- Plans to spin off its Upstream Energy business by mid-year 2020
- Increases efficiency initiative target for ongoing business savings to $325 million from prior $200 million goal
- Expects to report fourth quarter diluted 2018 EPS of $1.48
- Expects adjusted diluted EPS increase of 12% to $1.54
- 2019 adjusted diluted EPS expected to rise 10% to 14% to the $5.80 to $6.00 range
ST. PAUL, Minn.--(BUSINESS WIRE)--Ecolab Inc. is announcing it plans to spin off its Upstream energy
businesses as a stand-alone publicly-traded company. The Upstream Energy
business currently operates within Ecolab’s Energy segment and consists
of the Oil Field Chemicals production business and the WellChem drilling
and well completion chemistry business. Ecolab plans to retain the
Downstream business, which serves refineries and petrochemical plants.
The separation transaction is expected to be a tax-free spin-off to U.S.
shareholders for U.S. federal income tax purposes.
Upon completion of the spin-off, the Upstream Energy business, with 2018
sales of approximately $2.4 billion, will be a market-leading pure-play
global provider of oil and gas production, drilling, and completion
product and service solutions, serving the flow maximization and asset
protection needs of customers for onshore and offshore activity in even
the most challenging of environments.
CEO comment
Douglas M. Baker, Jr., Ecolab’s chairman and
chief executive officer, said, “The proposed spin-off transaction will
create two best-in-class stand-alone companies with distinct business
models and increased market focus. Our Upstream Energy business is the
global industry leader with great people, outstanding differentiated
technology and customers that include the world’s leading super majors,
majors, independent and national oil and gas producers, and energy
service providers.
“Upstream Energy is an excellent business, but one with a business model
that has become increasingly different from our other Ecolab businesses.
As unconventional onshore has grown, our two upstream businesses have
become more aligned and appropriately evolved into more specialty
chemical type businesses which require increasingly different operating
disciplines and expertise.
“The spin-off creates a new company singularly focused on the upstream
oil and gas markets. As a stand-alone public company, we believe the
business will be a more focused and attractive pure play for its
customer and investor base given its strong value proposition, ability
to pursue a focused energy services strategy and ability to deliver a
strong financial performance.
“The spin-off is designed to make a good situation even better. Our
businesses are already performing well. Our Energy segment grew both
sales and operating income mid-single digits in 2018 despite a highly
inflationary delivered product cost environment. Our Industrial,
Institutional and Other segments also grew sales and operating income
throughout the year, exiting the fourth quarter 2018 with a strong
acquisition adjusted sales growth rate and improving operating income
growth. Our adjusted fourth quarter diluted earnings per share, which is
subject to completion of our year-end audit, is expected to increase 12%
to $1.54.
“As a result of our strong momentum, we enter 2019 in a great position
with strong sales volume, accelerating pricing and improving operating
income margins. This should yield a very good performance in an
environment where we expect slower but still solid end market growth and
where we look for delivered product costs to continue to increase,
though at a more moderate pace than 2018. This adds up to a favorable
2019 outlook for Ecolab, with expected adjusted diluted earnings per
share growth of 10% to 14% to the $5.80 to $6.00 range. Included in the
2019 forecast is an approximate $0.08 per share currency translation
headwind.
“In a post spin-off future, we believe both companies will have a
sharper focus which enhances executional discipline. Over time, we know
these are critical factors in driving sustained growth. Additionally,
our previously announced efficiency initiative has more upside in the
out years than originally forecast, and we continue to expect to deliver
$200 million in savings for ongoing Ecolab after the spin-off while also
fully covering stranded costs and corporate resource build costs
relating to the spin off.”
Upstream Energy business
For the full year 2018, Upstream
Energy unaudited sales are expected to be approximately $2.4 billion,
with expected unaudited operating income of approximately $170 million
and expected EBITDA of approximately $340 million. These exclude as-yet
undetermined spin-off related costs, as well as estimated public company
expenses of approximately $35 million. The public company costs are
expected to be offset by increased cost savings initiatives. Oil field
production accounts for approximately 80% of Upstream Energy sales,
while drilling and well completion comprise roughly 20% of the total.
The new stand-alone company is expected to raise new debt, the proceeds
of which are expected to be paid to Ecolab in the form of a dividend,
which could be used by Ecolab for share repurchase and/or debt
reduction. Upon completion of the spin-off transaction, Upstream
Energy’s strong balance sheet and free cash flow should provide the
company with ample financial flexibility and a strong BB credit profile
with approximately 2x Net Debt/EBITDA.
The leadership and company name will be finalized as the separation
process progresses.
Ecolab post spin-off continuing operations
Ecolab will
continue to focus on its core platforms, which serve the hygiene, food
safety and industrial water markets, and will be well-positioned to
drive further strong sales and earnings growth as well as strong free
cash flow and accretive returns on capital. Ecolab expects to maintain
its current dividend and continue to grow it in the future. Ecolab also
expects to maintain A-range credit metrics following the separation of
the Upstream Energy business.
Transaction Details
Ecolab anticipates that the transaction
will be in the form of a distribution to Ecolab shareholders of 100% of
the stock of Upstream Energy, as a new independent publicly-traded
company, which is expected to be tax-free to U.S. shareholders for U.S.
federal income tax purposes.
Ecolab currently expects that the transaction will be completed by
mid-year 2020. Completion of the transaction is subject to certain
customary conditions, including, among others, confirmation that the
spin-off of Upstream Energy is expected to be tax-free to U.S.
shareholders, the effectiveness of appropriate filings with the U.S.
Securities and Exchange Commission and final approval by Ecolab’s Board
of Directors.
Ecolab Efficiency Initiative Target Increased
Ecolab also
announced that it has raised the goal for its previously announced
efficiency initiative. The anticipated benefits of the efficiency
initiative are now estimated to be $325 million compared with the
company’s previous forecast of $200 million. These additional savings
are expected to build through 2019 with greater impact in 2020 and 2021,
when they are expected to cover expected stranded costs of approximately
$70 million for Ecolab and public company costs of $35 million for
Upstream Energy. The efficiency actions primarily leverage technology
and structural improvements to simplify and automate processes and
tasks, reduce complexity and management layers, consolidate facilities
and focus on key long-term growth areas, creating a leaner, more
productive and more empowered business structure. Ecolab now expects
total pretax charges related to its efficiency initiative to be
approximately $260 million ($190 million after tax) with approximately
$325 million of pre-tax savings by 2021, not reflecting any impacts from
the planned separation of the Upstream Energy business. The charges,
primarily cash expenditures, continue to be primarily related to team
reorganizations and facility closures.
Business Outlook
The business outlook included in this press
release is for consolidated Ecolab operations and does not reflect the
impact from the planned separation of the Upstream Energy business.
2018
Subject to completion of the annual audit, Ecolab
expects fourth quarter 2018 diluted earnings per share to be $1.48;
adjusted diluted earnings per share, excluding special gains and charges
and discrete tax items, are expected to increase 12% to $1.54. Full year
2018 diluted earnings per share are expected to be $5.01; adjusted
diluted earnings per share are expected to rise 12% to $5.25. Ecolab’s
reported earnings per share were $1.92 in the fourth quarter 2017 and
$5.12 for the full year 2017; adjusted diluted earnings per share were
$1.38 in the fourth quarter 2017 and $4.68 for the full year 2017.
Ecolab expects to announce final 2018 results February 19, 2019.
2019
Ecolab expects continued strong sales and earnings
momentum in 2019 with growth in all segments. Ecolab expects 2019
adjusted diluted earnings per share to rise 10% to 14% to the $5.80 to
$6.00 range, excluding special gains and charges and discrete tax items.
At current rates of exchange, we expect currency translation to have an
approximate $0.08 unfavorable impact on full year 2019 diluted earnings
per share.
We do not provide reconciliations for non-GAAP estimates on a
forward-looking basis (including those contained in this release) when
we are unable to provide a meaningful or accurate calculation or
estimation of reconciling items and the information is not available
without unreasonable effort. This is due to the inherent difficulty of
forecasting the timing and amount of various items that have not yet
occurred, are out of our control and/or cannot be reasonably predicted,
and that would impact reported earnings per share, which is the most
directly comparable forward-looking GAAP financial measure to adjusted
earnings per share. For the same reasons, we are unable to address the
probable significance of the unavailable information.
BofA Merrill Lynch is serving as a financial advisor to Ecolab in the
separation of its Upstream Energy business.
About Ecolab
A trusted partner
at nearly three million customer locations, Ecolab (ECL) is the global
leader in water, hygiene and energy technologies and services that
protect people and vital resources. With annual sales of $14 billion and
48,000 associates, Ecolab delivers comprehensive solutions, data-driven
insights and on-site service to promote safe food, maintain clean
environments, optimize water and energy use, and improve operational
efficiencies for customers in the food, healthcare, energy, hospitality
and industrial markets in more than 170 countries around the world. For
more Ecolab news and information, visit www.ecolab.com.
Ecolab will host a live webcast to review the announcement February 5,
2019 at 8:00 a.m. Eastern Time. The webcast will be available on
Ecolab's website at www.ecolab.com/investor.
A replay of the webcast will be available at that site. Listening to the
webcast requires Internet access, the Windows Media Player or another
compatible streaming media player.
Cautionary Statements Regarding Forward-Looking
Information
This communication contains certain
statements relating to future events and our intentions, beliefs,
expectations and predictions for the future which are forward-looking
statements as that term is defined in the Private Securities Litigation
Reform Act of 1995. Words or phrases such as “will likely result,” “are
expected to,” “will continue,” “is anticipated,” “we believe,” “we
expect,” “estimate,” “project,” “may,” “will,” “intend,” “plan,”
“believe,” “target,” “forecast” (including the negative or variations
thereof) or similar terminology used in connection with any discussion
of future plans, actions or events generally identify forward-looking
statements. These forward-looking statements include, but are not
limited to, statements regarding the anticipated spin-off of our
Upstream Energy businesses into a new stand-alone company and the
associated benefits and costs, the expected timetable for completing the
transaction, the issuance of debt by the stand-alone company and the use
of proceeds from such issuance by Ecolab, and the financial flexibility
and business prospects of the new company, as well Ecolab’s financial
and business performance and prospects, including 2018 and 2019 first
quarter and full-year financial and business results, including sales
and earnings growth, adjusted diluted earnings per share, volume,
pricing, margins, delivered product costs, foreign currency, timing,
amount and type of restructuring or efficiency initiative costs and
savings from restructuring or efficiency initiative activities, free
cash flow, returns on capital, dividends, and credit rating metrics.
These statements are based on the current expectations of management of
the company. There are a number of risks and uncertainties that could
cause actual results to differ materially from the forward-looking
statements included in this communication. In particular, the proposed
spin-off may not be consummated within the anticipated period or at all;
the 2018 financial information remains subject to audit procedures and
the completion of such procedures could result in adjustments; and the
ultimate results of any restructuring or efficiency initiative,
integration and business improvement actions, including cost synergies,
depend on a number of factors, including the development of final plans,
the impact of local regulatory requirements regarding employee
terminations, the time necessary to develop and implement the
restructuring or efficiency initiative and other business improvement
initiatives and the level of success achieved through such actions in
improving competitiveness, efficiency and effectiveness.
Additional risks and uncertainties that may affect operating results and
business performance are set forth under Item 1A of our most recent Form
10-K, and our other public filings with the Securities and Exchange
Commission (the "SEC") and include the vitality of the markets we serve,
including the impact of oil price fluctuations on the markets served by
our Global Energy segment; the impact of economic factors such as the
worldwide economy, capital flows, interest rates and foreign currency
risk, including reduced sales and earnings in other countries resulting
from the weakening of local currencies versus the U.S. dollar; our
ability to execute key business initiatives, including upgrades to our
information technology systems; potential information technology
infrastructure failures and cybersecurity attacks; our ability to
attract and retain high caliber management talent to lead our business;
exposure to global economic, political and legal risks related to our
international operations including trade sanctions; our ability to
develop competitive advantages through innovation and to commercialize
digital solutions; the costs and effects of complying with laws and
regulations, including those relating to the environment and to the
manufacture, storage, distribution, sale and use of our products;
difficulty in procuring raw materials or fluctuations in raw material
costs; pressure on operations from consolidation of customers, vendors
or competitors; the occurrence of litigation or claims, including
related to the Deepwater Horizon oil spill; restraints on pricing
flexibility due to contractual obligations; our ability to acquire
complementary businesses and to effectively integrate such businesses;
changes in tax law and unanticipated tax liabilities; potential loss of
deferred tax assets or increase in deferred tax liabilities; our
substantial indebtedness; public health epidemics; potential losses
arising from the impairment of goodwill or other assets; potential
chemical spill or release; potential class action lawsuits; the loss or
insolvency of a major customer or distributor; acts of war or terrorism;
natural or man-made disasters; water shortages; severe weather
conditions; the possibility that the proposed spin-off will not be
consummated within the anticipated time period or at all, including as
the result of regulatory, market or other factors, including the
possibility that various closing conditions for the spin-off may not be
satisfied; the potential disruption to our business in connection with
the proposed spin-off; the potential that the Upstream Energy business
and Ecolab do not realize all of the expected benefits of the spin-off;
that the spin-off may be more difficult, time consuming or costly than
expected; the failure of the spin-off to qualify for the expected tax
treatment; and other uncertainties or risks reported from time to time
in our reports to the SEC. In light of these risks, uncertainties,
assumptions and factors, the forward-looking events discussed in this
communication may not occur. We caution that undue reliance should not
be placed on forward-looking statements, which speak only as of the date
made. Ecolab does not undertake, and expressly disclaims, any duty to
update any forward-looking statement whether as a result of new
information, future events or changes in expectations, except as
required by law.
Non-GAAP Financial Information
This
news release and certain of the accompanying tables include financial
measures that have not been calculated in accordance with accounting
principles generally accepted in the U.S. (“GAAP”), including adjusted
diluted earnings per share and EBITDA of the Upstream Energy business.
We provide these measures as additional information regarding our
operating results. We use these non-GAAP measures internally to evaluate
our performance and in making financial and operational decisions,
including with respect to incentive compensation. We believe that our
presentation of these measures provides investors with greater
transparency with respect to our results of operations and that these
measures are useful for period-to-period comparison of results.
Our non-GAAP financial measure for diluted earnings per share excludes
the impact of special (gains) and charges and the impact of discrete tax
items. We include items within special (gains) and charges and discrete
tax items that we believe can significantly affect the
period-over-period assessment of operating results and not necessarily
reflect costs associated with historical trends and future results.
After tax special (gains) and charges are derived by applying the
applicable local jurisdictional tax rate to the corresponding pre-tax
special (gains) and charges.
EBITDA of the Upstream Energy business is defined as the sum of
operating income, depreciation and amortization expense plus an
allocated portion of Ecolab’s consolidated “Other Income/Expense”. We
use operating income to evaluate our segment performance and do not
attribute interest expense special gains and charges or taxes below our
consolidated entity. We provide EBITDA of the Upstream Energy business
as a performance measure because we believe it provides investors with
the ability to assess its operating performance and return and invested
capital as compared to those of other companies in the energy sector
without regards to financing methods and capital structure. All of the
Upstream Energy financial information is unaudited and subject to final
adjustments as we prepare the carve-out financial statements associated
with the spin-off. These non-GAAP financial measures are not in
accordance with, or an alternative to, GAAP and may be different from
non-GAAP measures used by other companies. Investors should not rely on
any single financial measure when evaluating our business. We recommend
that investors view these measures in conjunction with the GAAP measures
included in this news release.
The tables below provide supplemental non-GAAP reconciliations:
|
|
|
|
($ billions, except per share)
|
|
Diluted Earnings per Share Attributable to Ecolab ("Diluted
EPS")
|
|
Fourth Quarter ended
|
|
|
|
|
Full Year ended
|
|
(2018 Unaudited)
|
|
December 31
|
|
|
|
|
December 31
|
|
|
|
2018
|
|
2017
|
|
|
|
|
2018
|
|
2017
|
|
Diluted EPS (U.S. GAAP)
|
|
$1.48
|
|
|
$1.92
|
|
|
|
|
|
$5.01
|
|
|
$5.12
|
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special (gains) and charges
|
|
0.05
|
|
|
0.01
|
|
|
|
|
|
0.35
|
|
|
0.19
|
|
|
Discrete tax expense (benefits)
|
|
0.01
|
|
|
(0.54
|
)
|
|
|
|
|
(0.11
|
)
|
|
(0.63
|
)
|
|
Adjusted Diluted EPS (Non-GAAP)
|
|
$1.54
|
|
|
$1.38
|
|
|
|
|
|
$5.25
|
|
|
$4.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Upstream Energy EBITDA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Estimated and unaudited, $ in billions)
|
|
|
|
|
|
Full Year ended
|
|
|
|
|
|
|
|
|
December 31, 2018*
|
|
|
Upstream Energy Operating Income
|
|
|
|
|
|
|
|
|
$0.17
|
|
|
|
|
|
Other Income/(Expense)
|
|
|
|
|
|
|
|
|
0.01
|
|
|
|
|
|
Depreciation
|
|
|
|
|
|
|
|
|
0.09
|
|
|
|
|
|
Amortization
|
|
|
|
|
|
|
|
|
0.08
|
|
|
|
|
|
EBITDA
|
|
|
|
|
|
|
|
|
$0.34
|
|
|
|
|
|
*Amounts do not sum due to rounding
|
|
|
|
|
|
|
(ECL-C)
Ecolab Inc.
Michael J. Monahan (651) 250-2809
Andrew C. Hedberg (651) 250-2185