Avient Corp Q4 FY2020 Earnings Call

Ladies and gentlemen, thank you for standing by. And welcome to the Fourth Quarter 2020 Avient Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. Operator instructions: Please be advised that today’s conference is being recorded. Operator instructions: I would like to hand the conference over to one of your speakers today, Mr. Joe Di Salvo, VP, Treasurer and Investor Relations. Sir, please go ahead.

Thank you, Michelle, and good morning. And welcome to our fourth quarter 2020 earnings call. Before beginning, we’d like to remind you that statements made during this webcast may be considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They’re based on management’s expectations and involve a number of business risks and uncertainties, any of which could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. Please refer to the investor presentation for the webcast posted on the Avient website for a number of factors that could cause actual results to differ. During today’s discussion, the company will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Avient website, where the company describes the non-GAAP financial measures and provides a reconciliation for historical non-GAAP financial measures to the most directly comparable GAAP financial measures. In addition, unless otherwise stated comparisons to prior year will be pro forma for the Clariant Masterbatch acquisition, as if the business had been together during all periods referenced. Joining me today is our Chairman, President and Chief Executive Officer, Bob Patterson; and Senior Vice President and Chief Financial Officer, Jamie Beggs. Now I will turn the call over to Bob.

Well, thanks, Joe, and good morning, everyone. I’d like to start this morning in the same way we have the last few quarters with an acknowledgement and words of support for those who have been impacted by the COVID pandemic. The rollout of a vaccine brings new hope, yet this pandemic is not over and we remain mindful of the many ways it is impacting people around the world. Our heartfelt appreciation goes out to the countless frontline workers and first responders, as they continue to play such an important role in the response. Looking back on 2020, it was certainly a year like no other and I’m extremely pleased with how we finished delivering record fourth quarter results. The demand we reported in December surpassed our expectations as every segment and region grew over the prior year. Fourth quarter sales increased 8% to just shy of $1 billion, which is a record for Avient. Demand for applications in consumer and healthcare applications strengthened considerably. From a bottom-line perspective, this growth coupled with Clariant synergy capture, increased our EPS to $0.52 on an adjusted basis. That’s better than we expected back in December and 73% higher than the prior year. As I said, each of our three segments delivered strong revenue and operating income growth for the quarter, with SEM leading the way. EM had its highest ever quarterly operating income expanding that measure by 58%, driven by demand for our composite technologies and in the outdoor high performance space. Color, Additives and Inks also achieved record operating income growing 45%. The Color segment certainly benefited from early synergy capture and the reopening of the economy. But also contributing was increased demand for consumer applications, as well as gains in healthcare and sustainable solutions for food and beverage packaging. And lastly, our Distribution segment had a strong finish to the year with demand improving in consumer and healthcare applications. So it truly was an outstanding performance to finish a very challenging, yet important year. Certainly everyone will remember 2020 for the pandemic and how it affected so many people around the world. For our associates and our stakeholders it will also be remembered as a pivotal year, one of new beginnings, resiliency and a validation of our workplace culture. In July, we completed the transformational acquisition of the Clariant Masterbatch business and we became Avient. We chose our new name to inspire our associates and to go-to-market with a brand that better represents who we are today, not who we were 20 years ago. But more importantly, this new name and new brand sent a message that this was not an acquisition of Clariant Masterbatch by PolyOne. Rather, this was an opportunity to bring two world leaders together and create something better and we are better together. And I’m also so pleased with the previous investments that we have made in composites, which helped EM to deliver the results they did for the year. In total, we navigated a global pandemic to deliver 11% adjusted EPS growth for 2020. We generated the highest level of free cash flow in the company’s history, ultimately deleveraging a balance sheet from 3.5 times to 2.7 times net debt-to-EBITDA and all within six months of closing the Masterbatch acquisition, which is a year and a half ahead of schedule. It was a galvanizing year for us. We took care of each other and our customers. I say this all the time, but really mean that culture is everything. We’ve built a great one here at Avient and this was evidenced by our certification as a great place to work based on employee survey scores of all our associates around the world. The Clariant Masterbatch acquisition has certainly got a lot of attention this year as it should. It’s transformed our portfolio, particularly our presence in high growth and less cyclical end markets. As the chart shows nearly 60% of the company’s sales now come from healthcare, packaging and consumer end markets. When we think back to March of last year, as the world was bracing for a significant economic downturn, there were those who questioned how well the Masterbatch business would perform through such a period. And now we know and the 2020 performance demonstrates the quality of the business we acquired and we are only scratching the surface of its ultimate potential. We talk a lot about the cost synergies and we’re ahead of schedule in that regard, projecting $35 million in 2021 and in total $75 million. But what we’re really excited about is what the business brings longer term, such as complementary technologies in high growth end markets, the joint innovation power of our combined assets and collaboration, a unified focus on the next-generation of sustainable solutions and a broader opportunity to cross-sell among all Avient businesses and this positions us uniquely with our customers. Next, for the last several years, we have been investing in high growth end markets with a focus on what I just said, sustainable solutions and these new technologies. And I believe it’s clearly paying off with better mix and we have seen substantial margin expansion this year as a result. This is a big deal for investors who followed us in our early years; margin expansion was a hallmark of our success and it will be again. Previously, I mentioned our investment in composites and in the outdoor high performance industry. We view this technology and this space as the next frontier of metal replacement, whose performance and application can achieve superior benefits of being lightweight without sacrificing strength. We started investing in this platform a number of years ago and it really was a core part of our long-term investor growth strategy. And as you know, we also dedicated commercial resources in a big way to a number of end markets, but specifically the outdoor industry. And over the last two years, we have seen demand increase substantially as we expected. Our portfolio of composites has grown and our composites team continues to build momentum. It’s exciting. I tell you it’s a driving new force behind the future growth and investment that we expect to see for this segment and the company. Free cash flow and capital allocation have been strengths for Avient for over the last decade. With the cash we generated this year, we were able to reduce our net debt-to-EBITDA, as I previously mentioned, confidently increase our dividend for the 10th consecutive year and opportunistically buy back 1.3 million shares at an average price of $17.89. Behind all that we do is a robust and vibrant culture. In the fall of this last year, we conducted our employee engagement survey, inclusive of our newest associates from Clariant Masterbatch, so this is 8,400 employees across 45 countries. And the survey results speak volumes about how well the integration is going, but more importantly, about who we are becoming as Avient. I’m extremely proud that we were certified again as a Great Place to Work. We have a culture that prioritizes our employees’ safety, health and welfare, diversity and inclusion, values excellence and execution, and has a deep passion for helping our customers overcome their sustainability and material challenges. As you can see, we have accomplished a lot in 2020 and we also have great momentum to start 2021. We’re excited to share our outlook for the upcoming year, which Jamie will do now.

Thank you, Bob. As 2021 is already in full swing, we would like to provide some context and outlook for the upcoming year. We clearly finished 2020 with impressive results and we are continuing to see robust demand in the first quarter of 2021. Yet, like everyone, we remain mindful that the Coronavirus pandemic continues and with that comes potential volatility as we make our way through the year. Things that we can’t control include the integration with Clariant. I continue to be amazed that the energy and excitement that is being generated from the combined organizations and couldn’t be more proud of how we’ve come together as a team. As for integration in the coming year, we expect to realize $35 million of synergies in 2021, which is an incremental $30 million over 2020. The synergies will primarily be driven by harmonization of raw material pricing and integration of administrative functions. For the first quarter, we expect total company sales to increase approximately 10%. Specifically, we expect the healthcare and consumer end markets to lead the way with strong double-digit growth. Healthcare sales will be driven by new business gains and applications such as glucose monitoring devices, antigen test kits and specialized medical tubing. We also see recovering demand for applications used in elective procedures. Consumer sales will benefit from continued underlying demand for composite technologies used in outdoor high performance applications such as snowmobiles and ATVs. Packaging is also expected to provide mid-to-high single-digit growth, led by demand for sustainable solutions for food and beverage packaging. An example includes performance additives that facilitate the use of recycled PET. Lastly, certain end markets such as transportation should also provide growth, benefiting from the economic recovery as automakers ramp up production. The bottom-line impact of all of this is that we expect to grow adjusted EPS approximately 32%. For the full year, we expect total company sales to increase 8% year-over-year, we expect all end markets to grow with the more cyclical markets such as transportation, industrial and construction to approach 2019 levels. This assumes the continued recovery through the second quarter and normalizing seasonality in the fourth quarter of 2021, which is why we project the first quarter sales to be up 10% and the full year to be up 8%. For more details on our growth assumptions, we have provided a bridge from 2020 to 2021. We’ve laid out four growth drivers of our business that we’ve talked about in all our recent investor meetings and communicated through our investor materials. As you would expect, we have line of sight to grow double digits in sustainable solutions, healthcare and composite applications. We have innovative product launches in 2021 that will capture new business. We see evolving COVID applications that help in vaccine distribution. Elective procedures and healthcare are also starting to recover. In addition, we see increased demand for our sustainable solutions used in food and beverage packaging, as well as lightweighting materials used in the transportation space. Lastly, we expect another robust year for outdoor high performance applications. Of course, underlying growth and GDP will also be a good guide for all of us. As we discussed, our 2020 performance benefited from certain COVID response applications such as N95 mask, as well as certain outdoor high performance applications, which may not repeat this year. This may prove to be conservative, but if they don’t repeat, we estimate these two items to be approximately $40 million. Foreign currencies are expected to add approximately $85 million or 2% of sales based on current exchange rates. Looking at how this flows through to operating income, you can see the positive impact from our core growth drivers, which is huge, as well as the bottom-line contribution from Clariant synergy capture. We do expect some higher costs this year due to higher incentives, normal merit increases and potentially higher travel costs. Generating free cash flow this year will be another year of high cash generation. We do have some investments in working capital to support the sales growth, as well as restructuring activities to capture synergies associated with Clariant. From a leverage perspective, we expect to finish the year at 2.1 net debt-to-EBITDA. We want to put our capital to work, which includes pursuing strategic M&A, with a focus on specialty engineering materials, particularly in composite technologies. I’ll turn the call back over to Bob now for some concluding comments.

Thanks, Jamie. Before we take questions, I wanted to share a couple other slides that I’m sure most if not all of you have seen from our previous investor presentations and I’ll start with this. Avient is a new company. How, where and why we win is important for our investors to understand. Because we have a unique position and play a critical role in product development for our customers. We provide over 21,000 customers formulated solutions, not commodities. We do this fast, we do this often and we do it all over the world with over 100 production and distribution facilities. We are where our customers need us. When we win we create value for you and all our stakeholders. We covered each of these levers at various points throughout today’s webcast. But in summary, here are the key reasons why we are creating value now and why we’re set up well to continue to do so far into the future. Our growth projections for 2021 reflect a strong start to the year and are appropriately conservative. While we are benefiting from a combination of new business gains and early signs of economic recovery, the full year impact of when and how vaccine rollout will take place is still to be determined. Regardless, we expect improving mix from continued strong demand for our sustainable solutions, healthcare and composites, as Jamie said, and this along with synergy capture will drive 24% adjusted EPS growth. This translates to EBITDA of $510 million, which will be by far the highest in the company’s history and with significant upside in years to come for all the reasons we’ve covered today. In doing this we will reduce our net leverage to 2.1 times and have the balance sheet flexibility to invest in future innovation and M&A this year. As a CEO of this company telling our story and articulating our value is one of the many responsibilities that I have. You may recall that I spoke on our third quarter investor call about this. We’ve since included details and peer comparisons in our investor deck and we’ve repeated them here. I don’t plan to go through them today. But I’ll just say that over time, I believe we are going to be recognized for what and who we are, and that is a business that has high touch and asset light with very strong growth prospects in sustainable solutions, healthcare and composites, to name a few. We create a ton of cash, we’ve got an awesome culture and that should not be overlooked. I plan to continue to tell our story, do it better and more often until it is understood and appreciated. That’s my commitment to our shareholders and our associates and I am going to tell you, I am pumped up to do it. We’ve covered a lot of ground today in this webcast, because we covered a lot of ground this last year, but we have even higher expectations for the years to come. With that, we’ll open up the line for questions. Joe?

Operator instructions: Our first question comes from the line of Mike Sison with Wells Fargo. Your line is open. Please go ahead.

Hey. Good morning. Congrats on a strong 2020. Bob, can you maybe walk through some of the sales synergy potential you see with Clariant as we head into 2021?

I mean, I think, in 2021, there is a really important focus that we have on basically business as usual when I think about combining the two legacy PolyOne and Clariant organizations. There’s obviously a ton of work to do, Mike, with respect to responding to the response and recovery efforts of COVID. Those are the highest priorities. So I think in 2021, it’s about identifying opportunities for future years and the areas of focus will be on sustainable solutions, healthcare, most likely packaging, as you would imagine. And the work that’s taken place so far is really looking at where we’ve got overlapping customer opportunities, as well as overlapping streams of R&D and customer support activities. So those are the areas, but I really see the longer term benefit from revenue synergies coming in post-2021.

Got it. And then for engineering materials, composites has gained a lot of momentum over the last couple of years. Can you maybe give us an update, how big that business is now? What type of growth do you see in composites in 2021?

It’s just a little bit over. It’s about $200 million of revenue in total. If you look at the bridge schedule that Jamie walked you through, it will give you the composite assumptions for this year. There is an assumption in here that maybe some of what we saw in the fourth quarter doesn’t repeat. Maybe that’s conservative. We’ll see how this year plays out. But I think if you put those two together, Mike, that will help you get a sense for composite numbers for this year.

Great. Thank you.

Our next question comes from the line of Bob Koort with Goldman Sachs. Your line is open. Please go ahead.

Good morning. Thanks very much. Bob, on the Color business, obviously, some very strong results and integration. How do you think about maybe a mid or longer term target on margin structure that after you’ve harvested all those synergies? What might you think is a run rate a few years out? Then I know you guys have worked on ESG type stuff for quite a long time before it was fashionable. I am wondering, maybe Joe is the right guy to answer this. How have you seen interest from that investment theme and what are you guys doing to cultivate that since it seems like a value enhancement option for a lot of companies out there as you say?

Obviously, we’re already off to a really good start there. And the legacy PolyOne Color business as you know had EBITDA margins in excess of 20%. And I view that as a really good long-term target for what this segment can ultimately do together and we’ve talked a little bit about some differences between the two portfolios of legacy Clariant versus legacy PolyOne, but I don’t see why we can’t get back to that level of performance.

Bob, this is Joe. ESG has been part of our strategy for a long time; it’s not something we just started doing because it became fashionable. We do get a lot of questions from investors on this topic. If you look at our most recent sustainability report, we’ve really beefed it up and added long-term goals and targets to help address some of the metrics that are out there from the regulatory bodies in this area. It’s starting to gain traction. In the next couple of months, we’ll be targeting ESG conferences with some of the sell-side to help continue to promote this. But it’s really starting to gain momentum and it’s something that we’ve been doing for many years. It’s not new to us.

Thank you.

Our next question comes from the line of Frank Mitsch with Fermium Research. Your line is open. Please go ahead.

Good morning and nice end to the year. Bob, I want to follow up on the comment you made about being appropriately conservative with respect to guidance. Now it turns out that the $0.48 guidance you issued for the fourth quarter in the middle of December turned out to be appropriately conservative. What went right to be able to post that in the fourth quarter?

The comment about being conservative was really related to 2021 guidance. With respect to Q4 specifically, it was almost entirely a revenue beat. We had demand across all regions and all businesses, a very strong finish to the year and a little bit better margins in the Color segment.

Let’s come back to the appropriately conservative $2.40 for 2021.

One thing we have in this estimate is a conservative view on the second half of the year, specifically the fourth quarter. Obviously, it’s way too early to call or project what is going to happen. But the reality is the fourth quarter of 2020 was the strongest we’ve ever had. Typically we’ve got seasonality in this business and Q4 is typically weaker than Q3; that didn’t occur in 2020. As we’ve modeled and created the $2.40, I think we’ve been conservative with respect to what we think Q4 of this year will look like. Secondly, I think we’re also being conservative with respect to margins. I think we’re going to have better margins than what’s built into this number, but we’ll see how the year progresses. We certainly had a great track record with margin expansion in the second half of 2020.

Very helpful. And just to confirm, you’re currently modeling in fourth quarter to be seasonally down as it historically is relative to the third quarter, correct?

That is correct.

Our next question comes from the line of P.J. Juvekar with Citi. Your line is open. Please go ahead. P.J., your line might be on mute. Our next question comes from the line of Vincent Andrews with Morgan Stanley. Your line is open. Please go ahead.

Hi. Thank you for taking our question. This is Angel Castillo on for Vincent. Just a quick follow up on cash deployment. In the past you have talked about being interested in composites and continuing to grow these high growth specialty businesses. As you look at 2021 and where we are today, how are you seeing, one, your pipeline evolve, and two, are some of these potential opportunities continuing to move forward despite the delays from COVID-19 and limited travel?

The dialogue is continuing with some of the opportunities that we started discussions on last year. Some feel a little bit like they’re in a holding pattern because we can’t travel and that makes it unnecessary to progress certain deals in person. Seller and buyer are okay with that in some cases. There are a couple others that are businesses we already have a relationship with and know well that could be further along. So it is a spectrum. The real challenge is that if you haven’t been to the plants or met the team before, it’s difficult to move something forward until you can do so in person.

That’s very helpful. Thank you. And then just wanted to ask about the free cash flow guidance of $250 million for 2021. As we think about the role of Clariant, I think Clariant historically had higher working capital as a percent of sales. You mentioned in the past that getting Clariant to legacy PolyOne working capital levels could be a 2-3 point improvement. Is that included in the guidance and is there upside if you accelerate that improvement?

You’re correct on the headline difference between their legacy working capital and our own. We do not have the Clariant working capital number getting all the way to where legacy PolyOne is in 2021, but we do have improvement on a percentage of sales basis in there. So there could be upside if we do better, but for now we’ve assumed a modest improvement.

Our next question comes from P.J. Juvekar with Citi. Your line is open. Please go ahead.

Hey. Good morning. Can you hear me? When you gave guidance of 8% organic growth for 2021, can you break that down between price and volume? How much pricing power do you have if oil and raw material prices go up? Do you expect any further pricing? And then related to that, how much of your sales would you say are from products introduced in the last three years? Is that a metric you track?

We track a vitality index, but it’s measured as percentage of revenue from products introduced in the last five years, not three. In the last five years, that percentage should be right around 36% or 37%. Anything above 35% we consider world class. With respect to the 8% sales growth, there is some FX contribution in there; you can see that in the bridge schedule in the deck. Beyond that, we view that growth as principally underlying unit demand. On raw materials, there’s a lot of focus on polyethylene and polypropylene, but they represent a relatively small percentage of what we buy — about 15% of our raw materials. The market indices don’t exactly represent what we purchase. We buy plastic extrusion formulations and recycled content as well, so we don’t see the magnitude of inflation suggested by the indices. Europe was down in polyethylene and polypropylene in Q4. If market indices move up in 2021, we don’t think the magnitude is large and where there is pressure, we have the ability to raise price to push it through.

Great. And just a quick question on the Masterbatch deal — given how well it worked and your execution, why wouldn’t you look at another deal similar to that given low rates? Can you talk about the pipeline and what your thinking is there?

We would love to do another deal like this. The Clariant deal was a number of years in the making, from initial conversations to closing in July 2020. These things take time. There are a number of opportunities we’re looking at and we’re excited about them. Given the cash flow we generated this last year and what we’re projecting for 2021, we’re in a position to get something done if and when we can find the right fit. It’s just a matter of lining everything up.

Our next question comes from the line of Mike Harrison with Seaport Global Research Securities. Your line is open. Please go ahead.

Hey. Good morning. Can you hear me okay? I wanted to come back to raw materials. Can you discuss some of the changes that have occurred in the raw material slate now that your Color business has grown substantially. You mentioned PE and PP are smaller components than people might think; presumably pigments have increased in terms of your spend. So talk about that and maybe what your outlook is for inflation in some of those pigment-based raw materials.

That’s a great observation. About half of our raw materials now are non-hydrocarbon based, primarily with the CIA portion of our business, which is pigments, TiO2 and performance additives. They’ve been very stable through 2020 and our outlook is that they remain stable in 2021. For perspective, polyethylene and polypropylene represent about 15% of our raw material spend. The indices don’t exactly represent what we purchase. We buy plastic extrusion formulations and recycled content as well. So we don’t see the magnitude of inflation implied by indices. Also, many of the headlines on PE/PP reflect North America. In Q4 Europe was down. So last quarter we actually saw a raw material benefit. While some market indices are moving up for 2021, we don’t think the magnitude is that large. Where there are pockets of pressure, we have the ability to raise prices to push through.

That’s very helpful. Thanks. And then, Bob, maybe can you talk a little bit about the cyclical businesses? It seems like you’re expecting a recovery to continue into 2021. Maybe comment on what you’re seeing in terms of monthly trends in some of those businesses and some thoughts on where customer inventory levels are and any potential for a restocking cycle in 2021?

Cyclical end markets like transportation are about 8% of sales, and building and construction is even less. Those areas have been trending positively in the last few months. There are headlines about chip shortages impacting the automotive industry, but overall we’re seeing continued improvement in these cyclical spaces. On inventories, it’s a challenging time because a lot of raw materials are in short supply. Customers are feeling that; we are too. I don’t think anybody is stockpiling broadly. In some cases, customers are trying to get whatever they can for items in short supply because demand continues to be strong. So I don’t think we or our customers are sitting on a lot of inventory right now, and that should support demand early in the year.

All right. Thanks very much.

Our next question comes from the line of Ben Kallo with Baird. Your line is open. Please go ahead.

Hey, guys. Bob, you gave a point estimate for 2021. I don’t think you’ve done a point estimate in the past. Can you talk about the visibility around your guide? And what metrics are you focused on going forward that we should be looking at like OpEx, ROIC, or other KPIs?

Some people prefer ranges; others prefer a point estimate. Either way, it’s based on assumptions and scenarios. This $2.40 is our best estimate. On metrics, ROIC is important as a measure of how well we’re doing against investment dollars. Margin expansion is an important part of our story going forward; that was a hallmark of our earlier years and it’s returning. We’ll revisit margin projection detail as the year progresses. We plan to continue telling our story and providing more data as appropriate.

Maybe I’ll jump in — thanks. I know you’re coming to our sustainability conference. From a broader perspective, do you envision doing another Analyst Day or revisiting your targets and when might that happen?

Let me clear my next six months.

We’ll give that some consideration and report back to you.

Our next question comes from the line of Colin Rusch with Oppenheimer. Your line is open. Please go ahead.

Thanks so much. Bob, can you speak to any discussions you’re having around material replacements outside of outdoor performance at this point, particularly as it gets into the auto sector and other areas where you have meaningful opportunities for lightweighting?

Transportation applications remain important; that’s still about 8% to 9% of our sales. We do many small, targeted lightweighting projects in transportation that matter. Last year, although innovation was challenged by the pandemic, the ability to communicate frequently with customers via virtual meetings actually put some things back on the table. I was encouraged by how much customers still are thinking about lightweighting and sustainable solutions. Lightweighting in packaging is also a big opportunity.

Okay. That’s super helpful. Thanks so much, guys.

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

Hi, guys. It’s Laurence. How are you? Just getting back to revenue synergies — how long is the runway from identifying them to converting them into revenue? After they’re identified, is there a long sales cycle of a year or two to get traction with cross-selling?

There’s already some identified synergies. It’s a spectrum: some opportunities are longer cycle, especially in healthcare and certain additive pockets. Some could be quick wins we get as early as the end of this year by bringing the businesses together. We need a period of business as usual as we align sales and commercial organizations. Sustainable solutions historically had longer cycle times, but customers are making them happen faster now, so some of those could materialize as soon as the end of this year or the beginning of next year.

Thank you. And one other question: have you seen logistical issues recently due to the pandemic that are raising costs, such as freight?

We have seen raw material shortages in a variety of places causing some disruptions in a few businesses. Freight costs are going up and things are getting tight, which makes things more challenging at times, but nothing else unusual on our radar.

Thanks, Laurence.

Our next question comes from the line of Jaydeep Gandhi with Armfield Security. Your line is open. Please go ahead.

Hi. Can you hear me? Very good growth in the legacy Clariant business last year, 13% despite the pandemic. Can you give color on organic growth and what was driving this given that you only had $5 million of synergies last year? Second, longer term, if you were running that business with your synergies, do you think it could be in your top tier in terms of margins? Third, on healthcare, do you have opportunities with catheters and vials, especially with vaccine distribution and demand for vials? Finally, regarding synergies, given you’ve upgraded sourcing, do you think there’s scope to combine the production network between the two companies and potentially increase synergy targets going forward?

The legacy Clariant performance for 2020 must be viewed in context. That business has strong presence in healthcare and food and beverage packaging, which helped drive results. Q2 was flat, and flat was strong in that environment. Organic performance, aside from how you define organic, was driven by those end markets. We achieved $5 million of synergies in 2020 and we’re projecting $35 million in 2021. On healthcare, we have a connection into minimally invasive catheters and a meaningful connection into vials and test kits. Some COVID-related demand like masks may not repeat, but testing kits and other healthcare applications are part of our outlook. On synergies and the production network, I do think there’s more operational opportunity, but some initiatives are longer term and may not fall within a three-year window. For now we’re focusing on what we can accomplish within that timeframe, and if we can pull forward other ideas, we’ll update targets accordingly.

Thanks a lot.

Our next question comes from the line of Vincent Anderson with Stifel. Your line is open. Please go ahead.

Thanks. Bob, when you think about your 6% constant currency growth, how much of that is attributable to specific applications or business wins you have a good line of sight on versus assumptions about the broader economic cycle?

We’ve got a really good read on the first quarter and we’re off to a strong start. The challenge is projecting the second half, especially the fourth quarter given how strong Q4 was in 2020. It’s hard to put very granular assumptions publicly, but looking at the bridge Jamie presented, we feel good about the categories and applications that are driving the growth and have pretty good line of sight into the near term.

Thanks. Can you reset quickly on composites? You said about $200 million of sales; can you provide a rough breakdown across the businesses included, how much is still being commercialized and possibly dragging margins, and what you’re excited to bring to market as demand normalizes?

About $60 million to $80 million of the composites business is related to 5G and fiber optic infrastructure. Composites for outdoor performance are another $40 million to $60 million. The balance is industrial applications and some oil and gas exploration. By end market the businesses are profitable; differences in margin are more by technology than by end market. Leading edge thermoplastic composites still require investment and customer acceptance, but there’s significant opportunity ahead.

That’s helpful. Thank you.

This does conclude today’s question-and-answer session. I would like to turn the conference back over to Bob Patterson for any further remarks.

All right. Well, thanks everyone for joining us on the call. We look forward to hopefully seeing many of you — maybe not in person but on WebEx or otherwise — at some upcoming conferences, and of course updating you on our first quarter results when we have those in hand at the end of April or beginning of May. Take care. Bye for now.

Ladies and gentlemen, this does conclude today’s program. You may all disconnect. Everyone have a great day.