Hello and welcome to the IMCD N.V. full year 2022 results. My name is Caroline, and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen-only mode. However, you'll have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand over the call to your host, Mr. Piet van der Slikke, the CEO, to begin today's conference. Thank you.
Thank you very much, Caroline. Good morning, everyone. As usual, I'm here with Hans Kooijmans, CFO, who will lead us through the results after my preliminary remarks, and then we are open to questions. The year 2022 has been very successful for IMCD. We added more than EUR 1.1 billion to our revenue and more than EUR 180 million to our EBITDA compared to 2021 with a strong organic growth. As it's resulted in an EBITDA for the year of EUR 555 million, a growth of 48%, most of it organic. To arrive at this result, we faced many challenges. Strong demand from customers, in particular in the first period of the year, price inflation, supply chain issues, product shortages, and allocations from suppliers. It forced us to take more stock than usual.
Despite all this, we were able to maintain and even improve our margins. In certain countries, of course, we were not able to enter. In China, we were faced with severe lockdowns in particular, also in Q4. Nevertheless, we kept our momentum in growth, but also, regarding acquisitions and strengthened our position in all three regions. Our pipeline for the current year is quite promising. We expect to close the acquisition of Sunrise in China, which we announced late last year. In Q1, which will give us a very nice position in the personal care market in China. In Q4, we saw customers de-stocking, and we ourselves took the opportunity, in particular in Asia, to correct some too high stock levels, which resulted in a temporary lower margin in this region. This is not structural, and we see healthy growth already in Q1.
All in all, we are satisfied with our performance, and although we continue to think it is wise not to make predictions of future results, we remain quite positive about the current year. With that, I will hand over to Hans for leading you to through the 2022 results.
Piet, thanks for the introduction, good morning, ladies and gentlemen. Earlier today, we published our annual report, an informative, colorful document about various aspects of IMCD's business model and a lot of details about our financial performance. Key financial figures from this annual report are summarized in the press release that we issued this morning. In this call, I will quickly take you through these numbers before we move to Q&A. I will start on page 10 of the presentation, where you will see a FOREX-adjusted revenue increase of 28% and a gross profit increase of 31%. The increase in gross profit was a combination of 24% organic growth and 7% as a result of the first time inclusion of acquisitions.
The acquisition growth is the balance of the full year impact of acquisitions done in 2021 and more recent acquisitions signed and closed in 2022. For an overview of the 2022 acquisitions, I would like to refer to page seven and eight of this presentation. Gross profit in percentage of revenue increased with 0.6% to 24.9% in 2022. The segment Americas was the biggest contributor to both the absolute margin growth and the improved gross margin percentage. The increase in average gross margin percentage is the result of margin improvement initiatives, the usual changes in local market circumstances, product mix, currency fluctuations, and the impact of newly acquired businesses. For your convenience, we included a line on this slide with an operating EBITDA comparison.
However, in a people organization like IMCD, with an asset light business model with outsourced logistics, a low fixed asset base, the development of EBITDA shown in the next line seems more relevant for us. Operating EBITDA increased 42% on a constant currency basis to EUR 555 million. This increase was a combination of 34% organic growth and 8% growth as a result of the first time inclusion of acquisitions. Operating EBITDA in percentage of revenue increased by 1.1 percentage points from 10.9% in 2021 to 12% in 2022. The conversion margin, calculated as operating EBITDA in percentage of gross profit, increased from 44.7% last year to 48.3% in 2022.
This 3.6% increase in conversion margin is the result of substantial organic EBITDA growth, whereby gross profit growth more than compensated own cost growth. On the next slide, Slide 11, a few key figures from the PNLs per operating segment with a focus on gross margin and EBITDA development. Gross profit of EMEA in the first column increased 30% FOREX adjusted, which is a combination of 28% organic growth and 2% acquisition growth. This gross profit increase is the main driver of the 39% EBITDA increase in EMEA. Most of this gross margin and EBITDA growth, again, is organic. EBITDA margin increased with one percentage point to 12.3%, and the conversion margin increased with 2.7%.
Both in absolute numbers and percentage-wise, we saw the biggest increase in gross profit and operating EBITDA in the Americas. Gross profit increased 35%, which is a combination of 27% organic growth and 8% as the result of the first time inclusion of the acquired companies. This growth profit growth, combined with disciplined cost control, resulted in 52% growth of operating EBITDA and an increase of conversion margin with 5.8 percent point. Asia Pacific, who had another growth year whereby they realized 29% Forex adjusted gross profit growth. This was a combination of 14% organic growth and 15% as a result of acquisitions. Operating EBITDA increased to EUR 145 million, whereby the EBITDA margin and conversion margin both slightly decreased.
Despite this small decrease, both ratios are still by far best in class in the group. In the last column, you will find in the holding companies or non-operating companies, including the head office in Rotterdam and regional support offices in Singapore and the U.S. The absolute amount of holding costs increased from EUR 29 million- EUR 32 million. Holding cost as a percentage of total revenue decreased from 0.9% last year to 0.7% of revenue in 2022. On the next page, you will find a summary of the PNL lines from EBITDA to the net result for the period. A few general remarks, and I would like to start on the bottom half of this slide with amortization of intangible assets and related tax credits.
These are non-cash cost items that relate to the amortization of supplier relations, distribution rights and other intangible. The increase is mainly the result of the acquisitions done. The EUR 11 million of non-recurring expenses. This includes, amongst others, the six and a half million EUR to cover the estimated financial impact of winding down the IMCD operations in Russia. Further, it includes costs related to successful and unsuccessful acquisition projects, some severance costs related to one-off adjustments of organizations. On this line, we also report a one-off income of about EUR 3 million as a result of the sale of a warehouse building in Indonesia. A line lower, the EUR 2 million non-recurring tax expenses in 2022 is the tax on the non-recurring income and expenses. The net finance cost and taxes. I created a separate slide for that.
On slide 13, a breakdown of the net finance cost adding up to EUR 26 million, which is about EUR 4 million more than previous year. As you can see, this EUR 4 million increase is a combination of EUR 8 million higher interest costs related to our financing structure. We have positive changes in the deferred considerations of EUR 8 million and EUR 4 million more negative currency exchange result. Higher interest cost on the financing structure is mainly the result of increasing interest rates during 2022, combined with, on average, a higher debt amount. When looking at our debt position, it's fair to say that our future exposure to interest rate fluctuations further reduced during 2022.
At the moment, we have about EUR 600 million of our actual debt position consists of corporate rated corporate bond loans with an average fixed coupon just below 2.5%. The changes in deferred considerations. As you might remember, another EUR 275 million of our net debt refers to deferred purchase price considerations, like the 30% for Signet. The nominal values of these deferred considerations are discounted with a relatively low interest rate, triggering limited interest costs. Further on this line, we need to reflect changes of the expected value of the deferred considerations as a result of changes in expected financial performance, these targets. A summary of our tax expenses, always a bit more complicated in an international environment. The reported increase of our regular tax expenses is EUR 45 million.
You might remember as a guidance for our tax cost, we indicated to you to expect a blended tax rate in the range of somewhere between 24% and 28% of our result before tax. Calculated as EBITDA minus finance and non-recurring cost. As you will notice, the summary on the bottom of this page indicates that IMCD's blended tax rate in 2022 was 25.2%, which is slightly above 2021 level, but still at the low end of the guidance that we gave to you. 2022 tax cash out was EUR 130 million, compared to EUR 84 million in 2021. I think I would like to refer to the annual report for further details on tax and tax calculations. A slide about the calculation of our cash earnings per share and our dividend proposal.
As you can see on this slide, we report EUR 6.78 cash earnings per share in 2022, which is a 46% increase compared to 2021. At the upcoming AGM in April, we will propose a dividend of EUR 2.37 in cash per share, which means an increase of 46% compared to last year. As you might remember, the company has a dividend policy with a target annual dividend in the range of 25%-35% of adjusted net income. This dividend proposal leads to a payout ratio of 35%, which is at the top of the range that we set ourselves as a policy.
Since our listing in 2014, we increased our dividend from EUR 0.20 in 2014 to the proposed EUR 2.37 in 2022, which means a growth CAGR of 36% during the period that we are listed on the stock market. A few words about the balance sheet. Property, plant, and equipment slightly increased, and as indicated before, as a result of the asset light business model, still relatively low compared to the size of our business. Right of use assets is the result of the application of IFRS 16, this EUR 83 million reflects capitalized operational leases. The big amount, the intangible assets and related deferred tax liabilities. These are mainly a result of the acquisitions made in our history as private equity-owned company.
There is a growing equity position of close to EUR 1.7 billion, covering 62% of capital employed. The increase in 2022 is, amongst others, the result of the addition of the net profit for the year of EUR 330 million. Other comprehensive income added EUR 6 million, and there was a minus for dividend payments in cash of EUR 92 million last year. The other two balance sheet lines, working capital on the next slide. Summary of the absolute amount of the various working capital components and these amounts translated in days of revenue. As you can see, the absolute amount of working capital increased EUR 158 million. This increase is a combination of EUR 48 million additional working capital related to acquisitions in 2021.
EUR 21 million as a result of exchange rate differences when calculated this on year-end balance sheet positions. Further, we reported an operational increase of around about EUR 88 million. Towards the end of 2022, working capital days came back to more normal levels. Also as indicated by Piet, whereby especially stock and debtor days normalized. You might remember that we finished 2021 with strong sales in December and relatively high stock positions due to customers at that moment in time anticipating supply chain disruptions, resulting in relatively high working capital days at the end of last year. A summary of our net debt position. At the end of 2022, we report a bit more than EUR 1 billion net debt, which means an increase of EUR 87 billion compared to the end of 2021.
Apart from the usual bond loan, Schuldschein and bank loans, net debts includes EUR 86 million of operational lease liabilities. Further in the net debt, we reported what I mentioned before, the EUR 275 million of deferred considerations. Most of these deferred considerations relate to the remaining 30% of Signet America Asia that we will buy and pay in respectively 2024 and 2025. On this same page, an overview of the maturity profile of our debt structure as per December 2022. The EUR 200 million bridge facility and the EUR 600 million revolver facility columns reflect the maximum amount that we can use as per today. Not the amount that we draw, which is much lower, of course.
Reported leverage at the end of 2022 was 1.7x EBITDA, and the leverage ratio calculated based on the definitions used in the IMCD loan documentation was 1.2x EBITDA, which was well below the required maximum as set in the loan documentation. I would like to finish with a summary of the cash flow overview on page 19. As you can see, the absolute amount of free cash flow in 2022 was EUR 435 million. The cash conversion ratio increased to 77%. This increase in conversion ratio is a combination of substantially higher operating EBITDA combined with a lower investment in working capital compared to last year. Last but not least, on the last slide, you will find the outlook in which we, amongst others, indicate that IMCD sees interesting opportunities to increase its global footprint, expand its product portfolio both organically and by acquisitions in 2023.
A summary of our 2022 figures, and Piet and myself are happy to answer any questions you may have. Back to the operator. Caroline.
Yeah, sure. Thank you. As a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. We will take the first question from line, Suhasini Varanasi from Goldman Sachs. The line is open now. Please go ahead.
Hi. Good morning. Thank you for taking my questions, please. A couple from me. Please, can you give us some color on how do you see growth margins evolving in 2023 versus 2022. Historically, it's been quite stable, and that's been the track record for you generally in specialty ingredients distribution. Is there any reason why that shouldn't be the case for 23 as well? How do you think about wage inflation, I suppose, in 2023, given the inflation that we're seeing in Europe at this point in time? Just a quick one. I think you mentioned, in APAC that you had seen some stock correction that you took. Was that in Q4? Any color on the magnitude of it and how the underlying trends were? Thank you.
Yeah. Thank you very much for your questions. Gross margin developments, it's always, of course, a little bit difficult to predict, but we feel that we, as you saw in 2022, of course, our gross margin % increased. We will do everything, of course, to keep that level. We see positive signs that we will be able to do that as well in 2023. Wage inflation. Yes, we have been, of course, confronted, throughout, the world with, strong inflation generally, and that has, of course, also translated in us, supporting our staff with, increased wages. Certainly our cost base, and I think that goes for everybody, will go up.
I want to emphasize again, of course, that our people, who did a tremendous job in 2022, despite all the difficulties, are key for us, belong to us, also benefit, of course, from the growth, significant growth that we made. That translates, of course, also increased wages. That, of course, all within the boundaries of our growth goals. We remain optimistic that we remain in these in these bounds. About the stock accrual. I'm not sure if we're going to totally disclose.
Perhaps it's good to say that's one of the beauties of an annual report, that you need to disclose a lot of additional information. I can freely talk about the fact that during 2022 and mainly in the last quarter, we added in total during the year, an amount of EUR 14 million to our stock provision. It's fair to say that a substantial amount of that EUR 14 million has been booked in the last quarter. That is an amount that is higher than what we typically did in the years before, where we always hovered around a number somewhere between roughly EUR 2 million and EUR 6 million.
Understand. Thank you.
Thank you. We will take the next question from Matthew Yates from Bank of America. The line is open now. Please go ahead.
Hey, good morning, gentlemen. I know you never wanna give specific guidance, which is understandable given the short-term nature of the order book. Piet, you did say in your remarks that you saw healthy growth in Q1. I guess I'm a bit surprised at that, given the inventory stats you're showing on slide 17 about having six fewer days. Was your comment a reference with regards to growth about revenue, volumes or profit? Are you talking here organically or also including acquisitions that you've made? If I put it really bluntly, last year you did EUR 140 million of EBITDA in Q1. Are you saying that your expectation is to be able to grow that number? Thank you.
Well, Matthew, thank you for your question. Of course, we do not give, let's say predictions. I said, though, healthy growth. If I talk about growth, I always talk about profit because there's nothing else that matters in the end, and cash flow. It is important to understand that we look at our business, let's say, always on a longer term and not on a quarter-by-quarter basis. If you look at the underlying trends, then the underlying trends remain very, very strong. It is, prices remain high. Generally I would say, we see for Q1 a bit early, but we see in Q1, as I said, healthy growth, and healthy growth means what it means.
Okay, thank you. Hans, maybe to you, apologies if it's just me not understanding. The deferred consideration essentially being taken down by EUR 7 million, is that because one of the assets is not developing in the way you expected, or is that a function of changing the discount rate on the provision?
Matthew, it is a combination, as you could see in the annual report, is that improved better than expected performance on one of the earn out obligations that we had. The funny thing on the IFRS, if the target is doing better than what we expected, then you need to book a loss to increase the deferred consideration. On one of the other assets we saw the opposite. There we had to reduce the forecast for the cost price of the remaining 30%. That's exactly the reason that we have this protection mechanism in it. Because you reduce then the forecast, you need to book a profit because you release part of the earn out obligation that you estimated at the start of the process.
That asset that is perhaps not doing as well, can you explain some of the reason as to why that is? Is that the way that the business is performing or the market environment? What's changed in your expectation?
Yeah. It is a combination of basically both. When we buy these businesses, and we need to estimate the future profitability. Basically, we do that on the basis of the guidance that sellers give to us for the future profitability. If that is a very aggressive guidance, we follow that aggressive guidance in calculating the earn out obligation. Then, yeah, if they don't make their own guidance, then it automatically reduces the price that we need to pay for the remaining, in this case, 30%. The opposite, if they outperform what they indicated themselves, then you need to further add to your deferred consideration. These changes unfortunately flow through the P&L.
Okay.
Next question. Hello?
Thank you. We will take the next question from line. Matthias Maenhaut from Kepler Cheuvreux. The line is open now. Please go ahead.
Hello, good morning, and thank you for taking my questions too, if I may. Maybe on the M&A pipeline, you've commented you see healthy opportunities. I also noted that you installed a bridge financing facility, could you maybe elaborate a little bit on these targets? Are these just add-on targets or are you also contemplating somewhat larger scale deals? Could you maybe elaborate in what kind of regions you're looking for? Second question is actually on your people. As you already rightly said, people, it remains a people business. You now have had two years of very strong performance, which probably has above average variable pay. Also looking at competition, which is still allocating a lot of capital and probably also a lot... allocating a lot of capital to people.
Do you think there is a risk of accelerated turnover given that growth prospects are maybe slightly less rosy than they have been in the last two years? What can you do to offset this risk?
On the... Yeah. Thank you. On the M&A pipeline, of course, always difficult to, you know, to specify too much because you never know in the end, whether, you know, whether you succeed because these negotiations in the end, only finish with the signature. Yes, there are some larger ones, there's some add-on ones. Also, different regions where, whereby, emphasis is on Asia or Latam, the Americas. Good opportunities that we see. That is, of course, remains part of the business model and we work very hard to land a few successful ones. The second question I didn't get, is that something you want to address? I didn't totally understand what you were asking. Could you repeat that?
Yeah. Yeah, sure. As you said that human capital is quite important, so your people are quite important. Of course, you have had two years of very high performance and probably also high variable pay.
Yeah.
On the other hand, I think competition is still investing a lot in people. Do you think that with less rosy growth prospects and probably less pay prospects in terms of variable pay, is there an increased risk of heightened turnover among your people and what can you do to offset such a risk?
Well, yeah, that's a good question. Of course, we live it also there in a competitive world and our... I think people are, let's say, tied to the company in various ways. One is culture. Do they really like to work in an environment that gives them a lot of freedom to operate, gives them a lot of international opportunities? That's one. Of course, we always have emphasized that. Second is, of course, that we pay competitively, and we will ensure that we do that and The competition for talent has been going on for a very long time, so we confident that we can keep our talent in-house.
All right, thank you.
Thank you. We will take the next question from line, Chetan Udeshi from JP Morgan. The line is open now. Please go ahead.
Yeah. Hi. Can you hear me?
Yes.
Yep.
Yeah. Hi. Piet, you were talking, just stepping back a little bit and maybe just wanting to check my math. If I calculated in Q4, I mean, at least based on the guy, you know, the numbers you guys gave in first half and fully organic EBITDA growth, I calculated Q4 something like 4%, which does seem like a sharp slowdown from what we saw in the first three quarters of last year. I'm just trying to tie this back to the comments you made in the last conference call that you saw the demand was still very healthy and you're still saying the same thing for Q1. I'm just trying to tie those numbers together, you know.
If trends are still very strong, why did we see that sharp deceleration in fourth quarter growth? Just 2nd question related to that is we've seen this time around, you know, not only our industrial suppliers of yourself are seeing slowdown, but also more the life sciences suppliers, more on the consumer side are seeing slowdown. Is that something you don't see in your sort of customer patterns, even though your suppliers might be seeing quite a bit of destocking? Thank you.
Yeah. How's Q4? I think part of the reason we explained, and has something to do with the provisions accruals that we took on stock.
Yeah. The other part, let's face it, that Q4 last year was a very strong quarter with a very strong December month. If you then still grow our gross margin organically double digits in Q4, I think you should still consider this as a pretty strong quarter.
Yeah.
It's also the fact that we, that we grew organically during the year more than, what is it, 26% on the gross margin line is not the new normal going forward. I think that is something that we have indicated a couple of times during the previous call. Growing double digits compared to a very strong last quarter, last year, I think is still quite a good outcome. Even if you didn't take into account, one of the items that we mentioned before is that we also took the opportunity to clean up here and there some stock provisions and take some additional provisions there.
On the second question, I would say that we see on the life science part, very strong growth continued in all three segments. On the industrial supply part, we see that prices remain very stable. Of course, a little bit of softening of demands, but that is already something that took place in the... This is also per region, but took already place in the course of 2022. By and large, we still see in both segments, with an emphasis on the life science, we see good growth.
Can I check the inventory write-off was included in your the adjusted EBITDA number? It's not sort of taken off below that line. Can I confirm that?
No, no. It's part of gross profit.
Okay. You know, usually, like you said, you know, the inventory adjustments are not so materials. What prompted this somewhat the bigger write-off than usual? I guess, you know, it's just a reflection of how the prices are moving these days up and down, but just curious if there was anything particular that prompted that change.
Yeah. Caution, I would say. Also, you know, supply lines have been very, very long. In certain regions, before goods arrive, it takes months. Sometimes circumstances change, we have been caution and took the opportunity to also adapt to the new situation with shorter supply lines.
Understood. Thank you.
Thank you. We will take the next question from line, Rikin Patel from BNPP Exane. The line is...
Yeah, hi. Thanks for taking my questions. Just had one left. There's been more consolidation within the ingredient space over the past six months. I'm just curious to hear what impact that could have on supplier agreements within the chemical distribution market, and whether you see this as a positive or a negative for IMCD.
Yeah. No, it's a good question. It's of course, a question at, let's say, part of our business model, How would I say, cope with throughout our history, namely to align with those suppliers, those manufacturers that we feel are the winners in the industry. I think that is if you look at the different competitors, also business models, this has always been a very, very strong feature of IMCD. I think our supplier base is extremely strong. Yes, consolidation going on in the industry, that continues. We feel that not always, but often we are on the right side of that. Part of the strategy is to align with the strong ones, to regionalize if possible, with these winners or even to globalize with them. That is what the strategy is, the purpose is, and we feel that we are on a very, very good track there.
Thank you.
We will take the next question from line, Quirijn Mulder from ING.
Yeah. Good morning, everyone. Couple of questions maybe on the Far East. As I understand, the pressure on the growth margin was related to what? Is it also related to the inventory? Is it possible to give some more idea about the size of that effect in the Far East in terms of, yeah, I would say in terms of growth margin, what's exactly happening there? The destocking, how large was that effect in the fourth quarter in your view? Have you a good feel for that? My final question is about the situation in Turkey, because I do not believe that in terms of size is not very big, but still, the devastating earthquake could have an impact on your operations there. That's my question.
Yes, thank you very much. To start with the last question, of course, first of all, it's a very, very sad situation because it also affected relatives of our employees in Istanbul. Turkey is an important country for us. It's a very successful part of our European business and not small. Yeah, we have to see, of course, we have customers also in that region that will be affected. Nevertheless, let's say the economic activity in Turkey of course concentrates mainly around Istanbul and certain pockets elsewhere, not so much in the eastern part of the country. The first question, I think, concerned again, I think we gave the number.
Yeah, but I think, Quirijn, your question is about do we specify that per segment and region? There, the answer is no. On the other hand, the fact that we mention it specifically also indicates that if you would normalize for the addition in this provision, that margins would have been at least stable compared to last year.
That is also why I specifically said it in my opening remarks, that Asia has been there an important region for this particular element. On destocking generally, that is extremely difficult to say because of the, let's say, the very diverse nature of our customer base, both in business segments but also in regions. I must say, I need to emphasize again that if you looked, if you look back at the first six months of 2022 and maybe even longer, many customers were desperate to get material and also sometimes, yeah, then overstocked. I guess that normalized in the course of in the second half of 2022, how much that has been, nobody can know that exactly.
Okay. Thanks.
Thank you. I'll take the next question from line, Eric Wilmer from Van Lanschot Kempen. The line is open now, please go.
Hi. Good morning, Pete and Hans. Thank you for the presentation. Thank you for taking my questions. I do still have a couple of follow-ups on what has already been discussed. On the destocking trend, you already commented on this, that you've seen it throughout the fourth quarter. At the same time you sound quite positive about the developments year to date across your end market. Should we conclude that the destocking trend, which has been sort of a big fear in the market, in the distribution market for analysts and investors. Should we conclude that did not have the profound effect, negative effect that some people expected? That's my first question. I'll take them one by one.
Yeah. No, yeah, I think, well, first of all, I think, I mean, macroeconomically, I mean, I think the situation looks a little bit more positive, as we all know, than maybe a couple of months ago when central banks predicted recessions. That seems to become more optimistic. Yeah, at a certain stage, of course, destocking is complete, so to say, and people need stock again. Again, I cannot totally quantify that, but, and perhaps the levels remain a little bit lower than last year. Nevertheless, we see good demand and also stable prices. That caused my optimism that I started with.
Right. That's very clear. Second question is on your gross margins. You state again in the call that you will do your up-utmost best to keep gross profit margin levels stable in 2023. are we talking about the for like as a base rate, are we talking about the full year 2022 in which your GP margins were about 25%? are we talking Q4, in which your GP margins were 24%? Just to get a little bit better feeling on that. Thank you.
Well, we said of course that, yeah, it's a difficult one for me to answer without giving you too much of an indication. Also very difficult for me to predict for the whole year. What I could say is that we not for nothing say that, let's say what happened in Q4, and particularly in Asia, is, in our opinion, an incident. We look at, we look at higher end of what you just mentioned.
Okay. Also coming back to Asia, can you give some more color on what you've seen in your, in your business in Asia, on the back of the reopening of the Chinese economy in Q1? Has there been a major tailwind for you?
Yeah, we have been affected, of course, in China. In particular also with the severe lockdowns also in the Shanghai region. We see now some positive developments. It also allows us, of course, to go back there. We expect a positive development also in China and at large in the rest of Asia because of the relaxation of all these restrictions because of COVID. Let's see how the Chinese economy develops, but so far we see positive signs.
Okay, clear. Last question is on your on your balance sheet. Under your covenant calculation, net leverage now stands at 1.2x . Of course, acquisitions have the highest priority on your strategic agenda, but at the same time, you know, the balance sheet has delevered quite significantly over the last years. Now you also decide to increase your dividends by almost 50% in line with your payout policy. At what leverage would you, let's say, consider raising the dividend payout ratio or maybe consider a share buyback, if you, let's say, observe that you cannot purchase enough acquisitions to, let's say, avoid further delevering of your balance sheet?
Yeah. Well, I don't wanna speculate about that. I hope that we do not reach that moment very quickly, in particular share buybacks. I'm very optimistic that we have enough opportunities to also use our balance sheet in the right way. What I indicated also is that we have a healthy pipeline of acquisitions. And raising the payout percentage is something that is now not on the agenda. Hope that answers your question.
Yeah, that's very clear. Thank you. Those were my questions.
Thank you. We will take the last question from line Suhasini Varanasi from Goldman Sachs. The line is open now. Please go ahead.
Hi. Thank you. I just had a couple more questions, please. Just on the M&A policy. You've historically added maybe 9%, 10% growth from M&A, but that was in the era of low interest rates. Given the higher interest rate environment that we are in today, has that made you a bit more cautious on the amount of M&A that you plan to do or the multiples that you're willing to pay for these deals please? The second question is just a medium-term question. It feels as though the landscape is changing on chemical manufacturing generally since the war last year, which has changed the cost structure for chemical manufacturing. How do you see distributors such as yourself having to adapt to this changing environment? Do you need to maybe source a bit more from U.S. and APAC?
Do you see yourself playing a bigger role in the, in the sourcing or because the manufacturing has reduced maybe in Europe? Thank you.
yeah. I think we have never let our, let's say, business model and our strategy determines whether interest rates are a bit lower or a bit higher. Of course, it has an effect on... could have an effect on multiples. Let's say multiples are also determined by the quality of the business, the competition around it, etc. We remain vigilant in terms of not paying too much, but I don't think it will be affected a lot with current interest rates. Your second question on basically on Europe and the chemical industry is a very valid one. We have to see how that develops. As you know, we have suppliers from all over the world, but also of course, a significant number from Germany.
The German chemical industry also produces outside of Germany, in the U.S. and in Asia. I can only hope that Europe understands the importance of the chemical industry for Europe, and that that is facilitated in the right way. It is clear that energy plays a big role in that, and energy costs. We have to see over time. It's too early to tell now what trend there is. Over time, yeah, it could very well be, of course, that the U.S. chemical industry and the Asian chemical industry will benefit from the weakness in Europe. I think we have hedged our batches, our bets there by having a wide network of suppliers. I hope that that answers your question.
Yes, it does. Thank you.
Thank you. It appears no further questions.
All right. Thank you very much, Caroline, and people.
Thank you for joining today's call. You may now disconnect.