches in the quarter, bringing total closures to 28 and expect to close approximately 10 branches in total this year;

We finalized the sale of two further sites with cash proceeds of approximately $3 million. Since 2019, our real estate site sales have generated pretax cash proceeds of $73 million.

Moving on to the S22 update:

We ended the year with S22 charges of $92 million, although only $9 million of those charges were cash expenditures in 2020;

We finalized the exit of the Canadian agricultural and wholesale distribution business. This business generated approximately $281 million of revenue in 2020 with negligible earnings. The wind down of its assorted working capital generated $52 million in cash in 2020, and we expect an additional $25 million in 2021;

Of the planned divestitures in 2020, we sold our Emergency Spill and response business, and in Q4, closed the sale of the Canadian Agricultural Services business. As noted last month, we also signed an agreement, subject to normal closing conditions, to sell the Distrupol Plastics business in Europe. In total, these divestments are expected to yield approximately $180 million in proceeds. These planned divestitures generated approximately $162 million in revenue and had an adjusted EBITDA impact of $20 million in 2020, as Nick referenced earlier;

With the remaining divestments expected to be complete by midyear, we are increasing our total expected divestment proceeds from $200 million to approximately $240 million and expect only minor incremental tax payments. We also acquired a small but important business that distributes innovative specialty silicon solutions in China from Techi Chem.

As we approach the 2-year anniversary of becoming Univar Solutions and put systems migration and integration in our rearview mirror, we clearly see the path to realizing the full benefits of our optimized scale, whilst remaining wholly committed to our strategy of having a strong local presence for our customers and optimizing our cash flow and margins.

Our expected strong cash flow and divestiture proceeds will continue to fund our strategic initiatives and reduce our net leverage to below 3x by year-end. We have plans to use our cash to fund our growth initiatives with high ROI capital expenditures and investments and at the right time to consider selective bolt-on acquisitions and return of capital to shareholders. Our commitment to reduce leverage and maximize cash flow has been recognized by the rating agencies and led Fitch to upgrade our corporate issuer and debt ratings this month.

Moving to our business strategy progress. The strength and capability of our sales force remains a key driver of business improvement as we leverage our advantaged network of technical and regional sellers in combination with our digital platforms. As noted earlier, the completion of the business systems migration in the U.S.A. means sales professionals now have more time available to them to be with customers. Even with the obstacles of COVID-19, we've maintained momentum and have seen good progress in performance, including seeing the all-important win-loss ratio being positive in all regions.

The S22 program is well underway. In addition to the business portfolio optimization work, we've done the following:

As I mentioned earlier, Jim Holcomb is now leading our chemical distribution business in the U.S. and Canada. Jim has over 25 years of chemical distribution experience and a proven track record of success. Jim has hit the ground running, focusing on growing sales in North America and championing the needs of the customers.

Last quarter, I spoke about the establishment of a customer experience or CX, Center of Excellence, combining our learnings with those of key suppliers and customer feedback, including Net Promoter, or NPS scores. This, too, has hit the ground running, and the group have already established metrics that run to the heart of good customer experience, starting with simply doing the basics well.

In addition, the CX team will continue to elicit the voice of the customer to our NPS scores as well as leverage our advanced analytic capabilities to proactively address pain points along the customer journey. We established our baseline for NPS, thanks to the feedback we received from customers in Q4 and can share that our NPS score is considered good. But for us, good isn't good enough. And the journey to great and onto excellence has begun.

The expansion of a consistently technically differentiated approach to customers with the globalization of our Consumer and Industrial Solutions verticals have been roundly welcomed and positioned us for growth and mix enrichment. Given our expertise, our strong supplier partnerships continue to expand and remain a source of competitive advantage. Over the last few months, we've been awarded new or expanded product authorizations and supplier partners such as allnex, Arylessence, Chemours, Dow, DuPont, Emerald, Evergrain, Fluid Energy Group, Gelymar, Henkel, Nutrien, Sasol, Solvay Novecare. These partnerships, along with the leading chemical and ingredient products they bring, are a recognition of how our partners value our end market expertise and digital capabilities to support their growth. We continue to build and expand a robust portfolio of products and solution capabilities.

We also continue to accelerate our omnichannel approach to better address customer preferences as we expand our podcasts and customer webinar offerings to promote the technical capabilities of and stimulate demand for certain chemicals and ingredients. These attracted over 1,500 customers across all regions in the quarter.

Meanwhile, chempoint.com, our long-standing dedicated digitally-enabled sales channel, continues to advance in a marketplace where traditional sales methods are challenged. We put processes in place to drive growth, including extending our touchless e-commerce capabilities, driving increased sales leads from our sites and expanding our product lines globally.

Overall, our digital footprint continues to deliver results as we use data as a strategic asset to create a significant digital advantage through search, select, source and self-serve capabilities for a growing number of customers whatever the time of day or night they choose.

And our chemcentral.com no frills channel, continues to show growth in the U.S.A. and is now also available and already delivering results in Canada and selective parts of Europe.

Altogether, our digital foundation and committed customer-centric strategy is aimed to maximize the effectiveness and scale of our operations as well as make it easier for customers and suppliers to do business with us and deliver market share growth. We're confident we're investing in the right tools to streamline supply chain, innovate with customers and accelerate growth in step with consumers' changing preferences while always staying in tune with the specific local needs of customers.

So before we come to your questions and to summarize:

*We delivered solid financial results in both adjusted EBITDA and liquidity while realizing our purpose to keep our communities healthy, fed, clean and safe during challenging times;

*We're maintaining firm control of our working capital and other cash needs and ended the year with $855 million of liquidity.

*We maintained momentum on our Nexeo integration probe and are on track to achieve our $120 million net synergies by early 2022;

*We're investing in furthering our digital advantage, which is becoming increasingly attractive to our customers;

*The S22 program is tracking very well toward delivering high divestment proceeds, growth and 9% EBITDA margins by year-end 2022 through global and functional excellence;

*We remain committed to give approximately 40% net free cash flow conversion in 2021 and improve on that metric in years beyond;

*We made significant progress with our cash management and now see leverage below 3.0x by year-end 2021.

We continue to see opportunities to capture new business and share growth, especially now that we've completed the U.S. business systems migration. It is behind us as our organization is freed up to focus solely on understanding customer needs and then delighting them. We'll focus on delivering operating agility and taking the decisive action to enhance our competitiveness that will increase our operational and financial flexibility. We believe the company is positioned to capture greater value from the anticipated market recovery and growth opportunities ahead. And these collective efforts will deliver enhanced shareholder value.

Thank you for your attention. Please stay safe and healthy. And with that, we'll now open it up for your questions.

(Operator Instructions) And your first question comes from Steve Byrne, Bank of America.

Yes, David, you mentioned the 2-year anniversary is coming up. And clearly, you have made a lot of changes in the overall sales force, the structure by region, by specialty and so forth. How would you characterize the performance of that sales force now relative to your expectations?

Steve, thanks for the question. I think that I'm really happy with the way our sales organization has come together. We have a good stable organization that have reacted and responded very, very well through difficult circumstances in 2020. We have really strong sales leadership in both our regional and in our specialty vertical businesses. Our people are -- if I look at the lagging -- so the leading indicators like the (inaudible), the pipeline, the lagging indicators like the win-loss ratio, they are all trending positive. So I'm very confident in our sales organization. I'm very encouraged by the leadership that we have and the stability we're able to bring to that organization.

And just curious about whether you saw any differential impact from the pandemic on your customer base, depending on their size. Were they -- were smaller customers disproportionately impacted or forced to shutter. Just curious as to whether any of those dynamics might impact the rate of recovery.

I don't think that it's going to impact the rate of recovery. Steve, I think it depends really what industry segment people were in rather than their size. But I think that -- and our people responded really well for them. What we did see was a changing customer preference and how they wanted to be contacted and how they wanted to purchase. And that's been -- really led to the increase in our business through our digital channels and our continued investments in our digital channels to be able to react and respond to that for customers whenever they feel like interacting with us.

Just one last one. Are you pushing price in anticipation of higher purchasing costs from your suppliers?

Well, we manage price -- I think we think we manage price pretty well these days. And as you'll appreciate, it's a fast-changing environment in a very dynamic market. So yes, I mean, price increases are the order of the day at the moment, and our teams are all over it.

And your next question will come from Kevin McCarthy from Vertical Research.

David, if we were to see a sharp and sustained environment of selling price inflation across the chemicals industry, would that have a positive effect on your EBITDA margins? Or a negative effect? Or no effect? I'm trying to get a sense as to whether that sort of environment would make it easier or more difficult for you to achieve your Streamline 22 EBITDA margin improvement goal?

Yes. Thanks, Kevin. It's a good question. I mean, generally speaking, as a distributor, we prefer volatility in the marketplace rather than stability in the marketplace because we can make money -- marginally more money as the price goes up and we can make marginally more money as the price goes down, if we manage our business appropriately and manage our stocks appropriately. So right now, we operate in a period of chemical inflation. We feel confident that we can manage our way through that. And I think it's going to be broadly supportive to our aims.

Okay. And then a second question, if I may, for Nick. On Slide 10, you outlined your free cash flow goals for 2021, and you've characterized it as a minimum of $250 million with an upside to $300 million. And so my question is, if you were able to achieve that upside of, I guess, $50 million, where would that come from in the context of the various line items that we see on slides then? What are the key moving parts in your mind?

Sure, Kevin. And thanks for your note last night. I would say, as you look down on -- we said in the script, most of the cash uses are kind of up to amounts, whether it's CapEx, integration expenses or other cash uses. Those are kind of what we think are kind of the maxes. And so we believe that we will manage to hopefully better numbers across all of them. And that should provide some upside to the bottom line $50 million number. As opposed to giving ranges to each one, we kind of categorize them as kind of maximums and then hope to do better in total.

Your next question will come from David Begleiter from Deutsche Bank.

David, just the $35 million of essential market demand, you think, will come off this year. What portion of the growth does it represent? And is it half? And how much of that central demand, do you think, sustained going forward?

David, thanks for the question. I mean, I think really, that reflects -- a lot of that $35 million was in quarter 2 and quarter 3 and reflects what I would typify as kind of first fill on things like hand sanitizers, and a lot of that was in margin rather than in volume. So we expect to have still higher volumes for the kind of products that go in, the kind of chemistries that we sell into those products over 2019, but not at the same kind of margins that we have in 2020 or in those periods of 2020, which is at $35 million.

Got it. And you mentioned sales in January were similar to December. Were they up 8% in January? And what do you think they'll be in February knowing that we do have some impacts from the severe winter weather?

As we say, I mean, January is trending very much in line with December. February is a really interesting month given where we are with the interruptions in supply that we had from the big freeze and now the interruptions in supply that our producers have. So we're working our way through that at the moment. I don't think that February is going to tell us as much as the quarter will.

And so we're looking really across the 2 months to see what impact that will have. We know what billing days we lost or shipping days we lost. And we know how much of that we can catch up. We know how much of capacity is down at the moment. We don't know how fast that will come up. So we're very carefully looking at the stock that we have to make sure that we can maintain supplies to our customers and keep product flowing.

And your next question will come from Duffy Fischer from Barclays.

First question was just around your calling out price deflation in certain products. Can you kind of walk through what those products are? And more importantly, was that a onetime issue in the quarter? Or does that have to anniversary now through the next 3 quarters as well?

Well, I think we had price deflation in a variety of products. I mean certainly, some of those that went into essential end markets that we had in Q2 and Q3, certainly some of the chlor-alkali family, and we'll see now what happens in Q1 and Q2 as the supply situation changes.

I'm sorry. So it wasn't that you got caught where you bought inventory at a higher price and had to sell it at lower. This is just the prices dropping so that makes the business less attractive on a structural basis, correct?

It isn't that we had to write stock off. I mean, bear in mind that we did have to write some stock off to go -- that was associated with the Canadian ag distribution business directed from that. But really, it's caustic and HCL where the sale prices fluctuate quite significantly. And it just reflects those -- the points in the cycle that those products were at, at the time.

And I was just going to add, that's consistent with what we had called out at the beginning of the year with reference to the guidance and it was reflected in the Q4 numbers.

Okay. Fair enough. And then in general, as we enter 2021, roughly how big is the energy business for you guys in your 2021 outlook? And is it starting to inflect with energy prices rising? Or is it still trending down?

And so as we -- I think we said before, our goal -- our energy business, probably energy business, is about 8% of our total business. Upstream is 3% of that. That's DGP, delivered gross profit. And we planned into 2021 to have similar sorts of levels as 2020. Now that the oil price has moved a little and demand is moving up, whilst we did take some costs out during 2020, there's probably the opportunity for us to leverage our existing infrastructure to maybe provide some upside. And I think we mentioned that in the prepared remarks.

And your next question comes from Michael McGinn from Wells Fargo.

Can you hear me okay?

Yes. Thanks, Mike.

I appreciate Slide 9, specifically the end market organic growth forecast, 4.8%-5.6%. So I just want to put a finer point on that. If we're assuming some additional divestitures and then incremental currency tailwind, are those 2 factors offsetting each other so that we can assume that your total sales is kind of reflected in that range that you gave above that range? Or is one going to offset more than the other, speaking of acquisition -- net divestiture acquisitions versus currency?

Yes. I mean the divestitures -- our target really with the growth is more DGP focused. And obviously, we back out the divestitures from the EBITDA. So I would say we're looking, just to kind of put a point to it, to grow our profitability, our DGP, our delivered gross profit as well as their EBITDA above, on a reported basis, above that general market conditions number.

So FX is a bit of a tailwind going into the year. Divestitures have been adjusted and excluded. And so the reported business will be above that general economic indicator level.

Sorry. So that's not a sales target. That's a delivered gross profit?

Yes. Correct. Yes. That's right. That's right. Because as we've always said, revenue fluctuates based on pricing. And our focus is to have delivered gross profit above general economic indices and as well as EBITDA.

Okay. And then I want -- you -- I want to switch gears to the supplier authorization. They seemed a little, as you noted, a little bit above average on what you've kind of been reporting the last couple of quarters. On the other hand, you noticed -- you noted a pharma product in EMEA, I believe that was rolling off its product life cycle. Is the way to think about your business that you're going to continue to bring in these value-add chemistries, but there are some older products SKUs in your portfolio now that are reaching the end of their life cycle? And could you frame the -- if that's true, can you frame the difference between those products? And maybe how long it takes to brand, for the sales force to train on your new product? Versus are the products rolling off really low margins for you guys? Any color there would be great.

Sure. Look, I think the last probably 2 years, we've been calling out the wind down of our finished pharma business in Europe. I think last year, it was $50 million down on the previous year. And that's a one-off. It's a onetime thing. It's a one-off. It's 1 product. And there aren't others that are like that, that should roll off.

The addition of new supplier, chemicals and ingredients, is really a testament to the strength of our specialty Consumer Solutions, Industrial Solutions verticals, and the attractiveness of those into the end markets they go into. And so these all add to the portfolio of chemicals and ingredients we have to be more and more attractive to customers in that sector, which really fuel growth, we think, exciting growth in those more specialized chemistries.

So yes, I think quarter 4 was a busier time for new authorizations, but that really is the testament to the team in the Consumer Solutions and Industrial Solutions verticals, in particular, with the new authorizations and products that we're bringing on as well as the team in our bulk business, I mean who closed some really good new deals to drive growth as well.

Great. And then if I could sneak one more in. You called out bolt-on M&A. And I think that's kind of a shift from the divestiture mines that you've had the last few quarters. Could you talk about when you do bolt-on M&A, are -- a property that you purchased, is that incremental? Or does it offset your 10 branch closures? Or is this something you can layer on top of your freight network, your existing branch network? And then the differences between maybe the businesses you're targeting versus the EMEA business that you're divesting. It seems like that had some medical exposure, would do well as elective surgeries start to pick up here. So any comment there would be great.

Sure. So you understand our priority has been to get our balance sheet in better shape and to bring down our debt leverage. And you'll remember that one of our Streamline 2022 objectives was to get our debt leverage below 3x by the end of this year, and I think we're in pretty good shape to do that by good cash management and some of the divestments that we have to focus on our core.

The business in EMEA that we're selling, we believe that, that had a good growth profile in better hands than ours, better hands being people who could focus on it because it's a slightly different business from the rest of the business. And we think the new owners are going to be happy with their acquisition and the people in that business are going to have a really good growth profile with their new owners. So we're very excited about their future.

As far as the M&A that we will now look at, I mean, we'll be very selective in the M&A that we have, and we'll look to -- for things that actually adds to our product portfolio or bring the technical capabilities we don't have, or maybe even, when taking things into a geography, which is adjacent to what we may be already, and we can leverage our IT infrastructure and our digital infrastructure to bolt them in and bring them in. So we're being very targeted, we're being very disciplined and very targeted about the kind of M&A that we'll go after. And the priority is, first and foremost, to get that debt leverage below 3x, and we're well on track to do that.

(Operator Instructions) Your next question comes from Laurence Alexander from Jefferies.

And just to follow on the M&A question. Can you give us a sense as you're coming out of the -- as we're going to a more normal environment, about your regional ambitions. So how you're thinking particularly about Asia? Do you have the need to change your scale there? And also opportunities in Europe.

I'm sure, as on my lines, we just -- we have a small position in China at the moment. That's legacy from Univar, and then we added on to that the legacy position from Nexeo Solutions when we bought them. We've added another small piece on to that now, which is really building the specialty portfolio around some key suppliers. I think our M&A strategy will be looking at concentrating those in the areas that we already are, rather than a rush to new geographies.

So I think that looking at whether there are things that we can add in Latin America to become a real powerhouse there and build on the success that we have there, whether there's more opportunity for us in EMEA, where we have some dark spots across the EMEA landscape, or whether there's more things in North America, which can add to our specialty focus and capabilities. I think that will be our priorities in the near term.

Your next question will come from Laurent Favre from Exane.

I've got 1 question left on the logistics side. I was wondering if, David, you could remind us of, I guess, the exposure you have to your own fleet versus third-party fleet in Europe and in the U.S.? And I mean, are you experiencing any difficulty in passing on the higher cost to your customers? Or is the logistics issues so high for your customers that they are actually prepared to pay more? And how is the discipline in the industry in that regard?

I'm not sure I can speak to the discipline in the industry. I can speak to discipline with us Laurent, and thanks for the question.

I think in Europe, we're about 80-20, 80% third-party fleet, 20% our own fleet. In the U.S., it's more like - or in North America, it's more like 50-50. So we have -- certainly, in North America, we have good control over that last mile and that local distribution tends to be more the inter branch and bulk products and where we partner with the third-party couriers.

And yes, there's been some interruption. And yes, there's been some inflation in those prices, and particularly over the recent weeks. We do feel confident in our ability to react quickly. I think we focus a lot on our operating agility. And so we'll react quickly and proportionately to an inflationary environment to make sure that we are remaining competitive supporting our customers, but not funding any increases in transport that we may have.

And your next question comes from Michael McGinn.

I appreciate the follow-up. I wanted to keep this call going a little longer, I guess. So you mentioned the divestiture proceeds taking that up to $240 million. I think $180 million is what you have kind of already -- what you're going to realize. With regards to your guidance, are you assuming -- and your interest expense, are you assuming that you get the incremental $60 million and that feeds into your debt paydown and interest expense line item? Or is that something that would -- if you do complete that additional $60 million, would drive interest expense lower.

Kind of how are you working through the mechanics of your EBITDA -- your just general guidance?

Sure, Michael. Yes, our assumption is that those divestitures occur in the early part of this year and are marginally reflected in reducing the interest expense. There is a little bit of the EBITDA in the guidance, but we're talking a few million dollars this way or the other way in terms of impact. So it's not material to the overall EBITDA guidance. It's not material to the overall interest expense, but it is assumed that it will be done with our divestitures in the first half of the year.

Okay. And then I don't know if this was asked. Can you walk through -- regionally, you mentioned the Texas shutdowns. But outside of that, outside Q1, where are you feeling the best in terms of your growth prospects -- core growth prospects?

Hey look, I think we feel pretty good about the whole business at the moment. Our EMEA business has been on a good growth track and stays on that. Our LatAm business has also been a good growth track and stays on that. Our U.S. business is delighted to have the SAP migration behind it. I think that's a huge step. I think that's a massive step that we've taken there. It was a very busy, but a very good year last year. And I think we've got a lot of good things done, which sets us in good stead now to grow in the U.S. and I think the Canadian business.

And now it's clear of the agriculture base, we'll continue to show really strong performance. So I feel very good about our -- notwithstanding whatever extraneous things may be going on in the Gulf right now. But I feel very good about where we are. I feel very confident in our strategy and our ability to execute on that strategy. We have a good team, stable team, good strong leaders in the right places. So I'm very confident about our growth prospects.

That brings us to the end of our Q&A session for today. I'll turn the back call back over to Heather Kos for closing remarks.

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

Thank you, everyone. This will conclude today's conference call. You may now disconnect.