Good morning, ladies and gentlemen. Thank you for holding and welcome to the analyst call Q3 results IMCD N.V. 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. Piet van der Slikke. Please go ahead, sir.
Thank you. Welcome, everybody. I'm here, as usual, with Hans Kooijmans, and together we will answer your questions on the first nine months and Q3. Despite the COVID-19 crisis, we report strong results. For the first nine months, EBITDA growth of 8% and even 11% if you correct for Forex. Q3 was particularly strong, with 11% growth of operating EBITDA and even 17% when we adjust for currencies. All regions contributed to this success. Furthermore, free cash flow is 21% above last year. We are very pleased to see that we are able to continue our business also in these difficult times, and that we are even able to grow by margin expansion and cost control, although we are, like everybody else, affected in our top line. This is promising once this crisis goes away as it leaves room for further growth.
Generally, we are encouraged by the positive resonance our business model receives from suppliers and customers, which is evidenced by the projects we are working on and which will hopefully fuel future growth as well. This Q3 was very positive in another sense. We were able to sign an agreement to acquire 70% of the shares of Signet Excipients of India and successfully issue them almost 4.4 million shares to finance this acquisition. Last week, we closed this deal. Signet fits very well in our global pharma strategy and expands our position in India. As you know, everything is made possible by our excellent staff, who continues to deliver a top performance under difficult circumstances, in the various activities, in sales, in order handling, in labs, in warehouses and logistics. I want to thank them all.
In summary, IMCD is in good shape and we are positive about our near-term prospects. I would like to hand over now to Hans to lead you through our results.
Thank you, Piet. Hans here. Good morning, ladies and gentlemen. Before we go to Q&A, I will briefly summarize IMCD's first nine months results. We will start on page 10 of the presentation with an overview of the key financial figures. As you can see, and as Piet just mentioned, Forex suggested revenue increased 3% compared to the same period last year. More important, gross profit increased 9%. This gross profit increase is a combination of 4% organic growth and 5% as the result of the first-time inclusion of acquiring businesses. In 2019, like Whawon and DCS and further acquisition growth includes the positive impact of Zifroni, Develing, VitaQualy and Kokko-Fiber, acquisitions that we signed and closed in the first nine months of 2020. Signet is, as you might understand, not included in these year-to-date September figures, as we closed this transaction on November 4.
Gross profit in percentage of revenue increased 1.1% from 22.2% to 23.3%. This increase is the result of gross margin improvement initiatives, changes in local market circumstances, currency developments, and the usual fluctuations in the product mix. Forex-adjusted operating EBITDA increased 11% to EUR 190 million. This increase was a combination of organic growth and first-time inclusion of acquisitions. The conversion margin, calculated as operating EBITDA in percentage of gross profit, was 39.1% in the first nine months of 2020, an improvement of 0.7% compared to the same period last year. Net results before amortization and non-recurring items increased EUR 11 million to EUR 131 million, an increase of 11%. Free cash flow was EUR 168 million and the cash conversion ratio increased to 87.5%. A substantial improvement compared to the same period of last year.
Operating EBITDA growth in 2020, combined with a lower increase in working capital in the first nine months of this year, were the main drivers of this improvement. Year-to-date cash earnings per share hit EUR 2.46. The Forex suggested increase of 11% compared to the same period of last year. On the last line of this page, you will notice a 9% increase of our full-time employees. Most of this increase is the result of the first-time inclusion of acquisitions done. On the next slide 11, you will find gross profit, operating EBITDA margin, and conversion margin per operating segment. EMEA, in the first column, reported 4% Forex-adjusted gross profit growth and 3% operating EBITDA growth. Q3 was a strong quarter in EMEA, with low double-digit operating EBITDA growth.
Further, operating EBITDA in % of revenue improved from 9.7% to 9.9%. In the second column, the Americas, where we report 11% Forex-adjusted gross profit growth and 16% operating EBITDA growth. Operating EBITDA margin and conversion margin both improved with 1.4% and 2.1% respectively. Asia Pacific reported 25% gross profit growth and 29% operating EBITDA growth at constant currencies. Operating EBITDA in % of revenue and conversion margin further improved compared to the same period of last year. Q3 was a strong quarter with double-digit EBITDA growth for both the Americas and Asia Pacific. In the last column, you will find the cost of the holding companies. On page 11, a summary of IMCD's free cash flow. Free cash flow and cash conversion ratio were both higher than in the same period of last year.
This healthy cash flow was mainly the result of higher operating EBITDA and less investments in working capital. Working capital days improved during Q3 substantially from 60 days end of June to 55 days end of September. A more or less normalization of stock levels during this quarter was an important driver of the improvement. On page 12, a short update on net debt and leverage. Compared to the end of December last year, net debt decreased substantially to a level of EUR 390 million. In the first nine months, we saw healthy operating cash flow combined with the proceeds of the issuance of EUR 4.4 million of new shares at a price of EUR 91 per share. The net proceeds of the new shares were used early November to finance 70% of the acquisition of Signet and for general corporate purposes.
At the end of September, the reported leverage ratio and the leverage ratio based on the definition used in the loan documentation dropped to 1.2 and 0.9, respectively. Excluding the net proceeds from the new shares and keeping all other factors equal, the pro forma leverage could be calculated at 2.6 and 2.5 times EBITDA. Last but not least, on page 15, you will find the outlook for 2020, where you could read that we expect operating EBITDA growth for the full year. That was a short summary of our year-to-date financials, and Piet and myself are happy to hand over to the operator to answer your questions.
Thank you, sir. Ladies and gentlemen, we will start the question and answer session now. If you have a question or remark, please press star one on your telephone. Go ahead please, star one for questions or remarks. The first question is coming from Mr. Mutlu, sorry, Gündoğan, ABN AMRO. Please go ahead, sir. Your line is open now.
Yes. Good morning, Piet. Good morning, Hans. Hope all is well, and thank you for taking the question. I have two. The first one is on the gross margin. Can you tell us why this was down sequentially by 15 basis points? I know there can be fluctuations between the quarters, but here all three regions showed a similar decline. I remember you saying at the Q2 results that the gross margin had actually benefited from structural price increases. I'm surprised to see it come down sequentially. That's the first question. The second question is on order patterns. Can you talk about what you're seeing in terms of client activity in life sciences versus industrials? Looking at some of the share prices, we see some of the life science customers come down, perhaps some destocking, and there's obviously the hope of industrial customers restocking.
Are you seeing that in the order patterns? Thank you.
Mutlu, Hans here. Perhaps I should take your first one with respect to margin developments. I think if you look over a longer period of time, then you see changes between quarters every year and during the year and during the regions. Basically, that has to do with changes in the mix, changes in product portfolio, changes in certain products that are more linked to a summer period or a winter period or whatever have you there. For me, it is just the usual fluctuations that we see during the year, whereby we are absolutely happy to report that the overall gross margin % are still higher than what we did last year.
That is partly the result of the things that I just mentioned, and part of it is the result of margin improvement projects that we run internally to optimize margins in segments where we have the feeling that we could do better.
Okay. Piet here for your second question. Order patterns. I think generally speaking, if we go back to the start of the COVID-19 crisis, it's clear that in the industrial sector, and then I talk about what we call coatings and construction, advanced materials, let's say all kinds of plastics, composites, et cetera, lubricants, synthesis, which is let's say chemicals, intermediates, et cetera. There, of course, we have seen and still see, let's say a decrease
In what we expected and what we saw last year. That has to do, of course, with the end markets that these products go into. In the third quarter, I think we could say that we saw a slight improvement. We have to see how this develops now after the second wave, so to say. In life sciences, differences between the segments, of course, you have effects of COVID-19 also in our personal care business and food business, much less than in the industrial sector. As I reported earlier, a very positive boost, I would say, in the pharma business. All in all, if you divide it, quite a stable, steady life science business and a industrial business that has, in certain regions, more difficulty.
I say in certain regions, because it also differs a bit from country to country or from region to region, very often depending on the severity of the lockdown locally. I think that's a summary of what we see. Luke Liu.
Thank you. Thanks.
The next question is coming from Matthew Yates, Bank of America. Please go ahead.
Hi, good morning, everyone. Forgive me, I just want to follow up on that question about near-term trading. Normal seasonality would be for a sequentially weaker Q4, I guess we would have said that was also the case for Q3, and that didn't necessarily happen with this year being unusual. Can you be any more explicit on the order trends through Q4, what you've seen so far in terms of whether customer behavior is any different to what it might have been in prior years? The second question, I'd like to come back on the Signet deal for a moment. As an independent entity, they were clearly very profitable and growing quite nicely. Can you just talk a little more about how IMCD can add value here?
In particular, I'm interested about operationally what you can do from embedding your IT system. Whether your customer service model would be different to how Signet's gone to market historically. Thank you.
On your first question, I can't elaborate further on, let's say, the forecast. As we have given that also in the press release, generally, I can say that, given the fact that we are, all of us in the economy, working under difficult circumstances, I'm happy about the performance, the ability to expand margins, to save costs, the stability of our business, the possibility to work under difficult circumstances, as I noted. It will depend, of course, on the severity of the lockdowns overall, but given the fact that hopefully there comes an end to this crisis, it gives us reason for optimism. Hopefully, the third quarter is a bit of an indication of that.
On Signet, I think generally speaking, that's why we're also happy with this business, is that it fits very well within culturally, but also in terms of the type of business that they're doing with IMCD. We have said, I think also when we announced this acquisition, that it is not reasonable to expect a lot of cost synergies. Of course, we will bring our systems at a certain stage into the company. We have synergies on top line, on the supplier front. We can together expand also in the regions or not only in India. There's a lot of knowledge, there's a lot of relationships that both of us can further explore it. I'm very positive about using the strengths of us and theirs to further grow the business. In our view, it fits perfectly with us.
Can I just squeeze in a follow-up? I think you said that your employees were up 9% year-on-year, and that's obviously before you even closed Signet. Can you talk a little bit about how the integration process for those people is being managed in clearly what's a very unusual environment?
That's a good question, and of course, it's more difficult because most of us work from home. Depending a little bit on the, let's say, the acquisition. Normally, of course, the smaller ones we do integrate, and we have an elaborate program to welcome them in the company, to make them part of IMCD, to put them on our IT systems. In that sense, that is successful. In the particular case of Signet, of course, that's just closed. That's on the 4th of November, so it's not in these numbers. For the time being, it will run separately. The smaller acquisitions, people are, with an elaborate program, integrated. IT, of course, is the major factor as well, in addition to our internal communication. These kind of elements to make them feel at home.
I have to add to that the companies like Develing in China, DCS Pharma in Switzerland, Kokko-Fiber in the Nordics, there the markets are just open, and people also commute, visit, and meet each other. These companies are, in the meantime, in a standard process of integration.
Yes.
Thanks, guys. Take care.
The next question is coming from Quirijn Mulder, ING. Please go ahead.
Good morning, everyone. My question is about the organic growth mentioned in the press release in the comment of Piet. 10% organic growth impacting gross profit. If I do the math, looking at nine months and 4%, for me, it's somewhat at the high end. Maybe you can elaborate on that. Then you remark on, let me say, your resumption of growth, and you are optimistic when the pandemic is over. Can you indicate where you will see the improvements? When you say the improvements, is that you're expecting, let me say, higher revenues, higher gross profit, or is that you still think to benefit from the cost savings in 2020, that they will continue? Is that a combination of many factors?
Quirijn, I missed your first one, to be honest.
My first question, if you look at the press release, you speak about 9 months organic growth for gross profit of 4%. Piet made a comment in the press release about 10% organic growth for gross profit. If I do the math, I do not come to that number. Maybe there's an explanation for it.
I'm looking for the 10%, to be honest.
I didn't say that.
At least I can't read my own quotes, and I don't see it.
No, you say 5%, let me say 5% organic growth, including acquisitions. That means, in my view, 10%.
Our gross profit increased by, and that's not mentioning the word organic there.
That's correct. Epix is 5%.
In the 5% increase, there is an organic and the result of acquisitions, so it's a combination of the two. The year-to-date organic growth, profit growth is 4%, as mentioned on page two of the press release.
Exactly.
Perhaps that takes the confusion away.
That means for me, in this third quarter, a growth between 5% and 6%, or maybe 5%-7%.
Yeah.
Given what we have seen in the first half of the year.
Yeah. There you do the calculation right.
Okay. Thank you.
I think on your second question, Quirijn, I think, if this crisis would be over, of course, we would be seeing, hopefully, top-line growth coming back. We have, as I said before, an industrial sector. We have missed a top-line addition. That's an important element. Of course, we save costs also because of this pandemic that probably will not totally change in a situation where people can travel again, for example, or have exhibitions again. We will have to see that. Net, so to say, we expect a positive result because we have hope that we will significantly grow our top line there as well.
Yeah, you see also structural changes in your cost levels. In fact, you are seeing an expense because of, let me say, the opportunities which were offered by the COVID-19.
Yes. I think all of us in all kind of different companies, so I don't think that's IMCD specific, but we see, of course, everywhere that, as also all airlines see, that we don't travel anymore. There is a very significant cost reduction. Partly that, of course, as everybody says, tells us something for the future. On the other hand, of course, you can't expect that we now stop traveling for the rest of our lives in companies. It will come back to a certain extent, but certainly, this crisis has helped us also to look at that again and hopefully save, let's say, more prudent in the future also with this cost item.
Okay. Thank you.
The next question is coming from Mr. Stephen Golden, Deutsche Bank. Please go ahead.
Hi there. Thank you for taking my question. If I look at the difference between revenue and gross profits, it appears roughly that maybe the combination of pricing mix, maybe some FX and also the internal self-help efforts that you've done, added around five percentage points this quarter. If we had to sort of break that down between those impacts and volume impacts, is that roughly right? That seems stable with the last quarter. Based on what you've said in terms of the general margin improvements, specifically in North America, should we therefore expect that kind of gross profit per unit to be relatively sticky going forward? Would you expect maybe some normalization toward the end of this year and into next?
Obviously, we've talked a bit already on the call around Signet, but given the company, given Signet's acquired margins are obviously so much higher than IMCD's, would you say there is scope within the business to, and potentially it's just within pharmaceuticals or within the geographical region where Signet's particularly prevalent, but to essentially replicate those practices or to spawn other similar business units or products that have the potential to have significantly higher margin than group as you expand the core Signet business? That's it. Thank you.
Yes. Steve, Hans here. I think the first question is a bit in line with what Quirine asked. I think you were looking for what was the organic growth level in the margin in Q3, isn't it? Was that exactly the question?
Well, what I'm trying to get a feel for is just the extent to which the growth in gross profit per unit will be sticky, going forward. Obviously, that's a combination of pricing, mix, et cetera. Some of it's obviously cost cutting and operational improvements. Should we essentially assume that gross margins are going to continue at these levels going forward? Should we, because of obviously the extreme circumstances, assume maybe something of a normalization?
I think you more or less gave the answer yourself. It very much depends on a lot of factors like the mix, like pricing in the market, like availability of products, like currencies, and so on and so forth. I think it's fair to assume that over the years, we have showed to the market that gross margins have a tendency to stay at a level around about what is it, 22%-23%. You always see fluctuations between the quarters and between the regions. What Piet said before, if certain business lines come back to more normal, that could have a bit of an impact on overall margin percentages, either positive or negative, depending on the margins that we typically generate in these business lines.
I think adding to what Hans is saying, I fully subscribe to that. I think in addition to that, of course, as we have told before in various quarterly meetings, is that we also put a lot of emphasis on increasing the margin in North America. I hope that we are able to also improve and sustain these margins. I think that we have to be careful to give guidance for whether or not our margins in the future will remain at this level. It's exactly what Hans says. If we add product lines that are significant, that have a bit of a lower margin, that have an effect on the mix. In the end, we have to look at our productivity and, as always, our conversion margin.
The absolute amount of EBITDA at the end.
The absolute amount of EBITDA. On Signet, I think it's always good to have a benchmark. In that sense, we carefully look at possibilities also, learning moments for ourselves. It is a specific business in a specific region. I don't want to give the impression that we easily are able to transfer that to others as well. We will look carefully at how we can also learn from the way they do this.
Great. Thanks a lot.
The next question is coming from Mr. Henk Veerman, Kempen & Co. Please go ahead, sir.
Hi. Good morning, everyone. I have two questions remaining. Firstly, on the conversion margin in the Americas in Q3 was about 45%. You just commented that it's very difficult to forecast these margins in the future. Maybe could you comment, that 45%, is that also the result of maybe, for example, less traveling costs or currency and currency effects in there? Is that 45%, is that an indication of how the conversion margin in sort of what the medium term will also look like, that you can sustainably ramp up that margin from, let's say, 40% in 2019 to closer to 45% in the next years? That's my first question.
Yeah. Henk, Hans here. I think we start repeating a bit here that it's very difficult to predict the future. For sure, if you save on travel costs, that has a positive impact on the conversion margin because your cost base is lower. What we also see in Q3 in the Americas is a drop in top line compared to last year, but still margin expansion there. What Piet said before is we work hard there to improve the gross margin percentage. I think the impact of the higher margin percentage plays a bigger role here than the cost savings on travel. What that will mean going forward, future will tell.
Right. Okay, thanks. The second question is on the working capital. Quite a strong result at the end of Q3. Now that you're very busy with integrating Signet and the working capital as number of days, you did 55 days at the end of Q3. I think during the last conference call when you announced the acquisition of Signet, you mentioned the working capital profile of Signet is a bit higher. Could you maybe give us any idea, any indication of the number of days at Signet, for example, at the end of Q3, just to give us an idea what the exact differences are between the two companies?
Henk, we don't want to go too much into details of working capital days per country. I think it is a common understanding in the market that typically debtor days in India are much longer than what we see in Western Europe. However, if you look at the revenue size of Signet, they do about EUR 150 million of revenues. Overall, I don't expect it will move the needle in working capital days substantially if we integrate them. For sure, working capital days, especially debtor days, are higher than group average in a country like India.
Okay. Thank you.
The next question is coming from Mr. Rajesh Kumar, HSBC. Please go ahead.
Good morning, gents. Just when we look at the performance year to date, are there any one-off gains from COVID-19-related product which we need to consider when we are looking at our forecast next year in terms of they might be not recurring? The second question is, I'm not sure if you touched on this, but do you have any exposure to the vaccine supply chain in any of the businesses? Finally, you have very clearly deployed a lot more capital in the generics space and you're leading in the market chart. One of your competitors had indicated that they wish to consolidate the market as well. How do you think about your competitive positioning when you think of market consolidation in specialty generics space going forward?
Okay. Thanks, Rajesh. Here's Piet. Your first question on, let's say, incidents in our one-offs in our results. Let's say, I don't think that you should take that into account when looking at our results. What we said, we had, of course, pluses and minuses because of COVID generally, stronger pharma business there, and particularly in the first period of the year, maybe COVID related or stock building related. We don't have a big H&I business or household, we don't benefit a lot from all these, how you call that, sanitizers. Sanitizer businesses some of our competitors have. Generally, I would say, of course, we save costs, as we have said earlier in the call, which in a normal situation, some of that cost will come back.
Yes, there are COVID effects. On the other hand, of course, there are negative COVID effects and positive ones. Let's see how that will even out when the situation turns to normal again. Your second question on, I think, on competition, because it was a bit difficult for me to understand how we look at a particular Brenntag in terms of focusing more on specialties. Was that your question, Rajesh?
Yes. I didn't name any competitor, but yes.
Well, okay. At least they announced it very big.
Exactly
A big, global secret here. Listen, Brenntag is, of course, a very important competitor. I don't want to comment too much on competitors. Let's see how they give this form and shape. We have always been very confident, and I'm going back now many years in, let's say, the fact that we have focused on specialties, that our total model is focused on specialties. Let's see if you split up your company in two segments, how you do that, and how that will affect your total business. Very difficult for me to predict. We regard any competitor and also, we take them all serious and also Brenntag. Of course, in terms of size, they are a very important player.
Understood. Thank you very much.
The next question is coming from Mr. Laurent Favre, Exane BNP. Please go ahead.
Yes, good morning. Thanks for taking my questions. On Signet, I think when you disclosed the deal, you announced the deal, you disclosed EUR 39 million of LTM EBITDA as of June. I was wondering if you could provide us with an update of how Signet has been doing in Q3, also if there's any seasonality we need to be aware of when we model two months of contribution for Q4. The other question on Signet I had, well, I guess in excipients, they do have exposure to vaccines. I was just wondering if they had, or you have now any exposure to companies involved in COVID vaccines if that could be a significant opportunity. Thank you.
I think on your first question, I think that we should not say more about, let's say, the results of Signet than we did when we acquired the business. We become owners now, last week, since last week. I don't want to comment on that. I guess that on seasonality, I don't see that in particular, although generally speaking, in pharma and all, and we have to see how that works out with Signet. It is a bit more skewed to first six months than the second six, but I don't know exactly how that is in India in this particular case. On vaccines, you're over asking me, quite frankly. I don't know. It probably depends on the vaccines, it depends on who makes them and where. We will see if the products that we deal with play a role in that as well.
I have not more to share about that now.
Okay. Thank you very much.
The next question is coming from Mr. Daniel Huppan, Credit Suisse. Please go ahead.
Morning, guys. Clearly my question is focused around the vaccine, so maybe I'll just move on to one final question from me. Given maybe we've moved out of the COVID restrictions going through the summer and coming into the start of Q3, I was wondering how you'd seen sort of new contract discussions, if there'd been any increase in outsourcing penetration and how you'd seen sort of your win rates or new engagements through Q3 and looking out across Q4 perhaps.
Yeah, it's a good question. I alluded to that a little bit in my opening remarks. I think what we see also during COVID-19 times is that we continue to engage very well with suppliers, because that's also one of the lessons that you can also do that through video. That, let's say I'm encouraged by the projects we are working on in terms of outsourcing, expanding with suppliers, and in this way, also ensuring that we have future growth. In that sense, I'm positive about the traction that we have in the market also with suppliers.
Perfect. Thank you.
The next question is coming from Mr. Chetan Udeshi, J.P. Morgan. Please go ahead.
Yeah. Hi, morning. Just one question from my side. Seems from IMCD perspective, this year has been probably a bit more busier than usual, in terms of acquisitions. Is that because underlying you see a change in terms of the seller behavior? Is there more eagerness or more willingness to engage in discussions on transactions now in this environment? Is it just a bit of coincidence that maybe this year has been a bit more busy than usual in terms of acquisitions. Second sort of associate question is, do you think we are at this point, just looking at all the deal flow that you might be considering, is there a reason to believe that we are at a stage where we see some sort of a bigger consolidation in the industry, given it's still pretty fragmented? Thank you.
Yes. I'm not sure if we see, because of this, more deal activity because of this crisis. Many of these transactions started also pre-COVID. Generally, I would say my experience is that people are less willing to sell. Sorry, I had to sneeze. Generally, I would say that in situations where your profits are under pressure, that owners are less inclined to sell. Let's see how that develops. I think we're always active and busy in having a pipeline. On the consolidation question, I find it very difficult to predict. I think we are, of course, fragmented. On the other hand, if you compare the big players now with five to 10 years ago, there's a huge difference in terms of bigger companies coming on the scene. Whether or not we will see further consolidations with big equities, I can't predict that. I don't know.
Generally, I would say this trend continues.
That's it. Thank you.
Last question. There's a follow-up question from Mr. Mutlu Gündoğan from ABN AMRO. Please go ahead.
Yes. Thank you for taking another question. It was actually on a remark that you made on the repricing and the gross margin of North America or the Americas. Just wondering, can you talk about the impact when you reprice a contract? Do you generally lose customers or a certain amount of volume, and that is more than offset by your higher margin that you make on that? Maybe relating to this, clearly, Americas is working, EMEA, for example. How long will it take you to get to a similar level? Or is that even possible given the product mix that you have there?
It is a complicated question because, first of all, of course, we don't have long-term contracts with customers. You also should always bear in mind that we have to reconcile, let's say, optimal pricing in the market with growth, or volume as well for our suppliers. We are also here, of course, to ensure that there's growth, also volume growth for our suppliers. It's always a mix. I think what's more important is I think the diligent organization of our own processes, each order to ensure that we price it in the best possible way. Of course, it depends a bit on the product mix, as Hans often reminds you of.
I know it's maybe not too satisfactory to bring so many factors in, but it is a difficult play of outside circumstances, of competition, of our own ability and quality of our people, our systems, et cetera, to ensure the highest possible margin. A lot in the mix, but that's of course why we are sitting here and our people to ensure that we do that in the best possible way. With 40,000 or 50,000 products and many different product lines, this is often, of course, not uncomplicated. Yeah, I think I should leave it with that, Mutlu.
Right. Thank you, Piet.
There's a last question coming in from Mr. Fernand de Boer, Degroof Petercam. Please go ahead, sir. Your line is open now.
Yes. Good morning. Thank you for taking my questions. Actually, I have two. One is on the working capital now at 55 days, where you mentioned that the inventories have now been normalized. From that, I conclude that this should be the normal level, but if the market picks up again, normalized back after COVID-19, should we then initially expect a cash outflow for working capital or working capital to deteriorate in the short term? That's the first question. On the other one, if you look at the top-line growth, organic growth seems to be flat to slightly positive in the third quarter. In the industrial side, has there been any restocking effect yet, or is that still to come? Thank you.
Daniel, perhaps, Hans, I should answer the working capital. I would love to show a big working capital investment because of substantial top-line growth. If you look at the three most important components, stock, creditors, and debtors, then what we typically see in our business is that most of our stock we can finance with our creditor positions, and the working capital investment is often driven by movement in debtor positions as a result of increasing sales values there. I would love to report a higher working capital number related to a higher top-line growth there. Your second question, I think your conclusion was top-line flattish in Q3.
Yeah, the question is about restocking of the industrial sector. I think the answer is that we don't see, again, it's a little bit anecdotal because it depends a bit on which region you talk about, but we don't see a huge change yet.
Okay. Thank you very much. Thank you.
There are no further questions. Please continue.
Okay, if there are no further questions, then I think we're done for the day, at least for this item. I thank everybody again for the interest in the company, and I wish you a very good day.
Ladies and gentlemen, this concludes this IMCD event call. You may now disconnect your line. Thank you. The conference is no longer being recorded. One moment, please.
Yeah.
Welcome.