Good morning, ladies and gentlemen. Thank you for holding, and welcome to the IMCD event call regarding First Half Year twenty twenty one Results. At this moment, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. I would now like to hand over the conference to Mr.
Pete Van Der Schleicke. Please go ahead, sir.
Thank you, operator, and welcome, everybody. I'm here with Hans Kuermans, As always, and together, we will answer your questions on our results over the 1st 6 months. The strong demand which we reported After Q1 continued in Q2 to such an extent that our EBITDA grew with 46% over the full 6 months And even with 52% on a constant currency basis, cash earnings per share increased to 44%. All regions contributed to this organic growth, and all acquired companies performed in accordance with expectations. We remained active in executing our strategy by acquiring companies in various regions and market segments, the strength of our position in Mexico, Colombia, Central America and China.
I want to thank our staff who delivered a remarkable performance under difficult circumstances, and we look with optimism to the remainder of the year. Now Hans will take you through the first half year numbers, and after that, we will answer your questions. So Hans?
Go ahead.
Thanks for the introduction. Morning, ladies and gentlemen. I would like to start on Page 9 of the presentation. There you will find a summary of the first half year income statement. As you can see, ForEx adjusted revenue increased 23% and gross profit increased 28% compared to the same period of last year.
This 28% gross profit growth was a combination of 9% as a result of the first time inclusion of acquisitions a 19% organic growth. Gross profit as a percentage of revenue increased 0.9% compared to last year the 24.5%. And this increase was a combination of the contribution of newly acquired businesses, product mix effects, changes in local market circumstances and successful internal gross margin improvement initiatives. Forward's adjusted EBIT operating EBITDA and EBITDA both increased with 48% 52%, respectively. This increase was a combination of strong organic growth and first time inclusion of acquisitions.
Operating EBITDA in percentage of revenue increased to 12.3%, and operating EBITDA in percentage of revenue increased with 2.2% 11.5%. The conversion margin calculated as operating EBITDA as percentage of gross profit improved substantially to 46.8%. When using EBITDA instead of EBITDA as the numerator, recalculating the conversion margin. Like most of our peers, we would have reported a 50% conversion margin. On the next page, Page 10, you will find gross profit, EBITDA and conversion margin per operating segment.
EMEA. In EMEA, we report 19 percent ForEx adjusted profit growth and operating EBITDA of €93,000,000 versus €70,000,000 in last year. The EBITA margin of 11.6% is 1.4% higher compared to the same period of last year, And most of the EBITA and gross margin growth in EMEA was organic. In the Americas, we also report double digit gross profit and operating EBITDA growth, respectively, by 18% 24%. Operating EBITDA in percentage of fiscal improved 0.6% to 10.3%.
And like EMEA, most of the growth was organic. In Asia Pacific, we realized 80% gross profit growth and more than doubled EBITDA. Operating EBITDA as a percentage of revenue improved 6.4% to 15.8%. This growth was a combination of substantial organic growth the first time inclusion of acquisitions like Signet, the pharma business in India that we acquired end of last year. In all segments, we report substantial improvements in conversion margin compared to the same period of last year.
And this improvement in conversion margin is the result of substantial organic EBITDA growth, thereby organic growth, profit growth more than compensated the own cost growth. Further, the positive impact of the Signet acquisition helped to improve this ratio. In the last column, all non operating companies, including the head office in Rotterdam and our regional support offices in Singapore and the U. S, where we report slightly higher costs, mainly as a result of further strengthening of support functions in these offices. On Page 11, a summary of the P and L lines between operating EBITDA and net result for the period.
A few general remarks. Net finance cost reduced significantly, and I will show a breakdown in a minute. Income tax expenses increased and relate to the countries where we generate taxable income. The tax cash out in the 1st 6 months was about €25,000,000 Amortization of intangible assets are mainly noncash costs related to the amortization of supplier relations, distribution rights and other intangibles. And last but not least, as mentioned already by Peter, on the bottom of this page, you could see a ForEx adjusted 48% increase in cash earnings per share to €2.43 As promised on Page 12, a specification of the net finance cost where we reported decrease of CHF 7,300,000 compared to the first half of last year.
Main driver of this decrease is €1,800,000 positive currency exchange results this year compared to EUR 3,200,000 caused last year, reducing overall finance cost to EUR 5,000,000. Further interest cost of our loan structure was €1,600,000 lower than the same period at last year. On Page 13, a summary of our balance sheet. Property, plant and equipment of €96,000,000 is a combination of a limited amount of fixed assets the interest that we own ourselves and more than EUR 70,000,000 right of use assets, in other words, capitalized operational leases as a result of the application of IFRS 16. The combination of intangible assets on the one hand and related deferred tax liabilities, our result of acquisitions done since July 2014 and our history as private equity owned company.
On the financing side, there is €870,000,000 of debt and €1,300,000,000 of equity. This substantial equity position covers about 62% of our capital employed. The leverage ratio end of June based on our loan documentation was 1.6x EBITDA, which was well below the maximum set in our loan documentation. Reported leverage based on IFRS was 2.6x EBITDA. And differences in definitions of what is real debt between IFRS and the loan documentation are the main reason for the difference in these two leverage ratios.
Working capital at the end of June is summarized on the next page, where you will find a summary of the the absolute amounts of the various working capital components and these absolute amounts translated in days of revenue. As you can see, the absolute amount of working capital end of June increased with €84,000,000 compared to year end 2020. And this increase is a combination of additional working capital due to the increased business activities. Working capital that we added as a result of acquisitions in the first half of twenty twenty and currency changes in working capital positions. Compared to last year June, the overall working capital days improved and decreased 4 days from 60 to 56.
I would like to finish this short summary with a cash flow overview on Page 15. Free cash flow and cash conversion ratio were both substantially higher than the same period last year as a result of increased operating EBITDA combined. That's more than offset the higher working capital investment as a result of the increased business activities. Further CapEx was about €2,000,000 lower than last year. But I assume that you all read our outlook on Page 17, the outlook in the press release in which we expressed our expectation of EBITDA growth in 2021.
And I would like to hand over to the operator to open the lines for Q and A.
Thank you, sir. Ladies and gentlemen, we will start the question and answer session now. And the first question is coming from Rajesh Kumar, HSBC. I'm going to connect you. Please hold the line, sir.
Your line is open now.
Good morning. First of all, when we look at your financial gearing, it's now at 1.6 times As per the loan document, this is lower than your typical range. Clearly, there are opportunities in the market. So could you update us on how you're thinking about your acquisition pipeline and how are you seeing the valuation strength in that area? The second question is obviously on the performance.
You have done really strongly. A lot of people are Sorry, that chemical prices have been at tailwind. So could you help us understand how much of it was cross selling new products in different geographies versus pass through of higher freight costs and price increases. And which of those will reverse in the second half when we are looking at our forecast? What are the things we need to be cautious on?
Thank you.
Yes. Thank you very much, Rogers. On your first question, acquisition pipeline, Basically, what we always say is that we continue to acquire businesses that fit into the strategy. It's clear that also in this kind, we have been able to do that. Although, of course, It would help if we could travel again.
I'd be very positive, nevertheless, about the possibility to acquire companies also in the future. And not sure if you want to say anything on the gearing Karl, but no, I think the conclusion is right that the SEK1.6 billion according to the found documentation is long compared to what On the other hand, I think the market also looks at the IFRS leverage to 2.6x And we all should realize that in that leverage, there's, for instance, also earn out obligations. There is the debt related to the operational leases that we have to put on the balance sheet. So the SEK1.6 billion should be more relevant, but we now don't doubt if the market sees that the same way. But there is plenty of potential upside to do M and A there.
On your second question, volume price cross selling. Yes, that's, of course, a mix. And we're not going to totally try to dissolve this mix or Analyze this mix, it's clear that the current results is the sum of all three. The significant volume growth, significant price increase. And of course, we always are Trying to cross fertilize our business in terms of bringing new product lines of existing suppliers or new suppliers to new regions.
And That remains a very positive trend. As to how, Let's say volume growth and price growth will continue. Nobody knows. For the time being, we For the remainder of the year, we remain positive. But it is it's a combination of the 3 of these factors.
And for us, of course, it's very important to continue to develop our business in the different market segments and to add product lines to offer a complementary product range. And I think what helps us is if we enter new territories, for example, now in Central America, that we are able to also use our relationships, our supplier relationships to bring new product lines to these regions or to take them over from our front competition. So it's about strongly executing our model, staying close to suppliers and customers and, of course, being able to also pass price increases to the market. So I would summarize it in this way, Agis.
Understood. Thank you.
And the next question is coming from Matthew Yates, Bank of America. Please go ahead, sir. Mr. Yates, please go ahead.
Hey, good morning, everyone. Maybe just a follow-up on one of the prior questions around the margin development we saw sequentially. And maybe just leaving Asia to one side Very, very strong margin expansion in Europe and the U. S. I was listening to the Univar call yesterday, and they did call out a few things that maybe weren't so sustainable for the rest of the year given the market tightness.
So is there anything that you're seeing that would give reason not to necessarily extrapolate this sort of profitability that you delivered in Q2, I guess, particularly given there is some seasonality to your business. Thank you.
Yes. I would say that as far as the margin percentage is concerned, that there is, let's say, seasonality. It is clear that our margin percentage fluctuates depends on the mix, It depends on certain aspects in the market. So that could fluctuate also in the future as it has done in the past. How and when is very difficult to predict.
As you know, we are in specialties, so I'm not totally sure if we can compare ourselves in that respect to Univar, This is, of course, a little bit more skewed to commodity. So our margins are relatively stable, but With this fluctuation element in it. So I can't promise that they will stay forever at this level or go Me go, hi, and Me go a bit lower. But we are, of course, a very margin focused organization. And we hope that we can and we are constantly also working on improving them By offering our services, by being relevant to our customers.
And let's see if we can sustain that.
Can I ask a follow-up question around pricing? And forgive me for I mean, down what I know is a very complex and diverse portfolio. But can you just explain to me your approach to pricing. I was under the impression that a lot of your supply contracts have fixed annual pricing. How much flexibility or frequency do you review the price you are in turn charging to your customers to capture that market tightness?
Yes. I think we do not have contracts with fixed prices, right? So our suppliers determine It's a direct price to us on a regular basis, and that differs from supplier to supplier. They are free, in most cases, to change their pricing to us. And of course, that depends from their view on competitiveness on, let's say, on their cost prices, etcetera.
So that is something that we need to be very alert on because most of the time, of course, these prices go up. So we need to then execute price increases also to the market. Yes. That is, of course, something that we, I would say, work very hard on how to execute that because that's not always easy, and it's Also complicated sometimes, also IT wise, but we've done that well. So let's say our ability to price the products in the right way in the market, also anticipating what our Clients are doing is one of our should be one of our core competencies.
And in a very sort of inflationary environment, Do you have positive inventory revaluation gains going through your numbers?
Yes. That could be a bit, but basically, Matthew, we don't take speculative position. So we often buy on the basis of expected demand from our customers. And that means that we hardly have very big positions in, for instance, a specific greater strawberry flavor And that is because if you do more than 50,000 different products, it will be a very different and difficult game to play.
And the next question is coming from Chetan Udeshi, JPMorgan. Please go ahead, sir. Mr. Odesi. Please go ahead.
Yes. Hi. Sorry, I was on mute. I just got a question on Firstly, can you just talk about what you have seen in terms of demand trends by different end markets, both from a Q2 point of view and also if that has changed at all from 2Q to, say, end of 2Q, just In terms of different end markets within industrial and life sciences and to be useful. And secondly, It's clear in general, and I don't want to ask specifically on pricing for you guys, but How customers in general do you think are accepting the price increases because it's not only price increases that are going up for chemicals, clearly for a lot of other commodities and products that prices are going up as well.
In your conversation with customers, do you sense any sort of pushback, concern that this could eventually lead to some sort of a demand destruction in the next few quarters.
Yes. Thank you for these questions. I think on end markets, We can say, if you look at Life Science and the industrial markets that, In particular, the demand of industrial markets has been exceptional and strong. On the Life Sciences, the different markets, if you look at, for example, Personal Care Markets. They have come back since last year when, of course, there were many, many lockdowns, not much flying around.
And they have come back to certain That's very positive. Food is, of course, a more stable growing market, Very nicely growing, but more stable. So I would say, if you look at the whole spectrum, then the growth In the industrial markets in this quarter and this half year has been very significant. And I think that, that is that concurs with what we read about chemical industry reports from clinical producing manufacturing companies. As to accepting price increases, That, of course, is differentiate.
I mean, nobody likes to receive price increase. It depends on competition. It depends on the Yes. Let's say there's an element, of course, also of restocking. There's an element of People really wanting to have the products or needing the products.
What we should do is to be reasonable. We have to explain it why Because we are in this, of course, for the long term with our customers and our suppliers. And This is not a game of just doing a quickie. I mean, we need to explain it to our customers. And most of the time, we can.
So I
would summarize it like this.
Thank you.
And the next question is coming from Kiran Wohler, JPMorgan. Please go ahead, sir.
Lars, good afternoon from IMG.
I thought you switched.
No, that seems nice. That's it. Okay, Hi. Good morning, everyone. On IMCD, a question on Signet.
So maybe can you give me an idea about the organic growth of Signet in the last year? Maybe you can give me some flavor on that. And with regard to Pharmaceuticals, there is somewhat slowdown, as I remember, in the Q1 because of the lack of, let me say, the flu, I think. So maybe you can give me an idea about the situation with regard
Let's say, what we don't do is give individual comments or individual companies. I think, let's say, the general comment that Signet performed in accordance with our expectations. And our expectations were, of course, also on the basis of growth. This is as far as we can go, Very, very happy with the developments with Signet. I think on your other question, pharma, As you remember, last year, particularly in the 1st 6 months, pharma, of course, Strongly had strong growth figures.
That net of off And we, of course, now also have strong growth figures also because of the acquisition. But it is true that generally, let's say, the initial Strong growth has become a bit slower. And one of the factors, and I think we mentioned it last For example, that because of the COVID measures, some other Transmittable diseases by shaking hands and hugging, etcetera, like flu, has decreased enormously. So that decreased also certain medicines there, which, of course, is a factor as well and also the postponement of certain treatments, etcetera. But pharma is, as you know, very stable business.
So We're still very happy with what we see in terms of growth, although not as exuberant as last year.
Okay. My second question final question is about the lockdown impact in the Q2. Did you still feel that effect? And is there were some cost involved and logistics invoices and other things.
Yes. So Of course, also in Q2, most people would act as from home in many places or partly from home. There is, let's say, an additional burden on getting orders out As you are handling orders, that's why I also very, very grateful for our people And the work they've done. Also, of course, to our IT people that Keep the systems going. On the supply chain, and I think that we are not special there because we see that also with many of our colleagues' peers and in other segments of the market, The supply chains are still disturbed.
That's an additional burden on our people to get the product at all and then also or in time, I'm not getting time with customers. So that's not easy, and that remains difficult also during the Q2. So we have to see when that goes back to normal. So yes, the COVID pandemic has still had, let's say, a negative impact. Of course, yes, of course, less travel.
Compared to last year, I don't think it makes a very big difference. Exhibitions are not taking place yet, so certain positive effects. But Compared again to last second quarter, of course, that was also not there. So in that sense, limited if you
Yes. So in terms of cost, it's a limited impact. But in terms of If it gets normalized next year, for example, that could enhance further volume growth with some higher costs. Is that a correct conclusion?
I'm careful to predict volume or price next year. I think if the situation totally returns here, then we should do a bit more travel again. But hopefully, then that results So we will hang on to our Strategy and growth perspective, Krita. Okay. Thank you.
My apologies, Mr. Mulder from ING. And the next question is coming from Fernand de Boer, Degroof Petercam. Please go ahead.
Yes, good morning. I have one question on the other income line, which seem to be exceptional high, Matthew. Anything specific to mention there?
Yes. I think what you will find there is the proceeds of the sale of the neutral granulation business in the U. S. And what drives the other operating line a bit, right? But
if I look at, let's say, the adjusted Because you gave a nonrecurring figure of, I believe, only EUR 1,600,000. So that still should leave then quite an amount in debt auto income, which is then in, let's say, the not adjusted fee, the adjusted fee.
Yes. So to be very specific, yes, what you can find in the consolidated cash flow statement It's a one off other operating income of EUR 6,200,000 positive, And that is mainly related to the sale of the nuclear regulation business. And the number that you referred to is the balance 3 extraordinary income, so one off income and one off cost. And the one off cost then relate to M and A activities, restructurings and We'll be starting 1 off items.
Okay. And maybe we have to come back on, let's say, the second half because expecting a higher EBITDA at plus 52% organically in the first half is, of course, Now a few options. But if you listen also, I listened yesterday to the call of DSM And they're on their, let's say, engineering business, they were quite cautious because of all these disruptions. They say, okay, there is demand, But we are not sure that was actually the end message we can deliver. How does that work for you?
How can you be sure that you are going Deliver the demand the company's account needs in the second half.
Yes. We can, of course, never be sure
Because we are one of, let's say,
customers, I would say. We don't say that, but distributors of also of the U. S. M. So we can't never be sure.
Nevertheless, because of, I think, the wide variety Of products that we have that very often levels out. So we are, of course, not dependent on one product range or one product line, so that helps a lot. I think the situation will not, as far as I can see, worsen in the second half versus the first half. I hope That it improves a bit, but we will see. So I don't think that there will be a major difference in the second half
And then maybe to come back on the very first question on your, let's say, capital allocation And looking for acquisitions, could there be a point that you say apart from acquisition, we're also going to return money? It's It's been quite easy for you also to raise capital in the past few years. So maybe to put it the other way around and to return more to the shareholders.
No. I think we are not at that point. I'm also not greatly in favor of that. I think that we We need to execute our strategy. I think shareholders have benefited from that.
And they'll benefit in the future. We have sufficient opportunities to use our cash and our balance sheet. So no, I don't think that, that is in the Not the agenda at all.
But does that also then mean that you are going to look for more bigger acquisitions or for more acquisitions.
Well, listen, we are looking at acquisitions whether or not they fit into our strategy, whether big or small. And as you know, we always have done a number of smaller ones. If we let's say, if we have the ability to acquire a bigger loan or bigger ones That fits into what we do and we stick to our, let's say, core of specialty chemical and food ingredient distribution, yes, then we will do that. Let's say, we are not I think when we were listed, we were asked how much are you going to spend on acquisition, and we have not given that We don't know it because what we do is execute our strategy. So let's We do not deviate from that course.
And so far, I would say It has served us well, and it has served our shareholders well.
And the next question is coming from Henk Ferdinand Kempen. Please go ahead, sir.
Hi, good morning all. I got disconnected for a bit, so I hope I don't repeat any of the other analysts. Three questions from my side. Firstly, on has stocking from clients in the second quarter, is that In anticipation of price increases, does that have any material effect on the growth, on the volume growth in the second quarter? The second question is on shortages.
I know it's been very diversified across products and across markets. And I'm wondering if that has been sort of a bigger theme as the quarter and a half year has proceeded and if that could have any effect the remainder of the year. And then the third question is on I think you already commented briefly on continued travel restrictions. But do these travel restrictions and also in combination with, let's say, very strong markets, Has that been sort of does that make it more difficult to engage with potential acquisitions, potential targets?
Yes. Thank you for the questions. I think restocking effect, certainly, that will have that has played a role. I guess also the in combination with, I would imagine, and what we also sometimes hear from customers. Let's say, the fear of shortages, of course, also triggers them ordering I may be ordering a bit more than necessary.
I think I said I answered the question on shortages, so I don't want to repeat myself again. On travel restrictions, Certainly, it has an effect. I think, Fortunately, travel in Europe is more or less possible. Travel overseas is still very difficult, if not impossible. And that hasn't I think for all of us in business, it has a negative effect because we need to see our people, and we need to You can do a lot through the screen, but not everything.
To meet new people and to connect, You need to see people face to face. So certainly, that has an effect. On the other side, the world adapts quickly. So also the connection with through the screens is It's more easy than maybe before the pandemic, but we all would love and I think I speak for everybody, I would love So A lot can be done on the screen. We want to travel again, nevertheless.
And Let's hope that, that is in the cards in the next 6 months to 12 months.
And there is a follow-up question coming from Mr. Rajesh Kumar, HSBC. Please go ahead.
Good morning. Sorry, I couldn't ask for a shift. Just When you are looking out next year or second half of this year, Obviously, Healthcare, Life Sciences, that segment has been reasonably strong and has continued to be strong As we get recovery in industrial, but also there's a supply shortage, which has sort of Given a pricing tailwind, should we think of it like you are at the seat of spot and what We see a bit of tapering of growth in Healthcare, Life Sciences exposure, while a bit more coming from the industrials in the second half.
Not talking sure if I get your question. Could you? I mean No, I don't really get it.
So life sciences was quite strong last year, We had a cyclical impact from industrials. We are at that point where both life sciences and industrials are kicking Quite strongly. So should we expect second half to be more of an industrial queued quote
2019. Well, what I said about the 1st 6 months is that Industrial is, let's say, has shown Very significant growth, and I think that you see that also with manufacturers yesterday at Yes. And I think that, that will probably continue. At the same time, if you look at Life Science, And they are, of course, not all the same. And what I said about Personal Care, they've had a very difficult year last year Because of the pandemic, and let's comment back.
So it's a bit of mixed picture. And let's see how long, let's say, the growth of industrial is continuing. But Overall, we see for both bigger segments a very positive development also for the second half.
Perfect. Thank you very much.
There are no further questions. Please continue, sir.
Well, then I would say to everybody, enjoy the summer like we do, and enjoy your holiday if you have, and I look forward to speak to you after Q3. Thank you very
much.
Ladies and gentlemen, this concludes this IMCD event call. You may now disconnect your line. Thank you very much.