Kemira Oyj : Q1 2024 Webcast (transcript)

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KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

EVENT DATE/TIME: FEBRUARY 09, 2024 / 8:30AM GMT

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

C O R P O R A T E P A R T I C I P A N T S

Mikko Pohjala Kemira Oyj - Vice President - Investor Relations

Antti Salminen Kemira Oyj - President, CEO, & Chair, Management Board

Petri Castren Kemira Oyj - CFO & Member, Management Board

C O N F E R E N C E C A L L P A R T I C I P A N T S

Robin Santavirta Carnegie Investment Bank AB - Analyst

Tomi Railo DNB Markets - Analyst

Isha Sharma Stifel Europe Bank AG - Analyst

Martin Roediger Kepler Cheuvreux - Analyst

P R E S E N T A T I O N

Mikko Pohjala - Kemira Oyj - Vice President - Investor Relations

Good morning, everyone, and welcome to Kemira's 2023 results webcast. I'm Mikko Pohjala, if you don't know me, from Kemira's IR. And today here with me, I have our Interim President and CEO, Petri Castrén; and our newly appointed President and CEO, Antti Salminen, who will start next week.

During the webcast today, Petri will go through the main events and the financials of the quarter. After that, Antti will say a couple of introductory remarks -- or before that, Antti will say a couple of introductory remarks, and then we will go to your questions. And as before, you can ask your question on the teleconference line or then send your question over the webcast to me.

But with these short introductory remarks, Antti, please go ahead.

Antti Salminen - Kemira Oyj - President, CEO, & Chair, Management Board

Thank you. So really glad to be here. Many of you probably already know me from my 13 years with Kemira. I've been leading, lately, for the last 18 months, the pulp and paper segment; before that, the industry and water; and before that, I lead our global supply chain organization. So I know the company pretty well, and I'm really excited to take on this new responsibility and excited, of course, for the opportunity, but especially for the shape the company is in.

As you have seen from the results, the company is in excellent shape in all regards, the business performance, customer satisfaction, anything that you can look. So really good starting point for me as the new CEO. And we will basically continue executing the sustainably driven growth strategy which has given us these results, continue on that strategy execution. But also, of course, we want to accelerate the execution in order to create more shareholder value.

So this day here and these results, I'm happy to hand over to Petri to present them, who, I'm sure, is very proud and glad about his excellent performance during the past seven months as the Interim CEO. And I have to thank him for the really excellent work he has done. It is a challenging example to follow.

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

Petri Castren - Kemira Oyj - CFO & Member, Management Board

Well, thank you, Antti. And, obviously, good morning to everyone. Also, of course, I want to take the opportunity in this forum also to congratulate Antti for his CEO role. And I can, with full comfort, finish my CEO position or Interim CEO position knowing that Kemira will be in excellent hands going forward with Harri on the helm -- with Antti on the helm.

There was a little bit of a slip of tongue because we also appointed a successor, interim successor, for Antti as the head of -- president in pulp segment as of today or as of Monday. Harri is also very experienced and he has been leading our pulp and paper EMEA, our commercial area, which is the largest commercial area, a number of years and very successfully, I must say. Again, what the numbers that you will see or you have already seen this today indicate Harri will be a great addition to our leadership team going forward on an interim basis.

As Antti said, Kemira is in excellent shape. We had record profitability for the year, with excellent, strong Q4 to finish the year. The market is challenging, in doubt. But this performance, again, I think it demonstrates the resilience and how Kemira business model works in different environments.

So our business model works well when there is a upcycle and volumes are going up. And it has proven now again that it works well when there is a, perhaps, down cycle in the business. Our business fundamentals are strong. Also, our balance sheet is the strongest that it ever has been and, again, forms of great basis to accelerate our growth strategy.

But as Antti just said, the year is not only about financial performance. Underlying factors that has helped achieve this, obviously, include highest-ever, for us, customer satisfaction survey results. Also, our employee engagement results are improving. And obviously, thanks of this good result goes to our whole employee base.

Importantly, now that the oil and gas divestment has closed in early February, we are entering a new year, a new phase, with a focused portfolio. I'll continue with that business portfolio theme.

Oil and gas divestment, as I said, closed a week ago, last Friday, February 2. And now, with this more focused portfolio, our business will be even less cyclical and seasonal. Adjusted for the oil and gas divestment, our margin structure and capital efficiency will also improve. As you can see, we separately disclosed or reported pro forma or alternative performance measures adjusted for the oil and gas divestment.

EBITDA -- for example, EBITDA for the group as well as the operative [ROCE] for the group improve roughly 1 percentage points or almost 1 full percentage point. Divestment proceeds will, of course, also strengthen further our balance sheet and improve our capabilities regarding future M&A.

This also clarifies our sustainability-driven strategy, which is focused on growing our business in water treatment, in leading renewable solutions, and related digital services. Deal terms are, as already announced in December, total consideration around $280 million, or roughly -- or approximately EUR260 million.

Three manufacturing facilities in the US were transferred to the buyer, Sterling Chemicals, as well as novel liquid polymer assets in our site in Netherlands. There's a one site in the UK that's the smallest site in the scope that has some site-specific closing conditions, and that site will be transferred once those site-specific closing conditions are filled.

Talking about customer satisfaction. So our NPS score, which has already been in a very good level, increased to 57, which again is an all-time high as long as Kemira has been recording this. Why does this matter? Of course, we wouldn't be able to get these types of financial results without satisfactory customers and also engaged employees.

We pride ourselves of being a customer-focused company. And this, for example, shows the benefit to our customers with our focus on supply certainty, which has particularly been very valuable for our customers. And they have commented on this particularly during the more difficult times.

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

Engaged and energized employees accomplish big things. And big things, of course, of this successful year go to our employees. Employee engagement increased this year again. It is now six points above the industry benchmark.

Moving to the financial highlights. So reported revenue declined 13% in Q4 and 2% for the year. The big decline on quarterly comparison is against a very tough comparison. And if you remember a year ago, we were talking about caustic prices.

Caustic price was extremely at a high level. And also, energy costs were high. And that -- now I can say -- inflated, in a way, the energy-intensive bleaching chemical prices and sales in that way. And the normalization of those prices really took place only after Q1. So in that sense, we will have one more tough comparison quarter ahead of us.

But what is really noteworthy about volume development is that we actually increased volumes in Q4 over Q3. So we are seeing a sequential volume increase against a seasonal pattern of decreasing revenues in Q4. And obviously, this was driven by our pulp and paper segment; very good performance there. I'll have a bit more detail about them coming up.

Profitability for the quarter and year at very good level, all-time highs for both segments for the year. Cash flow, very strong, resulting in further deleveraging, as mentioned. EPS, of course, was impacted primarily negatively because of the oil and gas divestment and the related -- my phone is ringing -- and the related loss from that, but still was EUR1.28 per share. And the Board is proposing to increase the dividend by EUR0.06 to EUR0.68 per share.

Talking about pulp and paper, which had an excellent quarter. The market continues to be challenging, and of course, our customers have even have quite recently talked about that. They've also talked about a modest -- expectations of a modest recovery going into this year, '24. So the market really hit the bottom in Q2, and we've seen modest increase since then.

Looking at the comparison, tough comparison, from a year ago. So organic growth for the segment was minus 21%, which is a huge number on itself. But over half of that was the decline of caustic price and the electricity impact in Finland alone.

If you look at the rest of the parts of the bridge, year-on-year volume decline was much more about 4% in Q4. Price is about 5%, excluding the caustic and the bleaching chemicals that I was just referring to. And again, important is the volume increase that we saw during Q4 roughly in the high single digits from Q3 to Q4. So in this marketplace, a very good achievement of volume increase.

Here, we probably had a faster or bigger volume growth compared to the market, and it was helped by a couple of things. One is we obviously have one big customer ramping up. It's a pulp mill seen in South America. And that, of course, helps us both year on year as well as sequentially.

And secondly, we were able to use the excess capacity that we now have in our chlorate manufacturing plants in Nordics, particularly in Finland, and ship that to the spot market in Asia. And that has helped also the performance in APAC.

APAC is a clear highlight for the segment. So the year-on-year EBIT improvement for pulp and paper, APAC, is more than EUR10 million, which starts to be a significant number. And they've been picking up the pace throughout the year, but really stepped up to the improvement in Q4, so good performance there. So as we and our customers expect some moderate market improvement going into '24, we feel that this segment is in very good shape, very strong position, going into the new year.

Overall, fantastic performance for I&W for the year, over EUR110 million EBIT improvement year on year. So this year has actually demonstrated -- or has demonstrated the beauty of this business, and growing our water treatment business is one of the key cornerstones of our strategy going forward.

Regarding the performance in market, municipal water treatment market, very solid and resilient. Some softness in the industrial demand. Volumes, thus, are relatively flat year on year, with oil and gas having some volume growth and offset by industrial weakness. And some of this weakness came from the mining business that we have contrast to almost anything else that we have in the I&W, which is contracted business in water treatment.

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

The mining business is more or less a spot type and less predictable. And therefore, the deliveries and the volumes, a very fair amount by quarter. So nothing to worry about there. I think the organic growth rate, about minus 2%, that's a reflection of price pressure or price decline in the segment in the year. So again, fairly modest price decline in the year.

Finally, while oil and gas has shown good growth and improved profitability, it has continued to dilute our margins. And the dilution level, again, as you can see from the separately published numbers, adjusted for the divestment, almost 3 percentage points, so fairly significant dilution.

Moving to sustainability. So we have set ourselves challenging sustainability goals in line with our strategy and in line with our long-term commitments. On safety, we had a modest, but clearly below-target improvement, in our safety record.

Regarding our diversity target, we made excellent progress, as we are now among the top quartile of companies in the cross-industry survey as -- this a measurement that is focusing on diversity, equity, and inclusion. Our long-term goal and towards which we are driving the company and our people practices is to be among top 10% of companies in this same index in survey.

Freshwater intensity improved. On circularity, we are making progress even if the reported bio-based revenue declined due to the pulp and paper market conditions and related price declines. But we continue to be firmly committed to the EUR500 million target by 2030.

Finally, we reduced our Scope 1 and 2 emissions, in line with our SBTi commitment. We introduced this strategic priorities slide in Q3, and -- I wanted to bring this up again because this has been a very good and simple way of illustrating what are our strategic priorities, whether we are communicated internally or externally.

Regarding these priorities, we announced in December that we are forming a joint venture with IFF. The intention is to build a market entry unit here in Finland, for the alpha glucan product,. And this is now a fully bio-based product where we did this. And we will be going to the market once that plant is up and running maybe a couple of years is still manufacturing time.

In general, we are seeing strong demand and strong interest in general for renewable solutions. A great example is our biomass balanced water treatment polymers, where we saw strong revenue growth in '23.

For water business, we want to grow both organically and inorganically. Now we have the capacity to execute M&A. And depending on availability of suitable targets, we may need to patiently wait or we may need to actively execute on these opportunities.

In the meantime, we obviously continue our organic investments and growth investments where it makes sense. And again, example in case is the ongoing coagulant investment that we have in the UK.

Moving now a little bit to my CFO role and touching on some of these numbers a bit more deeply. 16% reported decline was 2% volume, 11% price, 2% currency, and 2% was the impact from others. And this is primarily from the colorants divestment that we did earlier last year. Again, price decline dominated by the high caustic price and the electricity impact during the comparison period. Excluding this, the net price impact was a much more modest decline, approximately 3%.

Regarding the volume development, I already talked about this during the quarter. The 2% year-on-year decline is clearly the lowest quarterly decline that we have had during the year. So if you look at our quarterly reports, where we have, in the bridge, breaking out volume decline, we are now reporting the lowest quarterly volume decline. And again, more importantly, I think we are now seeing sequential growth against a seasonal pattern.

Variable cost show, again, a big positive caused by the reduced energy and caustic prices. But overall, we saw a decline in our raw material basket, particularly during the second half of the year. This is basically summarizing the four quarterly reports that you have you have seen over the year and, basically, how we are achieving more than EUR100 million of profit improvement.

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

And here, you see that we have had a very successful pricing and sourcing management. This is the core competence that we have been able to develop and hone our skills during the shock periods when we saw raw material cost quickly accelerating and then coming down, primarily driven by the energy but in some other areas as well. And this skill is really important going forward as well.

This picture actually on the left shows the shock. It's an unprecedented raw material price shock in recent -- that we have seen in recent years. And now that we are looking -- and I hope that I don't regret these words. But the raw material environment looks much more stable and much more predictable than it has anytime in the last three to four years.

Therefore, going into '24, we expect that our raw material basket will be roughly flat. There are some alarm signals, and we always have to be mindful of those. One of those alarm signals, for example, is either [cargo] rates, which have gone up now that the -- because of the Middle East tension, particularly impacting China, Europe growths.

Finally -- or not finally, but going through the items impacting comparability. So the big loss was from the divestment. This was already announced earlier, and we report EUR97 million in Q4. And this reflects the difference between purchase price and the transferring assets plus a goodwill write-off.

We are also booking an additional EUR12 million provision related to a single asset power company in Finland. This asset is currently underutilized, and the provision covers a responsibility for the fixed costs for future years until we will expect that utilization will improve.

Quickly on balance sheet. It is now strongest than we've ever been: net debt at EUR535 million and leverage ratio, 0.8. Capital efficiency continues to improve and operative return on capital employed exceeded 21% for the year. And going forward, we will be increasingly focusing on our capital efficiency. And the Board has actually set for the management long-term incentive plans, operative ROC, return on capital employed as the key financial metric of how the long-term incentive payout will be determined.

And that was first time a year ago. And this year, actually, the targets were even increased. No matter how one looks, cash flow was very strong: operative cash flow, EUR546 million; free cash flow after investing activities, almost EUR350 million; cash conversion over 50%.

CapEx, excluding M&A, EUR205 million for the year, modest increase over the previous years. Largest ongoing projects are the ASA sizing capacity increase in China and the coagulant expansion in the UK that I already mentioned. This year, '24, we expect a slight increase in CapEx as we include renewable solutions projects in our CapEx plan for '24.

Our dividend policy is to pay a competitive and, over time, increasing dividend. Following our excellent financial result, the Board is proposing a dividend of EUR0.68 cents per share for the AGM. And this is a $0.06 increase from last year. And again, consistent with our past practice from previous years or last few years, the dividend will be paid in two installments, the first one in April and second one in November.

Finally, to the outlook. Let's first touch on the parts -- the assumption part of the outlook. First, we expect that our end markets continue to improve at moderate pace and grow slightly in '24, namely recovery in pulp and paper markets. Water treatment, we expect to be steady. Input costs, we expect to be rather steady, of course, rather steady. Of course, variance between some raw material groups.

With the stated assumptions, we expect that revenue will be between 2.9 -- EUR2.7 billion and EUR3.2 billion. Operative EBITDA, we expect to be between EUR480 million and EUR580 million. Importantly, the outlook is now without oil and gas business as of last Friday, and we have published this additional performance measures for the group and at segment level that may help you in the analysis.

With that, let's turn to the Q&A session.

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

Q U E S T I O N S A N D A N S W E R S

Mikko Pohjala - Kemira Oyj - Vice President - Investor Relations

(Event Instructions) Do know that this question session is more focused then on the full-year results, not on the new CEO's next steps. So we'll let Antti start first. But with that, I think we go to the teleconference line first.

Operator

(Operator Instructions) Robin Santavirta, Carnegie.

Robin Santavirta - Carnegie Investment Bank AB - Analyst

Yes. Good morning and thanks for taking my questions. First, I have a question related to the pulp and paper strong performance in Q4, especially when it comes to the margin. The margin performance was quite significantly better than not only the past few quarters. But if we go a couple of years back, it's clearly higher.

What are the key reasons for this improvement compared to a couple of years back? It is -- what I'm striving to understand is that -- is this mainly driven by lower variable cost or are there also operational or other elements that support the margin improvement?

Petri Castren - Kemira Oyj - CFO & Member, Management Board

First of all, this is operational performance. So there are no exceptional items that would be explaining the good result. And I was referring to that commercial excellence and the sourcing excellence and the pricing excellence that we have honed during these times. So obviously, that is being demonstrated.

And the business model is such that we can. And of course, now, we were able to get some volume growth over Q4 -- I'm sorry, over Q3, consequent volume growth. So that, of course, helped. So Robin, it's just good management.

Robin Santavirta - Carnegie Investment Bank AB - Analyst

I understand. I understand that. Good to see. Can I ask you on pulp and paper volumes going into '24? We have seen your customer had exceptionally tough year in 2023. And that, of course, is also visible to some extent in your volumes, [although] the improvement in Q4.

But now, we go into 2024. We hear some of your customers more or less optimistic about the recovery. Could we see volumes, year on year, grow already early in the year? Or should we expect that to happen later on in the year?

Petri Castren - Kemira Oyj - CFO & Member, Management Board

Well, as you see from our assumptions, we are saying that we expect the volumes to grow year on year for the full year. Now when we made that statement, that did not take into account a quarterly comparison. And you remember last year, Q1 was still quite strong, and then the market collapsed or crashed, very strong decline in Q2.

So I'll pass on that question. And I think it would be a bit careful to give that type of a quarterly guidance anyways. But for the year, we're confident that the volumes will grow.

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

Robin Santavirta - Carnegie Investment Bank AB - Analyst

I understand. Thanks. And the final question I have is related to the somewhat declined energy prices in Europe. And you have had a quite nice setup with good self-sufficiency of energy in energy-intensive chemicals in your production.

Now, we can see energy prices declining to some extent the [year up]. Do you worry that this might put some pressure pricing of energy-intensive chemicals and, in a way, your competitive advantage not being as strong? Or are there other levers that makes this unimportant?

Petri Castren - Kemira Oyj - CFO & Member, Management Board

Well, Robin, if you look a bit in the past and you look at, let's say, Q4 of '22 and Q1 of '23 when energy costs were really high, then of course, we had a huge benefit from our energy costs. Some people were calling it a tailwind for us. So we're not counting on that.

But our energy sourcing is very beneficial in any days, which has proven that we are actually producing, here in Finland, very energy-intensive sodium chlorate and drying it and shipping it to APAC and making a nice profit with that. And so, no, we're not worried about the energy prices and such. We have a -- we are good positioned, as demonstrated by the profitability and the fact that we can ship to APAC.

Yes, we may not see the same type of profit margin from caustic that we saw a year ago. And that's, of course, reflected in our in our guidance or outlook for the year.

Robin Santavirta - Carnegie Investment Bank AB - Analyst

I understand. Thank you very much.

Mikko Pohjala - Kemira Oyj - Vice President - Investor Relations

And then in between, I'll ask you one question from the webcast also. This is from Petri Gostowski from Inderes. What is the target level of the operative ROCE for management incentives you mentioned, if you can give some color?

Petri Castren - Kemira Oyj - CFO & Member, Management Board

I think it will -- that hasn't been, but it's in the -- the target level is in the high teens. To be honest with you, I don't even remember what it is. But it's clearly in the very high teens.

Mikko Pohjala - Kemira Oyj - Vice President - Investor Relations

Good. And then we go back to the teleconference line.

Operator

Tomi Railo, DNB.

Tomi Railo - DNB Markets - Analyst

Hello, good morning. It's Tomi from DNB. A couple of questions. Firstly, maybe on the pricing assumptions for the current year. Volumes guided slightly up (technical difficulty) based on your comparison, '23, and the guidance suggesting a 0.2% growth. Is that suggesting that you expect rather stable pricing for the year? And maybe to add some color, what kind of discussions have you had with the customers?

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

Petri Castren - Kemira Oyj - CFO & Member, Management Board

Well, if you look at their assumptions -- and granted we didn't give all the assumptions for P&L in it. But we expect volumes to grow. We expect variable cost to be rather flat. But still, like you were talking about midpoint, it is below where we were this year. So there is some leeway for impact for fixed costs, but also perhaps some modest price declines due to the market.

But again, we expect that -- we have been proven that we've been able to hold onto our prices quite well, with a roughly 3% price decline during this year when raw materials have been on the decline. And so modest price decline may be in the cards still next year as well. But again, we maintain -- we expect to maintain very good profitability.

Tomi Railo - DNB Markets - Analyst

Maybe as a follow-up to the earnings, at the high end, [EUR60 million], declined to almost flat and low end, over [EUR100 million] decline. Can you just that maybe talk about the assumptions, what would need to happen to keep almost flat profits compared to comparable last year and vice versa. What is the worst-case scenario (inaudible)

Petri Castren - Kemira Oyj - CFO & Member, Management Board

If you look at the last few years, the years have been quite difficult to estimate at the beginning of the year. So we've seen huge volatility in raw material prices and also quite significant -- quite large volume declines and market disruption particularly in pulp and paper. And by the way this impacted pulp and paper EMEA the most.

I think we've giving enough assumptions. I think it would have to be these types of shocks that would move this towards the -- particularly to the low end. Because as you have seen in the past, it always takes a couple quarters for us to react through P&L -- before the reaction is visible in P&L, let me rather put it this way, if there was, for example, a sudden increase in variable costs. So it reflects those type of scenarios, which -- we are still in quite an uncertain macroeconomic environment.

Tomi Railo - DNB Markets - Analyst

And a third one, the caustic soda price assumption, you don't really mention in the report. Can you just maybe (technical difficulty) that as well for '24?

Petri Castren - Kemira Oyj - CFO & Member, Management Board

Pretty flat development regarding where we are today. But of course, it was so high during the comparison period. That's why we took it up separately in the report.

Tomi Railo - DNB Markets - Analyst

Okay. Thank you very much.

Mikko Pohjala - Kemira Oyj - Vice President - Investor Relations

Maybe here in between, I'll ask a question from the webcast to Petri. This is from Andrea [Puccini]. With regard to the inorganic growth, what kind of M&A budget should we expect from Kemira in the coming years?

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FEBRUARY 09, 2024 / 8:30AM, KEMIRA.HE - Q4 2023 Kemira Oyj Earnings Call

Petri Castren - Kemira Oyj - CFO & Member, Management Board

I hate the term budget. Because budget, it means that you have to use it or you lose it, at least in some instances. So let's not talk about M&A budget, but let's talk about M&A capacity.

And with this type of balance sheet that we have and this type of liquidity that we have, we've seen simulations where we can add on [EUR1 billion] of debt and maintain our implicit investment-grade rating, possibly even more. So I think that's a ballpark of the number of what type of capacity we would have.

And I think maintaining our investment-grade rating or maintaining just the credit profile of an investment-grade rated companies is significant going forward. So that's a ballpark. But again, it doesn't mean that we are looking for EUR1 billion acquisitions [this early].

Operator

Isha Sharma, Stifel Europe.

Isha Sharma - Stifel Europe Bank AG - Analyst

Hi, good morning. I have two questions left, please. Could you talk a little bit about what you see in industry in water? You have mentioned that, in the outlook, you expect the business to be stable. So should we expect [low] volume growth for 2024 or is there some areas where we can expect some improvement? Because I think that the industrial business is the one that is, right now, suffering and if you see any development there.

And also on the margin side of things -- so if you think about the spreads, they have normalized a little bit. In the past, we had given the raw material volatility that you have seen over the last four or five years. It's difficult to imagine where we settle now. But is it fair to say that we are still at an inflated level and that any price declines from here are probably being too pessimistic?

Petri Castren - Kemira Oyj - CFO & Member, Management Board

I forgot the first part of --

Mikko Pohjala - Kemira Oyj - Vice President - Investor Relations

Volume outlook.

Petri Castren - Kemira Oyj - CFO & Member, Management Board

Volume outlook. Well, we've been talking about the municipal water business, which is about two-thirds of our water treatment business tends to be -- is resilient and we have a -- and stable. So for that part, we don't expect -- we expect that to be stable. The industrial part, I think there, we have opportunities to regain back some of the volume that we have lost.

And I think the other part was about pricing and margins. Isha, I don't like the term inflated margins, so I would never underwrite that we have inflated margins. We've been able to really perform well, both on our commercial and sourcing side, and we've been able to improve our margins.

And particularly on the municipal side, as we've talked about, we have primarily annual contracts. So there, we not only can predict the volumes throughout the well because the consumption of wastewater where this primarily goes is pretty predictable. But our prices, they are typically agreed for one-year durations and the portfolio of our customers rolls over pretty evenly.

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