Univar Solutions, Inc. (UNVR) CEO David Jukes on Q2 2021 Results - Earnings Call Transcript

Univar Solutions Inc. (NYSE:UNVR) Q2 2021 Earnings Conference Call August 3, 2021 9:00 AM ET

Company Participants

Heather Kos - Vice President of Investor Relations and Communications

David Jukes - President & Chief Executive Officer

Nicholas Alexos - Executive Vice President & Chief Financial Officer

Conference Call Participants

Cory Murphy - Vertical Research Partners

Laurent Favre - Exane

David Wang - Deutsche Bank

Michael McGinn - Wells Fargo

Steve Byrne - Bank of America

Operator

Good morning, ladies and gentlemen and welcome to Univar Solutions' Second Quarter 2021 Earnings Conference Call. My name is Karol and I will be your host operator on this call. Currently, all participants are in a listen-only mode. After the presentation, we will conduct a question-and-answer session. [Operator Instructions]

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

Heather Kos

Thank you and good morning. Welcome to Univar Solutions second quarter 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 second quarter ended June 30, 2021 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 a reconciliation to the most directly comparable GAAP financial measure in our earnings release and the supplemental slide presentation. As referenced on slide two, we will make statements about our estimates, projections, outlook, forecasts and our 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 three, you will see the agenda for the call. David will start with the second quarter highlights and end market trends, Nick will walk through our financial update and then David will close with progress on our business strategy. Following that, we will take your questions.

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

David Jukes

Thank you, Heather, and good morning, good afternoon, and good evening to everyone and thanks for joining our call. I'm pleased to report such a strong financial performance against the backdrop of good customer demand, but constrained supply and disrupted supply chains. We believe the performance is a testament to our operating digital infrastructure, as well as our outstanding team of dedicated colleagues. Their ability to identify trends, grow our supplier and customer relationships, as well as build on investments in both technology and our growing global specialty and market verticals has positioned us well to deliver for our customers and supplier partners and achieve another strong quarter of results.

As we continue to execute our strategy and focus on growing together, we're building momentum and believe our singular focus on strong operational execution is paying off, as we advance our strategic priorities and complete our integration activities. Key highlights from the quarter are we delivered strong Q2 adjusted EBITDA of $197.5 million, with liquidity of $882 million at quarter end, inclusive of $279 million of debt paid down in the quarter. Our headline sales were up versus prior year, as we continued to deliver growth in our core business, even with the effects of our divestiture program and exit from our Canadian ag distribution business.

We improve our sales performance with positive win-loss ratios in all regions and ending the quarter with much improved retention levels for new customers. Our SAP migration work has just been completed in Canada with now only Mexico outstanding. We remain on track to deliver on our commitments of $120 million of net synergies from the Nexeo integration. Our digital investments are delivering real benefit, with approximately 40% of our US customers now registered on our e-commerce channels and able to utilize 24/7 self-service capabilities. Additionally, approximately 21% of US customers are utilizing our digital tracking capabilities, and the amount of orders placed through our Shop channel increased by more than 50% quarter-over-quarter. And we strengthened our position and our global specialty and market verticals with more new supplier authorizations in the quarter.

We saw increasing business activity globally, with sales improving throughout the quarter. Once again, we were able to provide existing customers with security of supply as demand outpaced the supply of product, containers and transport as well as support the needs of new customers who've been let down elsewhere. The second quarter of 2021 experienced the strongest year-over-year growth and overall financial metrics in the recent history of Univar Solutions. Prior year comparisons were aided by the strong economic recovery and pricing reflecting demand and ongoing supply disruptions from the winter storms in Texas. We believe our global network and strong supplier partnerships provided us with a distinct strategic advantage over much of our competition, as we were able to leverage the capabilities of a single ERP in the USA to ensure we optimize the available supply throughout the network.

Our industrial solutions business saw strengthen in construction and automotive-related chemistries with strong demand in many of the critical products for these markets. Food and personal care, both experienced double-digit growth, with consumer demand accelerating as vaccination programs are proving effective in much of the world. Unforeseen shortages in certain key ingredients have strengthened our value proposition within both industries, as we believe our ability to deliver bespoke formulations and strong supplier partnerships have positioned us to provide a differentiated value to customers.

Our general industrial business has seen strong demand across the various markets, but in particular chemical manufacturing, machinery and paper. Our water treatment portfolio has been especially essential for the drought stricken Western United States. Our extensive organic chemistry portfolio has supported growth in these segments, while the ability to leverage our scale enabled us to provide our customers with secured supply. Although, now, a much smaller part of our business, oil and gas-related demand returns to double-digit growth compared to the prior year with oil prices currently at pre-COVID levels and weekly oil and gas rig counts steadily increasing. Production chemistries in particular saw strong demand. Our services business was strong in the quarter, largely due to automotive and airline sectors where we managed chemical waste streams and related recycling programs.

For 2021, we still expect vivid gross profit growth at a rate better than industrial production indices. And with the third quarter starting strongly, we're expecting the adjusted EBITDA guidance of $175 million to $185 million for the third quarter and are raising our adjusted EBITDA guidance range for the full year to $705 million to $725 million with net free cash flow conversion above 40%, which Nick will expand upon shortly. Beyond 2021, we believe that completion of the integration activities, the SAP migration and the actions we are taking to streamline our business have further positioned us for sustainable success. We have the right people, products, tools, and strategy that we expect will deliver the innovative solutions our customers and suppliers value and position us to deliver shareholder value.

Now, let me turn the call over to Nick. He will walk you through our second quarter results and our outlook. Then, I will share some brief closing thoughts.

Nicholas Alexos

Thank you, David. Good morning and hello to all I'm pleased to share Univar Solutions Q2 financial results, update you on our business activities and provide our outlook for the rest of the year.

Sales were up 19.2% on a reported basis and 15.4% on a constant currency basis. Excluding results of the exited Canadian agricultural businesses and Distrupol from the prior year financials, we estimate net sales to be up 30.5% and up 26.4% on a constant currency basis. This growth is primarily due to the impact of chemical price inflation and higher industrial demand. Gross profit, exclusive of depreciation, was higher by 23.2% to 602.5 million and a 19.3% growth on a constant currency basis.

Our gross margin increased by 90 basis points to 25.2%, driven primarily by the Canadian agricultural distribution exit. Excluding the ag businesses and Distrupol, margins were down 60 basis points, as a positive impact of this year's chemical price inflation was offset by the absence of prior year's favorable product mix benefiting from certain essential end markets of $20 million.

Second quarter adjusted EBITDA of 197.5 million was up by 21% and 16.2% on a constant currency basis compared to the prior year. Adjusting for the existed businesses, growth was 22.2% on a constant currency basis. The increase was primarily driven by chemical price inflation, higher industrial demand, and the realization of Nexeo net synergies, partially offset by higher WS&A. The WS&A increase was due to higher variable compensation, driven by the outperformance of the businesses and reinvestments in operating costs versus the temporary reductions implemented last year. Despite the higher WS&A, EBITDA margins did improve by 10 basis points.

Moving on to slide seven, Q2 GAAP net income was 153.2 million or $0.90 per share, compared to 1.8 million in the prior year. The increase was primarily due to higher gross profit, a gain on the sale of our Distrupol business and the effect of the expiration of the warrant related to the February 2019 Nexeo Solutions acquisition. These were partially offset by the higher WS&A, which included the variable compensation and pension-related expenses.

For our detailed schedules in the appendix, adjusted earnings per diluted share were $0.57 in the quarter, an increase from $0.33 in the prior year's second quarter. Operating cash flow had a higher use of cash versus the prior year period, primarily due to networking capital use, driven by the strong acceleration in Q2 sales this year sequentially quarter-over-quarter of about 11% versus the sequential decline in the prior year, which, as we all know, was impacted by the effects of the COVID-19 pandemic. This was partially offset by higher net income during the quarter.

We're able to maintain ample liquidity of 882 million inclusive of 207 million in cash and the availability under our asset-based credit lines. We expect levels of working capital and cash flow through the rest of the year to follow our traditional seasonal trends. During the quarter, we refinanced 1.3 billion of term loans with a new 1 billion term loan, net of debt with pay down of 279 million. As part of this refinancing, we extended the maturity of the term loan to 2028 and reduced the interest rate by 25 basis points, which will save approximately 2.5 million a year in interest expense. There is also an opportunity to further reduce the rate by 25 basis points if our leverage falls below 2.5 times saving an additional $2.5 million per annum. Capital expenditures for the quarter were 23 million and Nexeo integration-related expenses were on plan at $19 million. Our ROIC was 11.4% for the quarter and leverage now stands at 3.2 times.

On slide eight, we've aggregated the key metrics across our four reporting segments and we provide details in the appendix. Sales across all geographies, benefited from chemical price inflation, and higher industrial and market demand. Sales were higher year-over-year in all the regions except for Canada, which saw a reported decline due to the exit from our agricultural businesses. Univar's reported sales were also negatively impacted by the Distrupol divestiture.

Gross margins were lower in USA, EMEA and LATAM. USA saw strong demand in our LCD [ph] business, resulting in a change in margin for the quarter. EMEA and LATAM were impacted by the lower benefit from certain central end markets in the prior year. In Canada, gross margins benefited from the agricultural distribution business exit as well as favorable mix.

Adjusted EBITDA margins expanded in USA and Canada and declined in EMEA and LATAM. In USA, lower gross margins were mitigated by better cost management and resulting operating leverage positively impacted EBITDA margins. EBITDA margins for other segments were driven by the relative gross margins. Overall, the increase in sales was higher than the increase in WS&A, except for Canada due to the ag business exit.

Moving to slide nine, we were made confident in our ability to execute on our strategies in 2021. As we have highlighted before, our 2020 adjusted EBITDA of 636 million included approximately 20 million of earnings from the Canadian agriculture services business, which we exited in Q4, and Distrupol, which closed on April 1 this year. We also had a benefit of 35 million from essential end market demand in 2020, which we didn't expect to recur at that level in 2021.

For 2021, outlook, we continue to expect increased market share growth in the year, and we anticipate our business to grow at a higher rate than our previous expectations and above the general economic consensus of 6% plus US industrial production growth rate, which we're using as a benchmark. For the rest of the year, we expect to see a trend towards a normalization of chemical prices, and a continuing broad reopening of North American and European economies. These dynamics, along with our solid execution, and the continuation of better product mix through robust customer demand in our focus industries will drive good results. Accounting for all these factors as well as Q2 performance, we are increasing

Due to performance, we are increasing our expected adjusted EBITDA guidance to 705 million to 725 million for fiscal year 2021, $25 million higher at the midpoint from our prior for your guidance, and almost 12% higher from the midpoint of our initial guidance for the fiscal year 2021. Guidance for our Q3 2021 adjusted EBITDA is in the range of 175 million to 185 million. As you would expect, we're closely tracking the market dynamics and we recognize that some of the current pricing levels may not be sustainable beyond the next few quarters. However, we believe a solid base for adjusted EBITDA of 690 million to 700 million is our benchmark for growth into 2022.

On slide 10, let's review some of the cash flow highlights of our 2021 outlook. Net working capital liquidation from exiting of the Canadian agriculture distribution business has resulted in net proceeds of 4 million as of Q2, with an additional 21 million expected to come through by early Q3 of 2021. These amounts are net of related payables and are in addition to the 52 million received in Q4 of 2020. Our plan is to continue to target net working capital in line with our guidance of 13% to 14% of annualized quarterly sales.

Planned sales in our current guidance are expected to result in only a slight use of cash from working capital for the full year, implying good cash flow in the second half. Cash use of other expenses and timing of year-end accruals is expected to be up to 35 million. Final, Nexeo integration expenses, which are not included in our adjusted EBITDA forecast, are expected to be up to 70 million for the year.

We're planning for $125 million worth of capital expenditures for the year, in line with our initiatives to invest in high ROI projects to increase competitiveness. We recognize that with COVID there have been some delays in the year-to-date spend but during the second half, we hope to catch up and thus avoid a significant carryover into 2022. Consequently, we are targeting net free cash flow of 280 million to 300 million for 2021, resulting in a net free cash flow conversion above 40%.

Net leverage, excluding further divestment proceeds, is now expected to be 2.7 times or lower by year end 2021 versus the prior guidance of 2.8 and clearly ahead of our S22 target of 3.0. We expect to have ample cash and line of credit liquidity throughout the year, even after some additional permanent debt reductions. During the three months ended June 30, 2021, a portion of the expiring warrants relating to the Nexeo acquisition were exercised at a price of $27.80, resulting in the issuance of approximately 1 million of newly issued shares of common stock. Given this, we expect shares outstanding for 2021 to be in the range of 171.5 million for 172 million.

In conclusion, we are very pleased with our results for the second quarter and remain optimistic about our outlook for the full year and beyond. Our teams, every day, execute very well in challenging environments and I'm excited to see the continued progress we are making against our S22 and growth objectives. We are continuing to implement our plans to achieve a run rate adjusted EBITDA margin of 9% by the end of 2022 and we intend to provide more details on the 2021 through 2023 margin bridge at our upcoming Analyst Day. David?

David Jukes

Thank you, Nick. As you can see, we're making solid progress and our business strategy, and 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. This is evidenced by our positive win-loss ratio in all four regions and new customer retention. The expansion of a consistent, technically differentiated approach to customers through the globalization of our specialty end markets and the consumer and industrial solutions verticals is delivering growth. Our expertise and committed investments in these verticals is being rewarded with new or expanded supplier partnerships, and with roughly half of those announced in the quarter being wins from existing distribution channels.

This past weekend, we successfully migrated our Canadian business onto our SAP platform, and the move in Mexico is scheduled for November. This will complete the Nexeo integration activities from which we delivered $8 million of net synergies during the quarter and expect to achieve our net synergy goal of $20 million to $25 million this year, and $120 million in total by Q1 of 2022.

Moving on to S22. As mentioned last quarter, we sold the Distrupol Plastics business in EMEA on April 1 and later in the quarter we divested additional assets in the region. To date, we have realized approximately $186 million in gross proceeds from disposals. In Q3, we expect to deliver $6 million from further assets sales in Europe, and expect to realize most of our targeted total net pre-tax proceeds. As Nick detailed, our expected strong cash flow and domestic proceeds enable us to meet and beat the first of our S22 objectives and reduce our net leverage to below three times by year end, actually, to 2.7 times or lower.

Our commitment to being a digital leader continues as we accelerate our omni-channel approach. We now have a single integrated digital commerce platform at univarsolutions.com enabling customers to search, select, source and self-serve whatever the time of day or night they choose. This investment is delivering results and we continue to enhance its capabilities based on customer feedback, and then are providing users with real time pricing without login. Quarter-over-quarter, sequentially, we've seen a 42% increase in document downloads, a 58% increase in orders through Shop and a 12% increase in orders placed through ChemCentral, our no frills channel, which also launched in France and Brazil in the quarter. Our digital vision is clear and we're beginning to realize the benefits of our capabilities as a source of continued and sustainable competitive advantage.

Putting the customer at the center of all we do, we've established our global voice of customer process, leveraging our Net Promoter Score, or NPS. As of June, our overall score is good, despite challenging tight supply chain conditions impacting our results. Regular reviews have been instituted to ensure we are listening to customers' feedback and adjusting or developing our processes based on what they truly value. This involves reviews from me right down through the organization as we work to build out the effortless experience we believe our customers deserve.

To help with this and using the advanced analytics capabilities, we have progressed the development of a customer 360 model that provides us with a single view of customer performance, including NPS and customer-centric metrics all along the customer journey. This model is designed to provide predictive insights that we believe will aid in prioritizing improvements towards an effortless experience for customers. Altogether, our digital investments and customer-centric approach is designed to maximize the effectiveness and scale of our operations, turning data into strategic assets and making it easier for customers and suppliers to do business with.

We released our latest Annual Sustainability Report in June, which is our 12th edition. The 2020 sustainability report reflects the company's commitment to grow today, tomorrow together, through both our commercial strategic priorities and sustainability approach. While showing we are on track to meet or exceed our 2021 sustainability goals, which was set back in 2017, we provide a comprehensive view into our ambitious sustainability goals to 2025 and beyond, with a net-zero ambition by 2050.

A few other ESG highlights for the first half of the year include, we announced new supplier authorizations for a number of more environmentally-friendly solutions. We continue to invest in projects to reduce our carbon footprint, in line with our net-zero commitments. We continue to give back to our communities as well as support STEM programs globally, like our sponsorship and activity involvement in the You Be The Chemist program organized by the Chemical Education Foundation in the US. We continue to put safety first, which is evidenced by our world-class safety record. And we introduced our new supplier Code of Conduct to support sustainability throughout the value chain.

ESG is a priority for us and it touches each of our core values and aligns with our vision to redefine distribution and be the most valued chemical and ingredient distributor on the planet as well has been a better steward of Earth's resources, understanding it is our home, our responsibility.

Before we come to your questions, and to summarize, we delivered strong Q2 adjusted EBITDA, while realizing our purpose to help keep our communities healthy, fed, clean and safe, even during challenging times. We have again raised our full year adjusted EBITDA guidance, this time to 705 [Technical Difficulty].

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Kevin McCarthy from Vertical Research Partners. Kevin, your line is open.

Cory Murphy

Good morning. This is Cory on for Kevin, how are you?

David Jukes

Good morning. How are you?

Cory Murphy

Good morning. So you mentioned taking market share, can you provide a little bit more detail, maybe by geography or by end market and how you are accomplishing this market share gain?

David Jukes

Sure. I think that, really, we are looking at right across all our markets. We have really good capability in those specialty consumer solutions and industrial solutions verticals, and new authorizations are helping us drive share there, as well as continue to invest in our technical capabilities and our technical and sales organization. In the chemical distribution business, we're seeing good growth in the US and in EMEA. I think, particularly, we have product, we have containers, we have transport, so we are a more reliable source of product when others can't deliver. So, I think we're finding it's quite a good environment for us to win with customers. So, we are focused also then on our NPS to make sure that we are really supporting customers. Our win-loss ratio is improving in all areas, in all regions and so I think really what we're seeing is our business executing well and our strategy playing out.

Cory Murphy

Thank you for that. That's helpful. And if I may, your free cash flow guidance suggests, maybe, $200 million tailwind in the back half of the year. Can you walk through some of the assumptions underpinning that? Maybe what are your price assumptions?

David Jukes

Sure. Let me ask Nick to walk through that for you.

Nicholas Alexos

Yes. Hey, Cory. It's Nick.

Cory Murphy

Good morning.

Nicholas Alexos

As we mentioned in the script, we do expect some level of pricing to come down in the second half of the year and we are going into our seasonal lower quarters, so those factors do drive the breakdown of the working capital just driven off of the sales. And we also expect to improve some of our efficiencies on working capital, like many people collecting and processes during the COVID environment that has some challenges. We still ended up relatively close to our 13% to 14% target. We were above that in the first half, so we expect to be below that getting to the second half. So the combination of the lower top line and the improved efficiencies in collections drive the working capital cash flow in the second half.

Cory Murphy

Thank you very much.

Operator

Your next question comes from the line of Laurent Favre with Exane. Laurent, your line is open.

Laurent Favre

Yes, good morning. David, when you talk about, actually it may be for David or for Nick, you were talking about normalization into the second half. I am wondering, are you purely referring to lower pricing and margins or are you also referring to some of the business volumes that you gain, as you have the ability to supply where your customers are, the newer customers, I guess, may go back to their original sources of supplying?

David Jukes

Hi, Laurent. Good question. Thank you. No, I think what we're seeing - we're very, very confident about our sales approach and very confident about the service that we're providing customers right now. It is really thinking about pricing, thinking about pricing normalizing a little bit, so we expect some of the tailwinds we've had on margin, certainly in the first half, to taper off into the second half. Although we shall expect pricing to be strong but we expect demand to be strong, and we're very confident in our ability to support customers.

Laurent Favre

Thank you. And as a follow up, you mentioned a lot that you are ahead of target on to everything [ph]. We've seen most of your peers being more active on M&A since the beginning of this year. I'm wondering now that you are a lot closer to 2.5 times, should we expect you to be more active on M&A or should we be expecting some shareholder returns, although?

David Jukes

Yeah, our capital allocation strategy, I think - we've highlighted before, our priority was to get our leverage down, and we're well on track to do that. And we see the opportunity for some good bolt-on acquisitions, both in the Americas as well as in other markets as well. So we have turned our attention to that already, and we have a program and a process to do that. I have to say nothing that's been sold recently that we've lamented on that at all. I think we've looked at many things and turned away from many things. We're going to continue to be very disciplined around the businesses that we add to our portfolio. But our capital allocation strategy is to invest in high ROI CapEx to drive growth, some bolt-on acquisitions, and then look at how we return capital to shareholders. And we'll share a lot more about this at the Investor Day later this year.

Laurent Favre

Got it. Thank you.

Operator

You next question comes from the line of David Begleiter with Deutsche Bank. David, your line is open.

David Wang

Hi, this is David Wang here for Dave. I guess you talked about you're expecting normal seasonal trends this year, while some of your suppliers and customers are expecting more muted seasonality this year. I guess, can you just talk about how you think about seasonality for the second half? And then on your guidance for Q3 and Q2, it looks like the drop from Q3 to Q2 is a little bit bigger, even assuming normal seasonality. Is that just a function of normalizing prices? Thanks.

David Jukes

Thanks, David. Look, I think Q3 to Q2 is seasonal. You've got seasonal adjustments in there. We expect sales to be generally lower because of that seasonality trends. And we see that kind of normalization of margin coming back but we do think, as I said earlier on, we see continued strong demand across all markets and we're very confident in our ability to deliver and capture that demand.

David Wang

Okay, and then just across your end markets, can you talk about where you're seeing the strongest growth and are there still any end markets that are below pre-pandemic levels?

David Jukes

I think you have to look at micro markets rather than markets that are below pre pandemic levels. So personal care - personal and beauty care is strong, although things like makeup, cosmetics is still at pre-pandemic [ph] levels, not until people really start going back to work and getting out more, will we see that pickup. But we're seeing good strength across all markets, as I think we highlighted in the prepared remarks.

David Wang

Okay. Thanks.

Operator

Your next question comes from the line of Michael McGinn with Wells Fargo. Michael, your line is open.

Michael McGinn

Hey, good morning, everybody.

David Jukes

Hi, Michael.

Nicholas Alexos

Hi, Michael.

Michael McGinn

I may have missed this comment but you said earlier in the call you were benchmark - you raised the guidance but you're benchmarking to 690 to 700. Is that correct? And what do you mean by that statement?

David Jukes

Yeah, I think that what we are saying is, if you - if we look at the puts and takes delivering this year, that if we looked at the exceptional pricing, the exceptional margin, from certainly particularly from Q1 into Q2, that will normalize out. And so I think a normalized run rates for this year will be a 690, 700 for us to base our growth on for next year.

Nicholas Alexos

And I would add, David, Michael, on that is the higher variable compensation, which we're also calling out, which has been a benefit, obviously, to all our colleagues, but is at a higher level than normal, which would be an offset going into next year versus the chemical price inflation benefit that we expect to taper down. So, those two kind of net against each other. I mean, there are other puts and takes. Obviously, we had a little bit of a Distrupol pick up in the beginning of the year, that's not going to recur next year. So we're just calling out a base level that we think is a good growth platform going into next year.

Michael McGinn

Okay. So the back-of-the-envelope math, which if I take the midpoint of that 695, and then maybe a blended EBITDA full year rate of 8.5% that gets me to sales of 8.1 billion, which is down maybe about 7% from this year, given the pricing momentum you talked about. Is that the ballpark estimate you guys are looking at?

David Jukes

That is back-of-the-envelope math. Mike, I'm not going to comment on back-of-the-envelope math and I'm not giving guidance for next year. We're looking at - I think we've given as much guidance as we possibly can do or much insight into our figures, as we possibly can do, to allow you to base the modeling really.

Michael McGinn

Okay, understood.

David Jukes

I think we intend to grow better than industrial production. That's our intention. That's what we will do next year.

Michael McGinn

Got it. And switching gears to, I guess, the guidance, a lot of your - you're already running, essentially this quarter, at a 9% EBITDA margin run rate in all your segments, ex-US and you just got the ERP implementation done there. So can you walk us through what you see as the progression of EBITDA the margin in the next couple of quarters for that one segment for you guys?

Nicholas Alexos

Yeah, I mean, as we called out last quarter, we're expecting our margins this year to be higher than last year in the low 8s, probably when you end up for the full year. Clearly, we had very strong margins in the first two quarters but they taper down in Q4, typically. But we've got as we'll get through later in the year, line of sight into better margins going into next year, given some of the adjustments that we've called out, and then a path towards the 9% beyond then. We've had other elements affecting our margins, as well, which is just the mix between our strong sales in our LCD business versus our specialty area. If that normalizes, you'll also see the improvement in our margins driven by that improvement mix towards the FI [ph] segments.

Michael McGinn

Okay, appreciate the time. Thank you.

Nicholas Alexos

Thanks, Michael.

Operator

[Operator Instructions] Your next question comes from the line of Steve Byrne with Bank of America. Steve, your line is open.

Steve Byrne

Yes, thank you. With respect to that 9% EBITDA margin target that you have, your ex-US regions seem to already be well above that. It's your US region that is not. Is there something structural about that, that enables the ex-US regions to have a higher EBITDA margin and perhaps highlight how you get there in the US market, what needs to happen?

David Jukes

Sure. Good morning, Steve. I think the big thing that's different between the US and any other business that we have is its large inorganic bulk business and that tends to just drive the margin down a little bit. And so we have that large inorganic business which is very cash generative, very profitable, but this tends to have a slightly lower margin than the business and it's a bigger portion of our US business compared to anywhere else on the planet. But I think we're very confident about our actions to streamline our processes, streamline our business, continue to enrich the mix, continue to drive specialty focused industries, so feel pretty confident about our ability to hit that 9% EBITDA margin run rate by the end of next year.

Steve Byrne

And wanted to drill into the comment you made, David, on the win-loss ratio. I recall in years past, you argued that you were losing some of the new supply opportunities because you weren't pushing price. And I think you're transforming the sales force to change that. What do you learn now from these cases? When you lose a new supplier opportunity, what would you attribute it to?

David Jukes

It isn't so much on supplier opportunities that we're losing, we win those pretty consistently. And I think our specialty, consumer solutions, industrial solutions team are very good at capturing those. And we have a number of those that we have spoken about. But the win-loss ratio speaks much more to customers winning and losing. So now we're winning more customers and we're losing some, business will naturally churn, its end of life, its customers maybe go out of business. In the old days, you may have just lost them because they got fed up and went somewhere else. Now we're seeing more of them come back, more of them stick with us. We're seeing our digital tools helping us to have a better customer experience, a better buying experience. We talked about that effortless experience we want, we think customers deserve. So we're very focused on delivering that, so we can retain the base and add more business on top to really affect that win-loss ratio in a positive way and grow share.

Steve Byrne

Thank you.

Operator

Your next question is a follow up question from the line of Michael McGinn with Wells Fargo. Michael, your line is open.

Michael McGinn

Hey, thanks, guys, for taking the follow up here. So I just want to go back to the debt paid down. Can you just walk through some of the upside factors that would lead you to beat that target? And then maybe on the capital allocation side, what kind of synergistic opportunity is there to add a bolt on in a new geography and kind of roll in some of the existing supplier relationships you've had in other regions?

Nicholas Alexos

Yeah, so Michael, it is Nick. Let me speak to the deleveraging. As you know, our original target was three times by the end of the year. We now have reduced that twice, looking it to be at less than 2.7 times; some of that's driven by the cash flow of the business but also driven by the higher EBITDA. So, generally, we're performing better than we thought starting out at the year. In terms of upside opportunities, we continue to see good cash flow. There might be some additional divestiture realizations and also some of the timing of the CapEx might impact that. But generally, we're on track to continue to delever, putting aside any future capital allocations. I'll let David speak to some of the synergistic M&A opportunities that we're looking into and pursuing and considering.

David Jukes

Yeah, thanks, Michael. And I think that the - what we've built is a really good platform for growth. We built - we have a good operating within [ph], we have a good sales structure, and we have a great, now, technology stack and digital platform, which gives us a really good infrastructure to plug new things into, so - as well as globalizing our industrial solutions, consumer solutions businesses. So, we have a consistent execution around the world, which has led to new supplier authorizations, not new, new suppliers to Univar but existing suppliers of Univar Solutions extending the reach into other markets because we can offer this consistency of approach now. And this digital infrastructure, it is very attractive to ask suppliers to move with us. So we see really good opportunities now. We think are a very good host for companies coming into us. We think we can really plug them into the infrastructure, into the network and into the people network, as well, to be able to make it an enjoyable experience now for any company that we happen to acquire and really drive accretive growth.

Michael McGinn

Great. And then just going back to the last question, you mentioned win-loss ratio. I'm just looking at the initiative you have in place, ESG, new facilities, digital capabilities. When you say win-loss, are you benchmarking yourselves to the two big competitors who are out there or is this just maybe supplier decides to keep something internally? And for those solution-based sales, where you're adding - there's a value-added component, what's the lead time for winning business like there?

David Jukes

Okay. So, there's a number of questions in there, Mike. But let's just go back to the win-loss ratio first of all. We don't benchmark that against anything other than ourselves. The question is, are we winning more business at a customer SKU combination level than that we're losing? So this is are we growing customer SKU combinations and how does that stack up year-on-year? So therefore, are we winning or losing the game? And we are winning the game. We are we are winning more than we're losing in terms of business at that customer SKU combination level. So we don't benchmark against anybody else, just ourselves. And that's a measure for us of, are we winning or losing the battle, are we winning share or not winning share.

In terms of the dwell time or the lead time on some of the specialty sales, I mean, that can that can vary. That can vary in some of the, what I'd term, more fashion businesses like food ingredients or beauty and personal care, where a new season will bring a new skincare hair care, source, food whatever it may be. Now, that can be six months, nine months. On some of the other businesses, if I look at the pharma ingredients business, or if I look at the some of the industrial solutions business that the coatings business tends to be less fashioned, less change, that can be more like 12 to 18 months but we track all of those. We track everything through our development centers, our solution centers. So we know what the kind of average lead time is through our pipeline process, so that helps us to give a view of our forward opportunities.

Michael McGinn

Great, appreciate that.

Operator

Ladies and gentlemen, that concludes our Q&A portion of the call today. And I'll turn the call over to Heather, at this time.

Heather Kos

Thank you, ladies and gentlemen, for your interest in Univar Solutions. Please be on the lookout for a save-the-date on our Analysts Day the next week. If you have any follow-up questions, please reach out to the investor relations team. This does conclude today's call.

Operator

Ladies and gentlemen, that concludes today's conference call. Thank you for participating. You may now disconnect.