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Avient Corp
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Good morning, ladies and gentlemen, and welcome to Avient Corporation's webcast to discuss the company's Fourth Quarter 2021 results. My name is Carmen, and I will be your operator for today. At this time, all participants are in a listen-only mode. We will have a question-and-answer session following the company's prepared remarks. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Joe Di Salvo, Vice President, Treasurer, and Investor Relations. Please proceed.
Thank you, Carmen. And good morning and welcome to our fourth quarter 2021 Earnings Call. Before beginning, we'd like to remind you that statements made during this webcast may be considered forward-looking statements. Forward-looking statements will give current expectations or forecasts of future events and are not guarantees of future performance. They are 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.
Also, during the discussion today, we will use both GAAP and non-GAAP financial measures. Please refer to the presentation posted on the Avient website where the company describes non-GAAP measures and provides a reconciliation to the most directly comparable GAAP financial measures. Joining me today is our Chairman, President and Chief Executive Officer, Bob Patterson, and Senior Vice President and Chief Financial Officer, Jamie Beggs. And I will turn the call over to Bob for some opening comments.
Well, thanks, Joe. And good morning to everyone joining us on the call today. Today we are reporting record fourth quarter results to finish out an incredible year where we delivered our highest level of sales and adjusted EPS in our Company's history. Our financial performance reflects the deliberate transformation of our portfolio towards specialty solutions, as well as a focus on execution during a very challenging year. 2021 marked our first Full Year as Avient Corporation. As you know, we selected this new name in July of 2020 following the acquisition of Clariant Color business, the largest in our history.
Avient truly represents who we are today as a specialty formulator of Sustainable Solutions. And it has served as a galvanizing force in bringing together two world leaders who are truly better together. We finished the year a little better than expected with adjusted EPS of $0.58 for the quarter versus our prior guidance of $0.54. Many themes from our prior quarter discussions carried forward as we have been able to overcome unprecedented inflation, supply chain disruptions, and workforce shortages to deliver bottom-line growth.
From a demand perspective, we did see a decline in transportation primarily in Europe, as well as a decline in sales of outdoor high performance applications, which we expected. And Jamie will speak to that in a moment when we discuss segment performance and our outlook. For the full-year, adjusted EPS was $3.05, an all-time record and a 58% increase over 2020. We achieved this with sales of $4.8 million and adjusted operating income of $429 million. Each of our three segments contributed to our results this year with strong double-digit growth across the board. Specialty Engineered Materials grew operating income 47 -- 40%, driven by a high demand for our Composites and other specialty solutions serving the consumer and healthcare markets.
Color Additives and Inks grew revenue by 18% and operating income by 34%, including $54 million in Synergies from the Clariant Color integration; the segment expanded operating income to over $300 million for the first time. Distribution achieved significant revenue growth of 47% and operating income expansion of 33%, also to reach record level performance this year. Notably, healthcare continues to be a significant driver for us and now represents 26% of distribution sales. Our differentiated performance is the culmination of a multiyear strategy to become a truly global specialty formulator. The bridge on Slide 7 shows the key drivers of revenue growth and highlights the relative margin contribution of each.
You can also see that like many companies, we have experienced significant wage inflation over time to serve our customers and experience increased costs associated with supply chain disruptions. But as you will see on Slide 8, we have more than covered these costs with associated pricing. We are a formulating what stands out for me this year about our performances and our ability to execute, and the simplicity of this slide makes everything look easy but it certainly isn't. The magnitude of these cost increases have been substantial. And so as our efforts to overcome and deliver, despite them. And this required constant dedication and collaboration among our entire workforce, suppliers and customers.
Our global footprint, flexibility in our operations, and dedicated employees have been a difference maker as we led through these unprecedented times. We have turned these challenges into opportunities as our teams worked relentlessly throughout the year to deliver for all our stakeholders. And I want to thank them for their efforts to deliver a record year. Over the years, we have been strategic in how we position our portfolio both in terms of the types of products we create, as well as where we sell them. We have focused on specialty application with advanced performance characteristics and shifted toward end markets that have high growth potential.
Not only has this been an important contributor to our recent sales growth, but the benefits of improved mix and Clariant synergy capture have meaningfully increased margins despite inflationary pressures. The Clariant Color acquisition has been a tremendous success. The business grew our presence in our focused end markets of healthcare, packaging, and consumer, which not only fared well during the pandemic, but also served as key growth areas for us.
When we announced the Clariant deal in December of 2019, we were acquiring a little over $130 million of EBITDA. In 2021, which was our first full year of ownership, Clariant and related synergy capture, contributed $205 million of EBITDA, a 54% increase. Margins have expanded 400 basis points. And when you look at the purchase price multiple, you can see tremendous return on investment with more to come. The integration has exceeded our high expectations with respect to how well our two teams have come together. This has enabled us to accelerate the pace and level of synergy capture. And for those of you who participated at our Investor Day in December, we provided an update to our anticipated cost synergies, which we now expect to approximate $85 million.
And these are just the cost synergies. We are even more excited about the revenue synergies yet to come as we continue to integrate our commercial teams. The shared passion for solving our customer's toughest material science challenges is becoming more and more apparent every day. And this really is at the heart of what we mean when we say better together. These material challenges continue to evolve and historically the question is like, how do I make my product stronger, or lighter, or both; or how do I advance shelf life with additives and improve shelf appeal with colorants remain. However, we now get one more question which is always, how do we do these things while at the same time improving the sustainability of our products?
For us, we have invested heavily in the sustainable solutions, and it's been the fastest-growing part of our business over the last five years. Lightweighting has been a huge contributor to that growth. And when we say that, often times you think transportation, and that's true. However, lightweighting has also been very important in a growing role in packaging. Eco-conscious materials have also grown tremendously as we help our customers use more recycled content and/or improve the recyclability of their products. There are eight primary ways utilizing science design and formulation that we help customers with their sustainability goals. And in 2021, our Sustainable Solutions portfolio grew 16% over the prior year. And now account for nearly 30% of Color and Engineer Materials segment sales.
We would not be able to share this kind of success with you if it was not for our culture. As a leadership team, we firmly believe that culture is everything. It's the driving force behind our record financial performance. And I'm proud to report that we received our third consecutive great place to work certification in December. Our global associates have built a truly exceptional culture here at Avient. It's one that is inclusive and increasingly diverse. It's innovative and bold as our people bring ideas to life for a greater good and a more circular economy. It's also a culture that loves to take care of our customers and each other, which is exactly what we have done this year. I'll have some closing comments in a moment, but now Jamie will go into more detail related to our fourth quarter results and provide our initial outlook for 2022.
Thank you, Bob. Winning and creating shareholder value is exactly what we did in 2021. Slide 14 shows our fourth-quarter performance highlighting the growth in our key focus areas as well as the impact of higher wages and supply chain costs. On the following slide you can see the impact of our pricing actions to more than cover these costs. I call your attention to the demand sidebar, where we have broken out the impact of normalizing demand for outdoor high performance applications and the decline in transportation sales. Recall that in the fourth quarter of 2020, we saw a surge in demand for outdoor applications as people sought more activities outside their home during COVID.
Transportation is down, we believe, primarily due to trip shortages. Both have a relatively small impact on overall performance. But the preponderance of this is within our SEM segment, which is why SEM operating income declined in the fourth quarter. Excluding the impact of these two markets, operating income was up 10% year-over-year as we saw solid growth in other areas of the business, including demand for 5G applications. As we look ahead to our projections for 2022, we do so with the recent trends in mind, but also with confidence that our four key growth drivers highlighted at our Investor Day, will drive significant sales and EPS growth. Those four areas are sustainable solutions, healthcare, composites and regional expansion in Asia and Latin America.
With the exception of an expected decline in demand for outdoor applications, our projections for 2022 are in line or above the long-term growth rates we communicated in December and are laid out in the slide shown. Sales are expected to grow to $5.1 billion, which represents a growth rate of 6% or 7.5% excluding the impact of negative foreign exchange. For the first quarter and full year, we expect this revenue growth will drive us 7% and 15% expansion and adjusted EPS respectively to $0.95 in Q1 and $3.50 for the full year. We expect a lower adjusted EPS growth in Q1 due to negative foreign exchange rates, which is more heavily weighted to the first half of the year, as well as anticipated supply chain -- supply challenges as we start the year.
We provide further details of sales and operating income projections on the following slides. We've got the first quarter and full year side-by-side so you can see the trends. You'll notice wage inflation is heavily weighted towards Q1 as we lap the increases we implemented last year. The same is true for certain supply chain disruption costs and as previously noted negative foreign exchange. As many companies have reported, the Omicron variant has created additional complexities to the supply chain dynamics as we exited 2021 and started 2022. At the end of January, we had the highest level of unshipped orders we have had in the previous 12 months.
This is due to ongoing supply chain challenges, but also because of the COVID Omicron variant. In January, we had approximately 20 plants experienced significant absenteeism. This impacted the entire value chain, exasperating raw material shortages and variability in order pattern. For the full year, we expect strong growth from each of our key growth drivers, each of our key growth platforms, and additional synergies from the Clariant integration. This will substantially exceed expected increased cost associated with supply chain challenges, inflation, and negative foreign exchange. I know this is a lot to digest and we'll have time for questions at the conclusion of our prepared remarks.
My final slide summarizes our full-year cash flow generation and expected year-end leverage. Free cash flow is expected to be $250 million in 2022. This is an increase of a $117 million over the prior year, which included a significant increase in working capital associated with inflation and supply chain issues. We're planning to spend a $135 million of CapEx, $45 million of which is associated with the clearing integration and an IT upgrade we expect to kick off this year to put legacy PolyOne and legacy Clariant on one system, which will further improve operational efficiency and the overall integration as one Avient. Now, I'll turn the call back over to Bob for some closing remarks.
Thanks, Jamie. 2021 was indeed a year of record results and milestone achievements. Those include delivering the highest level of sales and earnings in our Company's history, the success of the Clariant integration, and we were recognized as one of America's Most Responsible Companies by Newsweek, and we earned our third consecutive Great Place to Work certification. We are proud of all of these accomplishments, but we have even higher expectations for the coming year. And as we start our second full year as Avient, we expect to deliver 15% adjusted EPS growth to $3.50, as EBITDA increases to $635 million on $5.1 billion in revenue. As Jamie said, we anticipate prior -- free cash flow to be up this year to $250 million.
And that's cash that we can actively seek to put to work adding new or complementary technologies through select acquisitions that expand our Sustainable Solutions and Composites platforms. We have quickly delevered from when we first announced the Clariant Color acquisition and confidently have the balance sheet strength to pursue both smaller bolt-ons as well as more transformational targets. As you know we are not a volume-driven company but rather a value-driven company. Accordingly, we haven't pursued revenue just for the sake of being bigger, but we are bigger and more profitable than we have ever been.
And I think reaching $5 billion in revenue will be a milestone achievement for us this year. That hopefully also puts us on more investors ' radar screens. We thank you for your time and attention this morning. The upcoming year will have its challenges for sure, but we have the strategy, the team, and the culture to build on our momentum so that we deliver another exceptional year for our customers, our shareholders, and our associates. With that, we'd now be happy to take any questions you may have.
Thank you [Operator Instructions] Please stand by while we compile the Q&A roster. Your first question is from Mike Sison with Wells Fargo, your line is open.
Hey, good morning. Congratulations on another nice quarter. I wanted to dig in a little bit on the revenue growth for 2022. It looks pretty impressive for all the major areas [Indiscernible] healthcare and such Are those orders -- can you maybe just give us a little bit of color? And our order patterns in is -- how much of that growth rate is locked into some degree?
We will look. As you know we don't have an extensive backlog in this business, Mike. We really do have order visibility at about 30 days to 45 day at any point in time. So we do have modest demand expectations or rather demand growth for the year. That probably is 2% to 2.5% with the balance of that being really in pricing actions a lot of which is carryover from '21. So we certainly know what those pricing actions are. I think demand is the one thing that really remains to be seen past what we have in our order books right now.
Got it and then, I guess inflation will be a little bit more of a headwind in the first half. It looks like EPS growth first-quarter is solid but a little bit less. Is that what's impacting the EPS growth, in the second half you catch up and get a little bit more momentum there?
Yes, I think the bridge schedule we have got the webcast slides help to illustrate some of the front load impact of wage inflation, supply chain, disruption costs, and then also negative foreign exchange. So currencies for us started to turn negative at the end of last year. We expect that impacts as the most heavily in the first and second quarter of this year.
Got it. Thank you.
Thank you. Our next question comes from Frank Mitsch with Fermium Research. Your line is open.
Hi, everyone. It's Aziza on for Frank.
Hi, Aziza.
First question -- hey. So my first question would be, with net debt -- with net leverage debt, the 2.2 level, might we see buybacks more than just to offset dilution?
I think that really -- obviously, we are -- historically, have been an opportunistic buyer of our shares back. I think in the third quarter or so of last year, we did say that with leverage getting down to where we expected it to be, we could be buying shares again. So that could happen in the early part of this year, I think. As you know, our preference is to try to put cash to work to invest in the business with M&A, but if the deals don't come to fruition, then we certainly could be buying shares.
Got it. And elaborating on the pricing and raw outlook through 2022, could you maybe provide more details and what you still see on the high side of [Indiscernible]?
By high side, do you mean product families or percentage increases or what? Please, help me out.
More of the percent, like what still is elevated as far as percentage increases.
Yeah, maybe I'll start this way. To start the year there -- really only two areas where we're seeing things start to moderate some polypropylene, polyethylene, which are actually relatively small percentages of our spend -- the polyethylenes in general are relatively small. Everything else is still trending up. When we look at everything else that we have, either from pigments, dyes, and some of the performance materials that we have and engineer materials. And right now that trending is probably mid-to-high single-digit inflation.
Got it. Thank you so much.
All right.
Our next question comes from Mike Harrison with Seaport Research. Your line is open.
Hi, and good morning. Congratulations on the strong finish to the year. I was wondering if you can talk a little bit more about what you're seeing in Outdoor High Performance. It seems like we're seeing that demand normalizing a little bit. Just some more color on what you saw in Q4 and what you're hearing from your customers about 2022. I guess, we had a sense that there would still be some inventory replenishment that needed to happen even if we saw demand come off these elevated levels, so what's going on there?
It really is actually pretty narrowly-restricted to firearms and just some of the hunting-related applications that we had that we actually saw down in the fourth quarter and expect to be down in 2022. I think, things like off-road vehicles will actually still be very strong in 2022. So it really is kind of narrowly focused with what we see slowing down right now, Mike. There's plenty of other applications that I think will be strong as we probably talked about throughout the course of the year in conversation with our customers. They're struggling to meet demand, particularly in the off-road vehicle sectors. So we're still hearing the same thing. On many of those cases, consumer will still be a good year in 2022.
All right. And then I was hoping you could give an update on the expected revenue synergies from the Clariant business. Obviously, you guys raised your cost synergy outlook, but are there some commensurate increases in your expectations for revenue synergies? Maybe give us a sense of whether you're seeing some traction, or can highlight some areas where you've seen cross-selling opportunities that have materialized already.
We are certainly seeing some early opportunities. And as you know for us commercial wins have a tendency to be fairly small in size when you look at them on an individual basis, so by order of magnitude the impact in '21 was still relatively small. I think we will start to see more traction in 2022 and hopefully that aligns with maybe a little bit more normal market conditions, but we haven't changed the overall level of expectations which is around $50 million to $75 million of revenue from those synergies. And long said that that's something we see out in Years 3, 4, and 5.
All right. And if I could just sneak one more in, I'm curious on the IT system upgrade. What is the total CapEx associated with that project? And can you give us a sense of that -- the timing of implementation and go live? Thanks.
Sure, Mike. We plan on kicking that project off in the middle of this year. At this juncture, it's going to be a multi-year project as you can imagine, combining the magnitude of the sites that we have with both legacy PolyOne and legacy Clariant. Current estimates are between $50 million and $70 million. We're still working through all those cost estimates, so we'll kick that off in earnest in the middle of the year. And as we refine those estimates, we'll provide that out. We did put about $25 million or so in the budget for -- in the outlook that we provided today, and those things will continue to get refined as we get more into the project details.
Perfect, thanks very much.
Thank you. Our next question comes from Ben Kallo with Baird. Your line is open
Hey, thanks for taking my question, guys. Good morning. I wanted to just talk about on the balance sheet and just what you're seeing out there in terms of acquisitions. I know you've talked about on Sustainable Solutions as an area of focus, but maybe just what you're seeing as far as pipeline, and then about -- and around valuations as well as we look forward. Thank you.
Maybe I will take the last part first. I mean, valuations has certainly gone up significantly in the last year. You all are aware of the headline multiples you're seeing being announced and they're pretty high. And so the expectations are the same as we're looking at deals right now. We're not going to chase doing deals just for the sake of doing one. We want to be prudent with our capital and make sure they make financial sense. We have been looking at a number of deals, we've got a couple that were actionable but we just decided not to move forward with candidly because of valuation, so they were simply too high.
I'm expecting that's going to be a challenge with respect to doing deals this year, but hopefully we can get to come together in the right way. We do really want to focus on those two areas of Sustainable Solutions and Composites as our next deal.
And then my second question is just on pricing, because you guys navigated inflation very nicely during the year, and sounds like you have some expectations into this year of doing that too. Is there -- how much, I guess room is there with customers [Indiscernible] to go out and you'll continue to raise price or is that already a lot of that been set already? Is that what you meant earlier in your comments? And thank you.
Yeah. What I meant earlier, and that might have been Mike's earlier question, is that for the most part, I was just referring to the rollover impact of price increases that were announced in '21. There could be some more modest increases this year. As I was saying, a number of our raw material costs continued to increase. There are a couple that seem to be down or moderating. But currently, as long as those continue to go up, we have to do the same thing with our prices. I just haven't quantified or modeled out what that looks like so far.
Thank you.
Yes.
Thank you. Our next question comes from Bob Koort with Goldman Sachs. Your line is open.
Thank you. Good morning. Bob, I wanted to ask, you added the words "you could pursue transformational deals " and for many investors, that can be somewhat chilling. But I guess your one transformational deal and the stock's doubled since you did it, so maybe you get the benefit of the doubt. But what would be transformational? What more do you guys need relative to the pretty inspired growth you have in front of you? And then your comment about opportunistic share purchase, does the stock trailing off 20% in the face of good numbers present that opportunity?
Sort of like the latter question, yeah, I think it does. With respect to the first part I think transformational is something probably on the Composite side. There are some things that I think would also probably be deemed such in Sustainable Solutions and still be added to the Color segments, so I -- really, I'm just intending to say to look with our balance sheet strength. I think we could do a broad array of deal sizes.
And so that's primarily the result or the reason for that comment that I made earlier, but obviously with what we've done with putting together legacy PolyOne and legacy Clariant, I think we will be looking to expand color primarily into additives and things that might expand the Sustainable Solutions, not some of the traditional deals we've looked at in the past.
Got you. And if I could follow up. You guys have had pretty exceptional expense control. Obviously, your price cost management has been great. I'm wondering, as a specialty formulator, I assume that requires a lot of consultative selling and you've had to adjust the way you execute your business in terms of COVID and all the limitations that creates. Do you think there's permanency to some of these changes? Has it created some challenges or opportunities? How is the business model the way you execute that strategy changed permanently, but [Indiscernible] or should we expect a cost burden coming back in?
So if you were to look back over, let's say a three to four-year time horizon, you would see an increase in resources dedicated to sales, marketing, and technology. We have had some offsetting cost reductions in general and administrative to kind of help keep that flat, and obviously when we brought legacy Clariant, legacy PolyOne together, our intention wasn't to reduce our headcount in those areas, but we have had some attrition simply as a result of, I think, COVID, and the challenges over the last couple of years and are finding that we don't need to replace all those positions in kind. So as we look ahead to 2022, I don't see any reason why you see cost increases filtering in, in any way that's unusual or unexpected. I think we'll still be in really good shape with respect to how SG&A marries up to our overall level sales growth.
Got it. Thanks for the help.
Thank you. Our next question comes from Kristen Owen with Oppenheimer. [Indiscernible].
Hi, good morning. Wanted to follow up on some of the comments about the digital investments that you made at the Analyst Day. And I'm just trying to think about how we should be tracking the benefits of those. So I'm wondering if you can talk maybe about cycle times with your customers and how those are trending for some of these newer Sustainable Solutions, or not cycle times, but something else. Just provide us some guardrails on how we can measure the progress of those digital investments that you're making. Thank you.
Did you say about the investments in digital?
Correct.
Yeah, so we're actually seeing in most traction where it really is just how we can engage with our customers, either by web-based interactivity or simply being able to do more transactional work online. For a lot of our customers, that's the heavy amount of work for them, to simply just want to engage with us on where are our materials and when they are going to be here. And as you can imagine over the last 18 months that's been the number one, two, and three questions. I do think that digital investments have helped us in that regard. I think more than anything else it’s just been from an operational standpoint.
I do see future opportunities are to really help I think improve how we engage quickly with our customers on innovation. And I really think that we've got good system alignment with respect to how we marry up or lean into our innovation team and then ultimately circle back. Candidly, with respect to measuring that performance, I think it can show up in any one of the key growth areas that we have. And it's an important part of our investments to drive growth in all those, not something I would specifically look to in the future and say all this was digital growth, for example.
Okay. That's helpful. Just to follow up on some of the commentary around Composites then. In outdoor performance, despite what you're talking about as a normalization next year, that end market has been a really strong proof point for the Composites business. I'm wondering if you can give us a sense of how you think about Composites traction outside of that application developing in 2022.
One of the things that we highlighted at the Investor Day, of course, was our investment in fiber line that we did in 2019, and composite applications associated with 5G build-out related infrastructure. Candidly, I think that's going to be one of the fastest-growing areas of composites for us and that's why we highlighted it in. What we're seeing right now with respect to normalization of demand in the outdoor space is pretty narrowly focused. It's very profitable business for us. And so when you look at the bridge schedules in the webcast slides, you can see that. And that's what we've modeled in at 2022. But more broadly speaking, I still think there's a tremendous amount of growth opportunities outside of that for composites this year.
Thanks so much. Congratulations in the next quarter.
Thank you.
Thanks too and our next question comes from Laurence Alexander with Jefferies. Your line is open.
Good morning. Can you talk a little bit more on [Indiscernible] comments around unfilled orders? What's your dynamics? Are you seeing -- are you typically seeing churn or are you getting all of that business back as your capacity can catch up? And are you -- do you ever see customers in the process of upgrading to different products? So you basically you've churn out, but you're basically cross-selling your own solutions rather than losing to other customers.
Yeah, I mean, so look, first of all, the comments that Jamie made with respect to unshipped orders in January was really heavily impacted by the Omicron variant and the fact that we had 20 facilities, so that's 1/5th of our manufacturing sites had significant absenteeism of around 20% or more of our associates who are out. As we look at our COVID case rate over the last -- its almost two years now, right? I mean, it's really heavily weighted towards the last month or so. Omicron is real. It certainly has impacted a lot of people and I think that's weighed on us more heavily. Supply chain disruptions certainly have been a benefactor in that as well.
We don't believe that we're losing any business as a result of that. And largely, what you see is an ability to get those orders out in the next month. But that just makes it more difficult to get the next month's orders out, if you follow me. So candidly, these supply chain disruptions are here. We don't see an immediate end to those, and I think that's going to be a dynamic here for the near-term.
Okay. Thank you.
Thank you. [Operator Instructions] We have a question from the line of Angel Castillo with Morgan Stanley. Your line is open.
Hi, and good morning. Thanks for taking my question. I just wanted to follow up on that last discussion around the unshipped orders. You noted that a lot of this probably has to do with Omicron and just the absenteeism that you are seeing in January. How is that trending now in February with cases seemingly starting to go down in most regions just as we think about the potential improvements, at least those 20 plants that you noted. Are you starting to see that pick up a little bit or how should we think about, I guess what you are seeing there?
Yeah. I mean, so let me put it in the context of the number of impacted facilities that is certainly coming down in February. Our case experience really follows that of what you see by jurisdiction around the world. There's nothing unique about us in that regards. So I think case rates are coming down. I think that helps us from a manufacturing standpoint and should allow us to do better in February than we did in January.
That's helpful. Thank you. And then on pricing, the discussion you had earlier about continuing to potentially drive a little bit more pricing to move along with a non - resin products have continued to see inflation. In terms of the areas where you are seeing over a bit of deflation or kind of normalization, do you see any pressure to reduce prices in many areas or are you able to maintain that? Can you just give us a little bit more color on that?
Yeah, I mean, look, with respect to the base resins that we distribute on behalf of our suppliers in our distribution business that largely just pass through pricing, so I think you will see that immediately in the first quarter, that's normal. And look, with respect to that as an input cost for our other businesses, it's a relatively small percentage of our total spend. As I said the other areas are all still clipping along at mid-to-high single-digit inflation. And as a result of that that's why I made the comment earlier that I did that that can warrant additional price increases as we go through the year.
That's helpful. If I could sneak one last quick one in. Just in terms of the various regions, if you could just give us more color as to what you're seeing across the Europe versus North America etc.?
Yeah. I mean, there were -- as we looked at the fourth quarter -- I mean, first of all, I think we are really starting to see some more normal seasonality in the business, obviously, in 2020, that was modeled with respect to acquiring Clariant and then having this tremendous growth coming out of the pandemic. And we weren't exactly sure how that would play out in '21 other than we expected Q4 to be down and it was. So I think there's some seasonality elements there with Europe typically having a stronger first half versus second half of the year.
Look from a demand standpoint, there is really only two things to kind of highlight that we saw, we talked about earlier, which was transportation. And that was down for us around the world but most significantly in Europe. So I guess there's a regional observation to be made there. And then with respect to outdoor, that's primarily in North America. So overall, I mean, demand was relatively flat here in the fourth quarter with some things like healthcare being up significantly. And then the other markets that I just talked about being down or flat.
Great. Thank you.
Certainly.
Thank you.
I think that was our last question. We appreciate everyone's time and attention this morning. We look forward to updating you on our first quarter performance when we get to the time to do that in April. So for now, goodbye and take care. Thanks, everybody.
Thank you. Ladies and gentlemen, this concludes today's program. Thank you for participating and you may now disconnect.