Good morning, ladies and gentlemen. Thank you for holding and welcome to the Earnings c all full year 2018 results. At this moment, all participants are in listen only mode. After the presentation, there will be an opportunity to ask questions. I would like to hand over the conference to Mr. Piet van der Slikke. Please go ahead, sir.
Yes, good morning, everyone. I'm here with Hans Kooijmans, CFO of IMCD. He and I will be happy to answer your questions regarding our press release containing the full year 2018 results. In this year, in 2018, we achieved record growth. Revenue grew with 29% and EBITDA with 25%. cash earnings per share increased with 23%. All regions contributed to this fantastic result. In 2018, we made three important acquisitions. E.T. Horn in the U.S. on the West Coast, enabling us to form a national organization in the U.S. with our other activities there. Velox in Europe, which will strengthen our advanced materials, and Aroma in India, which offers us complementary market segments and is a big step forward to become a pan-Indian distributor. To summarize, 2018 was an exceptional year.
We further invested in our business model by strengthening our IT backbone and by investing in digital capabilities. We are optimistic about delivering good results in 2019. Maybe it's now good to give over to Hans for additional remarks on the numbers.
Thank you, Piet. Good morning, ladies and gentlemen. I would like to give you a summary of the 2018 full year financial results of IMCD that we published earlier today. What Piet said, in summary, we consider 2018 as an outstanding year, with all regions contributing to the growth of our results. As you can see on page 10 of the presentation, revenue increased 25% compared to 2017. This increase was a combination of 10% organic growth, 18% acquisition-related growth, and a negative Forex impact of -3%. The acquisition growth is the full year impact of three acquisitions made in 2017, Neuvendis in Italy, Bossco and L.V. Lomas in North America. Further acquisition growth includes the impact of acquisitions in 2018. The three Piet just mentioned, E.T. Horn in the U.S., Velox in EMEA, and Aroma in India.
Forex adjusted gross profit increased 29%, whereby organic gross profit growth was 13% and the remainder the result of acquisitions. Gross profit and % of revenue remained stable at 22.5%. During the year, we experienced the usual fluctuations and differences in margin % between the regions and between the quarters. This was caused by local market circumstances, product mix differences, product availability, currency fluctuations, and the impact of the newly acquired businesses. Sorry. For your convenience, we included a line with EBITDA comparison. However, for IMCD's asset-light business model, the EBITDA development shown in the next line is more relevant. Operating EBITDA increased on a constant currency basis with 30% to EUR 202 million. The operating EBITDA and % of revenue remained stable at 8.5%. The same applies for the conversion ratio with 37.7%.
This means that the expected negative impact on margin % of the acquisition of L.V. Lomas, E.T. Horn, and Velox, acquisitions with on average much lower EBITDA margins than group average, has been compensated by a combination of improved performance in the acquired businesses and EBITDA margin improvement in the rest of the group. On the next slide, page 11, you will find a summary of the financial details per operating segment. The activities in EMEA continued its trend of the last years to deliver strong growth. On a constant currency basis, EMEA realized 14% gross profit growth, whereby gross profit in % of revenue further improved. Organic gross profit growth was 10% and the remainder the impact of acquisitions. Operating EBITDA in EMEA increased 16%, whereby the EBITDA margin further improved from 9.9% in 2017 to 10.3% in 2018. Most of this reported growth is organic.
The figures of Americas in the second column show a combination of the impact of substantial acquisitions combined with strong performance and double-digit organic growth. The acquisition impact is the full year impact of the acquisitions of Bossco and L.V. Lomas, completed in 2017, and the acquisition of Horn completed end of July 2018. Both Lomas and E.T. Horn had an EBITDA margin that was much lower than group average, resulting in a negative impact on EBITDA and conversion margin % in this region. Organic gross profit growth in 2018 in the Americas was 22%. Operating EBITDA increased to $60 million, an increase of 79% on constant currency basis. It's fair to assume that this growth could be split about 50/50 between organic and acquisition growth.
Asia Pacific had another good year and realized 13% organic gross profit growth, and a further improvement of the gross margin % from 20.7% to 20.9%. Operating EBITDA increased 19% on a constant currency basis, and most of this growth was organic growth. EBITDA margin and conversion margin both further improved. In the last column, you will find in the holding companies, all non-operating companies, including the head office in Rotterdam and regional support offices in Singapore and New Jersey in the U.S. The absolute amount of holding cost increased from EUR 15 million to EUR 17 million. This increase reflects the growth of IMCD and the need to strengthen support functions in both Rotterdam and the regional head offices. Holding cost as a % of revenue decreased by 0.1% from 0.8% in 2017 to 0.7% in 2018.
On the next page, you will find a summary of the P&L lines from EBITDA to result for the period, and a few general remarks. Amortizations of intangible assets are non-cash costs related to the amortization of supplier relations, distribution rights, and other intangibles. Most of these intangible assets relate to the acquisitions made and our history with private equity owners before the IPO in 2014. The non-recurring income and expenses are costs related to M&A activities and some costs related to one-off adjustments of the organization. The non-recurring net finance costs have to do with IMCD's refinancing in Q1 of last year. Repayment of the old term loans and revolving credit facilities resulted in a EUR 4.6 million accelerated non-cash amortization of transaction costs related to these loans. The development of the finance cost and income tax expenses are summarized in the next two slides.
First, a breakdown of the net finance cost on page 13. In 2018, finance costs were about EUR 4 million higher than previous year. It is obvious that on average, higher net debt positions in 2018 as a result of acquisitions made were the main driver of these higher interest costs. On page 14, a summary of our income tax expenses. Perhaps you remember as a guidance for our tax cost, we indicated to expect a blended tax rate in the range of 24%-28% of result before tax calculated as EBITDA minus finance and non-recurring costs. As you will notice, the summary on the bottom of this page indicates that IMCD's blended regular tax rate was about 25.5% in both 2018 and 2017, both at the low half of the guidance given. Tax cash out in 2018 was EUR 43 million compared to EUR 35 million in 2017.
I hope this helps, and I would like to refer to the annual report for further details on the tax calculation. On the next page, the calculation of cash earnings per share. As you can see, the calculation method is consistent with previous years, and this means that we decided not to adjust for the non-cash, non-recurring EUR 5 million accelerated amortization of net finance cost. An adjustment that would have been absolutely defendable and would have added an additional EUR 0.09 to the reported cash EPS. However, we decided to keep the calculation method simple and consistent and avoid confusion about definitions used. At the AGM, we will propose a dividend of EUR 0.80 in cash per share, which means an increase of 29% compared to last year. This dividend proposal leads to a payout ratio of 32% compared to 30% last year.
On the next page, a summary of IMCD's balance sheet. Property, plant, and equipment slightly increased but still relatively low as a result of the asset-light business model. Intangible assets, and the related deferred tax liabilities, are a result of acquisitions made in our private equity history. You can see a growing equity position of EUR 786 million, covering about 56% of capital employed. This increase in equity is mainly the balance of a net result of EUR 100 million and a dividend payout in May last year of EUR 33 million. The two other lines, working capital and net debt, are summarized on the next pages. Page 17, you will find a summary of the absolute amount of the various working capital components and these absolute amounts translated in days of revenue.
As you can see, the absolute amount increased with EUR 85 million, which includes EUR 57 million related to acquisitions done in 2018. The EUR 28 million remainder is a combination of increased business activities, adding EUR 33 million, and a positive impact of exchange rate differences of EUR 5 million. On page 18, a summary of our net debt position. At the first half of 2018, IMCD successfully issued a seven-year unsecured, unrated EUR 300 million corporate bond with a fixed coupon of 2.5%. We further entered in a new five-year syndicated EUR 400 million multi-currency revolving facility. This refinancing has improved terms and conditions, extended our maturity profile, and provides further flexibility and appropriate leverage levels to support future business developments. On this page, an overview of the maturity profile of our debt structure as per the end of December 2018.
In the course of this week, we agreed with our banking syndicate, a so-called amend and extend, that by the maturity date of our revolver facility, so the green bar in the summary, will move from April 23 to April 24. It will move one year to the right. Reported leverage at the end of 2018 was 2.8x EBITDA, which was well below the required maximum as set in the loan documentation. I would like to finish the financial summary with the cash flow overview on page 19. As you can see, the absolute amount of free cash flow improved to EUR 5 million to EUR 166 million, whereby the cash conversion ratio decreased to 80%. This decrease in conversion margin is the result of higher operating EBITDA, partly offset by increased working capital investments, mainly driven by substantial organic growth of the business.
Last but not least, on the last slide of the presentation, you will find the outlook in which we, amongst others, indicate that IMCD sees interesting opportunity to increase its global footprint and expand the product portfolio organically and by acquisitions. I think Piet and myself are happy now to answer your questions, I would like to give back to the moderator.
Ladies and gentlemen, we will start the question and answer session now. If you have a question, please press star one. Star one for your question. Please go ahead. The first question is from Mr. Gundogan, ABN AMRO. Your line is open. Please go ahead, sir.
Good morning, Piet. Good morning, Hans. Let me start with three questions. The first is on the Americas. Organic gross profit growth, still very high, but it did slow down from Q3 to Q4. Can you talk a little bit about why that was? The second question, or questions, is on working capital. When I read that part in the press release, you indicate that you had higher inventory at year-end due to temporary safety stock in U.S. Also you had lower-than-planned customer deliveries in the last weeks of December. My first question is, the final remark about lower-than-planned customer deliveries. Is that solely referring to the U.S. or to other regions as well? That's the first part of that question. Secondly, could you quantify the impact of both elements? Thirdly on this, has that normalized?
The lower deliveries in the last week of December, has that normalized in January, February? Apologies, that was question two. Finally, question three is on organic growth again. This was very high in 2018, very stellar performance, I must say, although it did slow down towards the end of the year. It's still above historical average. Should we expect that this higher-than-historical average organic growth will continue in the short term, i.e., in the next few quarters?
Thank you, Mutlu. Let me try to answer your questions. First question was about organic growth slowdown in the fourth quarter in the Americas, you ask, and why that was. I don't think that you have to read anything specific in that. I think we're still on a very good growth pace, also in that quarter. There's no specific explanation for that. Working capital, fourth quarter, is the increase only, you asked, I think only in Americas or totally and for the group? The answer is, that is for the group. Applies for the group. Lower deliveries in Q4, do we see that also now in Q1? We will see at the end of Q1, of course. I think that we are, as we said, positive about also 2019. The last question was, what was the organic growth?
If the organic growth, if this last 13% is the new norm. Probably not, Mutlu. I think 13% is of course extremely high. We also indicated this is a stellar year, 2018, and we will do our best, but it's a very high bar. We have seen in the past also that we have slower years. I would certainly not qualify that now as a new norm.
Okay. Thank you very much. I have a few questions, but I'll join the queue again.
The next question is from Mr. Olofsson, Kepler. Your line is open. Please go ahead, sir.
Thank you for the conference call.
Yes. Good morning, gentlemen. My first question is basically a follow-up on my previous question on the organic growth prospects. You don't break down the various drivers, but can you confirm that new distribution rights and new supplier relationships had a meaningful contribution to the 13% organic growth in 2018? Looking at 2019, do you think that new supplier relationships can have at least a similar impact as in 2018? Which regions will see the biggest tailwinds from new relationships? Is that mainly North America and some of the Asian markets? I have some follow-ups, please.
I think that part of our business model is, of course, that we constantly try to expand existing relations with our principal suppliers. That we also try to find complementary product ranges and suppliers to the business that we have. That is a constant process that is partly, of course, not totally determined by ourselves, because it's also something that is to a large extent determined by suppliers. We are, in our model, very positive that suppliers will see, let's say, our sales channel as a sales channel that adds value to their business. We certainly expect in all regions, the addition with new product lines and new suppliers.
Let's say, a big part of our organic growth is, of course, on the one hand, to find new customers for existing products, and on the other hand, to add, as I say, new suppliers and new product lines. That's a continuous, let's say, emphasis and pressure on our organization to deliver that. So far, we have been successful in that, and we don't see any reason why that should not be the case also in 2019.
Coming back on your earlier remark that 2018, what was a stellar year, was then the impact from new relationship, was that exceptionally high?
No, I think it's a combination of very good economic circumstances everywhere, plus this effect. We will have to see in 2019 how the economies will develop in the various regions. As you can read every day in the paper that it is, let's say, mixed in the sense that some dark clouds are there and some positive views. Let's see what happens. It's a combination of the both.
Okay. Another question on the conversion margin, which was stable in 2018, although it improved in the existing operations. As you continue to grow your gross profit organically, do you think the conversion margin in the existing operations can improve further? Will there be operating leverage or will further improvement to the conversion margin fully depend on improvements at the acquired businesses?
I'll say that I think it could be a combination of the two. Again, here, it depends on what we add. If you can add a new supplier relation or a new product line whereby you don't need to invest in additional labs or people, then it helps to improve the conversion margin. It could also just go over a trigger point that you need to add people and capacity, and then the conversion margin will remain stable and you only grow the absolute amounts. Listen, we said in the past, of course, that we have been extremely efficient in our conversion margins. Historically, we added businesses that have here and there a lower conversion margin. We do our best to bring that up to speed and also when conditions are favorable, expand the margin, let's say, organically.
It's hard work, and it's as you are at this quite high level already. It will be difficult to further expand. This is, by the way, something I said also at the IPO in 2014. I'm not sure if we have reached the end. We stay on it, because it is, of course, something, you have many forces. You have customers, of course, that want a better price. You have suppliers that want also better price and we are in between. It's not something that we can easily do.
Okay, my final question. Following the most recent acquisitions, can you update us where you stand in terms of revenue or gross profit breakdown between life sciences and industrial end markets? Is that still something like 40, 60?
Yeah, I think a low 40 and a high 50.
A low 40 for the large?
Yeah.
Is there a big difference between regions?
I think that we are, let's say, more even in Europe and that we are more skewed still in the U.S. and Canada in the industrial sector.
Okay, thank you.
The next question is from Mr. Kumar, HSBC. Your line is open. Please go ahead.
Morning, gents. Just trying to understand how the cost pressures are looking ahead in 2019. Remember we had a discussion about freight charges going up in Q3 with some of your competitors. I know you outsource a lot of it, but have you seen that filter through in the cost price of inventory or in the selling prices or in your SG&A in some shape or form? That is question number one. Question number two on the supplier synergies with all the acquisitions you've done. Appreciate you've given a lot of color so far in terms of growth. Can you illustrate some examples how actually that works when you're selling the same supplier over the bigger geographic footprint or network in terms of what sort of cost synergies you might be able to get?
Okay. First question on freight costs. This is, of course, a relatively, let's say, modest part of our total cost structure. We see in particular, I think that's well-known in the U.S., a shortage in freight capacity, so costs have gone up a bit, but it really does not materially affect our margins and our cost structure. I wouldn't attach too much importance to that. On the supplier synergy, I think what is important to realize is that we always try to expand the relationships that we have. For example, if we work in a certain region in the U.S. or in Europe, we very often are capable at a certain stage, depending also on the needs of the supplier, to expand that relationship elsewhere.
For example, in the U.S., we are very busy doing that and trying to convince also our suppliers to do that. For that reason, we are building, and that E.T. Horn was a piece of the puzzle in that story. We are building a national organization, whereby we can cover in the different market segments, all regions. Then also, of course, enable us to offer a service to our suppliers and customers that is more efficient than they had before. The cost synergies is maybe not the first thing we look at. We look at top-line synergy, ability to grow business of suppliers in bigger regions. Very important for us is also to align with, let's say, the winners in different market segments, so those who have the best products.
It's a palette, it's a whole combination of factors that make our model work, and basically what we try to do is to optimize our sales channels for our suppliers. There's a lot of factors in geographic presence, our IT capability, our ability to formulate the products of our suppliers. If we have that all right, then, of course, we are attractive to work with. Yeah, that in effect results in more business.
Thank you very much.
The next question is from Mr. Goulden, Deutsche Bank. Your line is open.
Thanks for taking my question. I just wanted to go back to what you said around the December, well, the fact that inventories were a little bit higher in December as orders weren't coming through. Could you just give us a little bit more color on that? Was that very much on the industrial side? Did it continue into January? What do you think was driving that? On the outlook, obviously you haven't put any numbers toward that, but given that you said sort of medium term, 6%-7% organic, would you say that building everything in and obviously the fact that comps get a bit tougher this year, 6%-7% organic GP growth is a realistic assumption for 2019? Last question was, I missed what you said earlier about the cost of debt.
I know you said that rates and financing this year, I think you said 2.5%, but the debt number, the interest costs were a little bit higher than I was thinking. Could you just give us your cost of debt now versus what it was a year ago? That'd be very helpful.
Okay. The first question on December. I think in the 25 years that I'm in this business, I've never been able to guess what December does. I'm not going to tire you with days or working days or what the Christmas period is, but it's very difficult to predict what a month of December does and what exactly is in the mind of customers. I think in 2017, we had a very strong December. This December was a little bit weaker. We don't see that going over into January. It is in principle in all market segments, so it's not specifically only in industrial. The 6% organic growth that we gave as a guideline is something that we still stick to, and as a general guideline for over the years as a percentage of organic growth. Hans, you're happy to add that?
Yeah, Stephen, if you look at interest cost, about half of our net debt is the EUR 300 million 2.5% bond. I think that's an easy number. The other half is all based on variable LIBOR plus a margin, and the margin is around about, I think, 1.5%, 1.35%. I think the blended interest costs are slightly below 2.5% on the net debt position.
Okay, great. Is that similar to what it was in 2017?
Yep.
Yep.
Thanks a lot.
The next question is from Ms. Deb ruyne, Degroof Petercam. Your line is open. Please go ahead.
Hi. Good morning. Thank you for taking my questions. Actually, I would like to come back to the Americas. That would be my first question, then I will have a second one. First of all, the Americas. I would like to talk a bit about the footprint, because you mentioned that with the acquisition of E.T. Horn, you're basically building a national organization, which from what you said in the past, this is really key to attracting new suppliers and the new contracts and track, obviously, new customers afterwards. I was wondering, are you today happy with your footprint, or do you still see some kind of gaps that need to be filled in with further acquisitions or potentially with organic development? That's the first question.
Secondly, it's actually the first time that I see that you put quite a lot of emphasis on digitalization, ERP systems, et cetera. I was wondering, where are you in this journey? Is that completely done or are there still investments that are needed in the coming years to actually move fully digital? In what way does that enable you to, I would say, facilitate organic growth and attract new suppliers?
Okay. Thank you very much, Nathalie. On the U.S., it's of course still a work in progress. We are integrating the business that we acquired, and it's quite an effort to build national teams in the different market segments, and a lot of practical issues that we have to solve there. We have made great progress on that. We still have, of course, gaps in certain market segments that we further want to improve. There's always things to improve. We are pretty happy now with, let's say, the progress that we have made, and we are pretty also excited about the opportunities that we have. I would say still work to do, but let's say, a lot of work has been done, and I expect a lot from our organization there. On the digital side, yes, this is of course, always a big question.
In 2018, we have worked a lot to strengthen our IT backbone, our ERP system, and that will continue in 2019. We also introduced globally, Salesforce as a sophisticated CRM tool, but also as a platform that we could use to see how we can improve and, let's say, the customer experience, so to say, in modern language. This is something that we will develop further. We are really not finished with that. It is also something that we will test, and we also have to see how we can improve customer experience and customer approach. This is something that we work hard on, and we will see what happens. In the end, we want, of course, in the most efficient way, be able to reach out to as many customers as possible and also help them, maybe also digital, with their issues or formulation questions or technical questions.
We're working on that, and 2019, we certainly need to further improve and make it more sophisticated. I hope it gives you a little bit of flavor about this subject.
Yes. Certainly. I was also wondering, because you talk a lot about the customer side of the equation and the necessity to actually move more and more digital, that's the trend that we clearly see. I was wondering, is that also helpful on the supplier side?
Yes, with many suppliers, we already have a quite sophisticated interconnection. That will improve further. I think for our suppliers, of course, it's essential that we also connect in the most easy way with their customers in the end. Our customers, but also their customers. If we can grow their product range and push their brands and promote their brands, they will be happy. Yes, it will also further simplify the relationship with suppliers, but we've already done a lot in that field.
All right. Very clear. Maybe if I can add just one question, because this is something that I believe we see in downturns, I would say, like when slowing economic circumstances. That actually most of the chemical suppliers have a tendency to focus internally because they have all the cost issues, et cetera, and that the trend towards outsourcing in, I would say, slower economic environment has tendency to increase. Could you confirm that? Is that something that you are seeing, and would that be one of the reasons why you mentioned that you gained new supplier relations, and that's probably the reason why your inventories were higher in December?
No. I can't confirm as a general trend. In my experience, that when, let's say for chemical companies, the situation become a little bit more difficult and tight, let's say there's a tendency or trend to make costs that are fixed, maybe more variable and use companies like ours. That is a general remark and that is not applicable to, I would say, 2018 because we had a very good economic environment. Generally it's true, but I think that's not a reason for or an explanation for what happens at this moment.
I was more referring to 2019, actually. Like what's down the road.
Yeah. Okay. Well, let's see. I don't know how the economies will develop. Far it's still relatively okay, although there are some signals that are a little bit less positive. I think manufacturing index in Germany was a bit, was not so good. Let's see how that develops. That's more macroeconomic discussion that we all can have. It's not so much directly related to us.
Okay. All right. Thank you very much.
Ladies and gentlemen, for questions, you can still press star one. The next question is from Mr. Belhache Berenberg. Your line is open. Please go ahead, sir.
Just two questions from me. Would you be able to confirm what the organic conversion margin was in Q4, and how by region, as well as the organic growth per region as well in Q4? Thank you.
Hans.
We are both looking confused at each other.
Organic-
Organic conversion margin growth in Q4.
Oh, sorry.
I think what we show in the press release is the organic growth figures on an annual basis. There we split it, let's call it, between the regions. That is basically what we normally present. What people do themselves is just either this quarter or just the full year from the nine months, and they try to calculate something out of that.
Okay. The organic growth, sort of maybe commentary. I know you mentioned that there was no specific reason for the slowdown in Americas, how does that relate to some of the other regions that you see?
No, it's just what Piet said before. December is always difficult to predict. We don't want to talk about number of working days or when the Christmas period starts or whatever have you there. It's just always a month difficult to predict. Also difficult to plan how much stock you really need to fulfill all the orders that you have in your books, because customers easily move their orders into the next year. That resulted this year that we saw a bit of slowdown in December, orders moving into the next year, and slightly higher stock and lower debtor position. Nothing strange or special compared to other years. It's just the usual uncertainties in the December month.
Okay. That makes sense. Thank you.
The next question, Mr. Gundogan, ABN AMRO, your line is open.
Yeah, thanks. A few more questions. Hans, you mentioned a net debt EBITDA ratio of 2.8 at the end of the year. That, when I do all the math, I get to EUR 280 million of EBITDA, and that includes full year impact of acquisitions. Can you just explain to me how you get to that EBITDA? Is that a pro forma number, i.e., as if you had owned the business for the last 12 months? Maybe just get that one out of the way.
Basically, what we do is we look at what was the last 12 months before the acquisition. That is what we use as the full year M&A number, then we deduct what we realized ourselves. We don't include normalizations or growth or whatever over there.
That is what I want to. Second question, just getting back to the outlook. A lot of chemical producers and especially the more cyclical ones, are rather cautious on 2019. When I read your press release, you sound rather optimistic. Now, I know that your organic growth is built up of, on the one hand, economy, and on the other hand, what you do on top of that. Is it maybe fair to assume that although the economy might be so-so, the belief in your own growth on top of that is maybe for 2019, higher than historical averages?
I don't think we give an outlook other than that we are always sunny fellows here. No, I can't add to what we said, that we are positive, that we are not going to qualify it further, Mutlu.
All right. Then, finally in M&A, let me see if you can answer that one as well. The larger acquisitions that you did in the last few years are performing very well. You always have this line in your press release that you see interesting opportunities. What I would like to know is, to what extent do you believe that you can execute on larger targets this year as well?
Also there, you expect it probably from me, I can't give any comments. Because any acquisition happens only if they're two to tango, so to say, I can't make any predictions on that.
All right. Thanks anyway.
The next question, Mr. Mulder, ING, your line is open. Please go ahead, sir.
Yeah, good morning, guys. Kira Mulder from ING in Amsterdam. I have two questions. One is about the development at Velox in Germany, given the, let me say, the interest in the automotive industry. Maybe you can give some indication about the development there. The second question about the Schulze & Schein to stay in Germany. The Schulze & Schein is 3.5x, so it's not 375. What about the peak multiple you can reach? Is that also the case for the Schulze & Schein or not?
Shall I answer the last one first, Piet?
Yeah.
That's the case, Kira. We have the same acquisitions point. Yes. On Velox, I think it's good to maybe explain to you that the integration of this business and let's say the full synergy effect will be felt later in 2019. Velox is a company that is centrally organized from Germany with subsidiaries in the different countries. We're going to integrate the German company, also the local subsidiaries, and we will do that in the course of this year, depending on local labor laws, tax laws, legal rules as to mergers. That full effect and synergies will come in the second half, maybe the fourth quarter of this year. The business is performing in accordance to expectations.
The question about the automotive industry is a valid one. That is, of course, an important one for many business segments, in particular, of course, the coatings and the advanced materials sectors. It's too early to tell for me how that will develop. I think we're all curious to see how the car industry in Germany will perform. Let's hope that it will perform in the course of expectations. If that's not the case, yeah, then it certainly will have an effect also on customers of Velox and of customers of our coating business.
Okay.
Let's see how that goes.
If you speak about dark clouds, do we have a specific country, region, or product line in mind?
No. I think we all know the dark clouds. We have, of course, the Brexit. We have a bit of a slowing down of growth in certain areas. You just mentioned Germany, the car industry. I'm speaking, let's say, as a solid reader of the news. I don't have bigger insights than I think all of us have. If the general economy slows down, that will have a certain effect on anybody.
Okay. Thank you.
Yeah.
Mr. Van der Slikke, there are no further questions.
I thank everybody for your interest and for your questions, and I wish you a fantastic weekend already.
Ladies and gentlemen, this concludes the conference call. You may now disconnect your line. Thank you for your participation and have a very nice day.