Welcome to Flowserve’s Fourth Quarter Year Ending 2019 Earnings Call. My name is Paulette, and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Mike Mullin, Director Investor Relations. You may begin.

Thanks, Paulette, and good morning, everyone. We appreciate you participating on our conference call today to discuss Flowserve’s fourth quarter and full year 2019 financial results. Joining me this morning are Scott Rowe, Flowserve’s President and Chief Executive Officer; and Jay Roueche, Interim Chief Financial Officer. Following our prepared comments, we will open the call for your questions. And as a reminder, this event is being webcast, and an audio replay will be available. Please also note that our earnings materials do and this call will include non-GAAP measures and contain forward-looking statements. These statements are based upon forecasts, expectations and other information available to management as of February 18, 2020, and they involve risks and uncertainties, many of which are beyond the company’s control. We encourage you to fully review our safe harbor disclosures and the reconciliation of our non-GAAP metrics to our reported results, both of which are included in our press release and earnings presentation and are available on our website at flowserve.com in the Investor Relations section. I now like to turn the call over to Scott Rowe, Flowserve’s President and Chief Executive Officer, for his prepared comments.

Great. Thank you, Mike. Good morning, everyone, and thank you for joining today’s call. Flowserve’s fourth quarter mark a strong finish to 2019, as we exceeded our initial full-year expectations and continue to make significant progress with the Flowserve 2.0 transformation. I first want to let our Flowserve associates and leaders know how much I appreciate their efforts and contributions in 2019. We have asked a lot from our team and they continue to rise to the occasion. Despite the challenges in 2019, our team delivered on our performance improvement program; continue to support our customers; and created value for our shareholders. Since initiating our transformation strategy, our employees have demonstrated increasing ownership of the program and our overall employee engagement has reached the highest level since I’ve been at Flowserve. I am confident that we are building a culture of accountability, respect and trust as we drive sustainable improvement and create an enterprise capable of performing in any market environment. Before turning to our results, I would like to talk briefly about China and the coronavirus situation. We have 780 associates based in China and our number one focus is their safety and that of their families. We are actively monitoring the situation and working closely with governmental health organizations in all of Asia Pacific to ensure we keep our workforce as safe as possible. We have a large manufacturing complex in Suzhou, which is about 450 miles east of Wuhan. Additionally, we have several smaller QRCs in the region, as well as sales and administrative offices. All of our Chinese facilities are now operational and back to work after a government-mandated extension to the Lunar New Year holiday. We also have a large supplier network in China that provides products to our global Flowserve operations. These suppliers have…

Thank you, Scott, and good morning, everyone. We are very pleased with our solid finish to the year. As Scott highlighted, we delivered adjusted earnings per share of $0.66 in the fourth quarter, which brings our full year adjusted EPS of $2.20. This performance exceeded our initial guidance given the last February and reached the high-end of our revised guidance range that we provided after the third quarter. Importantly, the quality of our earnings improved significantly during 2019. Flowserve’s reported full year EPS of $1.93 represented 88% of our adjusted EPS compared to just 52% in 2018. On a reported basis, fourth quarter EPS increased 10% to $0.53, and included realignment, transformation and voluntary retirement expenses of $0.08 as well as $0.05 of below the line currency impacts. Fourth quarter sales of $1.07 billion increased 8.2% versus the prior year or 9.3%, excluding the impact of foreign exchange headwinds. It was our highest quarterly level of revenue in 2 years. The fourth quarter sales increased included strong OE and aftermarket growth of 11.3% and 5.3%, respectively. FCD was the primary contributor with OE and aftermarket growth of 22% and 6%, respectively. The full year 2019 revenues were $3.9 billion, an increase of 2.9% compared to 2018 and in line with our most recent 2019 guidance, excluding currency and divestiture headwinds, the increase for the full year was 6.2%. Turning now to our margins. Fourth quarter adjusted gross margin decreased 50 basis points. FPD’s 60 basis point increase was more than offset by FCD’s 150 basis point decline. For the full year, however, adjusted gross margin increased 100 basis points to 33.3% which includes FPD’s 230 basis point increase from transformation driven top-line, operational and productivity improvements. Partially offsetting FPD’s strong full year performance was the 120 basis point decline in…

Great. Thank you, Jay. I’d like to wrap up by spending a few minutes talking about the journey that we have been on over the last 3 years at Flowserve and how the transformation will continue to provide support in 2020. I’ll start with the progress we made since 2017, following 3 consecutive years of sequential revenue declines, Flowserve returned to growth in 2018 and 2019. And we fully expect this trend to continue in 2020. Our yearend 2019 backlog is up 14% compared to prior year, which provides a solid starting point for 2020. While each of the end-markets have unique cyclical characteristics, overall, we believe that some of our customers’ CapEx budgets will be flat to slightly increased over 2019 level. Beyond the market, we also expect further results from our growth-oriented transformation initiatives, which have driven outperformance in the prior two years. We have also delivered better margins through significant improvements in our global operations and better cost management. Over the last 2 years, we have driven strong margin improvement on modest revenue growth. Our adjusted growth and operating margins have increased 190 and 200 basis points respectively, since full year 2017. Our focus on working capital improvement has driven 100 basis points decline, as a percentage of sales, in a growing environment. The combination of growth and margin improvement has restored Flowserve’s return on invested capital to a reasonable level, which is now up 530 basis points from 2017. What is most promising is that we have substantial opportunities ahead of us to continue to build on the momentum that we have created in the last 3 years. It was clear to me in my early days at Flowserve that the transformation would also need to focus on the culture and the organizational health of the…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Andrew Kaplowitz from Citi. Please go ahead.

Good morning, guys.

Hey, Andy.

Andy, good morning.

So, Scott and Jay, obviously, good execution this quarter. But I just want to focus on your comments that you still see modest bookings growth in 2020 led by refining, chemical and LNG. How much of that confidence comes from all your self-help initiatives? And then, your project pipeline last quarter, I think was down a little bit. Did it continue to drop a little in Q4, given macro uncertainty or did it stabilize at this point?

Yeah. Sure, Andy, I’ll take this one. We are still committed to growth. But obviously, the marketplace is remaining highly volatile and certainly the impact of the coronavirus is not going to help. I’ll just kind of hit a couple of things that you talked about. First the project pipeline, what we’re seeing in Q1 is relatively stable from what we saw in Q4, which as you said was slightly down from a year ago. But it’s still incredibly healthy. And so for us, it’s more about the ability to win selective projects that are out there. We had nice project awards in Q4. We got visibility to project awards in Q1. And that pipeline across the downstream space, LNG has – got a lot of opportunities in the LNG spot and then the midstream spot as well. And so, we feel really reasonably well about the project side and the project bookings. I’d say that the big challenge, the one we faced in the back-half of last year is our MRO bookings in that book-to-ship business. And so, that’s the one we’re watching carefully at primarily North America. And I just – with the distributor destocking, I expect that to pivot to growth. But that turn to growth is now continuing to move out. I was thinking probably earlier in 2020, a month or two ago, and now it would be probably more in the second half of 2020.

That’s helpful, Scott. And maybe the follow-up would be around margins and the impact of all of what you just talked about. So if I look at 2020, looks like you have relatively modest margin improvement in 2020 at the midpoint of your range. Maybe you can just talk about the puts and takes you see on that 2020 margin. And you have this self-help initiatives, a tailwind, maybe price versus cost. You did a put a yellow check on your progress towards the 15% to 17% margin goal. So how do we think about the longer-term goals? It’s been a little harder in this environment, where you’ve got these mix headwinds and maybe modestly lower growth. Maybe you can talk about that.

Sure, let me talk about the 2020 guidance first. And as you alluded to, the challenge here is that the headwind mix, right, it’s the aftermarket versus the OE. And in my prepared comments, I talked about the OE growth being 4 times higher than that of the aftermarket. And just quite frankly, we didn’t anticipate it when we put our long-term targets out and we really didn’t anticipate the magnitude of the impact when we put our 2019 guidance out. And so, that headwind of the margin differential between OE and aftermarket is really what’s holding the margins back. We feel confident in our ability with transformation to continue to move our margins up. But overcoming the headwind, the mix is becoming a challenge. And so, that’s why 2020 is probably a little softer and we’re not showing the improvements that we made to 2019 – or from 2018 to 2019. But at the same time, we’re still committing to margin growth. And then, let’s switch to the long-term target. The yellow checkmark on operating margins is just a recognition that, if you did a linear kind of map to the 15%, we’re a little – we’re below what that expectation is. And like I said previously, we did not anticipate the mix changing so dramatically when we laid out the operating margins. But at the same time, we’re not giving up on that. And so, we still believe we can get to 15% OI margin. We just – unfortunately, it’s not going to happen in 2020, at the pace that we thought. What we do need to do is just continue to make progress on the transformation. And I just say we’ve got – and I said this in the remarks – we still have so many opportunities. The manufacturing productivity is moving really well. Supply chain is moving really well. Design-to-value really hasn’t made its way into the financials yet and we see an impact of that later this year and into 2021. So there is still a lot of levers for us to move margins up, we just have to execute on the transformation in our playbook.

Thanks, Scott. Nice quarter.

Thanks, Andy.

Our next question comes from Deane Dray from RBC Capital Markets. Please go ahead.

Thank you. Good morning, everyone.

Hi, Deane.

Good morning, Deane.

Hey, just give a shout out here to Jay for wrapping up the second stint as Interim CFO. So thanks for all your help there, Jay.

Yeah, happy to do it, Deane.

Appreciate the recognition there, Deane. He is doing a great job.

Yes, sir. Hey, maybe just a follow-up on Andy’s question there and the explanation on the mix, because you did – you’ve clarified this and our take on this is, this is kind of a high-quality problem that have so much OE bookings. But just want to make sure that your degree of confidence in winning the aftermarket4 is there any – you talk about your win-rate in the aftermarket, how often the customer chooses Flowserve to replace Flowserve in the market and just what’s been your experience there?

Sure, it is critically important that we continue to grow the aftermarket. And I’ll just – I’ll start with that and, as you said, it is a high-class problem, right? If we’re growing both the aftermarket and the OE, then I’m okay, growing the OE 3 or 4 times as much. Where we are not okay is if we’re losing share in aftermarket or not growing it. And so, this is a major initiative for us within the transformation. The biggest kind of program that we have around this is called commercial intensity. And essentially, the commercial intensity program is truly defining the market segmentation for aftermarket where our installed base is and making sure we’re moving our customers up the value curve of our aftermarket services. And so, we know we have to continue to make progress here. We know there’s a bigger prize. I think, I wouldn’t say we lost share in 2019, but it wasn’t a great year for growing the aftermarket business for us. So we’re doubling down on the program, and we do expect to continue to make progress here in 2020. And if we can do that, then a lot of the financials really start to come up in a much better and a higher – at a faster rate.

All right, that’s really helpful. And I’m glad you’re giving us a frank assessment here on that, because it doesn’t feel like it’s just distributor destocking, because our experience has been that you get a falloff in MRO, in – especially in oil and gas, in peak oil prices, because refiners just run flat out and they delay kind of the service, and where you would see more aftermarket. So has that been the expectation here?

Yeah, I mean, there is no doubt that operators are getting savvier about what to spend and when to spend it. And so, they’re driving cost reductions. They’re driving further productivity. And as you said, when they’re making good money, they don’t back off and stop operations. And so, we did see that in 2019. But there is such a price here for us, Deane, right? Our installed base is significantly large. It’s the largest on the pump side. And so, we just need to make sure we’re defining those opportunities and our team is really focused on gaining that aftermarket. So I think, regardless of the environment through the commercial intensity program and some of the other initiatives that we have, we’ve got to be focused on growing this and getting our entitlement here.

And I guess the one clarifying point I’d make, Deane, I know, you know this, but for other people on the phone, the MRO that’s really impacting FCD is showing up as an OE booking as opposed to an aftermarket booking.

That’s a good clarification. And then just as a follow-up, when I look at the 2020 assumptions, the CapEx increased kind of jumps off the page. And how much of this is a catch up? Because you said, you did less in 2019 than you planned. Where is that going? And just the reflection of this will weigh on your cash conversion and just some considerations there as well?

Sure. So just a couple of grounding comments. So we finished the year at $66 million in CapEx in 2019 that was down from the guidance that we gave at the beginning of the year. We put the guidance out for 2020 at $90 million to $100 million. And I would just say nothing changes here, right? So we’ve been incredibly disciplined on our CapEx spending since I’ve been here. The focuses in on enterprise-wide IT systems, it’s on manufacturing productivity and then a little bit on just the safety and the upkeep of the facilities themselves. We’ll continue to be very judicious and scrutinize the capital that goes out to our operating entities. I would expect that this range is – it’s a good range and what it is, it’s more – moving more money into the enterprise-wide IT systems. And I’d just say last year, quite frankly, we clamped down at the end of the year, just because, we hadn’t progressed the programs as much as we needed to before we were able to release this spending. But really nothing’s changed in our thinking, I think, $92 million to $100 million is the really good kind of run rate for us as we project forward into the next couple of years.

And just a comment on how that weighs on your conversion?

Yeah. I think, we factored that into the free cash flow conversion, and we still think 100% achievable even in that range.

That’s exactly what I wanted to hear. Thank you.

Our next question comes from John Walsh from Credit Suisse. Please go ahead.

Hi, good morning.

Hey, John.

Hey, John, good morning.

I guess maybe more of a clarification question to start with. But just looking at your shippable backlog you have for 2020 that you called out in the K, it looks like you have pretty good visibility from what you expect to ship. It would seem to imply that the book-and-burn is down kind of low-single-digits for the year. You obviously made some comments around the timing of your distributor partners and how the channels going to look. But one is that math, right? And kind of what are you seeing that would give you that down low-single-digits for book-and-burn?

Yeah, Jay has got our revenue conversion table here, I’ll let him take it, and I’ll add any comment.

Sure, John. No, your math is absolutely, right. With our backlog up year-over-year by 14% and with us expecting to convert 88%, 89% of that during the 12 months of 2020. I would suggest that revenue from backlog year-over-year will be up about 12%. And so for our guidance, at the high end of our guidance, we’re assuming that kind of book-and-ship, book-and-burn work would be relatively flat and then for the low-end of our revenue guidance that 3% book-and-burn work could decline up to 4%. And clearly, if we see a return in the MRO distributor type business that could provide upside to us.

Great. And then you called out kind of the cadence of the year on the H2 versus the H1. Just thinking about this first quarter and the coronavirus impact than anything else, I mean, is there any other finer point you’d like to put on the quarter just from a modeling perspective so that we’re all dialed in correct on how to think about the phasing of the year.

Yeah. We’ll see how the actual year plays out, but if I were thinking about it, I would probably take the average of 2019 and 2018’s phasing and kind of split the difference on that throughout the year.

Got you. Okay. And then if I could just sneak one more in here…

A different way to say it is that Q1 this year will look a lot like Q1 last year, yeah.

Got you. Okay. And then, obviously, what are your competitors in the space is taking the opportunity to accelerate some restructuring actions. You guys have called out what you’re doing this year in terms of realignment in transformation. But do you feel any sense of urgency to kind of accelerate the plan at all or kind of, steady as she goes, relative to how you were thinking about the cadence of realignment and Flowserve 2.0?

Yeah, John, we’re – since I’ve been here, we’ve been focused on cost control and the transformation has – it’s both growth and cost initiatives. And so we’ve been looking at this from the very beginning. At this point, I’m not going to say, we’re dramatically accelerating anything. But what you can see in our K and in the press releases, we did do a voluntary reduction at the end of 2019. What I’d say, it was a U.S. specific program. It was an elegant way to get some folks that were close to the retirement age to voluntary select and move out. And it was a win-win for them and for the company. So we’ve done that and then last year, we took a lot of actions at the facilities that were impacted by the MRO slowdown, primarily in the valve side. But also a little bit in our overall aftermarket organizations. So I would say, in 2019, we were pretty – aggressive is probably not the right word. But we were definitely following the – any slowdown and taking cost actions. I’ll also add that the realignment spending in 2020 that’s the vast majority of that would be headcount reductions rather than major facility moves. So at this time, we’re not going to accelerate dramatically. But we’re not slowing down on improving our overall cost structure and our cost position. And so, we’ll continue to take actions, and I feel pretty good about the level of cost in the organization. And if we need to do something more dramatic or quicker, we’ve got that fully identified now within the transformation. And as you said, it really is just an acceleration of the plan rather than going back to the drawing board and figuring out where we need to take cost down.

Great. Thank you. I appreciate it.

You’re welcome.

Our next question comes from Josh Pokrzywinski from Morgan Stanley. Please go ahead.

Hi, good morning, guys.

Hey, Josh.

Good morning, Josh.

Scott, just a first question on kind of the Flowserve 2.0 initiatives. Maybe trying to back into a little bit of it for 2019, it looks like if you had the gas externally what the amount of discrete savings were from that versus volume leverage, it looks like something in the neighborhood of maybe $30 million. Is that – it could be right or wrong, but like should we think about kind of a similar level of cost reductions whether it’s restructuring or kind of other productivity, it’s being the above and beyond operating leverage type numbers for 2020? Or does that number grow or shrink?

So Josh, we don’t disclose kind of how much we’re getting from transformation versus other things. But I think, your comment on the levels of 2019 versus the level of 2020 is probably accurate, right. I mean, we’ve got a very similar plan for 2020 that we had for 2019. And again, we’re keeping that the full transformation in place for 2020. And I would expect the same level of savings and results this year as we achieved last year.

Got it. That’s helpful. And then, on some of these kind of larger projects that are starting to come out of funnels and get booked, LNG is probably as good as starting point as any. I guess, how do you feel about your win rates, anything that we should keep in mind in terms of where your strengths are in product categories that are more or less concentrated, and the stuff that is exiting funnels right now, the type of projects being booked, being a Flowserve heavy project or kind of a Flowserve light project?

Sure. On the project front, where we do really well is when operators need reliable products for a long period of time in its severe application. So if you think kind of the higher spec refining, the LNG application, the large midstream pipeline, where efficiency of pumps is really critical or anything on the isolation of the control side that’s a critical service. And so a lot of these big projects have categories of really important pumps and valves, and in those we do very well. We’re excited about 2020, I would say, the refining in the downstream side. There is still more work to come based on regulation in IMO 2020. And so we’ve got good visibility to international projects there. On the chemical and petrochemical side, we believe 2020 grows over 2019. And so, we’re excited about that. We see opportunities there in North America and international, in the Middle East and Asia-Pacific. On the LNG front, FID probably a little bit lighter than 2019. But for us, we do well with our valves there. We don’t necessarily do too well with the pumps. But there are key customers and key opportunities, where we feel pretty good about winning our share of business in 2020. So overall, again, our project pipeline looks reasonably healthy. It didn’t change in the last 3 months. And our sales team and the discussions with customers remain optimistic on our ability to win and drive growth here.

Perfect. Thanks, Scott.

Our next question comes from Joe Giordano from Cowen. Please go ahead.

Hey, guys.

Hi, Joe.

So I know you don’t want to get into some hard numbers on coronavirus, but Scott, maybe can you talk us through like how you thought this – how you thought about this internally like we have to haircut here on our suppliers getting to us late and we have to discount here for actual demand, changes in projects taking longer and how long you have that bleeding through the model? Just so we can kind of get a sense of, even if we’re not getting hard numbers like how the big buckets shaped up for you?

Yeah, I can give you two numbers that will help for sure. So first of all, our Chinese operations on a revenue basis account for kind of 3% to 4% of our total revenue. So it’s not huge, but it’s still – it’s meaningful level of revenue. More importantly, it’s the supply chain. So the supply chain is just under 10% of our global supply chain. And so, as we think about disruption and returning to kind of normal operations, I’m confident that we get through this. It’s just more – where I’m not as confident is the timing of the recovery. Our operations are fully back to work as of last week. We’ve got about 75% of our people back to work. We expect to get that number up by the end of this week. The supply chain side has just been a little bit – the information scarce. Not all of our suppliers are back to work due to the quarantines and the shutdown. And so, I’d say that’s where we’ve got a little bit more uncertainty in terms of the timing of the recovery. At this point, knowing what I know today, I fully expect for us to catch up by the end of Q2 and then we’re normal operations by – in the second half. And I would love to be a little bit more optimistic on that, but the hang-up is just on the supply chain. And we just don’t have a great feel for all of our suppliers and when they come back. Now, we’re also aggressively looking at how do we move some of that product into our other geographies and in un-impacted areas. And so, again I feel confident with our global operations. We can ship suppliers. We can ship production if needed, but it is going to have a short-term impact here. Whether it’s three to six months, we’re saying it’s somewhere in that range, but it’s not major. I gave you the numbers in terms of magnitude and certainly by the second half of the year, we’re back to normal.

So fair to say what you’re not doing is having a 1Q impact internally, and then, assume that things are rocking and rolling back to normal on April 1. That’s not...

Yeah, I mean, our view right now is it goes into Q2 and it’s primarily the supply chain side.

Okay. Okay. That’s helpful. Is the current – is the guidance right now kind of assume that you maintain the streak of $1-billion-plus bookings per quarter or is there a risk that 1Q slips under that number?

No, we’re still – we were still driving to $1 billion a quarter. I think that’s $1-billion-plus per quarter. I think that’s a safe estimate right now.

Great. Thanks guys.

And just one more on the coronavirus, our guidance has everything that we know about coronavirus into the guidance now as well. So that does account for anything that we would have anticipated with the impact in China.

Thanks.

Thank you.

Our next question comes from Andrew Obin from Bank of America. Please go ahead.

Hey guys. Thanks for fitting me in.

Yeah. Good morning, Andy.

Hey, just a question on FCD margins through the year. So just – as the comps get easier in the second half of 2020, is it reasonable to assume that FCD margins will start going back up again as you fully sort of incorporate the mix change.

I sure hope so. That’s what we’re driving to. Obviously, I mean we’re at a low point on FCD margins. And so, we are doing a lot of analysis to make sure that we’re not doing anything that’s impacting the margins from a cost standpoint or our labor productivity. But as this thing moves forward and you look at the year-over-year comps, I mean we should be getting better. But the big – as we’ve talked about, the big driver here is getting the mix shift normalized a little bit more away from the OE and getting that MRO business up. And as Jay pointed out earlier, that MRO business is showing up in OE, so you don’t see it in the aftermarket OE split.

Got you. So it’s just the question is what that growth is on OE versus MRO.

Yeah, yeah.

The second question is on cash. Longer term, what are the big levers you still have left in the company? What are the big buckets to continue to improve cash conversion, because I would say that has been one of the most – along with the margins, but big changes here under your leadership. But what else is left and where do you think cash conversion can go?

Sure. I mean, the big driver is still working capital. And I’m pleased with the progress that we made on working capital, but we’re not close to where we need to be. And so, we finished the year at, kind of the endpoint was the 27%. And as a reminder, we shifted our incentive plans to focus on the average of each quarter. And so, what we did this year is we did a really nice job at making sure that we are driving working capital down every quarter of the year. So Q1, Q2 and Q3 were all substantially better than last year. And historically, what was happening is we would do really well in December, but every other month in the year, we weren’t making progress in working capital. So this year we did that. And as a result, our cash flow has improved pretty dramatically. But we’re still at kind of a 27%. And so, we need to take significant steps forward there. And I’m confident that we’re making progress. Our inventory velocity improved by about four days. Our DSOs improved. Jay’s got the number.

Eight days.

Eight days on DSO. We’ll continue to make progress as our systems and our visibility to both inventory and receivables gets better. And so, that’s probably the number one driver that’s going to continue to move cash. We will remain disciplined on CapEx. And so, I’m not worried about that. And then, if we can continue to expand margins and we’ve got nice cash flow growth year-over-year.

And as we think about the buckets where this working capital is stuck, is it a specific geography, is it a specific industry or is it a little bit of everything?

It’s a little bit of everything, Andy. It’s too much inventory in the system. It’s too much receivables in the system. And we have opportunities across the globe.

Yeah, it really. I wish – we’ve created this and we look at every single site now on working capital. I wish there are two or three areas that we could just attack, but unfortunately, it is, as Jay said, it is across the board. Now, the good news is we – again, we made really nice progress in almost every location. But it’s just been kind of slow incremental progress rather than some big steps, but I firmly believe we continue to make progress here. You’ll see another nice movement in 2020 on working capital and that’s going to help us with the cash flow.

Congrats. Good quarter, guys.

Thanks.

Thank you.

Our next question comes from Brett Linzey from Vertical Research. Please go ahead.

Hey, good morning, guys.

Hey, Brett, how are you?

Good. Hey, just wanted to follow up on China and the coronavirus one more time here. Are you assuming in the guide that there is near-term pressure Q1 into Q2 here? And then you fully recoup it in the second-half or you’re contemplating some of that profit actually slips into next year or is it simply a lost sale?

No, no. Brett as we’ve said in our prepared comments and as we did in the press release, we expect the headwind to be in the first-half of the year, which will make the phasing in the first quarter a little bit lighter than normal. And then, we expect to be up and running back to normal in the second half of the year and be able to make that up.

Okay, great. And then just back to free cash flow, so with the pension contribution that you expect in CapEx stepping back up. And sorry, if I missed this, should we expect the conversion level slightly better than the 85% you did this year, given all that you’re doing on the working capital side?

I’m not going to necessarily set out new guidance metrics that we didn’t publish already, but very much our focus is continuous improvement all the way through 2022 to where we’re hitting in our long-term targets.

Okay, great. I’ll pass along. Thanks.

Great. Thank you.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating and you may now disconnect.