Diversey Holdings, Ltd. (DSEY) on Q4 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Diversey Holdings Fourth Quarter and Full-Year 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. . As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Grant Graver, Investor Relations. Thank you, Grant. You may begin.
Grant Graver: Thank you. Hello, everyone, and welcome to Diversey's fourth quarter and year-end 2021 conference call. With me today are Phil Wieland, our CEO; and Todd Herndon, our CFO. As a reminder, during this call, we will make forward-looking statements. Risk factors that may impact those statements and could cause actual future results to differ materially from currently projected results are described in this morning's press release and the reports we file with the SEC. The company does not undertake any duty to update such forward-looking statements. Additionally, during today's call, the company will discuss certain non-GAAP measures and make references to certain supplemental data, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for our results prepared in accordance with GAAP. A reconciliation of these non-GAAP measures and reference to supplemental data, can be found on our website at ir.diversey.com and in our most recent annual report. And now I will pass the call over to Phil.
Philip Wieland: Thank you, Grant, and good morning to all of you joining us. There are several areas that I would like to highlight this morning as well as providing some additional context regarding our outlook and how we see our company navigating these unique times. Specifically, I'd like to highlight our results, provide a brief update regarding our long-term expectations and how we are positioned to deliver our EBITDA and margin goals, along with some of the global dynamics we are managing and how our business model is uniquely built to tackle these challenges. I will then turn it over to Todd to provide further details on the quarter and our 2022 guidance. Firstly, it's important to say that we delivered our fourth quarter targets despite the increasingly tough operating environment. On top-line, we grew 1% versus fourth quarter 2020 and our base institutional and food and beverage businesses, which together represent more than 85% of our revenue grew 17% and 14%, respectively. On adjusted EBITDA, we delivered approximately 14% growth versus the fourth quarter of 2020 as we expanded margins to 16.3%. For the full-year, we reported flat revenues versus the pre-pandemic year of 2019, demonstrating the resilience of the business with significant additional recovery remaining. Within this, we've seen an acceleration of market share gain having won net new business equivalent to approximately 3% of annualized top-line on both segments, while retaining 99% of our top customers' revenues. We delivered industry-leading adjusted EBITDA growth of more than 20% against 2019 and we saw adjusted EBITDA margin expansion of 40 basis points against 2020 and 270 basis points against 2019. We leave 2021 with solid momentum on strategic drivers. Whilst we've seen encouraging recovery as markets open up, we still have over $220 million of post COVID market recovery in front of us. We're accelerating our market share growth from 2% net new business wins in 2020 to 3% annualized in 2021 and have seen further improvements to net new business in the first 10 weeks of 2022. We have also added five new businesses through M&A over the last 15 months. These strengthened our overall business in our most important geographies and bolster our supply chain efficiencies and customer service excellence. We have a full pipeline of further opportunities under review. We are pricing smartly, but firmly to cover inflation. We took an average of over 3% in 2021, over 4% in Q4 2021 and anticipate taking over 6% in 2022. Reflecting the essential nature of our products and services, our price increases were well accepted across our Institutional and F&B businesses, and we expect these increases to remain intact. We also remain committed to lowering fixed and variable costs. As such, we expect margins to accelerate when inflation begins to subside. Whilst we cannot accurately predict the timing and speed of future inflation, we do anticipate maintaining our pricing discipline. We were pleased to deliver further margin accretion in 2021 despite the very tough environment. The opening of our new factory and warehouse in Kentucky at the end of 2022 will be another important milestone, adding 100 basis points to our group margins. We remain fully committed to our long-term target of 20% adjusted EBITDA margins. As a reminder, diversity is one of only two large global players that offer a full suite of hygiene, infection prevention and cleaning solutions in an industry that remains highly fragmented. We've spent the last three years transforming our business, strengthening our team, driving pricing discipline, delivering operational excellence, implementing our clear strategy to take market share and strengthen our business through M&A. This leaves us increasingly well positioned to take advantage of our growth full yet fragmented $32 billion addressable market. Now let me go back and unpack some of the headlines a little more. Our Base Institutional business, excluding infection prevention, grew by 17% in Q4 and 15% in the full-year 2021. We previously explained that we temporarily lost approximately $400 million of mostly food service and hospitality revenues in 2020. The reopening of markets in some geographies, along with our pricing and market share gains has driven this dramatic upswing. Our share gains are driven by our investments in U.S. food service and hospitality, commercial excellence and global accounts as well as our innovation pipeline and recently upgraded ESG plan, which becomes more important to customers with each passing quarter. Todd will provide more color around the institutional base recovery a little bit later. Separately, we gained over $420 million of growth in 2020 in our institutional infection prevention. This has normalized since Q2 2021 at a level more than 20% ahead of the pre-pandemic level. We believe this represents a permanent step change in a growing market. Q1 2022 is, therefore, anticipated to be the last quarter of normalization at this new run rate level. Thereafter, we see good growth prospects for infection prevention supported by a range of new and soon-to-be launched products, for example, specialist food production wipes and hand care wipes as well as our recently announced expanded distribution agreement with Reckitt Bank Houser to bring their trusted brands to our portfolio in more parts of the world. Our F&B business has been gaining share over a sustained period. We anticipate this to continue, supported by our water treatment offering, which continues to be well received by the market and via our acquisition of Birko in the U.S., which strengthened our North American F&B presence so that we now believe we're the number one or number two player in every region around the world. In M&A, our plan remains unchanged to add 2% to the top-line annually with targeted multiples ranging from 6x to 10x EBITDA on a trailing 12-month basis and less than 6x on a fully synergized basis. During the last 15 months, we acquired Sanechem in Poland; Avmor in Canada; Tasman in Australia; Birko in the U.S.; and Shorrock Trichem in the U.K. These acquisitions all met the financial criteria above and strengthened our presence, supply chain, and customer service in important geographies. We are pleased to report that progress with integration is good and synergies are being delivered in line with the acquisition plans. During the fourth quarter, we completed the acquisition of Birko Corporation. This acquisition enhances our scale and competitive position in the global food and beverage market and transforms our North American food and beverage sales, manufacturing and technical service footprint, which has been a strategic priority for us. Additionally, in January 2022, we acquired Shorrock, which strengthens our leading institutional market position in the U.K. This acquisition expands our portfolio of products and services including innovative sustainability solutions. It also enhances diverse sales and service capability through Shorrock's experienced employees and distribution infrastructure. I'd like to give a brief update on the use of funds from the equity issuance in November. Consistent with the rationale explained at the time, we've invested in the two transactions described above Birko and Shorrock, which is strategically important to the U.S. and U.K., our two largest geographies. Secondly, we're investing in the new factory and warehouse in Kentucky, which, as described earlier, we'll add materially to our global margins. And thirdly, we're investing in an increased level of new business growth, which will become evident as we go through 2022. Now we are clearly operating in an unprecedented environment with COVID variance impacting global economies, rising inflation, supply chain bottlenecks and other operating expenses that can be difficult to predict and challenging to manage. Against that background, I'm extremely pleased with the resiliency of our business model and our management team's ability to be agile in the short-term whilst maintaining focus on our long-term goals. We remain confident that diversity is positioned to maintain its targeted growth goals of double-digit percentage adjusted EBITDA growth. We are encouraged by the ongoing recovery in our Institutional base business that continues to build as the markets around the globe stabilize and reopen. We enter 2022 with a larger sales force and more products that can drive growth as we realize the benefits from our acquisitions completed over the last few years. I would like to thank all of our dedicated and hard-working people at Diversey, including our new employees from Birko and Shorrock but their dedication and delivery in uniquely tough times. This is a great time for Diversey to shine, and we thank you for everything you do. And with that, let me now pass it over to Todd to further discuss our fourth quarter financial results and our outlook for 2022.
Todd Herndon: Thanks, Phil. Let me start with a summary of our consolidated net results. Net sales for the quarter was $672.4 million, an increase as expected up $7.5 million or 1.1% versus third quarter and $5 million or 0.7% versus prior-year. I'd like to take you through our segment performance, and you can reference Page 8 of the supplemental presentation posted today to our website for additional color. Our Institutional segment, which represents approximately three-fourths of our business in revenue, saw revenue decline 3.5% versus Q4 2020. However, as Phil mentioned, this decline is not reflective of our run rate revenue and underlying growth rate as we head into 2022. Our base Institutional business continues to recover with 17% revenue growth in the quarter as compared to fourth quarter 2020. However, this was offset by infection Prevention's 51% decline as compared to the elevated demand in fourth quarter 2020 although it was still more than 20% above 2019 levels. As depicted on Slide 10, we are encouraged by the recovery of our base business as markets reopen from COVID. We believe we have further opportunities to recapture at least $220 million of revenue that was lost during COVID. We also expect to continue to win market share while focusing on our pricing to cover rising input costs. I'd also like to note how we see the infection prevention business normalizing in 2022. As shown on Page 11 of the presentation, we continue to experience normalization after the first quarter of 2021. At the start of the pandemic, we saw our infection prevention business grow significantly in 2020 by more than $420 million in revenue. While we anticipated and communicated demand would moderate, during 2021, the normalization occurred much sooner and deeper than we expected. We expect a roughly $360 million year-over-year revenue decline for this line of business between the second quarter of 2021 through the end of the first quarter of 2022. The majority of this decline, approximately 80% has already occurred and is captured in our 2021 reported revenue results. We expect the remaining 20% or approximately $70 million to occur in the first quarter of 2022. However, for the balance of 2022, we anticipate a return to growth in infection prevention driven by our expanding share with AHP Oxivir in health care, the further globalization of our market-leading products, our new product innovation launches and our recently expanded partnership with Reckitt Benckiser. Note, the combination of the post-COVID reopening of over $220 million and the remaining infection prevention normalization of $70 million makes up $150 million of net post-COVID market recovery to come. Turning to our F&B segment. Compared to Q4 2020, revenue grew by 14%, and adjusted EBITDA grew by 15.8%. When comparing to Q4 '19, revenue expanded by 16.4%, and our adjusted EBITDA grew by 13.8%. We're very pleased that our F&B business continues to grow its customer base and revenues through new business wins, acquisitions and increasing traction in water treatment. Consolidated adjusted EBITDA of $109.5 million for the fourth quarter was 13.7% above 2020 and 16.1% above 2019. We are clearly operating in an unprecedented environment with COVID variants impacting our global economies, rising inflation, supply chain bottlenecks and other operating expenses that can be difficult to predict and challenging to manage. We've been extremely pleased with the resilience of our business model and our management team's ability to be agile in the short term while maintaining focus on controlling our fixed costs and leveraging our scale. This is reflected in our adjusted EBITDA margin, which was 16.3% in the fourth quarter, up 30 basis points sequentially and up 190 basis points compared to fourth quarter of 2020 and 200 basis points higher than fourth quarter 2019. For the full-year, we increased adjusted EBITDA margin by 40 basis points versus 2020 and 270 basis points versus 2019 through operational efficiency programs and effective pricing. Now let me touch specifically on cost for a moment. The current reality inflation is both difficult to predict and presents unique challenges to manage. This was already the case before the conflict in Eastern Europe and is now magnified further. This cost volatility can put pressure on margins in the short term, but over time, it will eventually turn positive as inflation recedes and we continue to price for the value we provide to our customers. To offset and get ahead of costs, our full-year pricing expectation for 2022 is an increase of more than 6%. Combined with our steady productivity gains, we anticipate offsetting inflation first in dollars and as inflationary pressures moderate, we believe we can capture long-term margin improvement. From a free cash flow perspective, in Q4, we took what we believe to be a prudent and conservative approach related to working capital. We maintained elevated inventory levels to be able to continue to service our customers while the supply chain environment remains under pressure. We also had higher receivables in the quarter, which are transitory in nature due to regional mix and a decision to end our European factoring program, which was expensive to maintain, and our needs were better met through optimization of our securitization program. We see expanded securitization in '22 as a cash flow opportunity, along with the portion of the increase in working capital experienced in Q4, which should reverse and provide a tailwind in 2022 as the environment normalizes. Moving to our balance sheet. We successfully secured additional capital to support our infrastructure build-out and to support future growth opportunities, both organic and through accretive acquisitions by raising $215 million of net proceeds in the November 2021 follow-on. Our net debt leverage ended the year below 4.5x, which triggers a step down of our interest rate saving roughly $14 million per year in cash interest when compared to our rates before refinancing. The seasonality of our business typically drives free cash outflow in the first half of the year, but we are focused on generating increased cash flow for the full-year 2022. We maintain a strong liquidity profile with over $600 million available as of year-end, which we view as a position of strength as we continue to selectively consider accretive M&A opportunities and generated operating free cash flow in 2022. We've completed two transactions funded by our follow-on stock offering in November, which Phil described earlier. Combined, these acquisitions are estimated to provide approximately $80 million of revenue and double-digit percentage adjusted EBITDA margin in 2022. Synergy opportunities are expected to improve profitability and accelerate growth over the next 24 to 36 months. Finally, let me provide our view on the general outlook for our business. We expect revenue to grow by high single-digit percentage from our full-year 2021 revenue of approximately $2.62 billion. This reflects the post-COVID recovery, pricing, accelerating new business and the M&A already described. We continue to operate in a challenging environment, which is further impacted by the conflict we are seeing in Ukraine. We previously anticipated that these challenges would persist through the first half of 2022 and begin to show improvements towards the back half of the year. However, in light of the concerns related to the impact on oil and oil-linked raw materials, we are including an additional $25 million to $35 million for what could be the adverse impact of oil prices on the business. Accordingly, our '22 adjusted EBITDA guidance is $380 million to $420 million. This guidance range is also inclusive of the approximately $30 million of adjusted EBITDA headwind in Q1 related to the normalization of $70 million of our infection prevention revenue previously outlined. While we're confident we can continue to address these challenges over time through pricing and rigorous cost management, where we land within the range will be dependent on timing in which the current environment begins to abate and the impact of actions we have or will be implementing to mitigate take effect. We're managing this business for the long-term and remain confident that Diversey is positioned to maintain its target specific goal of double-digit percent adjusted EBITDA growth. Our business model has shown resiliency during the past few years, and we're encouraged by the ongoing recovery in our Institutional base business that continues to build as the markets around the globe stabilize and reopen. This forecast assumes for the balance of the year, a moderation of inflation by the end of the year, and we expect pricing and continued country re-openings will create a great platform for sales and earnings growth as we launch into 2023 with pricing carryover, our new plant in Kentucky in full swing and continued growth of new business we are currently experiencing. While it's not our intention going forward to provide quarterly guidance, given the timing of when we are reporting, the challenges with inflation in our year-over-year comp, we wanted to try and provide some context on our revenue and adjusted EBITDA outlook for the first quarter. At this time, we expect revenue to be approximately flat to Q1 '21, driven by the last quarterly headwind lap of infection prevention normalization. Adjusted EBITDA for the first quarter will be $56 million to $60 million assuming no further changes in the current environment in the last three weeks of the quarter. This outlook reflects approximately 7% to 15% growth over Q1 2019 baseline and is similar to the pre-pandemic phasing of our business for Q1 relative to the remainder of the year. As a reminder, Q1 2022 will be the final year-over-year compare challenge from the normalization of infection prevention in our institutional segment and we expect the opening of the markets and other key strategic growth initiatives to provide nice tailwinds for the remainder of fiscal 2022. And with that, operator, would you please begin the Q&A session?
Operator: Thank you. We will now be conducting a question-and-answer session. . Thank you. Our first question comes from Vincent Andrews with Morgan Stanley. Please proceed with your question.
Vincent Andrews: Thank you and good morning everyone. Todd, wondering if you could just give a little more detail on the $25 million to $35 million you're anticipating for oil and respecting the fact that it's very difficult to make these types of projections right now. I'm just really asking sort of what range of oil prices, does that assume and what in particular are the actual derivative products that you're buying that you're most concerned about seeing inflation in? And then if maybe you just want to talk broadly about raw materials and freight and what that overall picture looks like even the ones that are not necessarily tied to oil and sort of what's embedded in the guidance?
Philip Herndon: Yes, sure. Thanks, Vincent. Thanks for coming on the call. As you guys know, we're in exceptional time right now and the environment is changing daily. This was our -- this guidance was our best view as of inputs actually through yesterday. Oil has been floating around $125 a barrel since this past weekend. And what we did was we extrapolated that impact across a basket of oil and energy-related materials, raw materials. We looked at pricing and tried to factor in a typical price cost lag, and we generated that range, given what we know today. I think we've done a really excellent job delivering incremental pricing through excellent execution over this past year. And maybe to provide a little bit more color on direct materials and incremental costs and materials. Our direct materials are about 33% of net sales. Direct material costs were up about 10% in Q3 2021 and about 16% in Q4 2021. Direct material costs are up roughly about 30% based on the latest insights. Where it goes from here, of course, is dependent on what happens with Ukraine and continuing things there and the market environment. At fiscal '22, estimated direct material cost inflation is about $0.24 based on what I mentioned earlier on the assumption on oil and oil-based derivatives and products that are affected by that materials. That includes our current view on Russia, Ukraine, as we sit here today. Based on all the work we've done and communicated, we are confident in at least 6% price growth. Based on the recent news of this past couple of weeks, we're planning on going again, with further pricing now that we've seen the impacts of this last several weeks and are working those plans as we speak. Historically, we've talked about materials that are linked to energy and oil-based price per barrel like caustic, like ethylene, propylene, and the derivatives that come off those products. Historically, those have been about 45% of our raw material purchases. And the remainder of the tail of raw materials aren't necessarily linked to that market basket or commodities and there's a long tail outside of that. So hopefully, that provides you some color. I know on an issue that's everybody is wondering about.
Vincent Andrews: Yes. No, that's great. Obviously, very challenging to forecast right now. Just as a follow-up, thank you for the color on the working capital in the fourth quarter. But maybe you could help bridge us to '22 is how we should think about getting to a free cash flow number from your EBITDA forecast?
Philip Herndon: Yes, sure. You guys can take the range you want for starting with adjusted EBITDA. But our cash interest, given the refinancing, should come in around $71 million with a couple $2 million, $3 million for securitization costs. So $74 million, $75 million there. Our CapEx, if you look at a base CapEx number around $100 million, and we have the finishing of our significant plant investment, which if you use about $30 million, you'll get to the right ballpark on CapEx. We have a range of cash taxes probably around $45 million to $50 million based on the range of EBITDA we gave you guys here on the call. I think our cash onetime costs next year will be around $75 million to $80 million. And I do think we'll have positive impacts on working capital in the $20 million to $30 million range resulting from some securitization benefit, some inventory benefit because I do think as we move through this year, the supply chain challenges will relieve in the back half of this year, which will allow us to take more aggressive actions in the inventory area. And we're working on a number of things in the working capital area to help us really drive improvement in the next 12 months. So all that gets you, Vincent, to a number that -- a free cash flow number, I think that's floating around a $100 million.
Vincent Andrews: Okay. Thank you very much. I'll pass it on.
Operator: Thank you. Our next question is from Manav Patnaik with Barclays. Please proceed with your question.
Manav Patnaik: Thank you. Good morning. I just wanted to touch a bit on some of the comments you made on the net new sales and just focusing maybe on the institutional business. A lot of the growth might be part of the recovery, part of new sales. I was hoping you could just help us break down that growth by pricing the new sales and just the recovery and kind of the visibility going forward.
Philip Wieland: Yes. Manav, it's Phil here. Let me do that. So let me start then with the new business. We added about 3% of new business last year. That's what we won in our number, probably a fraction less. And we won that really consistent with the strategy we've talked about before. So the U.S. food service focus we did well there. We won well also in our global accounts business and then the extra energy on commercial excellence across the world is also really starting to help. As we also alluded to, we've seen that number accelerate. So we were more like 2% in 2020, 3% last year, and we've had some really nice step-up in the first part of this year. In terms of price, really a similar trend. We saw a bit over 3% across the full-year, but we were more like 4.5% in the fourth quarter. So we've seen that accelerate as well. In terms of recovery, we try to give some extra insight there. So we said as we turn the year, there's something like well, something more than $220 million of recovery. I think the critical point there is that we are seeing it come all the way back. And if you refer to, I think it's Page 9 on the supplemental, you'll see that in North America, we're about -- we were back to 97% of pre-pandemic volumes. And that's, of course, before offices reopened to any great extent. So we think we're going to be really fully recovered as offices reopen whenever that is, hopefully, in the next few months. And the rest of the world is a bit behind, but it's coming back. We see it now. We see it starting to recover already this year. So hopefully, that helps you can see the different elements of what's driving the growth.
Manav Patnaik: Okay. Yes, that's helpful. And then just the other question I had was you guys obviously have a very active M&A pipeline. Hopefully, your scale helps you in a better position in some of these targets are going off. So does that mean the pipeline potentially gets bigger and you try to be more active? Or are we going to see a slowdown of some sorts?
Philip Wieland: Well, look, I think the first thing to say is the M&A that we've done has been entirely consistent with the strategic drivers around key geographies, strengthening supply chain, adding in the right areas of technology and product, and consistent with our financial targets, so 6x to 10x EBITDA with a post-synergy number of below 6%. So we feel really good about that. The pipeline is just as strong. We completed these five transactions, but we have a very long pipeline of possible deals that fit both the strategic rationale and the financial rationale. So I can't give you any more indication of exactly what we'll invest when. But that -- we said we'd do at least 2% top-line, and we certainly have a pipeline to that would support a number well north of that.
Manav Patnaik: Thank you.
Operator: Thank you. Our next question comes from Christopher Parkinson with Mizuho. Please proceed with your question.
Unidentified Analyst: Hi, good morning. This is Kieran on for Chris. I was just wondering, I think it was Slide 9, you broke out volumes on kind of the base institutional business by region. Can you just give us your insights into how we should think about growth by region into 2022 and how you see that progressing throughout the year, specifically if you can highlight Europe and North America, that would be helpful?
Philip Wieland: Yes. Look, let me do that. So as you can see from the chart on Page 9, much of the recovery in North America has happened already. As I just said, there is more to come, specifically around offices. And also some of our contract caterers still have some volume to come back. But I think more of the growth there is going to be from new business. And as I said, we've had some really good activity both in the back end of last year and also in the start of this year. So we will see more growth coming in North America driven by new business. If I look at Europe, there's a lot of recovery coming through now. So whilst we averaged 81% as you can see on the chart, last year, volume versus pre-pandemic. That number would be getting into the 90s now. So really a significant bounce back. And the same is true rest of the world. Rest of the world is certainly behind Europe. If I think in Southeast Asia, for example, if I think of India and also Australia and New Zealand, they started reopening later than Europe, but we're now starting to see the upswing coming.
Unidentified Analyst: Great. And then maybe just a really quick follow-up on the pricing. Where -- if you have the numbers available, like where did you exit the year? And how should we think about that pricing flowing through throughout the course of the year? And then as we think towards the second half of 2023, how do you view the stickiness of those prices as some of these costs kind of subside? Thank you.
Philip Wieland: Yes, sure. It's a good question. So in terms of exiting the year, we were about 4.5% in the quarter, in the fourth quarter of last year. And we expect that the first quarter of this year to be getting up close to the 6% number that we described -- in what we said earlier. Now when we were building our plan for the year with the expectations using the forward view, we thought that, that would be a good place to be. Of course, given the wall and everything else that's going on even in a few weeks before the war, we are now going out for further pricing. So the 6%, you should think of that as a floor, and we'll be going out globally and pushing that inflation that is in the market through the business into customers, and therefore, we'd expect to see that continuing to go up as we go through the year.
Unidentified Analyst: Great. Thank you.
Operator: Thank you. Our next question comes from Edlain Rodriguez with Jefferies. Please proceed with your question.
Edlain Rodriguez: Thank you. Good morning guys. Just a follow-up on the pricing question. So as you go to your customers, like are you able to change the contract terms like to raise prices whenever? Or are those prices like I said, like once or twice a year?
Philip Wieland: Yes. Look, basically the truth is there's a mix. So in some of our contracts, we're able to change prices simply by giving a period of notice at any stage. In sum, there are a number of price windows and in a relatively smaller number there are a single annual opportunity. And therefore, look, we've got to work through all of those contracts. And what we have seen even with those that just have an annual view, actually, a lot of customers understand what's going on here and have been pretty amenable to having an X contract discussion.
Edlain Rodriguez: Okay. And is your sense that by the end of the year, as we exit 2022, like you would have caught up with was, if oil prices don't move much higher from where they are right now?
Philip Wieland: I think not quite. In the guidance, Todd described a $25 million to $30 million gap. I think that's our view of we -- absent the war, we absolutely would have been ahead of price versus cost with the war giving an extra-large surge in inflation. If that continues right through the year, we won't quite get a full recovery on a dollar basis within the year to the tune of the $25 million to $30 million.
Edlain Rodriguez: Okay, thank you very much.
Operator: Thank you. Our next question comes from George Tong with Goldman Sachs. Please proceed with your question.
George Tong: Hi, thanks. Good morning. You acknowledge that the supply chain issue is currently difficult to predict. Can you provide the state to the union on the supply chain and steps that you're taking to mitigate headwinds?
Philip Wieland: Yes, George, let me do that. So let me start with raw materials. Look, I think the bottom line is raw materials have not constrained us, but they have created a huge amount of extra effort and energy. Perhaps at times, we've been a bit hand to mouth but we've tended always to get there in the end. Labor has been less of an issue for us than others that we've read about across the market, really, freight has been our biggest challenge. We are somewhat dependent on third-party freight carriers. And at times, that has been a little bit disruptive for us. Would be let down late in the last minute. So that's also driven a lot of cost in as we've sought to make sure that we've got appropriate insurance in place. So all in all, I couldn't sit here and say we've got millions of dollars of missed revenue but it's certainly tough to manage, and it's certainly driving a lot of cost into the business.
George Tong: Got it. And then within the food and beverage business, can you describe trends you're seeing with new business, what's driving the performance there? And then also discuss traction with your water treatment business?
Philip Wieland: Yes, sure. So look, in terms of the trends on new business, it really is a continuation of what we've been seeing for over two years now. We have a sweet spot with our products and our service that is just really appealing to customers. We have customers often, they trial with us, they like what they see on both product and service, and then they buy more fully across their site. And we've seen that consistently over the period that we've been seeing. And that applies really to the different sectors and the different geographies. And we think as we look at our pipeline, we see no reason why that shouldn't continue. In terms of water treatment, we're about sort of double-digit millions of revenue on our new water treatment proposition, which is a bit ahead of what we've said. I think we said when we launched, we've got a few million year one. We'd be more like this point year two and then we'd get bigger growth in year three. So we're ahead of where we want it to be, but that just reflects the customers like it. They're really open to it. They love the concept of being able to buy both the cleaning and hygiene products, a log side water treatment from a single contact that seems to really resonate in the market and the quality of the product and service is additive. So yes, that continues to go from strength to strength.
George Tong: Very helpful, thank you.
Operator: Thank you. Our next question comes from Andrew Wittmann with Baird. Please proceed with your question.
Andrew Wittmann: Okay, thanks for taking my question guys. I wanted to just get a little bit of detail on the guidance here. You guys mentioned that there's a degree of M&A that's baked into the guidance. And I just wanted to clarify that to start out with, Todd excuse me -- does that include M&A that has not been yet closed or does the M&A contribution in your guidance from deals that have been announced and closed, including this one that you did in January? Just trying to get at that component as well as the organic growth. Maybe you wanted to comment on the FX headwind that you're guiding with here as well as the volume impact recognizing that you already said that you're getting at least 6% price.
Philip Wieland: Yes, sure. What I would say to you is that the M&A that we've got in our forecast in the upper single-digit kind of revenue growth guidance, includes the two transactions that were closed, both Birko and Shorrock in December and January. Those are roughly $80 million in top line or about 3% M&A. In terms of the guidance for top line, we've not assumed in that revenue guide, incremental M&A in year that's not been closed yet. And just again, to talk about kind of the bridge year-on-year, we think there's 3% growth from new business, as Phil mentioned, about 3% M&A. Phil referenced about 6% pricing, and we do have some reopening of markets that range 2% to 4%. But then we are giving back some 3% to 4% likely negative currency year-on-year impacts. And then that $70 million of infection prevention normalization that we referenced in Q1 is another 2%, 3% giveback. So if you want to rec kind of to the high -- the single -- upper single digits kind of revenue we're guiding to, that's the kind of high-level revenue bridge from our perspective.
Andrew Wittmann: Great. That's really helpful. And then just maybe a clarification to follow-up on the EBITDA margin side here. So I just want to make sure I heard this correctly in your prepared remarks. I think you said that 33% of your revenue goes to direct cost of materials. And I think you said that your expectation was 24% increase in those costs for '22. So 24 of 33 is about 8% margin headwind, if I calculated that correctly. And then you said you're talking about like a 6% at least price increase. So that's suggesting just on raw materials alone, you've got maybe a couple of hundred basis points of margin. It looks like that's pretty consistent with the margin guidance that you've given here, but is that kind of a way of thinking about the implied adjusted EBITDA margins and why they're down and the reasons why they're down -- does that math hold, Todd?
Todd Herndon: I think it does or you could do the math in dollars, right, 30% times our revenue times 24%. And that's also why Phil suggested, we're also going back for more pricing, given that guide includes a view towards the latest impact from Russia, Ukraine, right? So even at one of our values is biased for action. So even this next week, we're sitting down with the team talking about incremental pricing in addition to what we just talked about at the 6% level to make sure that we can go, get those dollars covered at a minimum and then see margin accretion beyond that.
Andrew Wittmann: Okay, great. Thanks guys for clarifying that.
Todd Herndon: I think the good news, too, maybe one last comment on that is the rows in that picture is that we believe that if and when inflation recedes, this is a business that doesn't historically give back a lot of the pricing it takes. So mid-term, that's actually good thing for our business from our perspective.
Andrew Wittmann: Thank you.
Operator: Thank you. Our next question comes from Arun Viswanathan with RBC. Please proceed with your question.
Arun Viswanathan: Great. Thanks for taking my questions. So two questions. I think when we were going through the IPO, there was some commentary that you guys built in a $65 or $70 oil price assumption. And apologies if you touched on this, but how are you thinking about that now? Obviously, there's a lot of volatility out there. But do you feel that your guidance accurately or at least somehow kind of captures the current environment?
Philip Wieland: Yes. Look, $65 looks slightly old fashioned now. Doesn't it? The guidance that Todd described earlier is based on us seeing a continuing view of the current sort of $125 that it's been bouncing around. Of course, the other thing that's true is we didn't talk about pricing at 6% plus in the IPO. So look, this is just a different world with different dynamics. There is higher inflation and therefore, we are reacting and pricing accordingly. And there'll always be a bit of a lag. But over time, that will turn out to be a positive. But we've just got to get through it.
Arun Viswanathan: Right. Okay. And then thanks for that and then if you think about the full-year guidance, $380 million to $420 million, it's about again, maybe I think down maybe about 10% from when we were thinking back then. Is that mostly reflective of that 220 recovery? So said another way, as that comes back, do you expect kind of -- to get back into that mid-400 range maybe in '23 or '24? Or how are you thinking about getting back to kind of fully loaded earnings power?
Philip Wieland: Yes, look, it's a really good question. I start by saying, look, it's got more to do with this price cost thing that we were just talking about. If you were to add the 25 to 30 back onto our guidance for the Ukraine situation, that makes quite a difference. I think if I step back and think where are we versus the IPO, the recovery has been a bit later because it obviously covered more variance and stuff. But now it's coming through really strongly. I think we are pricing more, as I said, we've done more M&A and better M&A than we might have believed, and we've got more momentum on our strategic volume drivers. I said water treatment is ahead, I think the U.S. Foodservice is ahead. I think commercial excellence and global accounts are ahead. So I think there's some delays but also probably more momentum in the business as we go forward.
Arun Viswanathan: Sorry, just to clarify, so it actually sounds like when you do get full recovery of that, just given the pieces that you've added, the wins, the potential margin, the pricing, as you said, you don't give it back, you could actually be potentially beyond your earlier. I mean, I don't want to be aggressive, but it sounds like you're exiting this period with a better position. Is that a fair characterization?
Philip Wieland: Yes. We feel we've got really good momentum. And when this price cost thing unwinds, and the recovery comes back, we think we're going to be really well positioned in that kind of double-digit EBITDA year-after-year, that's where we're going to get.
Arun Viswanathan: Great, thanks a lot.
Operator: Thank you. Our next question comes from Matthew Skowronski with UBS. Please proceed with your question.
Matthew Skowronski: Thanks. Can you just walk us through how we should be thinking about margin cadence as we roll through the year once we're past the first quarter? Just trying to think of the price versus raws dynamic there and how that flows down the margins?
Philip Wieland: Todd, do you want to take?
Todd Herndon: Yes, I can take a shot at that. We're not giving quarterly guidance at this point. But clearly, the inflation and the hyperinflation of the war is on us now. And so it's likely that the first quarter, the second quarter are much more challenged than the third quarter and the fourth quarter primarily driven by this price cost lag that we've talked quite a bit about. So I would expect that as we make our way through the year, you would see margin improvement as the price starts to catch the costs given what we know today, which again, theoretically could change tomorrow, but that would be the way I would think about margin progression likely lowest in Q1, but hopefully recovering quarter-on-quarter as we go through the year. There is some seasonality in the business. We tend to have Q2 and Q3 pre-COVID be our bigger quarters. But with that caveat, I'd say, I think price catching cost accelerates through the year in general.
Matthew Skowronski: Okay, that's helpful. All right and then you've made a couple of acquisitions since the last call. Can you just give us details on the seasonality of sales for these businesses, particularly Birko and Shorrock? And if this will skew typical sales cadence we've seen in the past?
Philip Wieland: Todd, you want to carry on?
Todd Herndon: Yes, sure. We haven't guided the quarterly seasonality of those acquisitions. But I would tell you that they're probably not material enough to swing any of our seasonality. It's about $80 million in total, as I mentioned. So $2.78 billion, it's not going to have any material impact on our quarterly phasing.
Matthew Skowronski: Thanks.
Operator: Thank you. There are no further questions at this time. I'd like to turn the floor back over to Phil Wieland for any closing comments.
Philip Wieland: Yes. Look, thank you very much for that, and thanks to everyone for joining. I guess, in closing, I would just say the highlights, delighted to have hit Q4. Great to have strong momentum with the base coming back with $220 million in front of us, new business accelerating from 3% last year, price accelerating 6% this year and rising and the M&A coming through strongly. In addition, the U.S. factory and warehouse coming online towards the end of this year. So look, we feel good about the plan. That said, of course, these are very tough times. The war is a horrific situation, and it's driving a lot of inflation into our business, and there's going to be a price cost lag, but we feel confident that we'll come out of that over time. So thank you for listening and participating, and have a good day.
Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
