Univar Inc (NYSE: UNVR) Q1 2020 Earnings Call Transcript

Univar Inc (UNVR) Q1 2020 earnings call dated May. 11, 2020

Corporate Participants:

Heather Kos — Vice President of Investor Relations

David C. Jukes — President and Chief Executive Officer

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Analysts:

Bob Koort — Goldman Sachs — Analyst

Steve Byrne — Bank of America — Analyst

Laurence Alexander — Jefferies — Analyst

Jim Sheehan — SunTrust — Analyst

Kevin McCarthy — Vertical Research — Analyst

David Begleiter — Deutsche Bank — Analyst

Duffy Fischer — Barclays — Analyst

Laurent Favre — Exane — Analyst

Michael McGinn — Wells Fargo — Analyst

Presentation:

Operator

Good morning, ladies and gentlemen, and welcome to Univar Solutions’ First Quarter 2020 Earnings Conference Call. My name is Becca 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 at Univar Solutions. Heather, please go ahead.

Heather Kos — Vice President of Investor Relations

Thank you and good morning. Welcome to Univar Solutions’ first quarter 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.

This morning, we released our financial results for the first quarter ended March 31, 2020 and posted to our corporate website a supplemental slide presentation to go with today’s call. The slide presentation should be viewed along with the earnings release, both of which have been posted on our website at univarsolutions.com.

During this call, as summarized on Slide 2, we will refer to certain non-GAAP financial measures for which you could find a reconciliation to the 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 our expectations for the future. All 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 complete listing 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 how we are dealing with COVID-19 and an update on our Nexeo integration. 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 C. Jukes — President and Chief Executive Officer

Thank you, Heather, and good morning, good afternoon and good evening to everyone. I hope you and your families are all well. Now, I know you’re going to want to hear about our first quarter performance, our liquidity position, how integration and sales force execution is progressing and how we see the market right now, and we will get to that.

Before that, I’d like to spend a few minutes updating you on how the current COVID-19 situation is affecting us and how our organization is responded to it. Just over a year, when we launched Univar Solutions as a new company, we intentionally established a purpose-driven, value-based organization that is serious about safety. It’s a place where people matter, where we do what we say. We’re valuable to others. So together, we win. As the COVID-19 pandemic has unfolded, this purpose and these values have been brought to the fore and served us well.

In early March, we activated a focused global, cross-functional response team, tasked with closely monitoring the situation and swiftly implementing the measures needed to keep our people safe, connected to our customers and secure continuity of supply. Thanks to our quick and decisive actions as well as the fantastic cooperation of our teams, we have all our distribution centers right across the world operational. We adjusted our work practices to conform with guidance provided by both WHO and the CDC. This is including everything from different cleaning routines to different site configurations and different shift rotations.

Thankfully, as of this week, we’ve had just 17 of our 10,000 plus colleagues worldwide with confirmed cases of COVID-19, of which 15 have now recovered. Roughly two-thirds of our total workforce is successfully working remotely, and our sales teams have been able to pivot from external to internal sales smoothly with new processes and rhythms developed to ensure we maintain momentum, and our valued infield teams are executing at our warehouses and making deliveries.

On a daily basis, we monitor customer and supplier closures, including partial closures in each region, which in May could represent approximately 10% to 14% of our delivered gross profit. Our strong relationships with suppliers such as Dow, Eastman, ExxonMobil, INEOS and Shell have served us well, and we truly value and thank them for their partnership.

Thanks to depth of that partnership, we’ve been able to keep supplies of essential products like isopropyl alcohol and ethanol flowing in a time of high demand and tight supply, supporting customers old and new, and we work with our partners to facilitate their humanitarian efforts with INEOS, for instance, provide hand sanitizer for the UK National Health Service or here in the US with ExxonMobil to supply the TSA with surface industrial cleaners. Our strong supplier partnerships remain a bedrock for our business and a source of competitive advantage, especially in times like these.

Now, as the stay-at-home orders have been relaxed globally, we’re shifting our attention to return to office planning, as we work to accommodate a new normal. As with our initial response to this crisis, this phase will be well orchestrated and thoughtfully executed, whilst leverage the opportunity to become a leaner, stronger company. For a variety of reasons, short-term customer demand has become trickier to predict. As I said earlier, we could have approximately 10% to 14% of our delivered gross profit impacted by customer and supplier closures or partial closures.

To help give you and our investors some sense of the near-term COVID-19 impact on our business, we combined the 14 end-markets referenced in our 2019 10-K to five macro categories and showed the potential magnitude of impacts on each. Our end markets are showing a complex and diverse range of demand patterns. Not only does this categorization help give you a sense of what we are seeing and how it might impact our business, it helps us plan our resource allocation, investments and cost cutting strategies. In particular, I want to highlight the upper two categories, Consumer Solutions and General Industrial, which represents more than 50% of our sales.

We’re seeing areas of strong demand and what is deemed as products to essential end markets, and with some sectors in food ingredients, water treatment, agriculture, healthcare and sanitization. Both Consumer Solutions as well as the Industrial Specialties markets continue to benefit from opportunities developed by our solution centers around the world, which too remain operational. More challenged markets include personal care. We see the drop in cosmetics, energy and certain General Industrial commodity sectors, but our diverse portfolio and strategic efforts are abating some of the recessionary impacts.

Moving onto our integration process, despite the COVID-19 obstacles, we successfully delivered on several significant integration milestones realizing $17 million of net synergies during the quarter. I’d like to highlight a few of those milestones now. We successfully completed the second wave of our ERP implementation and we’ll continue to successfully service our customers, while optimizing our processes. Our site consolidation plan continued, closing a branch in the quarter, bringing total closures to 13. We finalized the sale of two further sites with cash proceeds of approximately $6 million.

Our US sales force is now on one CRM system, making the selling and management process much more efficient. However, due to extended travel restrictions and an abundance of caution, our planning assumptions on the timeline for the remainder of the SAP roll-outs have changed. Rather than completing in three large waves, we will now shift to sixth smaller, more agile waves, adopting an approach that will include much more remote training and support. This will extend the USA timeline for completion from Q4 2020 to Q2 2021. And our Canada and Mexico roll-outs will move to the second half of 2021.

We expect the overall integration costs remain within the current estimates, as travel savings will offset any additional costs due to the extended timeline. And if air travel becomes widely available in the fall, we plan to increase the scope of the ways to speed up the timeline. This SAP rebalancing has required us to rework our 2020 site closure plans, yet we now expect up to 15 closures in the year at the upper end of our target. We’re in the early stages of realizing the full benefits of optimizing our scale. We remain true to our strategy of having a strong, local presence for our customers.

Now, let me turn the call over to our CFO, Nick. He will walk you through the first quarter results and provide some 2020 quality color, then I will close the comments on our business strategies.

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Thank you, David. Hello and good morning to all on the call. Univar Solutions delivered solid performance in the quarter, slightly ahead of our original Q1 EBITDA guidance. The Nexeo acquisition was an important contributor to the results along with realized net synergies, improving sales force execution and good product and end market performance, benefiting from our diversity.

Reported constant-currency net sales were up 3.6%, and gross profit, exclusive of depreciation, grew 7.3% to $532.6 million or 8.6% on a constant-currency basis. Our gross margin expanded by 110 basis points to 24.1%, driven by the favorable product and end market mix. When adding legacy Nexeo results to last year’s financials and excluding results of Environmental Sciences, we estimate gross profit, exclusive of depreciation, was down 1.6% on a constant-currency basis with the offsets being lower global demand conditions, energy, and price deflation affecting certain product margins.

First quarter adjusted EBITDA of $161.6 million grew 0.9% and was 2.6% on a constant-currency basis. Adjusted EBITDA was favorably impacted by the contribution from Nexeo, realization of net synergies and product mix. This was partially offset by declines in energy, and price deflation affecting certain products, generally in line with the guidance we provided last quarter. On an estimated basis, adding legacy Nexeo to last year’s results and excluding the results of the Environmental Sciences business, adjusted EBITDA was approximately 4% lower on a constant-currency basis.

During the first quarter, as David mentioned, we captured net cost synergies related to the Nexeo integration of $17 million, and we are on track to achieve $120 million annual run rate in early 2022. We did see higher warehouse, selling and administrative costs in the quarter and hence a lower conversion ratio, which I will cover in more detail by segment.

Q1 net income is $55.9 million or $0.33 per share compared to a net loss of $63.9 million or a $0.43 per share loss in the prior-year quarter. The increase in EPS was primarily due to lower acquisition and integration-related expenses, the absence of the saccharin legal settlement, lower employee severance costs and a gain on the fair value adjustment on the warrants in connection with the Nexeo acquisition. These were partially offset by lower tax benefits.

Adjusted earnings per share for the quarter was $0.31 compared to $0.33 in the prior year. This decline in adjusted EPS is attributed to higher depreciation and amortization expense and full-year share count, both due to the Nexeo acquisition and offset partially by lower interest expense. Tax rate changes were not meaningful to adjusted EPS in the quarter. Our primary use of cash in the quarter was working capital, driven by the sequential growth in quarterly sales. Our net cash used by operating activities was better than last year, driven by the higher net income, partially offset by changes in the timing of prepaid expenses. Capital expenditures for the quarter were $24.1 million and integration-related expenses were $17 million.

Our ROIC was 9.8% for the quarter, flat with last year. We expect this figure to improve, as we continue to capture the synergies from integration. As we noted last quarter, management plans to change the adjusted ROIC to include goodwill and intangibles of acquired businesses. This will be finalized in Q2. We ended the quarter at a 3.7 times leverage ratio, down from 3.9 times the previous year.

On Slide 9, we have aggregated the key metrics across our four segments and provided the detail in the appendix. The USA reported results benefiting from an incremental two months of Nexeo, strong demand for products in essential end markets and gross margin management. Although we continue to see volume and price declines in basic industrial markets and energy, consistent with our guidance, overall, the segments delivered gross margin improved 50 basis points, driven by product mix.

During the quarter, we had additional increases in environmental remediation charges, certain expenses in our services businesses and inflation adjustments to salaries made last year in Q2. Although EMEA reported a constant-currency sales decline, the quarterly trend line has been improving versus Q4 2019, benefiting from good demand for products in essential end markets. Delivered gross margins improved by 100 basis points based on mix, while EBITDA was negatively impacted by the anticipated declines in pharmaceutical finished goods and an increase in bad debt reserves.

Canada and LatAm markets continue to perform very well across all metrics with both benefiting from better agricultural markets and end market demand in many sectors. Canada’s sales growth did benefit from Nexeo, but were partially offset by weakness in some end markets. We ended the quarter with cash on hand of $379.7 million and availability of $455.1 million under our asset-based credit facilities for a total liquidity of $834.8 million in excess of our guidance. This is net of our long-term debt pay down of approximately $170 million of proceeds from the Environmental Sciences divestiture and Q1 working capital. We have provided details of our net working capital in the appendix. Overall, we are quite pleased with the quality of our net working capital and it’s improvement as a percentage of quarterly net sales annualized as compared to the same period last year.

We believe our capital structure and liquidity are in good shape and our debt structure remains advantageous with 77% fixed and 23% floating rates, which inclusive of interest rate swaps has an average cost of funds of 3.7%. Our credit ratings remain stable, and we have no significant maturities until 2024 and no concerns with regards to any covenants. We have spent a considerable time modeling various scenarios by quarter, looking at trends by country and markets and customers as well as views from a variety of external sources. Based on this modeling and given the near-term uncertainties, we have immediately implemented over $40 million of cost reductions to partially offset expected profit declines. And we’ve identified further cost reductions should demand conditions deteriorate further.

These are incremental to the $35 million of net synergies we expect to realize from Nexeo integration this year. Some of these incremental cost reductions are elimination of merit increases for salary-based employees, salary position eliminations, temporary furloughs, and reduction in travel and entertainment expenses. Although we can’t control the demand environment, we are closely tracking our costs with a focus on margin and expect to evidence a resilience comparable to prior economic downturns.

We’ve been diligently managing our net working capital and expect it to be within 13% to 14% of annualized net sales by quarter. As I mentioned earlier, in the appendix of the presentation, you will find a reconciliation of net working capital at each quarter-end in 2019 and Q1 of 2020 as a percentage of the quarterly net sales annualized. We consider this to be a more helpful measure rather than on a last 12 month basis.

Our changes in working capital speak to the counter-cyclical nature of our cash flow. We have reduced our capex to a range of $95 million to $115 million from our guidance of $120 million to $130 million, while still increasing our investment in digital projects and IT. Nexeo integration costs are projected to now be $70 million versus the $85 million in our original guidance. Our estimate of integration cost still remains at approximately $225 million, thus leaving us $55 million in 2021. Although our ERP migration has been pushed out slightly the travel and entertainment savings in 2020, roughly offset the costs associated with the extended timeline.

For the year, we also expect to have approximately $60 million to $90 million of use of cash in other operating expenses, changes in our accruals and prepaid expenses of which $30 million have already occurred in Q1. These amounts are exclusive of the timing of our agricultural prepayments. As we previously highlighted, we expect these types of cash flow impacts to be reduced materially beyond 2020, and we continue to target free cash flow expectation in a more normalized operating environment of $325 million to $375 million.

We target liquidity to be in the range of $750 million to $800 million in the second quarter, which is net of a normal seasonal build in agricultural receivables and expect liquidity to increase somewhat by year-end. We also expect to end the year with approximately flat to better net debt as compared to 2019 year end. We continue to look for opportunities to execute on our strategic initiatives and divest non-core businesses in addition to accelerating our property sales from Nexeo. Neither of these are reflected in the figures I just mentioned.

Overall, I’ve been very impressed by how our company has operated in all respects during this challenging period, while still keeping track with our integration and strategic plans. The Nexeo acquisition and integration have been a clear success, which is furthering our ability to grow market share as we focus on creating long-term value for all our stakeholders.

With that, I turn it back to you David.

David C. Jukes — President and Chief Executive Officer

Thank you, Nick. I know there is always interest in how our sales force effectiveness is improving after the changes in investment we’ve made in both people and process. I’m pleased to say the thanks for that investment, our fellas pivoted from external to internal sales seamlessly, and are now operating with the new processes and rhythms that shift requires.

Our US sales force, now on a single CRM, has improved discipline, and our average customer contracts were up 69% from quarter four, with this trend continuing in April. And although we’re still early in the process, this disciplined approach coupled with our ability to serve a digital infrastructure and strong supplier relationships has allowed us to welcome hundreds of new and returning customers in the quarter, defined as customers with no activity in the past 12 months.

Key growth leaders have been established for every region and hard and trend metrics applied and communicated to ensure a consistent and single adoption throughout the business. The metrics focused on pipeline growth, transactional activity, customer retention, margin managements and effective activity levels at a local business level. Even with the obstacles of COVID-19, we’ve maintained momentum and continue to see progress.

Our investment in our digital footprint continues to deliver results, presenting another source of competitive advantage for us. Customers continue to adopt and use our digital solutions, search, select, source and self-serving growing numbers. We now made it easier for them to search our full product portfolio with new language and region options and are adding additional new product content to our website. Our leads and request for quotes on univarsolutions.com continues to grow.

During the first quarter, we expanded our marketing automation to 17 countries, including the US, Canada and countries in EMEA and Latin America. Our ability to quickly deploy meaningful content to our customers, too, is generating results. For new product availability to COVID-19 and re-engaging with customers who haven’t purchased recently, our marketing automation capabilities create value.

As customer behavior changes during these COVID-19 times, we’re expanding our existing successful Chempoint.com model to cover more end markets, particularly in Consumer Solutions and Industrial Specialties. Chempoint.com has long been recognized as a leader in generating business through digital demand, lead execution, data capture and account management for differentiated in specialty chemicals and ingredients. We’re also launched again new no frills retail channel, targeted specifically the solvents market in the US and revolving an old name in the industry. Chemcentral.com will be a public site utilizing search engine marketing for those transactional customers who don’t require a high touch service available through more regular Univar Solutions channels. It will have discrete, simple business rules and will enable an easy to do business channel with standardized packaging, delivery time, credit terms and pricing.

Altogether, our digital foundation and committed sales force strategy is aimed to continue to maximize the effectiveness and scale of our operations as well as make it easier for customers and suppliers to do business with us. We’re confident that we’re investing in the right tools and process automation to stream on the supply chain for chemicals and ingredients through these COVID-19 times, and as markets recover, accelerate our growth.

Before we come to your questions, to summarize, we’ve organizationally responded quickly and decisively to COVID-19. We have all our facilities operating all around the world. We delivered at the upper end of our EBITDA commitments in quarter one. We had $834.8 million of liquidity at March quarter end. We’ve reduced capex for the year by 20%. We’re maintaining firm control of our working capital despite the seasonal buildup [Phonetic] in agriculture and expect to have $750 million to $800 million of liquidity at the end of quarter two.

We maintain momentum on our Nexeo integration program and expect to deliver $35 million in net synergies this year. We’ve executed on a further $40 million of anticipated in-year cost savings, reflecting current and expected softness in demand in certain end markets. We scoped and are committed to executing on further cost reductions as may be required to protect our operating margin. And we’re investing in furthering our digital advantage. We’ve operated in these types of constrained tight markets before, but we believe the diversity of the end markets we service as referenced in Slide 5, our asset-like model and digital advantage helps us fare better than many others. We will remain commercially and operationally agile to adapt to changing demand patterns while the impact of COVID-19 continues to develop and we start returning to the workplace.

Thank you for attention. Please stay healthy and safe. And with that, we’ll open to answer your questions.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from the line of Bob Koort of Goldman Sachs. Your line is open.

Bob Koort — Goldman Sachs — Analyst

Thank you and good morning. Thanks for all the additional data in your slide deck. It’s quite helpful. I had a couple of quick questions, if I may. Trying to reconcile the transportation and logistics costs in light of fuel rates are down about 20% year-to-date. It looks like flat freight rates or maybe down 10% year-to-date, but your delivery and outbound freight was up quite a bit. Can you give us some help on figuring that out?

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Yeah. I don’t want to get into too much detail, Bob. It’s Nick speaking here. But as we look at it, the year-over-year outbound freight clearly reflected the impact of Nexeo in the results. As we’ve analyzed it, the net impact — actually on a ton basis is actually slightly better, and it’s just really a question of mix. So we don’t really view the outbound freight as a material variance. I can certainly follow-up with you with some more detail, but that’s not a big variance for us year-over-year.

Bob Koort — Goldman Sachs — Analyst

The working capital data you provided was helpful. To what extent was 2019 a typical year in terms of the cadence of that seasonality of builds and draws?

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

And Bob, again, obviously, a lot of detail to all of that and we’re glad to have provided you guys information on working capital. Unfortunately 2019 can’t be called typical, because it reflected the timing of the Nexeo acquisition in the middle of Q1 of 2019, and then the Environmental Sciences divestiture in Q4. I believe our guidance to all of you of a 13% to 14% metric of annualized quarterly sales is the right metric to use going forward. And we certainly intend to continue to manage working capital well, which we feel we did it as well in Q1. But last year had those pieces that created some variability, but the 13% to 14% guard rails will work quite well for this year.

Bob Koort — Goldman Sachs — Analyst

And then my last one, David, I wanted to give you a hard time about some granularity on your sales force efforts. I appreciate the touchpoints comment. It seems pretty remarkable, the 70% increase. Is that just because all your sales guys and customers were stuck at home in front of their computers? Can you give us some sense of the type of touchpoints? What might be different? And then what that should ultimately how you measure what the outcome of that increased touchpoint might be?

David C. Jukes — President and Chief Executive Officer

Thank you, Bob. I’d be disappointed if you didn’t give me a hard time on the sales, so I appreciate that. Look, I think we saw us put some programs in place, which we spoke to you in Q4, to get some structure and some discipline into the sales organization, a single sales organization, we launched in 2020. And sequentially, we saw that sales organization performed better and better and better with more and more customer touchpoints. And in that call, we measured the quality of those touchpoints, we measured the quality of the calls by the pipeline and the closes and we’ve seen those increase as well. And we’ve seen the number of returning customers increase also.

Now clearly, as we get into late March and into April, everybody’s captive behind the computer screens, but I’m really proud of the way the teams have been able to maintain momentum and increase the touchpoints, the creation of the podcasts, webinars, the video conferences, all the things that we’ve done to stay engaged with our customers. So that’s continued through April.

Bob Koort — Goldman Sachs — Analyst

Great. Thanks very much.

Operator

Your next question comes from the line of Steve Byrne of Bank of America. Your line is open.

Steve Byrne — Bank of America — Analyst

Yes, thank you. I’d like to continue drilling into the sales force here for a minute. How large is the sales force now versus what was it prior to the Nexeo application? And that sales force is undergoing quite a few changes, a lot of new blood in there, new regions, new products, new specialties, etc. How would you, David, characterize the overall level of productivity of that sales force now versus where you would like it to be?

David C. Jukes — President and Chief Executive Officer

Sure. Thanks for the question, Steve. Good morning. I mean, you’re talking about the US sales force here, because the sales force size really in EMEA has only increased as we expanded our geographical footprint into more markets like Germany and wider into Central and Eastern Europe. And in Canada hasn’t changed dramatically. In the US, as you know, we made the acquisition of Nexeo about a year ago, and we didn’t take any of the sales people out at all. We built in about 20%, 25% spare capacity in the sales organization, which is one of the things that’s driven that increased number of touch points that we’ve seen in the first quarter of this year.

The new blood in that came in — most of that came couple of years ago. It has been through our sales training programs. It might have taken — our sales training programs now online as well. So we can maintain momentum with there — with those. So I think our sales force today is performing pretty well. I mean I would give it a 7 out of 10. It’s going to struggle to ever get a 10 for me. But there is always room we can improve, but I think it’s probably a 7 out of 10. I think that really 2019 was a year for us to stabilize. We talk about that 2020 now is what we optimize and we build and grow from that. So I’m encouraged — really encouraged by the commitment to the quality of our sales organization, of our sales management and their agility to quickly switch to a mostly tele-selling or video conferencing or webinar approach through late March and into April. It’s behind the very, very impressive group.

Steve Byrne — Bank of America — Analyst

And then just a question on the competitive landscape right now. As things have slowed, would you say the — any aggressive pricing that you’ve seen out there from competition in search for more volume and how would you characterize your overall volumes? Are they down because of lower demand? Or are you still losing out to competitors from either suppliers or customers? Or are you beyond that now?

David C. Jukes — President and Chief Executive Officer

Well, as I think I referenced in my prepared remarks, we welcomed back several hundred new and returning customers. So we are winning customers, I think particularly in terms of market tightness, and there has been market tightness in certain products. Then people turn to people like us because of diversity of our supply lines, the diversity of our asset base, means that we have products where many others don’t. And so I think we’ve been able to service customers incredibly well over the last few months. I’m very proud of our frontline teams, what they’ve been doing, keeping — and going, keeping, delivering, making sure our facilities are operational.

And as far as the suppliers are concerned, I don’t think we’ve seen anything different in their behavior. Some great collaboration with our suppliers over the recent months, some really first-class collaborations. So I think at the moment, we have a demand side recession. And there is no point drop in prices to customers that were closed. So I think we’re seeing some normal kind of competitive behavior in the marketplace. I don’t believe that we’re losing out to anybody. I believe we’re gaining again

Steve Byrne — Bank of America — Analyst

Thank you.

Operator

Your next question comes from the line of Laurence Alexander of Jefferies. Please go ahead, your line is open.

Laurence Alexander — Jefferies — Analyst

Good morning. Could you give some extra clarity around or detail around where do you think we are on the bad debt cycle and how you advantage just how it compares to — what data you have in terms of how Univar performs in prior downturns?

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Sure. So we’re very early in the cycle. I mean we manage cash like a hawk. I think we did make comments of an extra provision in Europe with some bad debts. Actually we covered those in April. So we probably — we’re erring on the side of prudence there. I mean it’s clear that when customers are closed temporarily, they’ve got a good excuse not to pay you. So we do manage that incredibly carefully. We manage our credit risk very, very carefully. And we’ve got very experienced teams doing that. And so, cash is the life blood of any business for a distributor. It certainly is for us. And we’re seeing not being out of the ordinary from what we would expect to see in times like these.

Laurence Alexander — Jefferies — Analyst

Yeah. Thank you.

Operator

[Operator Instructions] Your next question comes from the line of Jim Sheehan of SunTrust. Please go ahead, your line is open.

Jim Sheehan — SunTrust — Analyst

Good morning. Thanks for taking my question. Can you comment on what’s happening with price over raw material spreads in the second quarter? How big a headwind will price deflation be for you?

David C. Jukes — President and Chief Executive Officer

Hey, Jim. Look, I mean we serve a very diverse range of markets. So it’s a very diverse answer. We’re seeing some prices in the bulk commodities declining. We’re seeing some prices in the bulk commodities increasing. We manage that spread very carefully. We manage — our product management teams are very good these days. They’ve got great tools to manage price. Margin management has become one of our core strengths. And so there will also be a deflationary effect in some end markets because of reducing oil prices or whatever. Really it’s margin management that we focus on, making sure that we have the appropriate stock in the appropriate location at the appropriate price. I think we do that very well and have demonstrated that in the quarter.

Jim Sheehan — SunTrust — Analyst

And could you also comment on working capital in the first quarter? It seems like with lower product prices and volumes, I might have expected a bigger source of cash there from working capital. Did you do anything like loading up on safety stock? And then also if you could comment on what you expect — how much cash you’d expect to generate from working capital in 2020?

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Yeah, hey Jim, it’s Nick. I’ll take that. There was nothing extraordinary about working capital in Q1 as we said earlier on the call, we’ve highlighted on Page 21 in the earnings presentation some metrics. And we ended up at the low end of those metrics, 13.3% in Q1. And that will vary depending on sales through the next few quarters. To the extent, we have a difficult recessionary environment, you will certainly see the counter-cyclical benefit of that or conversely if you grow, you’ll see some huge. But I would say there was nothing extraordinary from either accounts receivable nor inventory in Q1. And as David said, we are managing that very tightly.

Jim Sheehan — SunTrust — Analyst

Terrific. And can you talk about how your businesses performed in the last recession? And any differences you see in the business today versus the previous recession?

David C. Jukes — President and Chief Executive Officer

Look, I think it’s difficult to compare recessions and how relevant they are. I think that the last big recession was a very different looking recession to this one. However, we said we have managed in these kind of environments before we know how to manage these. And we’d expect to keep our operating margins in the same sort of levels as we did through the last recession.

Jim Sheehan — SunTrust — Analyst

All right. Thank you.

Operator

Your next question comes from the line of Kevin McCarthy of Vertical Research. Your line is open.

Kevin McCarthy — Vertical Research — Analyst

Good morning. On Slide 5, you provided a new and helpful characterization of your end-use market exposures. Just wondering if you could speak to the level of declines that you’ve witnessed in April in the General Industrial category and the Industrial Specialties category? Any quantification there would be helpful as we recast our financial models?

David C. Jukes — President and Chief Executive Officer

Hey, Kevin. Look, it’s difficult for me to comment on, excuse me — difficult for me to comment on quarter that we’re in. I think that overall our April performance in terms of our own modeling came up at the upper end of our expectations. And we’re encouraged to see some of the markets reopen in Europe and see some of the performance after that. We do have a very diverse customer base, a very diverse set of end markets. We were able to re-position our ag business into more — some more added-value products and less kind of crop seasonal base products. That helped the General Industrial business in the first quarter and in Q2, Industrial Specialties, there were some bits in that, which are still going to be challenged. We’ll see what happens in the automotive if the market comes back, but we really got great strengths in Consumer Solutions. I think the parts of food ingredients, and in the household cleaning ranges, and in the sanitization ranges, which have provided some real areas of strength.

Kevin McCarthy — Vertical Research — Analyst

Okay. And then secondly, I wanted to ask about the SAP timeline there. Can you talk about what prompted the move to six smaller waves and the attenuation of the timeline? I guess, it would be the first part. And then, the second part, is that the reason for lower expected cash costs for your synergies in 2020? Or are there other factors that would explain that?

David C. Jukes — President and Chief Executive Officer

So primarily, yes, it is the reason for the lower cash costs. The reason we’ve moved from six big — sorry, three big waves to six smaller waves is simply the — not being able to travel, not being able to have the social distancing that you need to have people, sat next to people to do the training for a large go-live, we’ve had to rethink about how we launch — transfer our systems, the business systems migration. So that’s what we’ve done. We’ve reprioritized some of our efforts on to optimizing the processes in the area. The West Coast, which is already on SAP, which is proving to be very advantageous for us, and will be as we go forward. But really now, we’re looking at how we can do smaller waves, where people — where we’re not so reliant on large numbers of people flying across to various regions to support. We have much more remote support. We have people who can drive to various locations to support. It’s really driven by that. It’s driven by the restrictions of travel because of COVID. As we said earlier on, if those travel restrictions lift in the autumn, then we may be able to accelerate some — at that timeline [Phonetic] a little more, but it’s really all driven by the ability to get people trained properly and supported properly. The last thing I want is a bunch of go-live.

Kevin McCarthy — Vertical Research — Analyst

Thank you so much.

Operator

Your next question comes from the line of David Begleiter of Deutsche Bank. Please go ahead, your line is open.

David Begleiter — Deutsche Bank — Analyst

Thank you. Good morning. David, can you talk about detrimental margins in your USA business, how we should think about those for Q2 and the back half of the year?

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Yeah, David, it’s Nick. I’ll follow up on that. Much like a lot of other points, there is many ups and downs to that number. I mean, generally, we are very pleased with our overall margin performance. Certainly, at the gross margin level, we see continued stability in those numbers. And we’re also managing our costs, as David said, in order to maintain high level of margin resiliency. So the pricing has an impact, volume has an impact, but we’ve got a lot of variable elements to our cost structure to mitigate a significant EBITDA margin impact.

David Begleiter — Deutsche Bank — Analyst

Understood. And at least for April, can you provide a range of what sales declined for the Company in the first — in April?

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Not — this is Nick speaking, David. I would say not specifically, but I would say, at this point, we are pleased with the performance that we’re seeing in Q2, recognizing the unpredictability week to week.

David C. Jukes — President and Chief Executive Officer

I think that’s the key message. I think, we have very — the visibility going forward is very, very short. So as I said a few moments ago, April was in the upper end of our expectations for our internal modeling. We’re very encouraged by what we saw through April, particularly through Europe, which is a few weeks ahead of the US. Visibility in the US right now is very difficult. And as I also mentioned in prepared remarks, we have anything between 10% and 14% of customers closed at the moment, or partially closed. So we need to see what happens when they reopen, and what happens when their customers reopen and demand starts to pick up.

David Begleiter — Deutsche Bank — Analyst

Thank you

Operator

[Operator Instruction] Your next question comes from the line of Duffy Fischer of Barclays. Please go ahead, your line is open.

Duffy Fischer — Barclays — Analyst

Yeah, good morning. Don’t mean to be a curmudgeon, but I mean, this call has been somewhat unhelpful and that you haven’t answered the question that everybody needs to know, which are 45% of the quarter is in. What are volumes done in that 45% of the quarter? I mean, we’re talking down 5% to 10% or down 25% to 30%. We don’t need an exact number. But almost every other company has given volume numbers quarter-to-date. Is that a competitive dynamic issue or why won’t you offer up at least some range of what we’ve seen quarter-to-date so far?

David C. Jukes — President and Chief Executive Officer

Well, Duffy, firstly, we rarely give volume numbers. You know volume is not the most important number for us. It’s gross margin. And what we have said is, April was at the upper end of our expectations. So I think we’ve given you some pointers there for how we’re seeing the quarter so far. We also said the visibility going forward is very murky. We don’t know what the order books going to be like at the end of May. We don’t even know maybe what it is going to be like next week. The order book is very, very short and very limited. But I think we have given a qualitative information there or — yeah, qualitative information there about how we’re seeing things currently.

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Yeah, the only thing Duffy, I would add is, we’ve also, I think, given some fairly clear guidelines around liquidity end of your expectations, and margin resiliency comparable with prior recessionary period. So, I think we’re managing within some pretty tight guardrails.

Duffy Fischer — Barclays — Analyst

Okay. Thank you, guys.

David C. Jukes — President and Chief Executive Officer

Sure.

Operator

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

Laurent Favre — Exane — Analyst

Yes. Good morning all. I’ve got a couple of questions on free cash flow and net debt. Nick, I think you just alluded to the fact that you’ve got it to flat to slightly better net debts, which, I guess, tell us a bit about your internal modeling. So I was wondering, is there anything we should be aware of in that net debt number, for instance, around assumed monetization of excess real estate? Or is this a clean net debt 2019 plus free cash to get to that number that you just alluded to? That’s the first question.

And then, the second one, on working capital. Is there any reason why your net working capital guidance is slightly above the end of 2019 level, when we look at the end of 2020? Is it an assumption that we have the recovery in 2021? Or, again, is there another item that would push the working capital to sales ratio at? Thank you.

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Yes, Laurence. Thank you. Good questions. On the net debt, that excludes any proceeds from asset divestitures, which we are working to obviously get some proceeds from. So that would be more helpful to the guidance that we provided. So once again, the guidance excludes any impact from asset disposals.

In terms of net working capital, we did provide the detail on Page 21. As footnoted, the 2019 number has the revenue of the Environmental Sciences business, which as you know was roughly little over $400 million in 2019. So you can pro rata that to keep it simple, but it did not include the working capital from the Environmental Sciences business.

If you would adjust for that, the year-end working capital number would be closer to 13%. Typically, at year end, we’re at our best number. And you see a slight increase in the metrics. But overall, we are well within the guidelines, and really no concerns in working capital and expect the pattern to be within that 13% to 14% for the year.

Laurent Favre — Exane — Analyst

Thank you.

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Thank you.

Operator

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

Michael McGinn — Wells Fargo — Analyst

Thank you. Good morning everybody. I was wondering — I was going to try to attack this volume question in a different manner. David, I think you mentioned the 10% to 15% of your customers are closed. Is that correct?

David C. Jukes — President and Chief Executive Officer

We said anywhere between 10% to 14% closed or partially closed right now, yeah.

Michael McGinn — Wells Fargo — Analyst

Okay. And then, are there — can we discuss the variations and, I guess, using your industrial type of business, the MiniBulk? Can you help us explain is there — what the order points of products were before COVID, and what they are now for those customers still running?

David C. Jukes — President and Chief Executive Officer

Sorry. I’m not sure I understand your question.

Michael McGinn — Wells Fargo — Analyst

The refresh rate of the MiniBulk product, how delayed is that — how long? What’s the time variance between when you’re refilling that product — in that product at customers’ facilities?

David C. Jukes — President and Chief Executive Officer

Well, I mean MiniBulk is pretty small market, pretty small overall, Mike. So at the moment —

Michael McGinn — Wells Fargo — Analyst

So I guess what I’m trying to understand is what is the level of demand decline for the remaining 80% — 90% of the business that is still up and running — customers that aren’t closed. With any tangible data point, I can get my — we can get our hands on.

David C. Jukes — President and Chief Executive Officer

Yeah. And that’s — look, as we said in the prepared remarks, we have a complex set of diverse markets who are all behaving differently. So if you want to look into water, industrial water is down because industries are closed, recreational water is down, because people aren’t opening swimming pools right now. If you look at sanitization, that’s up because people are cleaning, washing, preparing sites, preparing facilities for growth. If you look at food ingredients anything into domestic or bakery or pre-prepared food, is doing very well right now. Anything into restaurants or into hospitality, is doing pretty badly right now.

So I’m not sure I can give you one simple thing, it’s a bingo board of ups and downs across the whole portfolio. That’s why we are looking at that bingo board and deciding how we reallocate our resources appropriately to make sure that we have the right resources, the right people, the right level of support in the areas, which are growing and strong. And we move away albeit temporarily some of the markets which aren’t.

Michael McGinn — Wells Fargo — Analyst

Got it, okay. Next one. I guess the $40 million plus in opex savings you’re targeting, how close are you or were you to Phase 2, and what kind of guide post are you looking to when you would take that next level of cost out? If you could just give a little color there, that would be great.

David C. Jukes — President and Chief Executive Officer

Sure. So let’s just look at the cost-out that we set for this year. Its $35 million through the Nexeo integration, which is structural cost-out. We are executing on $40 million, just north of $40 million right now, which is partly structural, partly deferred, partly flex cost. And then, we have further cost measures, which we will take as demand dictates. So we’ve done various models in various scenarios, and we know what triggers we would pull, I mean, if we get to various scenarios in the marketplace. But really it’s about scenario planning, because no one really knows what’s going to happen in the rest of Q2 or Q3. So we map our various scenarios, map our responses to it, and we’ll take the appropriate actions at the appropriate time. We’re tracking that on a day-by-day, week-by-week basis.

Michael McGinn — Wells Fargo — Analyst

Okay. Would you say that Phase 2 is geared more towards your consumer markets that are holding in relatively well? Or is this — could it even be — there could be a second leg down in the more industrial-centric markets? And I’ll pass along after that.

David C. Jukes — President and Chief Executive Officer

Look, we are trying to look at each individual market on that bingo board and address our costs appropriately. So something is obvious as energy, which is impacted by — lower transportation will be clearly taking more cost out of that than we would out of sanitization of food ingredients for instance.

Operator

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

David C. Jukes — President and Chief Executive Officer

Yeah, Heather?

Nicholas W. Alexos — Executive Vice President and Chief Financial Officer

Well, before Heather jumps in, one thing we also wanted to add. Nobody asked the question, which is to confirm our view on share count for the year is 171 million, down from the 175 million communicated last. We thought somebody might ask that question, but I’ll answer — I’ll ask it and answer it as well. But, Heather, to you. Thanks everybody.

Heather Kos — Vice President of Investor Relations

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.

Operator

[Operator Closing Remarks]