W R Grace & Co (New) (GRA) Q4 2020 Earnings Call Transcript

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W R Grace & Co (New) (GRA)
Q4 2020 Earnings Call
Feb 9, 2021, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the W.R. Grace & Co. Fourth Quarter 2020 Earnings Call and Webcast. [Operator Instructions]

I would now like to turn the call over to Jason Hershiser, our Investor Relations. Please go ahead.

Jason Hershiser -- Senior Manager, Investor Relations

Thank you, Denise. Good morning, everyone, and thank you for joining us today for Grace's fourth quarter and full year 2020 earnings call.

With me this morning is Hudson La Force, our President and Chief Executive Officer and Bill Dockman, our Senior Vice President and Chief Financial Officer. Our earnings release and presentation are posted on our website under the Investors section at grace.com. Please note that some of our comments today will contain forward-looking statements based on our current view of our business and actual future results may differ materially. Please see our recent SEC filings which identify the principal risks and uncertainties that could affect future performance.

We will discuss certain non-GAAP financial measures, which are described in more detail in this morning's earnings materials. Reconciliations of non-GAAP financial measures and other associated disclosures are contained in our earnings materials and posted on our website. This morning, Hudson will discuss key fourth quarter highlights, end market trends, provide a strategy and sustainability update and summarize our outlook for 2021 and beyond. Bill will then review our financial results and provide additional color on our outlook and key planning assumption. We will then open the call for questions.

So with that, please turn to Slide 4 in our earnings presentation and I will turn the call over to Hudson.

Hudson La Force -- President and Chief Executive Officer

Thank you, Jason. Good morning, everyone. I hope you and your families are all safe and healthy.

We have four key messages today. First, we delivered a very strong finish to the year. Second, we are successfully building a higher growth portfolio, leveraging our Number 1 market positions, strong cash flow and customer-focused sustainability strategy. Third, we have strong momentum as we begin 2021 and look beyond the pandemic, Our growth and profitability opportunities are strong and our long-term mid-single-digit sales growth and 40% to 42% gross margin targets are fully intact. For 2021 and 2022, our sales growth will be above mid-single digits as our markets fully recover from the pandemic and our recent growth investments pay off. And fourth, we remain confident that our high-value businesses, industry-leading technologies, profitable growth strategy and capital allocation discipline will create substantial value for our shareholders.

With this important goal in mind, we are also undertaking a thorough review of potential strategic alternatives to identify opportunities to maximize shareholder value as we have previously communicated. While I can't discuss specifics, I want to emphasize that the process is active with a number of potential opportunities we are pursuing. As is always the case with this type of process, there is no guarantee the review will result in any transaction or specific outcome. The Board hasn't set a specific timetable for completion of the review process and we don't intend to disclose developments until disclosure is appropriate.

Please turn to Slide 5. We ended the year with strong momentum and executed well in a challenging environment. Our Q4 sales, earnings and cash flow, were at the high end of our expectations. We achieved 12% sequential growth in sales, 130 basis points sequential growth in adjusted gross margin and 57% sequential growth in adjusted EPS. Q4 sales and gross margin were more than 95% of pre-pandemic levels and 2020 cash flow was also more than 95% of pre-pandemic levels.

We achieved these results by taking decisive actions early in 2020 as the pandemic began to affect economies around the world. We immediately lowered capital spending, improved working capital and reduced operating costs to improve our cash flow for the year. 2020 operating cash flow was $350 million and adjusted free cash flow was $237 million.

While we have not fully recovered from the economic effects of the pandemic, it is clear that our businesses are rebounding well. We continue to see improving demand trends and are optimistic about 2021 growth. Importantly, the recent increase in COVID-19 cases has not significantly impacted demand or disrupted our supply chain. In the fourth quarter, we delivered 5% sequential sales growth in Specialty Catalysts, driven by stronger end market dynamics, strong commercial execution and increasing momentum from customer innovation activities. We signed a record seven UNIPOL licenses in 2020. And Q4 trial activity was nearly 2.5 times first half levels, positioning us well for growth in 2021.

In Materials Technologies, we delivered 7% sequential sales growth and 6% year-over-year sales growth, driven by solid end market demand and strong commercial execution. Our pharma consumer segment sales grew 21%, both year-over-year and sequentially, and our coating segment sales grew 11% year-over-year. MT is performing very well and has outperformed its end markets since the pandemic began.

In Refining Technologies, sales grew 24% sequentially, driven by much better end market conditions and strong execution. Refining demand has continued to strengthen despite increases in COVID-19 cases. US refiners have consistently operated above 80% capacity utilization since the last week of December and refined product inventory levels are healthy at or near typical levels. FCC catalyst average prices were up 20 basis points in a very difficult year. This is a testament to the high value our customers place on our catalysts technology and technical service. I'd like to thank Grace's 4,000 employees around the world for their continued focus on health, safety and meeting our customer commitments during the pandemic and the US Gulf Coast hurricanes. I'm proud of how they managed in 2020, delivering impressive results in a once-in-a-century year.

Please turn to Slide 6. I want to address our strategy for profitable growth and creating shareholder value. Over the last five years, we have been actively repositioning our portfolio for faster growth. We pruned businesses, transformed our functions to reduce SG&A and corporate costs, added strategic bolt-on acquisitions in Specialty Catalysts, increased capacity in Specialty Catalysts to Materials Technologies and significantly upgraded our global R&D, marketing, and commercial capabilities.

Despite the pandemic and 2020 recession, we maintained a steadfast focus on building a stronger Grace. In implementing cost reduction actions, we were careful to protect our growth investments, maintain our focus on technology leadership and continue our commercial excellence and operating excellence initiatives and we further integrated sustainability into our strategy.

Our company now derives most of our sales from higher growth, high-margin businesses. Specialty Catalysts and Materials Technologies were 62% of sales in 2020, up from 60% in 2019. Combined, these two businesses are 66% larger than Refining Technologies. Specialty Catalysts sales grew 7.5% organically from 2016 to 2019 and Materials Technology sales grew 4.9% organically from 2017 to 2019. Both businesses are poised to continue to grow at these levels or better in 2021 and beyond.

SC is the Number 1 global polyolefin catalysts and process technologies platform, with expected sales growth in the high single digits over the next several years. Gross margins and EBITDA margins are the highest in our portfolio and top tier in our industry. Our products are indispensable to helping our customers achieve their strategic objectives and sustainability goals.

MT is Number 1 in specialty silica gel with a rapidly growing pharma sub segment which is delivered double-digit sales growth since 2017. MT operates in a fragmented $16 billion global market that includes many attractive higher growth, higher margin sub segments. MT has outperformed its end markets over the last three quarters and we expect it to continue that momentum, given capacity additions that came online in 2020 and improvements in our global R&D, marketing and commercial capabilities. With faster growth rates and bolt-on M&A, SC and MT could be 80% to 90% of Grace's future sales.

RT also holds the Number 1 position in its end markets due to its leading technologies and global technical and manufacturing capabilities. This business was significantly impacted by the pandemic, but we are seeing solid recovery with Q4 sales up 24% from Q3. We forecast demand for refinery catalyst will continue to grow slowly for many years to come, led by higher growth sub-segments like max petchem, residue hydroprocessing and renewable fuels, which are all areas of focus for us and our customers.

We fully recognize this business faces long-term secular challenges and we are well positioned to address these with industry leading technologies and a strong competitive position. RT will continue to provide significant earnings, cash flow and scale with more than $1.4 billion of operating cash generation, forecasted over the next five years. We will leverage this cash flow to continue to fund our growth investments and return capital to shareholders.

Please turn to Slide 12. We expect global refined products demand to eventually peak around 108% of 2018 levels in the 2030s decade, and then to decline slowly after that. Industry experts project demand would still be about 75% of 2018 levels in 2040, even if the 2-degree Celsius policy, technology and consumer behavior changes, are all implemented by 2040. We are well positioned to address either scenario.

Some investors have asked about recent refinery closures. Some older, disadvantaged refineries are closing and are being replaced with more profitable and more flexible refineries in growing markets in Asia, the Middle East and Africa. These new refineries are significant opportunities for us. They are focused on max petchem applications and require high performing catalysts to achieve their operating objectives. For a new complex refinery, our catalyst revenue per barrel is 2.4 times the revenue from an older, less complex refinery.

Please turn to Slide 13. Over the last two years, we've made sustainability a more important part of our growth strategy and operations. We are promoting an ESG mindset to more effectively meet the needs of our customers, communities and employees. Sustainability plays to our technical and commercial strengths. We are proud that 49% of last year's sales were tied directly to our customers' sustainability goals and that 62% of our R&D projects are linked to at least one customer sustainability objective. We see further opportunities as we continue to develop technologies for advanced plastics recycling and renewable fuels.

We are also committed to making Grace a more sustainable company and have set clear ambitious environmental goals for 2030. We will reduce our greenhouse gas emissions by 22%, reduce our water use by 10% and reduce our waste by 5%. In 2020, we also created the position of Chief Sustainability Officer and made sustainability a key element of our strategy. Our sustainability efforts led Sustainalytics to rank us in the top quintile of our Specialty Chemicals peer group and EcoVadis to rank us in the 95th percentile within the chemicals industry. CDP rated us a B minus on climate, above the chemical sector average of C and the North American regional average of D.

Please turn to Slide 14. As Bill will address in more detail, we are reinstating our annual outlook for 2021. Our fourth quarter results demonstrate that our markets are strengthening and we are optimistic about 2021 and the years beyond. Our execution and focus during the pandemic and hurricanes have resulted in a stronger Grace with great energy to pursue our growth opportunities.

We are well positioned to drive above market growth in many of our end markets. We expect sales to grow mid-single digits in the long term with growth higher than that for 2021 and 2022 as we fully recover from the pandemic and benefit from the new catalyst and silica capacity that came online in the second half of 2020.

With that, I'll turn the call over to Bill.

William C. Dockman -- Senior Vice President and Chief Financial Officer

Thank you, Hudson and good morning everyone.

Please turn to Slide 16. As Hudson noted, fourth quarter results were in line with our guidance, reflecting strong improvement in demand, margins and earnings sequentially from Q3 to Q4. Our businesses executed effectively on their plans as we ended 2020 and we are encouraged by the momentum and signs of economic recovery as 2021 gets under way. Fourth quarter sales were up 12% from Q3 with increases in all businesses led by a 24% increase in our key catalysts sales. Sales were down 7% year-over-year due to the continuing effects of the pandemic and order timing. Adjusted gross margin of 39.5% was up 130 basis points from Q3 on improved demand and higher operating leverage.

Sequentially, adjusted EBIT of $96.2 million was up 38% and adjusted EPS of $0.88 per share was up 57% from Q3. Q4 2020 included $8 million of Gulf Coast hurricane related costs, in addition to the $11 million in the third quarter of 2020. Q4 2019 included $8 million of insurance recoveries that did not repeat in Q4 2020.

Our full-year 2020 adjusted free cash flow was $237 million, down only 4% from the prior year despite a 40% decrease in adjusted EPS in 2020 versus 2019. This performance reflects our team's strong execution and focus on lowering working capital, capital spending, and operating expenses. We received another $10 million dividend from our ART joint venture in Q4 for a total of $20 million in 2020. ART will continue to pay dividends in 2021.

Now let's turn to Slide 17 to look at segment results. Catalysts Technologies sales were up 14% sequentially versus Q3. Refining catalyst sales were up 24%, driven by higher refinery operating rates while sales of Specialty Catalysts increased by 5% from Q3 due to higher sales of PE and chemical catalysts. We signed three UNIPOL polypropylene process technology licenses in Q4, which brings the total to seven for 2020, the highest since we bought this business.

For the full year 2020, FCC price was up 20 basis points, reflecting the strong value of our products. Fourth quarter Catalysts Technologies segment gross margin of 40% improved by 80 basis points sequentially, reflecting improved customer demand and operating leverage in our plants. Operating income of $88.8 million was up 32% sequentially versus the third quarter. Income from our ART joint venture was up $6.3 million sequentially but down $6.3 million year-over-year as refiners delayed certain turnarounds to 2021.

Now let's move to Materials Technologies on Slide 18. Fourth quarter sales were up 7% sequentially and 6% year-over-year. Pharma/consumer had another great quarter, up 21% sequentially from Q3 and year-over-year, driven by strong demand for fine chemicals and order timing. Coatings continue to improve in Q4 with sales up 1% sequentially and 11% year-over-year, driven by strength in Europe and Latin America. Chemical process applications were down 2% sequentially from Q3 and down 12% year-over-year, driven by weakness in automotive and other industrial applications. MT gross margins for the quarter were up 250 basis points over Q3 and 310 basis points over the prior year as a result of higher sales and production volumes. Operating income of $29.1 million rose 20% from Q3 and 23% from the prior year on improved demand and strong sequential gross margin improvement.

Now, let's turn to Slide 19. As I mentioned earlier, we generated strong cash flow in Q4, driven by actions to maximize balance sheet flexibility since the pandemic began. At the end of 2020, our total liquidity was approximately $740 million including roughly $305 million [Phonetic] of cash-on-hand. From a debt perspective, we have no significant debt maturities until 2024 and we have not drawn on our revolver over the past year.

In 2020, we temporarily shifted our near-term capital allocation priorities to focus on cash flow and liquidity. Given the economic recovery, we are restoring our long-term capital allocation framework. We will remain disciplined in our approach and continue to invest to drive organic growth in our businesses, while exploring strategic bolt-on acquisitions. We announced today that we will increase our dividend by 10% in 2021 to $1.32 per share on a full-year basis. Since we initiated a dividend in 2016, we have increased it for five consecutive years. We also expect to resume share repurchases in 2021. Our debt leverage peaked at 4 times at the end of 2020, outside our target range of 2 times to 3 times, reflecting the pandemic's temporary impact on adjusted EBITDA. We expect to reduce net leverage as our business recovers.

As Hudson mentioned earlier, RT's robust, long-term cash flow is a valuable asset. It helps to fund both growth in our businesses and shareholder returns. We've been disciplined in our capital allocation and growth investments as reflected in our top-tier return on invested capital. We are committed to maximizing shareholder returns over the long term and recognize the importance of the stable growing dividend. We will complement our priority cash deployment activities with opportunistic share buybacks.

Finally, let's turn to Slide 20. We expect 2021 to be a year of strong recovery for our businesses. We are encouraged by strong fourth quarter results and expect 2021 sales to be up 7% to 11% due to improved demand across all businesses. Our outlook assumes that demand for FCC catalysts will improve throughout 2021 and approach pre-pandemic levels by the end of the year. We expect continued improvement in Specialty Catalysts on strong consumer-driven demand and continued strength of our UNIPOL licensing business. We forecast MT sales will grow year-over-year while continued strength of pharma, consumer and coatings as well as further recovery in chemical process demand.

Sales of hydroprocessing catalysts in the unconsolidated ART joint venture will recover in 2021, up more than 15% year-over-year. Our full year adjusted gross margins are forecasted to recover to the low end of our historic range of 40% to 42% for the full year, improving throughout 2021 on stronger demand and operating leverage. Adjusted EBIT for 2021 is expected to be between $400 million and $430 million and adjusted EPS will be between $3.63 and $3.93 per share. We forecast earnings will steadily increase throughout 2021, setting us up for a strong 2022. 2021 adjusted free cash flow will be between $240 million and $260 million. Capital spending will be between $150 million, $160 million in 2021. Our outlook does not assume a double-dip recession or a resurgence in the pandemic. For Q1 2021, we expect sales to be up 6% to 8% year-over-year, reflecting both a strong recovery from 2020 and normal seasonality. Adjusted EPS for Q1 will be between $0.77 and $0.80 per share.

Now I will turn the call back to Hudson.

Hudson La Force -- President and Chief Executive Officer

Thank you, Bill.

Please turn to Slide 22. Before we open the call for your questions, I want to emphasize today's key messages. We delivered a very strong finish to 2020. We are successfully building a higher growth portfolio. Our growth and profitability opportunities are strong and we're actively pursuing opportunities to accelerate value creation beyond what our growth plan will create. I am proud of our team, their focus on health and safety and there strong execution in 2020. We had to make some tough and quick decisions to ensure we met our customer commitments and maximized our short-term and long-term financial performance.

I look forward to your questions. Operator?

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from Chris Parkinson with Credit Suisse. Your line is open.

Chris Parkinson -- Credit Suisse -- Analyst

Great. Thank you very much. Now that the sustainable recovery is clearly insight and you're also in the process of the strategic review, can you just take this opportunity to talk a little bit more about the longer-term strategies in HPC and Spec Cat, now that the dust has settled, as well as mat tech especially as margins should be performing quite well. So just -- can you just give us an overall blend about how you and -- potentially the Board are just assessing the opportunities there within, where you'll be spending cash organically and potentially inorganically? Thank you very much.

Hudson La Force -- President and Chief Executive Officer

Thank you, Chris. We've invested a significant amount of capital and effort positioning our Specialty Catalysts business and our Materials Technologies business for faster growth. That work is paying off. You've seen it in the historical performance in those two businesses as we highlighted this morning. Specialty catalyst has grown 7.5% organically over the last few years and Materials Technologies has grown 4.9% organically over the last two years. These growth rates are in line with our expectations going forward post pandemic and we expect both businesses to grow at this level or better in '21 and '22 -- 2021 and 2022 as we fully recover from the pandemic.

From a inorganic perspective, historically we've made significant investments in our Specialty Catalysts business. Those investments helped us build the strong growth portfolio we have today in Specialty Catalysts. As we look forward, we see opportunities in Materials Technologies as well. It's an area where we've spent a significant amount of time, looking at opportunities to grow that portfolio and to do it in a way that makes us better as a company, not just bigger, something that would be accretive to our growth rates, position us to serve our customers even more effectively and be well positioned for growth in the future.

Chris Parkinson -- Credit Suisse -- Analyst

That's very helpful. And just -- I think there still appears to be a modest disconnect regarding some investor -- how some investors are interpreting the Grace portfolio within an ESG lens versus a few of the slides you quite frankly previously released but it appears you did enhance for us today. Can you speak to how your portfolio and how your R&D spend fit into the ESG world? I know you obviously gave some numbers in your prepared remarks, but just how we should be thinking about the existing portfolio? And just what incremental opportunity really are developing and once again, it seems like you mentioned a few in the PowerPoint? Thank you.

Hudson La Force -- President and Chief Executive Officer

Sure. One of the things that I like best about our portfolio is, how relevant our technology is to sustainability for our customers. Our customers have objectives to reduce their environmental footprint, to reformulate their products, to make sure that they're providing their customers the most sustainable products possible. And when they're facing those challenges, they look to us to help them solve their problems. It may be reducing the weight of plastic in a package or in a manufactured item. It may be reducing the use of water in their process manufacturing. It may be reformulating a product, so that it takes out a chemical that might be harmful to human health or to the environment. These are all end-use applications, focused on sustainability, where our technology is helping our customers achieve objectives today. And when you add it up across our portfolio, that's how you get to that 49% of sales. It includes products that are part of the circular economy. It includes products that are used for recycling materials.

And as we look forward, we think we can grow that portfolio. 62% of our R&D projects today are focused on opportunities that have clear sustainability linkages. We have a nice business today in processing renewable fuels. That business has been growing double digits and we expect it to have that type of a growth rate in the years to come. And on a longer time horizon, the opportunity in advanced plastics recycling is significant for us. The market is just starting to address the need to recycle plastics. Most of that is mechanical recycling today, but in the long term, it will be chemical recycling that wins the day and helps our communities achieve their environmental objectives and Grace is very, very well positioned with our Catalyst Technologies, both on the refining side and on the polyolefin side to play a significant role in that effort.

Chris Parkinson -- Credit Suisse -- Analyst

Thank you very much.

Operator

Your next question comes from John McNulty with BMO Capital Markets. Your line is open.

John McNulty -- BMO Capital Markets -- Analyst

Yeah, thanks for taking my question. So, Hudson -- look, you have a core platform in the refining side. You're also looking at -- and so, I assume you look at assets that are out there. You're also strategically looking at your own assets. I guess, first question would be, do you see a significant disconnect between how the public markets value refining assets versus how the private markets are necessarily looking at those or valuing those types of assets?

Hudson La Force -- President and Chief Executive Officer

Well, I think John, one of the questions that any investor has to consider is, what's the long-term outlook for the refining industry. And as we think about it, there are a couple of things that are top of my mind. One is, how will demand for transportation fuels play out over the next many years. As we tried to highlight this morning, we see that as a low-single-digit growth business for a number of years to come. But we recognize that there is a peak in that business. We think it's in the 2030s decade. And then once that peak is achieved, we think there is a slow decline that follows that.

Part of the reason why there will be continued growth, and then a slow decline is because of the size of the installed base. Today, there are over 1 billion internal combustion engine vehicles in operation around the world. We think that grows to about 1.4 billion over the next decade or so as people in the emerging economies acquire cars as light vehicles continue to grow, that installed base will turn over very, very slowly over many years. That provides long-term stability to this market.

Now, that's a forecast. Experts have done sensitivity analyses on that outlook. There is a sensitivity that we shared this morning. What if governments changed policies, what if technologies developed, what if all of the consumer behavior changed on a pace that's necessary to achieve the 2-degree Celsius goals of the Paris agreement. That would reduce the demand for transportation fuels over this timeframe. But even in that scenario, the experts believe that demand would still be 75% of 2018 levels, even if all of those changes occurred.

Now, the other thing I think about, John, is, this is not just about transportation fuel. It's also about technology that provides petrochemical feedstocks, what we call our max petchem applications, it's technology that helps clean up the fuel. While the fuel is still consumed over the next many years, we want that fuel to be as clean as environmentally friendly as possible. That's where our hydroprocessing catalysts come in. And over the long term, it's that FCC catalyst technology that is the key to advanced plastics recycling. And so there are still important nice growing, nicely profitable sub segments in this business to play to our strengths as well.

John McNulty -- BMO Capital Markets -- Analyst

Got it. Thanks for the color. Appreciate the detail on it. And then, maybe just a question about the results. So the -- on the catalyst side, you had a modest -- it looks like in the quarter, a modest decline in price. Is that a function of just a mix down shift that we've been seeing from the refining industry or are there specific products where -- for one reason or other you're having to give up on price. How should we be thinking about that and how should that -- how should we think about how that trends as we look through 2021?

Hudson La Force -- President and Chief Executive Officer

Thank you. Thank you, John. That's a great question. So what we have seen, this started really in the third quarter. Customers coming to us and saying, hey, we'd like to reformulate to a lower cost catalyst as a way for them to save money, while their margins are pressured. And we obviously have worked with our customers to provide those reformulations and those catalysts are sold at a lower price point than our higher performing catalysts. The vast majority of our customers are still using the catalysts that they were using before the pandemic, but a fraction have decided to switch to a lower performing catalyst. And so, you see that affect our average pricing as you noted in your question.

As we think about 2021, the customers that have switched, we expect them to stay on this reformulated catalyst, let's say, through the first half of next year. And then, we would expect as refinery operating rates improve, we would expect many of those customers to start to switch back to the higher performing catalysts. In fact, we've actually started that conversation with one customer. And so, we're already seeing at least some interest in switching back to the higher performing catalysts. But I think broadly speaking, the customers that have switched, will stay on that reformulated catalyst for the first half of next year before we see a significant amount of customer switching back to their higher performing catalyst.

John McNulty -- BMO Capital Markets -- Analyst

Got it. Thanks very much for the color.

Operator

Your next question comes from Kevin McCarthy with Vertical Research. Your line is open.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Good morning. Hudson, I was wondering if you can talk through your Specialty Catalysts outlook in a bit more detail. It looks like sales declined roughly 10% in the quarter. Everything that we see, going on downstream in the resin markets for polypropylene and polyethylene, trending positively with regard to both demand and price and likewise your outlook sounds quite positive.

So perhaps you can kind of talk through where you think inventory levels are? What you're seeing in January order books and some of the improved trial activity that you show on Slide 9 to just kind of give us a better feel for when you think we might turn the corner in Specialty Catalysts and the various factors that have given you confidence?

Hudson La Force -- President and Chief Executive Officer

Thank you, Kevin. When I think about our Specialty Catalysts business and the growth momentum that we have, it really comes down to three things. A lot of our momentum is tied to the licensing activity that we are doing. As we noted earlier, we were able to sign seven licenses in 2020. That is a very strong performance, particularly given the level of uncertainty that was in the marketplace during the year, of course. Each license translates into a future catalyst opportunity as well as providing revenue and margin in its own right. And so, those seven licenses add to a base of business that we've been building up over the last few years that will drive catalyst demand in 2021 and in future years.

The other thing that we look at is the level of trial activity. When we go back to the first part of 2020, the level of trial activity dropped. It was below our expectations and below historical levels because of the lockdowns, because of the impact of the pandemic on commercial activity. But as we work through 2020, we saw the level of trial activity increasing, not just back to normal levels, but to new high levels. We finished 2020 Q4 with 26 customer trials, which is a significant amount of activity for us. And that also corresponds to growth -- improved growth rates in 2021.

And then, the third thing that comes to mind is just broadly our capabilities in this business. We've built a very strong franchise with very broad technology. We have capabilities that it's difficult for our competitors to match, and we are crucial to our customers achieving their own business objectives. And I combine those three things and it keeps me pretty optimistic about our opportunity to continue to grow that business well above its end market.

Kevin McCarthy -- Vertical Research Partners -- Analyst

I appreciate the color there. And then as a second question, in your prepared remarks, Hudson, when you were discussing exploration of strategic alternatives to maximize shareholder value, I think you commented that you see a number of potential opportunities there. And I was intrigued by the plural. Did you mean to imply you're engaged with multiple parties or I appreciate you may not be able to get too specific, but maybe you can elaborate to the extent you can on what that process looks like and what sort of timeline you might have in mind?

Hudson La Force -- President and Chief Executive Officer

Well, Kevin, I appreciate your question and your interest in knowing more. I'm not going to be able to add more specifics to what I said in our prepared remarks, I'll let them stand on their own. We are -- we do have an active process, and we are pursuing a number of opportunities.

Kevin McCarthy -- Vertical Research Partners -- Analyst

Okay. Fair enough. Thanks very much.

Operator

Your next question comes from John Roberts with UBS. Your line is open.

John Roberts -- UBS Equity Research -- Analyst

Thank you. I guess one of the strategic options could be to separate Materials Technologies. And I want to ask you to comment on the probability of that, but could you at least talk about how integrated to Grace's Materials Technology is versus how separable that business might be?

Hudson La Force -- President and Chief Executive Officer

John, I actually think of Materials Technologies as a highly integrated part of our portfolio that there is a shared underlying chemistry, there is a shared supply chain, there is shared manufacturing assets between our Materials Technologies' silica business and the FCC catalyst business and the Specialty Catalysts business. They give each other flexibility and operating leverage, and they do share intellectual property and supply chain and manufacturing assets. So, we do think of it as an important part of the portfolio.

John Roberts -- UBS Equity Research -- Analyst

And then secondly, it's been a while since we had a normal seasonal pattern for Grace's results given the pandemic last year in the Philadelphia refinery, probably year before. Is this year going to be normal and what would normal look like from a kind of quarter-to-quarter seasonality?

Hudson La Force -- President and Chief Executive Officer

Well, let me share my thought and then, I'll ask Bill to share his thoughts. We do -- in a normal year, what we would expect is Q1 to be a bit weaker than the other three quarters. That's just seasonality. But the other three quarters would be a comparable. I think Q4 is usually our strongest quarter of the year.

For 2021 though, I think we will see a different pattern and significant part because our end markets are still recovering. At the end of 2020, refining demand was still about 10% below pre-pandemic levels. We do expect that to improve as we go through 2021. We think by the end of 2021, refining demand will have improved to within 5% of pre-pandemic levels. And so, there should be a steady progress as we go through the year on that end market improving.

I think Specialty Catalysts and Materials Technologies have improved faster than refining, but we will see that sequential progression through the year. Bill, what would you add to that?

William C. Dockman -- Senior Vice President and Chief Financial Officer

Yes, I think that's right. And to your point, Hudson, on the refining side, we're expecting to see steady improvement throughout the year. We laid it out on Page 11 of the deck where we show our projection on demand over 2020, so that -- 2021, that will continue throughout the year. And fourth quarter will be back to more normal type of a quarter, and I think that sets us up for a more normal pattern as we look ahead to, say, 2022. But I think this year, it will just be continued steady improvement throughout the year, both at top line, gross margins and then earnings as well.

Hudson La Force -- President and Chief Executive Officer

One of the things that I've been watching carefully, John, is how the rise in COVID-19 cases during the winter months has translated into economic impacts. And as we all know, the translation to economic impacts has been much smaller than it was back in the spring. We've seen demand for refined products improve steadily even as the COVID-19 cases were reaching their peak in January. And so, that gives us a little -- better visibility into the next months knowing that the increase in COVID-19 cases isn't translating as directly into economic effect as it did last spring.

John Roberts -- UBS Equity Research -- Analyst

Okay. Thank you.

Operator

Your next question comes from Chris Kapsch with Loop Capital Markets. Your line is open.

Chris Kapsch -- Loop Capital -- Analyst

Yeah, good morning. So sort of a follow-up on the comments on strategic alternatives in response to John Roberts' questions and perhaps the McNulty's question. And I'm curious about difference in values between private and public markets and I'm asking because I appreciate your comments about the desire for the investment community, look at the growth year on parts of your portfolio that made in high-single-digit growth prospects for Materials Tech and Specialty Catalysts respectively when [Phonetic] injectables against what looks like a longer-term outlook for low-single-digit, and maybe even flat growth for the refining catalyst business.

So I mean -- I guess, what I'm getting at is you reading between the lines, you want investment created value or to accord you a better multiple for the growth prospects in those two business. But you're also saying that you do look at the portfolio as an integrated entity that there is obviously manufacturing integration between Refining Cat and MT and you think there will be dis-synergy if you were to separate those.

So I guess the question is this, are there any scenarios as you look at strategic alternatives where you would isolate those growth -- your businesses as a means to try to unlock some value perceptions or to reflect maybe the differences in the way a public market or in the private market might value the key franchises. Thanks.

Hudson La Force -- President and Chief Executive Officer

Well, Chris, I appreciate your question. I recognize that you want to try to get a little more detail, but I'm not going to comment more specifically on the alternatives that we're considering. When I think about the portfolio, as you know, there are parts of the business that are growing faster. One of the important things that Refining Technologies does for us, it gives us scale and it gives a significant amount of cash flow to finance growth and to return capital to shareholders. And so, these are things that we have to think about as we think about our alternatives, but I'm not going to be able to comment more specifically, today, Chris.

Chris Kapsch -- Loop Capital -- Analyst

Okay. And then just as a follow-up, you mentioned some of the older refinery configurations shuttering and some of the more complex, more catalyst-intensive one, those are growth opportunities for your business and those tend to be more Southeast Asia, but it's also adjusted your manufacturing footprint by sort of canceling the investment you're making in the UAE.

I'm just wondering it's a cap -- to appropriately capitalize on that shift in the global sort of refining industry footprint. Do you feel like you are aligned well or is there other shifts in your manufacturing footprint that you feel like you need to make to address that -- to match with the longer-term opportunity there? Thank you.

Hudson La Force -- President and Chief Executive Officer

It's a great question, Chris. I appreciate it. A couple of things come to mind. When I think about serving our customers around the world regardless of where they are, North America, Europe, the Middle East, Africa, Asia, Latin America, the most important capability that we have on the ground is our sales and technical service capability. And those employees are positioned all around the world. We've got a very strong presence in every geography where we're close to our customer, and we can work directly with them on their refinery operations and optimizing their catalyst formulation.

Catalysts are high-value products and they can economically be shipped from our core manufacturing assets in North America and Europe. They can be shipped globally without really affecting the competitive -- competitiveness of those products. And what we found is, we are better able to serve our customers in our bigger, more flexible manufacturing assets. We've invested a lot in our North American and European catalyst assets. There are a lot of capabilities, a lot of flexibility in those manufacturing plants. And as our technology continues to involve -- evolve, we've concluded that it's more valuable to have that capability and flexibility than it is to be closer to our customers.

Chris Kapsch -- Loop Capital -- Analyst

Thanks for the color, Hudson.

Operator

Your next question comes from Mike Sison with Wells Fargo. Your line is open.

Mike Sison -- Wells Fargo -- Analyst

Hey guys. Good finish to 2020. Hudson, you had a slide talking about advanced plastics recycling. Does your Specialty Catalysts business already have an offering there and if not, is that an area where you may want to do some acquisitions?

Hudson La Force -- President and Chief Executive Officer

Mike, this is a technology that is pretty well understood. It's pyrolysis technology. We are working with customers and other third parties to develop the right technologies. But it's still pretty early. Right now, the most important areas of innovation are in the supply chain of plastic waste and that really is -- it's not something that we're focused on, it's something that other supply chain participants are focused on. That market really needs to develop further before customers are going to make scale investments, commercial scale investments in advanced plastics recycling. But when our customers are ready to do that, we will be ready with our technologies.

Mike Sison -- Wells Fargo -- Analyst

Got it. And then, I was encouraged to see Slide 12, you made a good case, why the FCC catalysts industry can show some growth over the next several years. Those don't normally [Phonetic] seem like your competitors are really focused there. So, in terms of technology and R&D, where are the opportunities to maybe to continue to take share there as I think the others aren't really again focused on that market?

Hudson La Force -- President and Chief Executive Officer

Well, the end markets that we're focused on where we think our technology really differentiates us is in the max petchem applications. These are refineries that are really operating to provide petrochemical feedstocks for downstream petrochemical operations, I think propylene production. That's an important area of focus for us and has been for a number of years.

We remain very focused on hydro processing, which we do through our ART joint venture. One of the primary benefits of that technology is to take sulfur out of transportation fuel, so that it burns more cleanly and we reduce SOx emissions. And the other area that has become really an area of significant focus over the last year is using our Catalyst Technologies to process renewable feedstocks into low carbon emission fuels. That's a smaller business for us today, but one that's been growing double-digits over the last couple of years.

Mike Sison -- Wells Fargo -- Analyst

Great. Thank you.

Operator

Your next question comes from Laurence Alexander with Jefferies. Your line is open.

Kevin Estok -- Jefferies -- Analyst

Hi, this is Kevin Estok on for Laurence Alexander. Thanks for taking my question. I guess my first question has to do with the capex that you guided to for 2021. I was just wondering like how [Indecipherable] relative to maybe what your normalized run rate would be in order to achieve that kind of mid-to-high single-digit growth rate?

William C. Dockman -- Senior Vice President and Chief Financial Officer

Sure. Yeah, this is Bill. Capital for 2021 is, I wouldn't say it's constrained. It's really -- I call it a pretty normal year in that -- we've 7% to 8% type percent of sales range. So this is our normal maintenance and reliability capital, IT capital, EH&S capital, products -- some productivity capital, no large growth capital in 2021 as I think we've made some big investments there over the last few years. So I could say it a more normal year, not a constrained year.

Kevin Estok -- Jefferies -- Analyst

Okay, got it. Thanks. And you may have touched on this, but in -- within Materials Technologies, the softness that you guys referenced for chemical process industries, I guess I was just wondering is that -- would you say that sort of softness was indicative of the market as a whole or was there like an adverse maybe mix shift that impacted your performance relative to the market?

Hudson La Force -- President and Chief Executive Officer

This was really driven by the end markets that sub-segment supplies.

Kevin Estok -- Jefferies -- Analyst

Okay. Thank you.

Operator

Your next question comes from Paretosh Misra with Berenberg. Your line is open.

Paretosh Misra -- Berenberg -- Analyst

Good morning, Hudson, Bill and Jason. So with regard to your ESG initiative, I was hoping you could elaborate a bit more on the plastic recycling business as to what Grace products actually allow the customers to do, is it more to help do things faster or cheaper and can your catalysts allow your customers to put different types of plastics in the feedstock?

Hudson La Force -- President and Chief Executive Officer

Your instinct is exactly right. This is -- if you know the chemistry, this is catalyzed pyrolysis chemistry. And the catalyst does a number of things. It allows our customers to process a more mixed feed, which allows them to reduce their feedstock costs. It allows them to convert more of the plastic into useful products, obviously improving their yields and it allows our customers to drive the produced products into certain directions, if they want to maximize olefins or maximize other materials. Our technology would allow our customers to do any of those objectives.

Paretosh Misra -- Berenberg -- Analyst

Got it. Got it. So I guess except maybe for PVC, they can recycle every other, all other except the plastics.

Hudson La Force -- President and Chief Executive Officer

Yes, thank you. That's a good clarification. PVC is a different animal, but certainly polypropylene, polyethylene, these sorts of plastics are very relevant feedstocks into a process like this.

Paretosh Misra -- Berenberg -- Analyst

Got it, thanks. And just a quick follow-up on your comments earlier about supply chain or feedstock availability being an issue as to why this industry hasn't really taken up. Any cost you can share as to how the situation is different in the US versus Europe and other parts of the world?

Hudson La Force -- President and Chief Executive Officer

I think the situation is roughly the same globally. It is an immature market, a different levels of recycling by -- in different regions, of course. But right now the recycling supply chains are not geared toward feeding this material into a chemical recycling facility. And so, those supply chains need to adjust. But I think more significantly, they need to grow.

Commercial scale chemical recycling requires a significant amount of feedstock and that feedstock just isn't available really anywhere today at commercial scale. It's available at smaller scale of course, but not commercial scale that would generate a significant amount of investment. I think that's a question of time. Lots of people are working on that, and I'm sure it will happen. It's just a question of time.

Paretosh Misra -- Berenberg -- Analyst

Thanks, Hudson. Thanks for all the color and good luck in 2021.

Hudson La Force -- President and Chief Executive Officer

Thank you.

Operator

Your last question comes from Chris Shaw with Monness, Crespi. Your line is open.

Chris Shaw -- Moness, Crespi, Hardt & Co., Inc. -- Analyst

Hey, good morning, everyone. Just a quick one on ART and HPC catalysts. Just what's the sort of recovery path look like there. I know there is -- obviously, they were running at lower rates. So they were obviously buying HPCs at lower rates, but -- does it come back quickly or is it just sort of getting back to its old sort of growth rates?

Hudson La Force -- President and Chief Executive Officer

Chris, I -- ART's impact really was felt mostly in the second half of 2020, and Q4, most significantly, because of the way those catalysts are refreshed in these fixed bed applications. The demand weakness caused by the pandemic was delayed a little bit relative to FCC catalysts. As we look to 2021, we do expect ART to recover, but we do think it will be slow during the 2021 year, more weighted to the second half.

Chris Shaw -- Moness, Crespi, Hardt & Co., Inc. -- Analyst

And that second half though is there -- is it going to be big rush or is it going to be a big lumpy quarter in there somewhere or is it just sort of back again sort of normal growth rates, when we hit that second half?

Hudson La Force -- President and Chief Executive Officer

I -- there is always some lumpiness in this business. But I'm not anticipating any unusual lumpiness.

Chris Shaw -- Moness, Crespi, Hardt & Co., Inc. -- Analyst

Got it. That's great. It's what I was looking for. Thanks.

Operator

There are no further questions queued up at this time. I'll turn the call back over to Jason Hershiser for closing remarks.

Jason Hershiser -- Senior Manager, Investor Relations

Thank you, Denise. Thank you everyone for your time today and your interest in Grace. We look forward to engaging with many of you over the coming months. Thank you, and this concludes our call.

Operator

[Operator Closing Remarks]

Duration: 60 minutes

Call participants:

Jason Hershiser -- Senior Manager, Investor Relations

Hudson La Force -- President and Chief Executive Officer

William C. Dockman -- Senior Vice President and Chief Financial Officer

Chris Parkinson -- Credit Suisse -- Analyst

John McNulty -- BMO Capital Markets -- Analyst

Kevin McCarthy -- Vertical Research Partners -- Analyst

John Roberts -- UBS Equity Research -- Analyst

Chris Kapsch -- Loop Capital -- Analyst

Mike Sison -- Wells Fargo -- Analyst

Kevin Estok -- Jefferies -- Analyst

Paretosh Misra -- Berenberg -- Analyst

Chris Shaw -- Moness, Crespi, Hardt & Co., Inc. -- Analyst

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