3M Company (MMM) Earnings Call Transcript & Summary

Well, good afternoon. My name is Andrew Obin. I'm Bank of America's multi-industrial analyst. And we are wrapping up our 3-day event. I am still in London. The first 2 days were in-person, third day is virtual. And obviously, we've saved one of the most important names in our coverage for last to keep you guys excited, and hopefully, you are excited. And with us today, I have Monish Patolawala. He is Executive Vice President and CFO and Transformation Officer at 3M, and I'm personally a big fan of Monish and operating changes and -- he's bringing to the company. So always very excited to talk to him. Always great insights. And of course, we have Bruce Jermeland, who is the Senior Vice President and Head of Investor Relations for 3M. And obviously, Bruce is always, always a pleasure to work with.

And with that, what we're going to do is -- I was going to be -- I have some questions for Monish, and I'm going to kick it off with an end market update. And specifically, given the Eastern European conflict, has your '22 outlook on end markets, specifically autos, right? We've heard some sort of production delays in Europe because of wire harness shortages, electronics, elective procedures change, and what about your outlook on the region, particularly Europe? And look, we've been here for 3 days. So I do know it takes time to tabulate these things, and get full impact of what's happening. But whatever you can share with us will be very useful, even if it's a framework of how to think about it. Thank you, Monish.

Sure, Andrew. Thanks so much for having me, and thanks for the kind words you said at the beginning. What I just thought, if you don't mind, Andrew, is go a little -- take everyone back to Investor Day a little bit and talk about and recap all the things that 3M are doing to drive growth, margin and cash and, through that, answer your question on end markets. The company is laser-focused on innovation and driving operating efficiency that'll get us the growth margin and cash we talked about. We are focusing on end markets that we believe are very strong, ranging from automotive, health care, biopharma, electronics, software and consumer, all areas that we believe are strong growth areas that are driving GDP-plus growth. Similarly, at the same time, we are continuing to accelerate our journey on ESG, making sure we are advancing our air and water stewardship goals, the $1 billion that we announced in February of 2021 and making sure that we continue to meet the milestones that we laid out to be carbon-neutral by -- 80% by 2040 and then 100% by 2050. So we're continuing to move down that path. And also our strong balance sheet that we have and the strong cash that we generate allows us to play offense and take the growth head on. For example, we have put capital to work. We're going to invest $1.7 billion to $2 billion of CapEx and 5% to 6% of R&D in the areas that I talked about just a minute ago. Secondly, we -- dividend has been an important requirement from our shareholders. We have raised dividend to $1.49 per share. It's the 64th year of increasing dividend. M&A, I'll talk about my food safety division right at the end. And then the last use of our capital has been share buyback. We are committing $2 billion of share buyback for the year. During Investor Day, I told you that we'll remain active in the market, because we saw that the stock price was attractive. We have already done $800 million approximately year-to-date of share buyback, and we'll do the balance in the rest of the year. And then I thought on M&A, we always have a list of good areas that we are continuing to focus on, areas that we believe that we can add value to the target, and at the same time, the target can add value to 3M and, through that, to shareholders. And with that, as you know, we did a transaction, we announced a transaction where we are combining our full safety business with NEOGEN to create a world-class animal and food safety business. The transaction is structured with a reverse Morris trust. So it's a tax-efficient transaction. As a part of that transaction, 3M shareholders will get 50.1% shares of NEOGEN, plus we'll get $1 billion in cash. When we were at Investor Day, we had not yet made a decision whether we want to do a spin or split of the shares that we get from NEOGEN. We still haven't made that decision, and we'll make that decision as we get closer to closing date, which is on track to close in Q3 of this year. But if I had to make a call today, Andrew, and say based on where I see the stock prices of the 2 companies are, we would say we would go with a split transaction. The benefit of a split-off is that it's a cashless repurchase of shares. It's 20 million to 23 million shares that could get repurchased based on current stock prices, which is nearly 3.5% of our shares outstanding and will take EPS up by 2.5% next year, taking into account also that we have a loss of income from the food safety division. It's -- the other benefit of the split-off is, one, it allows 3M shareholders to decide whether they want to get shares of NEOGEN. And secondly, for NEOGEN shareholders, it's a benefit because it's only those investors who want to be a part of -- natural shareholders of NEOGEN will do the split-off. So it's a win-win for both. And then with the cash that we're going to get, we are going to deploy those cash proceeds just in the normal capital allocation process that we have talked about. So we look at that transaction. It's a creative transaction. It's a way to make sure we create a good business because now that business is more focused. We'll have a very focused capital allocation strategy, but at the same time, we're creating value for shareholders. We'll decide when -- what our exchange ratio looks like, whether there's a split or spin, but I just thought I'll let you know that that's our current thinking. And the team's doing a marvelous job, both teams are doing a marvelous job making sure the transaction closes on time in Q3. So with that, I'll answer your specific question on Eastern Europe and Europe. As you said, it's quite early right now. The revenue that we get from Russia and the Ukraine region is less than 1% of 3M's revenue. As you know, we have publicly stated we have stopped doing business with Russia. What we are watching is a couple of our tier 1 suppliers there, which is not that big a deal. But I think the bigger issue that we are watching is what does it do to energy demand and energy prices in Europe at -- same as end market. And I'll go to -- give you a quick wrap-around on end markets by division. In Europe, our biggest 2 end markets are safety and industrial and transportation and electronics. So depending on how auto production goes in Europe, I'm sure that's going to have an impact to the end markets. And talking about autos, at the beginning of the year, we said auto production would be up 9%. Currently, we are hearing, it's somewhere in that 5% to 6% range for the year. It was supposed to be down 2% sequentially, Q4 '21 to Q1 '22. We are hearing it could be down to 5%. Part of it is driven by the geopolitical situation. Part of it is still the chip shortage. Talk about chip shortage, the electronics industry is up 4% for the year but down 8% in the first quarter. So I think this theme of semiconductor, the availability of semiconductor chips, will continue to flow through end markets as we go through that part of the year. On the other side, health care, which was -- we said would be 90% to 95% of medical elective procedures of 90%, 95% of prepandemic levels will ramp up to 100% by the end of Q4 '22. As we came into Q1 of '22, January turned out to be weaker, driven by the Omicron variant, but February has ramped back up on elective procedures, and hopefully, March will continue. I think labor shortages is going to drive what's going to happen with elective procedures. And then you go into oral care medical procedures. January and February are quite soft, driven by the Omicron variant. But again, we have seen that ramp up in the last 2 weeks. So things are moving up in that way. I think we'll have to watch -- and the supply chain impact of what's happening in China and the current COVID outbreak there. We'll have to watch the geopolitical crisis that is going on right now and the broader impact of the supply chain, the price of oil. And so I would sum it up by saying when we started Q4, Q1, we had told you Q1 is going to look quite similar to Q4 when it comes to supply chains, getting slightly better. I think the supply chains are now going to be further pressured by the events that are happening. But flip side, Andrew, I would say end market demand continues to remain pretty strong. We are continuing to get customers who are wanting to buy products from us, whether it's from our Consumer Business, all the way to our Industrial Business. And the teams are doing a marvelous job, making sure that we continue to drive growth above macro and margin and cash but, at the same time, most importantly, making sure we're taking care of our customers irrespective of what it costs us to keep our -- keep their factories running. We're going to do it. So long-term, we are quite bullish that as things stabilize, we should be in a great place when it comes to growth, margin and cash.

Thank you, Monish. This was a very comprehensive answer. I really appreciate it. Let's talk about the portfolio. So with the recent announced divestitures, and we are big, big fans of what you're doing on food safety. It's just a great way to create value for the shareholders. Also, there was an announcement for the European flooring business. How are you thinking about the portfolio longer term? Do you see other divestiture opportunities? And in which parts of the portfolio -- I think there are some sort of speculations in the market that are some are more obvious than others. But just holistically, I mean, clearly, you guys are trying to be creative, trying to create value for the shareholders. And yes, what are you thinking?

Yes. So Mike and -- for both Mike and me, portfolio is a very active piece of our work that we do every day. The way we look at this, Andrew, as we talk about, is there a market and do you have the right to win? If you have both, then the question is, are you ready to put the resources to win? And if the answer is yes, then we will invest organically or inorganically. We would always love to invest organically, first, because we get the best return, but we'll also invest inorganically. So for example, the Acelity acquisition, the M*Modal acquisition are all examples where we felt the health care space was an area in digital. And health care was an area where the company wanted to invest in. The next one we look at is, do you have a market, but you don't have the right to win. And then in that case, you start saying is there a better owner of the asset? And food safety fell into that bucket, which is -- it's a great market. The business was growing 7% to 8%. It has 40% EBITDA. But when we looked at the long range and what it needed from a capital allocation perspective, we felt combining it with the NEOGEN business gave it an opportunity to be much more focused, a more disciplined capital allocation opportunity, and that would allow the team at food safety and NEOGEN to create a better business and create more value for shareholders as they are able to grow above the macro in their markets. And then you come to the third piece, which is you don't have a market and irrespective of whether you have the right to win or not, we'll look at exiting. One of them is, for example, drug delivery, which was done in Q2 of 2020; the floor care business, which you just talked about where we felt it's better that the capital allocation-wise, not an area that we felt we would grow. It doesn't mean it was a bad business. It's just not an area we felt, from a market perspective, we wanted to put our money in. And then so you take those 3 and you make that decision tree. And then you look at emerging technologies, which is something we don't want to forget, because 3M has been built on innovation. We have a small ventures fund. We put money in small equity stakes in emerging technologies. We partner with those emerging technologies. It's a good way to fund R&D. But more importantly, it's a good way to know what's going out there. Can we commercialize the product? Can we productize it? Should we acquire that technology? Should we partner is another way that we partner. So for us, all of this is a constant look on portfolio. And to answer your simple question, are there divisions that could be divestiture or are there areas of acquisition? Absolutely. Every division has to earn its keep. Every division has to make sure we're growing above the macro, margin expansion, cash. Each one of these divisions have a place in the 3M universe, and we want to make sure that each one of them are continuing to deliver and be a part of 3M.

So let's focus on areas of growth. And I think as we talk and as you guys clearly -- you highlighted at your Analyst Day, there has been a shift in focus to the Consumer and Health Care businesses. What are the -- and it's interesting -- always, it's interesting, this consumer of 3M brand that sort of historically has ebbed and flowed and it's a very fair point that it's probably has been underutilized in the past. But what are the growth opportunities and growth outlooks in these 2 segments? And can you talk about the types of investment being made to support the growth? because, clearly, it sort of makes a lot of sense, but how do you guys do it?

Yes, absolutely. And -- listen, it will be unfair to say our focus is only Health Care and Consumer. I know we end up leveraging sometimes more on it. Some of it is the trends that have happened through...

No. I totally got it, yes.

But my 4 businesses have equally good stuff going on. But to answer your question on Health Care, when you just look at the whole segment first of Health Care, it's a GDP-plus business in general, that sector. And then you break that, our Health Care Business up into wound care driven by surgeries, at some point, the demand process 2019 and keeps going based on the demographic. So the work that we are doing with the Acelity acquisition, which allows us to be more relevant with the caregiver, plus allow us to treat patients from a home setting, which as Acelity has given us, an area that continues to be a high focus. You then take our next division, which is our Health Information Systems, or health care IT, pure software business. Data, data analytics is here to stay, Andrew for a long time, and that is a big focus. M*Modal, it has ambient technology that is allowing more efficiency with caregivers as there's pressure for caregivers to get more efficient, the software that we provide allows us to help caregivers give better care. You marry a wound care data. You can marry with health care in the long run. You can start looking at an ecosystem that leverages data and data analytics to overall reduce the cost of care. Then from there, I would go into our oral care business. You could argue it's a slower growth business, but what the teams are doing with innovation there is to say, "Let me make it easier for a provider." For example, I talked about at Investor Day, one of our products that we have to create custom orthodontics, which used to take 8 steps. Thanks to the work the team has done, that can be done in 3 steps, and it's digitized. So it's easier to mold it than what you would have done manually. And then I would go to the biopharma or my filtration business, a business that grew greater than 20% last year. That biologics industry, you and I both know biologics are here to stay and that filtration technology used in the manufacture of COVID vaccines as well as just biologics are all areas of growth for us in the health care space. If I now go to the consumer space that you asked me about, the 2 big franchises that sometimes are not talked about enough. One is our Filtrete brand, our home filtration. It's $0.5 billion from a size perspective, an area we continue to see GDP-plus growth. We didn't have enough capacity. We just announced a $500 million investment in Clinton, Tennessee. It's going to add 600 jobs because we feel people, through the pandemic, are more concerned about air quality at home, an area with a product that we have. And oh, by the way, the material that's used in Filtrete is the same material that is used in our mask and respirator business. So that's where the synergy of 3M starts coming when you start looking at these technologies that exist. And then the other business is Command, our adhesive strips business, which allows you to decorate your home without damaging the walls. And that's again a trend that we have seen through the pandemic that people are staying longer at home. People are staying longer at home and not wanting to sell their homes because of where it is. So again, another area, that's another $0.5 billion franchise that has grown well, and we think it will weather consumer spending down, et cetera. And just we feel it's a GDP-plus. So to answer your question, those are the 2. I'm happy to walk through the other divisions because there are equally cool stuff going on there, but I'm just answering your question about these 2 divisions.

And just a couple of follow-up questions. So on Acelity, I think part of the game there was to sort of leverage your strength with hospitals and sort of plug-in Acelity distribution model into that. The lesson learned from this acquisition, could they apply to sort of trying to repeat that with a similar -- to do something similar where you can take an asset and just plug it into your relationship and sort of take advantage of 3M's robust network in the health care system?

Yes. And I think you would see M*Modal did pretty much the same, right? For example, you brought the technical strength of M*Modal, you combined it with a strong health information system revenue cycle management business that we had. And that has allowed the growth to come in because you have a face to the market. You are relevant to the caregivers. Similarly, with Acelity and the work that we have done with our wound care business, we've been able to get 2 things, and I think many of the 3M acquisitions are based on this. One is can I leverage the brand and the relationships, which Acelity allowed you to do. Two is to say, can I do global manufacturing at scale, which 3M does, and that has allowed us to go and look at Acelity's manufacturing and say, "How do we get that better and get the cost to serve?" And the third one is to say, "Can I use material science that allows us to make the target even better?" And that's also the innovation that the teams are doing by using data as well -- so digital as well as material science to help make the products even more -- have stronger efficacy is what the 3M teams are doing. So yes, that's absolute. And I think that any of the acquisitions that we look at, Andrew, are looking at these 3 characteristics and saying, can we bring that together and get the synergies from a commercial perspective first and then, of course, then the cost and the technology perspective.

And then just to follow-up in terms of sort of in the consumer side, I think one of the first things when Mike took over, and I met him, he was very excited about -- not excited, but he really emphasized the changing distribution model and the skill set you need on the consumer side to deal with the changes in the channel. So the fact that you are starting to focus on the -- more focus on the margin. And look, I've looked at 3M for many, many years. I completely appreciate how interconnected the portfolio is. So I definitely appreciate your statement here. But how much of the fact that you're focusing on Consumer has to do with the fact that, internally, you guys have been developed -- been able to develop sort of the right supply chain, the right distribution methods to sort of -- to -- even the IT systems, right, to attack the channel better?

Yes, and that's a great one, Andrew, and we truly appreciate the insight you always bring to 3M. When I look at it, I would say, first thing is when the business got reorganized, before my time and Mike announced a restructuring where he said 4 business units. Business number one is Safety and Industrial, which is a B2B business or a distribution-based business. Business number two, Transportation and Electronics; spec-in, design-in business; Health Care, dedicated to the health care industry; and then Consumer, which is, again, dedicated to a channel, which is the consumer channel. And then creating enterprise operations underneath that was created like a pipe that goes across these 4 businesses and then using digital as a way to get closer to the customer and make it easier for the customer to do business, that enabled the start of basically doing what you said, which is making sure that we have a consumer business that is very focused on the channels it serves. And if I just take that business or any of these businesses and elevate to the digital strategy, number one is digital customer. And that's where a consumer can play in. As consumer behavior is changing, customer behavior is changing, where they want to buy more stuff online. It makes it necessary for our search engines to be better. It makes it necessary for our product specifications to be better so that the consumer or customer can buy off an e-commerce site. So that's the -- so the business has grown nearly 15% plus from an e-commerce perspective in Consumer. We saw that trend happening. Jeff Lavers and his team have invested heavily increasing e-commerce platform. But if you take it further and say that trend continues in Safety and Industrial, Mike Vale and his team are doing something very similar on an omnichannel on the Safety and Industrial side. How you fulfill that order is the last mile discussion. But as a customer, if I can go and understand your specs better and how it fits into my production supply chain, that's a huge win for 3M. So that's digital customer. Then you go into digital product. In digital product, you can take our Health Information Systems business, but you can also look at us using data and data analytics in our abrasives business, in our auto business, to reduce the number of defects in the manufacture of cars. That's a digital product. Then you talk about digital enterprise, which is -- sorry, digital operations, which is getting my factories to be more efficient. Again, the consumer discussion, since you asked me specifically about consumer, the learnings that we ended up having in the N95 mask production has allowed us to create a digital twin. We are applying that same technology in our Clinton, Tennessee facility as we expand the manufacturing of Filtrete brands. It'll allow you to produce at scale. It'll allow you to take cost out to get the margin rate up. And then is the last one, which is digital enterprise, think about that as ERP, which helps to make your back room more efficient. But I thought I'll just give you that in context and tie it back to consumer, because you can see that these building blocks, which were made by reorganizing the business and then applying data and analytics, which we think is a multiplier, allows us to be efficient in all these channels.

And you actually almost answered my follow-up question. But on digital strategy, I believe I'm correct in saying that if I look at the -- at 3M's periodic table of technologies, you actually now do have a number of digital components there, digital elements. So should I be thinking about these, right? Because I always think of 3M products, you take 3M's sort of table of elements and each product will probably have 3 to 5 or more components. So should I just be thinking about digital as now it's an important component of the marketing and manufacturing process and that's how it fits as well? Or should I also be thinking that you could also develop a specific digital scale as -- I guess, Health Care system is one example. But does that mean that, over time, 3M could have also something more of a stand-alone software offering to go together with its physical product?

Absolutely. And that's what I call digital product, Andrew, which is basically using a software to help reduce waste. At the end of the day, the way I look at it at least in the short to medium term, we are marrying material science with data science versus a software company. So we have the strength that we have in material science. We have the strength in understanding how factories run because of the scale at which we produce. The question is, how do I take the exhaust and my learnings from there and all the data that I capture and how can I put it into an offering from a software perspective that makes it easier for customers to use as well as improve their efficiency. So it's a perfect marriage then -- you're very astute in reading that periodic table, which clearly shows some of those items in there. We are also making sure our employees are also well versed better on digital, because at the end of the day, creating digital and selling digital also require a special skill set. And the teams are continuing to keep working on that from a partnership perspective. We got a good [ moor ] in that area. I was amazed. My 18 months I've been here, I'm amazed at how much quality of data that 3M has, and it's a chance for us to help capitalize on it. And that's why in my Investor Day, I said, digital's a multiplier for this company.

Right. No, this is great. So maybe EVs and energy transition, big focus -- has been a big focus of this conference. Clearly, you have direct exposure in the EV sector. So can you talk about the growth opportunities in 3M's electric vehicle platform growth? And how should we think about per vehicle content for EVs versus internal combustion engines?

Yes. Auto has been a great business for us. It's a $2 billion franchise, 100 years of partnership with the auto OEMs. We have a lot of offerings that have made us very relevant in internal combustion engines, whether it is our products through lightweighting, engineered films, acoustic products or bonding products. We now can take that on to EVs, so that is -- can just get ported over to the EVs as they are designing their cars. But the other benefit that we have, Andrew, is as we spend so much time with the auto OEMs and the partnerships we have, we get a chance to see the technical road maps quite early. And through that, we are able to see what problem they are trying to solve and use material science as a way to solve it. So for example, thermal management with batteries has been a new innovation that 3M has stepped into and if we have got a great partnership with the OEMs, and we are on spec in certain of these cars that are going to come out. And that allows that business to grow from what it was with the traditional income here, internal combustion engines to even more through EVs. Our current average across all types of cars, irrespective of the type of powertrain, is around $20 per unit. We expect that to continue to grow as the partnerships continue to evolve. Historically, 3M has grown 300 to 500 basis points above the build rate for auto. And in the future, Ashish and his team would tell you with all the work that they have done, with all the opportunities that are available, that we continue to outbuild -- we continue to outgrow our build rate by 300 to 500 basis points.

Excellent. So let's sort of shift to long-term margins. I think I sent you or Bruce a chart of, I think, 3M's margins going back 30 years. And you guys have been able, actually, to drive them up over time, but it does seem that the company sort of reinvents its approach to getting the margins up every time. As we think about longer-term margin expansion, what are 3M's key operating levers that will help achieve the 30% to 40% long-term incremental margin target? Because that's -- historically, that's where we get the most pushback from investors. I wonder if the pushback has stayed constant over the past 20, 30 years, as 3M actually has been able to grow margins. But it does seem that given you have very high return on capital, right, it's not that easy. So if we can just talk about sort of the levers to expand margins from here.

Sure. Here's how I would think about it. And you're right, it's never easy, right? Every day, the teams do a marvelous job working through hundreds of projects to drive productivity. But if I elevate myself up, one is volume gives us the biggest leverage. So to the extent that I can grow and grow above macro, every $1 of revenue gives me $0.45 to $0.50 of higher margin because that's my gross margin. So I start with that leverage first. Then to that, there is yield and efficiency that we're driving the factories every day, whether it is the digital twin that I talked to you about, whether it is reducing downtime in one of our machines; whether it is replacing a shaft, which we call replacement capital, which a lot of people don't think about from a CapEx perspective to make sure the product can keep producing at scale and reducing the cost, all of those are examples of yield and efficiency that we drive in the factories, plus strategic sourcing and driving cost out in the products that we buy. You add those 2 together, that itself gives you a lot of leverage. From there, you take away the investments in growth, productivity and sustainability because it's an investment. Some of the margin we make, we're going to go put it back in the business to grow the business. And then from there, you've got to take out, currently, the legal headwinds and the legal issues we are facing. And that's why for 2022, we felt good based on where we've seen 30% to 40%. We are targeting a 35%, excluding the impact of disposable respirators. But it's a tough year. '21 was a tough year because of supply chains. '22 is turning out to be a tough year, at least the first half, from a supply chain inefficiencies perspective. But when you look at the long run, Andrew, and you just look at the math that I walked you through at the high level, there is no reason why these targets are not achievable. The teams just got to keep focusing, and growth of our macro is going to be something that the teams are focused on and we drive and you get that. You're going to get most of the other things that flow through.

And can we just chat about pricing? How has 3M's pricing model evolved in this new inflationary environment? And historically, again, we, as I said, look and we went back and look at the 60s and 70s, your pricing power, last time around, you guys did very, very well. And maybe you can tell us as to how unique is 3M's pricing model. And any way for us to think about price/cost, given the Russia-Ukraine conflict, will likely exacerbate commodity inflation. Clearly, it's not something you disclose anymore, but just as a framework, how to think about that. But first, as I said, maybe talk about 3M's pricing model; and second, how to think about pricing inflation in this environment.

Sounds good. I look at it this way and say, 70% of 3M's products are either regulated or spectate. So it's very clear that we add a lot of value to our customers, and we love that because, at the end, we are trying to solve customer problems. With that said, the team has done a nice job of driving price up. We took price up 0.14% in 2Q, up to 2.6% in 4Q of 2021, and we're going to continue -- that momentum continues. The team has got much more proactive at looking at signals that exist in the market. And with that comes the signal, which is inflation. We started the year at $350 million to $450 million of inflation. That's what we thought will be $200 million to $250 million in the first quarter. I think in the first quarter, we're still in that range of $200 million to $250 million. But we are seeing the second half, based on what we're seeing right now geopolitically, that we think that inflation is going to be higher in the second half. But the teams are already working on price to help offset that, so that we still continue to help offset the impacts of higher inflation with high price. How it has evolved over time as these 4 business models have come together, it's clear on how we want to make sure we are much more coordinated because there are cross channels that could happen. The teams do go product by product, channel by channel, country by country to make sure we're doing the right thing, also partnering well with our customers to make sure that when we issue prices, we have had dialogues with them. Safety and Industrial, I would say, is the fastest you can go because of the distribution-based model. Transportation and Electronics is a customer spec-in model. We have to work with the OEMs. In Health Care, pieces of Health Care, you can move faster; pieces of it are long-term contracts, government contracts that we can take price up when the contracts open up, and then consumer normally has a notice period with some of the big retailers that we have to get them to give price. So we factor all that in. We look at our contracts. We make sure we partner well with our customers. And you've seen we've done a good job in the fourth quarter of taking price up. It took a little bit of time to ramp, but we told you it'll ramp. And that momentum continues into 2022.

Maybe last question because I know we've got some questions from folks on that. The Belgium facility is shut down, and I will try to pronounce it. Could you provide -- so I think it's the Zwijndrecht facility that was temporarily shut down. What has been the impact of your supply chain in Europe? And how has the company been able to offset the manufacturing shutdowns with internal capacity, external sourcing? Just a short update.

Yes. So we have been in that facility for 50 years. It's 1 of our 5 chemical manufacturing sites that we talk about. We received an order that reduced the permit requirements for discharge of air and water. We were in compliance, but we've got a new standard that we need to meet. We did appeal that standard. And we -- so we received that in November. There were pieces of the factory that were shutdown based on that. We had shown you. We had filed an 8-K event based on that, where we thought what the impact could be. Those pieces of factory continue to be shut down as of today. We have received the order, as said the appeal was denied. But we are collaboratively working with the authorities to achieve the new levels because, at the end of the day, we want to produce and be meeting all regulatory and compliance requirements that exist there. We've got the best engineers on the ground there right now working with the government authorities to see what design changes we can make, what more investment we can do in CapEx and OpEx. We had already announced an investment of $125 million in the fourth quarter of last year to continue to get ourselves down and be compliant. We are committed to keep working with the government. But there's always a chance here that if the government denies or we are unable to meet the new requirements that have been set up, that, that factory shuts down. During that time, we have been working hard at looking at both our internal sources and external sources to minimize the impact to customers. But Andrew, we'll keep you posted as this thing evolves, and we'll make sure investors are aware once we come to a resolution here.

No, your disclosure on the issue has been fantastic. So with that, we are out of time. And thank you so much, Monish. It's a pleasure. I hope we can do it in-person sooner rather than later. And to everybody, thanks so much for joining us. And with that, we conclude our Global Industrials Conference. So thanks so much.

Thanks for having us, Andrew.

Of course.