Good morning, ladies and gentlemen, and welcome to this Analyst Call for Quarter 3 2018 Results IMCDNV. At this moment, all participants are in listen only mode. Following the presentation, there will be a question and answer session. I would now like to hand the call over to Mr. Piet van der Zwicken.
Go ahead please, sir.
Good morning, everyone. I'm sitting here with Hans Corimans, and we are happy to answer your questions regarding our press release containing 1st 9 months 2018 results. These 9 months results were strong with operating EBITDA increasing with 26 percent to €100 and 56,600,000 an increase of EUR 32,800,000 versus last year. All regions did very well and we are particularly pleased with the strong organic growth shown everywhere. Obviously, this is the result of our strong business model, favorable economic circumstances and relentless focus on execution of our model.
As you know, we've continue to focus on specialty chemicals and food ingredients and also keep investing in formulation expertise to help our customers to make products. In the United States, we are working hard to integrate ET Horn, which we acquired at the end of July and in Europe to do the same with VLOCs, which we acquired in September. Summarizing, we are positive about our business and are positive about the future. As you know, we do not give specific forecasts And for the numbers, I now give Hans time to give additional remarks. Thank you, Pree.
Good morning, ladies and gentlemen, and I would like to give you a short summary of IMCD's 1st 9 months result, but I would like to start on Page 9 of the presentation. We are happy to report a healthy 29% revenue increase and 30 percent increase in gross profit in the 1st 9 months of this year. The gross profit increase was a combination of about 15%, one-five 15% organic growth and 15% as a result of the first time inclusion of acquired companies. Gross profit in percentage of revenue slightly improved from 22.5% to 22.7%. And this increase in percentage was a combination of product mix effects, changes in local market circumstances, the impact of currency changes and, as usual, the first time inclusion of acquisitions.
Operating EBITA increased 32% to the €157,000,000 that Pete just mentioned. And this increase was a combination of substantial organic growth in all segments and first time inclusion of acquisitions. The operating EBITDA margin increased from 8.8 percent in the 1st 9 months of 2017 to 8.9% in the same period this year. The conversion margin calculated as operating EBITA in percentage of gross profit, so not EBITDA, but EBITA in percentage of gross profit of 39.3% was slightly higher than the same period of last year. On average, lower conversion margins in the Americas as a result of recent acquisitions with on average lower conversion margins were more than compensated by improved conversion margins in EMEA and Asia Pacific.
And the net result before amortization and non recurring items increased 33% to €109,200,000 Free cash flow and cash conversion ratio both decreased compared to the same period of last year. Substantial operating EBITDA growth in 2018 could not fully compensate the increase in working capital in the 1st 9 months. And this working capital investment of about €50,000,000 was mainly the logic result of substantial organic revenue growth in the 1st 9 months of this year. And year to date, cash earnings per share were €1.97 an increase of 28% compared to the same period of last year. And on the last line of this page, you could see an increase an 11% increase in our number of employees.
And the majority of this increase is the result of the first time inclusion of acquisitions that we did. On the next page, Slide 10, you will find gross profit, EBITDA and conversion margin per operating segment. In the first column, you will find EMEA, and this segment reported 13% ForEx adjusted gross profit growth and 17% operating EBITDA growth. Operating EBITDA in percentage of revenue improved from 10.1% to 10.8%. And the acquisition impact in the 1st 9 months in this segment is limited as it includes only the acquisition of Noventis in Italy in July last year.
Phelox that we acquired end of September did not contribute to the result. So it's fair to say that most of the reported growth in this segment is organic growth. In the second column, the results of Americas. And in the 1st 9 months of 2018, Americas more or less doubled gross profit and operating EBITDA. These growth figures include substantial double digit organic growth.
Further, the full year impact of acquisitions made in 2017, mainly LV Lomas and the acquisition of Ity Horn end of July 2018 contributed to these numbers. Operating EBITDA as a percentage of revenue and the conversion margin slightly decreased as indicated in previous calls, mainly due to the first time inclusion of acquired companies with relatively low EBITDA margins. Then Asia Pacific in the 3rd column reported 15% gross profit growth and 21% operating EBITDA growth. All growth was organic. Operating EBITDA in percentage of revenue and conversion margin further improved compared to the same period of last year.
And then in the last column, you will find the cost of holding companies. And as you know, this includes all MUM operating companies, including the head office in Rotterdam and the regional support offices in Singapore and New Jersey in the U. S. On the next page, Page 11, you will find a summary of IMCD's free cash flow. Free cash flow and cash conversion ratio were both lower than the same period last year as a result of increased working capital investment.
As mentioned before, this working capital investment is mainly the result of the reported revenue growth. CapEx of about €2,500,000 was mainly IT related. Page 12, shorter stage on net debt and leverage. Compared to the end of September last year, net debt increased with about €113,000,000 to €620,000,000 And this increase was a combination of, on the one hand, healthy operating cash flows and on the other hand, substantial cash outflows as a result of acquisitions made and dividend payments. Reported leverage ratio defined as net debt divided by operating EBITDA, including the full year impact of acquisition rates, was 2.9x EBITDA at the end of September 2018.
And then last but not least on Page 18, you will find our outlook for 2018 where you could read that we expect operating EBITDA growth in 2018. And that was a short summary of our year to date financials. And Peter and myself are now happy. Okay.
Thank you. Thank you. Thank you, sir. Our first question is from Mr. Peter Olsson of Kepler Cheuvreux.
Go ahead. Your line is open.
Good morning, gentlemen. Three questions, if I may. Maybe to start with Asia Pacific, where in 20 sixteen-seventeen, the operating EBITDA growth was lacking the gross profit growth. In 2018, we see EBITDA growth exceeding the gross profit growth. Is it fair to assume that in terms of investments, you are now largely done and this is the kind of typical operating leverage that we should see in this region?
Or is there more to come in terms of investments going into 2019? And then on headcount, Hans, in the introduction, you indicated that most of the 11% increase in headcount is due to the acquisitions. Given the strong organic growth of the business, do you see a need to add people to support that growth? And then my last question is about the Americas. Could you shed some light on what you're seeing both in North America and in Latin America?
And to what extent both parts of that region are contributing to the strong overall performance?
Okay. Maybe I'll take some of your questions. Asia Pacific question whether or not we need more investments and investments in our business is investments in people, but also in things like labs, etcetera. I think we never done, of course, there with investments. But I think that we have established now in many countries, regions, an infrastructure that works, that generates income.
And in that sense, I would say that we have now in the regions where we talked about before, like for example Japan, gained credibility that allows us to leverage that cost structure more. So in that sense, we will continue to invest, but not at the same pace as we did before. Then you ask, do we need more people? That's a bit of a generic question, I would say. We look very closely always to ratios in terms of productivity.
It is true that, for example, in the Americas and particularly in North America, we need an infrastructure a management infrastructure and we need to strengthen that further. But I would say that we would not invest more people than we beyond what we feel is productive. So that's more business as usual. The final question was about the Americas and was about what organic growth or Color, a bit of color about Color.
So what you're seeing in North America and in Brazil, whether there's big differences or whether both are contributing to the growth?
Yes. Both are contributing. North America, U. S, Canada is doing quite well. Although, of course, we are still very much in further streamlining, organizing it better, It's still doing tremendously well.
Brazil consists, as we discussed before, about 2 major business segments. 1 is Pharmaceuticals. The other one is more Industrial Chemicals. The Pharmaceutical segment has done very well. Industrial segment has done much better than in the past.
There remains work to be done, but both Brazil and the North America have contributed to this result and the growth of this result.
Okay. And the much better performance of the industrial business in Brazil, is that due to internal measures that you have taken much, much more than improved market conditions?
It's both because, of course, we went the last as you know, the last 2 years through a very, very deep economic slump in Brazil, but also because of internal measures, because of additional business lines that we were able to gain. So it's a mix of reasons. As you know in Brazil, we always have a dependency on sharp currency fluctuations, general economy. But I would say that, let's say, various factors contributed to a positive development.
Okay. Thank you for the color.
Next question is from Mr. Mutlu Gundogan of ABN AMRO. Go ahead. Your line is open.
Yes. Good morning, guys. A few questions. First on the Americas, if I look at your operating expenses, they increased more than in the previous quarter in Q2, while the increase in gross profit was roughly the same. Can you tell me why that was?
Are you investing more in the business to accommodate for the high growth? Secondly, in Asia Pacific, can you tell me what is going on there because your gross profit is down 1 percent year on year, which is a significant deterioration from the high growth that we've seen in the previous quarters. And then also on Asia Pacific, while gross profit was down, your operating expenses were up by 27%, if my numbers are correct. And that's a significant acceleration. So is that also because of investments?
Any color here will be appreciated. Thanks.
Modulo, Hans here. I think first to start with your question about the Americas, where Bayer said that OpEx went up substantially compared to margin growth. I think the reason for that is that what you see in the numbers is the entrance of accompanied with a much lower EBIT margin than the average of the group. And as a logic consequence, you see more OpEx than margin growth as a contribution from Ityhorn. The other thing that you typically see in the summer quarter is that your there is always a bit of what we call a summer dip, but by the cost structure stays more or less the same and the margin is always a bit lower than the 1st 6 months of the year.
I think the biggest driver there is E. T. Oren. On Asia Pac, to be honest, I do not really follow your question there. Could you really explain?
Yes. So if I look at the gross profit in Asia, it was €52,000,000 for the 1st 9 months. And I think you did 35 in the first half, so that means roughly $18,000,000 Now if I take out currencies and there was no impact from M and A, that means that you're down 1% year on year versus the $60,000,000 that you reported last year. So just I mean, obviously, I have a few assumptions here and there, but is that correct that your gross profit is maybe roughly flat or down year on year?
No, no. The gross profit in Asia Pacific shows organic growth of 15 percent compared to last year and in the last quarter, 17%.
Right, right.
So we saw a strengthening in the last quarter. And operating EBITA in that region increased 25% compared to 19% in the 1st 6 months.
Okay. Okay. And we
saw a bit the opposite of your remark.
Yes. No, I mean, then obviously, I've done something wrong. So I'll check that. I have a few questions more, but I'll get back in line.
Thanks. Was it last question?
So if this question is not correct, then probably the second one is also not correct.
It's muted. Mr. Tom Sykes of Deutsche Bank. Go ahead.
Yes, good morning, everybody. I just wondered if you could talk about how clients have reacted and suppliers have reacted to the network that you've built up in the Americas now. What conversations you're having with people about being able to take on larger contracts, regional business and whether there's been any material change. I know it's early with regards to ET Horn. I wondered as well whether you could talk about any integration milestones we should think about on the M and A side over the next 6 to 12 months that are particularly significant?
And indeed, when you look at the sales forces of the businesses you've acquired, do you think they're at the requisite levels to benefit from what might be some more cross selling opportunities for you?
Okay. Thank you. I think very good questions. I think generally my remark on the U. S.
Market is that we see and I think also our suppliers see the last few years accelerated maybe in this year a strong consolidation of the chemical distribution market. And I think maybe to some a surprising strong consolidation. I think we all know that recently Univa announced that they will acquire Nexeo, so more on the commodity front. We see, of course, in the past, Azaelis acquiring businesses. We see the Maroon Group, another group that tries to further consolidate.
So that means, of course, that also suppliers will have to look at how they use their sales channels in that market in the future. And we have these conversations with our suppliers and I'm sure others have as well. You will see some realignment of supplier relations in the future. How exactly? I can't say.
I can't predict. But it's certain that in American market, see consolidation going on and let's say a new view on how future sales channels should be in that market. As to integration, it's obvious that we have integration milestones and an integration plan, which is something that we will do diligently, but also forcefully. It begins, of course, with IT, which is a very important element of our work. It also has to focus on how to motivate, keep and reward our people and also harmonize that.
It's speaking with our suppliers and customers what the best possible organization model will be. So yes, in the next 6 to 12 months, you will see changes in the way we organized. But we will do that diligently and carefully. But I'm pretty sure that the end result will be a very strong marketing and sales organization with a good physical distribution network across the region, which is our aim. So changes in the U.
S. Market from, let's say, beyond what IMCD is, And the market is adapting to that. And we play, of course, in specialty, the leading role in that.
Okay. So we thank you for that. We should expect, I guess, therefore, some larger scale contract bidding effectively in the U. S. Over the foreseeable future?
Because it sounds like they're going to consolidate contracts. Or is that what you're alluding to? And then I guess in terms of the remuneration of employees, are there any particularly market differences in the acquisitions? And is there anything that could cause a problem in terms of how the acquired companies are remunerating their employees compared to how you've historically remunerated?
On your first question, I would say that when we our strategy is to build a national model that we, of course, also would like to have national alignments, if possible, or strong large regional alignments. Bleeding is, of course, something that doesn't happen, but conversations and discussions with our suppliers take place. But I'm sure that our competitors do the same. So that is a continuing process. As to remuneration, of course, there are always difference between companies, but we are pretty confident that we can have a model that is satisfactory to all of our people in the U.
S. So I'm not so concerned about that.
Okay. I'll leave it there. Many thanks indeed.
The next question is from Mr. Rajesh Kumar of HSBC. Go ahead. Your line is open.
Hi. Good morning, gents. Thanks for taking the questions. Just following up on the client and supplier discussions regarding expansion into North America. Do you think that you have also found some new supplier opportunities with the new North American presence, which you may be able to take to Europe.
And then from your experience in such negotiations, how long does it take to cross sell to suppliers across different markets? That's the first question. The second one is, if you could give us some color on where you're seeing certain good volume growth momentum by sector, okay, pharma, food, etcetera. If you could have some color on that, that would be quite helpful. And finally, in terms of if you look at the leading indicator for pulp chemicals, they all seem to be in very good momentum.
Historically, specialty has lagged. Do you expect to see continued organic growth momentum? I know you don't give guidance, but in terms of the kind of volume trends on the exit rates you have, that would really help.
Okay. On your first question, I think throughout our history, our model has been, of course, to bring relationships that we have to other regions where we could also work for them. And it's very difficult to give you a rule of thumb how long that will take. It's pretty sure, of course, that in doing these acquisitions in North America that we will have various discussions. And we also have let's not forget, we also will have situations where some suppliers will say, maybe this is maybe you're not the right partner for us for various reasons.
But of course, our goal and our expectation is that we will grow our business overall by leveraging the relations that we had already. So for us, of course, it's a senior management is a continuous conversation among ourselves with our suppliers to align, to invest in that relation, to invest in our formulation expertise for these specific suppliers. And it's very difficult to let's say give you some sort of guidance or timescale on that. But it is certain of course that suppliers that we meet and know in the North American market that we also see them back in Europe or in Asia and vice versa. On volume growth per sector, I would say that overall, we see good growth in the various segments that we are working in, both in the industrial sectors like coatings and construction and plastics, but also in our Life Science Food Pharma and Personal Care.
Very good growth. And I would not pick one segment that really stands out on that. Volume trends versus Bulk Chemicals, I do know maybe I'm too long in the business, but I've stopped trying to understand these relationships exactly. If somebody can tell me exactly what the correlation is, let me know. But I think we continue to work very, very hard on adding product lines to our business.
And the problem with our business is, of course, it's not only volume growth, but it is also adding new lines, increasing the added value that we do for our customers and our suppliers. So I cannot give you any guidance on future volume trends.
Understood. That's very clear. Thank you very much. Just one technical one. Did you have to apply hyperinflationary accounting in Argentina?
Or is that still accounted on the old basis?
Sorry, I missed your question here.
Evan, do you have any hyperinflationary accounting application?
No, we don't have that. No.
Our next question is from Nathalie de Bruin, Degroof Petercam. Go ahead. Your line is
open. Hi, good morning. Thank you for taking my questions. I will stick to the Americas actually. You flagged the consolidation that is ongoing in the region and that the fact that it's accelerating and we also see that.
So I was wondering, you already made 2 acquisitions in the region over the past year. I was wondering, in the short term, how much do you feel that you can still take on and integrate efficiently in order to, well, effectively expand your presence in the country and afterwards leverage on your suppliers' relations? So the question is, it's more do you feel that there is some pressure for you to make acquisitions there? And how much do you think that you can still take in the coming year?
Okay. Well, we try to take away as much pressure as possible on ourselves. So we don't feel that pressure. What we want to do is, as you know, we have done in the last few years 3 significant acquisitions and 2 just pretty recently with Lomars and with Ityhorn. And it's very important for us to integrate that now.
I do not rule out that we will do other acquisitions, but there's no pressure and also not an immediate necessity. It's, of course, something that is not totally determined by us. It's also the market. It's owners that want to sell. We will always as we always have done also in Europe, continued to be vigilant and eager, but we don't feel any pressure at this moment.
Okay. And to follow-up on that, given that indeed that market is consolidating, do you see actually an increase in price paid, so in terms of multiple over there?
I think generally maybe in the market in the last 1 or 2 years, you see a little bit of an uptick in it's a bit not only in the U. S, but generally because of the good economy, you see some increase of multiple. But still in our view within our, let's say, means. So I would say, yes, a bit. But that's a general remark.
I would say it's not only for the U. S.
Okay. All right. Thank you. And perhaps then if I can have us put more color on the organic growth that you see in the region. You flagged that substantial double digit organic growth there.
So I assume that is the reason why the margins at EBIT level stayed more or less stable to the 8% or why you are integrating these lower margin companies. Can you perhaps elaborate a bit on what the drivers are behind that solid organic growth? Is there any specific segment that stands out or something that is temporary and that should fade out later on or
Nothing is forever, of course, as you know. But I think that we also benefit very much from a good economy in the region. We as I said before in Brazil, we really have a strong year. It is the fruit of hard work over the last couple of years where we were much more, let's say, flattish adding product lines. And I would say it's in one particular segment.
It's across the board. So I would say favorable markets, favorable economy plus a strong, as I said before, strong model that gives us the opportunity to capture these favorable wins. But as we all know, I mean, nothing is forever. Things change. But we still feel very positive about the future.
All right. Thank you. That's it for me.
The next question is from Mr. Rajav Bardalai of Exane BNP Paribas. Go ahead. Your line is open.
Hi, good morning. I just have 2 quick ones remaining. Just on current trading, could I just touch on that topic again because obviously some chemical companies have talked about demand conditions softening in October specifically. And I appreciate your end market exposure is different versus them. But just wanted to confirm that you haven't seen any notable change in momentum in recent weeks since the end of Q3.
And then secondly, just wanted to touch on transport and freight costs. I know this kind of comes up now and then and you've said in the past that there's no major pressure, but could you just confirm in North America specifically as well, are you feeling or experiencing any untoward pressure on that side of things? Thanks.
On the first question, I would say that we still in the Q3 saw, yes, a positive trend in demand. There are, of course, let's say, how do you say that, frictions between demands. But generally, in the quarter, we saw demand still strong. On freight costs, yes, you're right. We see in particular in North America an increase in freight costs, which is triggered, as we have noted, on the one hand, because of the very, very good economy in that region, but also because of the more stricter enforcement of labor laws, which requires drivers to stick to these rules whereby the capacity then lessens.
We have never had issues in passing on increased pricing to our customers and we will continue diligently and forcefully to do that. So it is sometimes a, let's say, a challenge for our logistic people, but we don't feel that, that is an impediment for growth of our business.
Okay. Very clear. Thanks.
Our next question is from Mr. David Peace of Goldman Sachs. Go ahead. Your line is open.
Yes. Hello, good morning. It's actually Mattia Gergollet from Goldman Sachs. Three questions from my side. The first one is just on the conversion margin in North America, a little bit more following up from the previous questions.
I mean, you made a point clear that there's a bit of a decline because of, say, the integration of the new acquisitions. Could you give us a bit of, say, color where do you see the conversion margins on, I'll say, comparable basis? I'm just trying to understand if there is some cost pressure building up in Americas and how you actually how successful you are in passing that through to final customers? Secondly, cost pressure seems to have become very, very topical for distributors. If you look at your different markets, not just North America, but maybe also Germany, the Netherlands, is there any concern in your mind about some of these costs building up, whether there's no energy, logistics, wages?
You just mentioned you're typically able to pass it on, but is there anything this time that might be different or more extreme compared to the past? And then third question, just on the organic growth. I don't know how much you're willing to elaborate, but clearly, no, double digit organic growth very strong, probably much better than what we thought 1 or 2 years ago you could deliver. How long can this type of say growth rates say be sustained? Or is this like a period in IMCD history that is at the end of the day really unusual?
Thank you very much.
Maybe the first question for you, Al. Yes, and that was your question about the conversion margin and passing on price increases to the market. If you look at the both LV Lomas and Ityhorn two companies with an EBIT margin of around about 4% and as a consequence, pretty low conversion margins. And so when we acquired these companies, we already announced to the market that you could expect a substantial drop in the overall conversion margin in the region. When you look now year to date at our the 1st 9 months of this year, then what you can see is that the gross margin in this region holds up to close to 20% where it was last year, which means 2 things.
That's on the one hand that the acquired businesses in the end more or less run now on the same average gross margin percentage. So there you don't see a dip. And that we at the same time are in a position to pass price increases to the market. Then I missed your second question. No, I will take that one.
I think this is about cost pressures. And that's a very good question also because I said it many times also in the past let's say, our capital, of course, are our people and people that have technical commercial skills. And that's a rare commodity, so to say. It's I think everybody in our industry will confirm this. It's not easy to recruit these people.
There's a lot of demands for these people, so a lot of competition. And that has, of course, an upward pressure on costs. That's clear. That's not new by the way. That is something that we have throughout our business life.
But it is a very important factor. I would say freight is and that means also that to elaborate on that is that we have to be very diligent in our recruitment policy, but also keep a very close eye on our productivity. So the ratios are key. Freight cost side, we mentioned. I think that that is, of course, is an issue, but it's something that we have well under control.
Again, part of our success is or a large part of our success is based on the quality of our people. And yes, these people, of course, also expect a career but also a good compensation package. Then your last question was on double organic growth. I think that if anybody, any CEO will tell you maybe with the exception of those who are in Silicon Valley companies that we would every year grow double digits. You should not take serious.
So it is a very good performance. We are not going to promise double digit growth every year. We will do our best. We are very, very, let's say, focused on growth, on organic growth. But our history also demonstrates that we didn't have that every year.
So continue to work hard on it. It is now an exceptional year. Let's see what next year brings.
Okay. Thank you very much.
Our next question is from Mr. Henk Wiehrmann of Kempen and Co. Go ahead. Your line is open.
Hi, team. Hi. Thank you for taking my questions. There's actually only one left remaining and I think it's a topic already discussed a bit, but it's actually on your organic growth in the U. S.
I think if I do the numbers, I sort of get an implied organic growth in the U. S. Of about 20%, 25%, 26%. And obviously, I mean, there's sizable contribution from synergies from your acquisitions in there. And that gets me to the question, when you look at your at the acquisition of ETHorn and you compare it with the acquisition of LV Lomas, is it fair to say that your expectation on the sales or on the gross profit synergies of Elvie Lomas, are they in terms of percentage of GP when you acquired it, are they more or less similar?
In other words, should we into 2019, when the synergies of Ityhorn kick in, should we sort of expect the same or at least like also a significant contribution from those synergies of Ity Horn?
That's a difficult question, Henk. Listen, I think maybe the best answer is that we want to bring our business to the level that, let's say, that you see today or improve it further. And that means, of course, that we need significant synergies from our West Coast business. But if it's equal to LVLomas Hans, I don't think we can say anything about that. I don't even know exactly what the numbers are on that.
But so I would expect that we will work very hard to create a situation whereby the revenue of the business that we bought is as productive as it is in our other businesses. And then the options that we have Henk is on one hand increase gross margin in that business. The other thing that we could do is leverage supplier relations, so do more business through the same structure or make the organization more cost efficient. And we try to turn all three wheels and let's see what comes out.
Okay. Fair enough. Thank you.
Next question is from Mr. Kjellijn Mulder of ING. Go ahead. Your line is open.
Yes. Kjellijn Mulder from ING. Two questions from my side. With regard to the acquisitive growth in U. S, can you give maybe a somewhat split, somewhat in percent between Horn and Lomoz, given the fact that Lomoz was acquired last year, I think, in September?
Or is that that's my first question. The second question is about the cash flow. If I recalculate the 2nd the 3rd quarter against the first half year, your cash flow was something like 55 €1,000,000 if I'm correct. And that compares to something like €53,000,000 in operating EBITDA. And that means, in my view, that your cash conversion is already 100% or even more than that, in spite of the fact that the growth of revenues was still 28 percent in gross margin of gross profit was still 28%, the same level as the second quarter, for example.
So maybe you can explain to me what happens with the working capital in the 3rd quarter because in my view, the working capital was quite stable in that period.
Yes, Kirei, in answer. Perhaps to first answer your last question, what we typically saw is we the growth rate in the Q3 was more or less the same as in the Q2, so double digit growth there. And what you then see is that the investment in working capital mainly driven by higher debtor positions. If you then still grow the same level, you stay at the same debtor level and you don't need to invest further. So most of the pain was in the first half of the year.
And your math was right. We slightly reduced in the Q3. So let's see what it brings towards year end. I hope, by the way, that we also have to report a lower conversion ratio by year end because that would mean that we still grow significantly compared to last year. Then on the acquisition growth, I what we announced to the market is the timing of the acquisition and the revenue that we bought.
And so what we see is last year, we indeed acquired Lomas in September, 1st September. So there we have 8 months of acquisition growth and 1 month like for like. And Ityhorn is I always need to remember when we exactly closed it, but I think it was 2nd. It was just 1 month of sales in the numbers that you see here. 31st July.
So it's 2 months then, 2 months of sales in the year today. Yes, exactly.
Okay. So we can take
If you then do the math, you will see substantial organic growth of the existing business.
Okay. Thank you.
The next question is from the line of Ms. Elena Balboer of APG Asset Management. Go ahead. Your line is open.
Yes. Hi, good morning. Can you hear me?
Yes.
Yes. Hi, thanks for taking my questions. My first question is in terms of your debt position. You are reporting EUR 620,000,000 at the end of the quarter. So if my calculation is correct, that means that you have utilization in your revolver north of EUR 200,000,000.
So I understand there's some working capital investments there. But my first question would be, are you considering to come to the market to finance that amount? Or are you happy with the you're comfortable with that utilization in your revolver? And my second question could be, if you could tell me what's the expected 12 month EBITDA contribution of your last two acquisitions, the Horn and Bellox, please? And my third question actually would be if you are considering to get a rating, a credit rating?
The utilization of the revolver, I think what you know is that we have a revolver facility of about €400,000,000 If your math is right, that would mean that we have substantial room to further maneuver. With respect to the acquired EBITDA, I would like to refer to the 2 press releases that we sent out indicating the EBITDA that we bought. That's also what we use in the leverage calculations. And we have, at the moment, no intention to get a rating for our loans. And we issued a new bond, our first bond in the Q1 Q2 of this year without a rating unsecured.
And the placing was very successful, and we have the feeling that we can save us the cost of getting the rating.
Okay. Thank you.
We have another question from the line of Mr. Mutlu Gundogan of ABN AMRO. Go ahead. Your line is open.
Yes. Thank you. A few more questions. First on current trading, I think Pete you said it several times. Just wondering because I mean yesterday one of your peers reported horrible results.
We've seen various chemical companies be very cautious towards the end of the year. Just wondering if that is more the cyclical part of the business, I. E, do you think that you as a distributor of specialty chemicals are shielded from destocking or would the impact have do you expect the impact to be less or to be later? So that's the first question.
Yes. Well, 1st of all, last quarter, of course, is I mean, generally, so nothing to do with is always a bit softer because of the December month. But I have no indication that, that will be that the trend that we now see is very different in the last quarter from what we have seen up till now. I said before how long this will we are not shielded. I mean, we are not totally shielded from anything because if the demand falls out, we also, of course, note that.
Although, of course, we have a very resilient business model being in various markets, regional, but also in terms of the different markets that we work in, in food and in personal care and in construction, etcetera. As you know, we're very strict in not trying to figure out how the future looks like. So I don't want to do that now. I cannot comment on what happened to one of our competitors, but all situations are different. And as I said before, we still look positive to the immediate future.
Yes. No, I mean, the question was more theoretic, so to say. I mean I can understand that people would destock in commodity chemicals as that usually is the bigger part of, let's say, the bill, whereas specialty chemicals are usually smaller in volumes and therefore also smaller in terms of the price you pay. So just wondering if you had some general remarks on that. But that's okay.
I mean, maybe a second smaller question. Do you know what the direct or indirect exposures of IMCD towards the auto sector?
That's a good question. It is of course, in the markets of coatings and plastics, we are exposed indirectly because we don't directly deliver to the car industry, but through their let's say, the companies that deliver to that we deliver to. So there is a connection. How big that connection is, I don't know. I can't say.
Okay. Okay. And then on EMEA, there have been outages, supply disruptions because of the low lever of the Rhine. Have you seen any impact because of that, be it positive or negative?
No, we haven't. But what we see generally is because of the fact that economies are doing well that we have seen shortages in certain raw materials. So that's more general remark, but not so much because of, let's say, weather related circumstances.
Yes. Okay. Just 2 more small questions. On LVLomas, I mean, to be able to surprise to see that your conversion margin is already at this high level despite the dilutive effect. So just wondering, is that business now, so to say, at par?
Or still is there room to improve on that business?
There is still room to improve. There's always room to improve, Martin. Yes. But it is of course, we have done a lot of work there, still a lot of work to do. We lowered the cost base of the company.
I think we improved management, but there's still work to do.
Yes. And in terms of I assume you have done the lower hanging fruit, so to say, so maybe more on the cost side. So when you say more to do, is that more on the cross selling side? Or is there still room more to do on the cost side?
Yes. I would say both, but it's very important for us as well as, of course, is to add business to our also to our Canadian business or product lines. And that's something we are working on. So both, I would say, more efficient in the way we work, but also take care of margin growth, percentage margin growth and top line growth.
Yes. And then final question, apologies for the long list. Any
those are
not extraordinary expenses, but maybe should we expect higher expenses for personnel because you've had such a good year? I would assume that you also have higher bonus payments. So would that could it have a negative impact on Q4 compared to last year?
Yes. That should not have a specific impact on Q4 only because what we do is we accrue bonus provisions during the year. So when we see an improvement in results, we already start accruing additional bonuses.
Okay. That's very helpful, Hans. Thank you. Okay. Thank you, guys.
We have another
Not to stress the point, just because there's so much interest on the freight cost impact. Could you quickly remind us how much of the freight or logistics do you self deliver versus outsource?
Yes. If you look at our P and L, Rajiv, what you see then is that part of the freight cost, basically the inbound freight, as we call it, so the cost to get the goods in the warehouse is part of our cost of goods, and that should then end up in our gross profit. And the other part is reflected as 3rd party cost. And what you see there is that on average we pay roughly out of the top of our head around about 3% of our revenue to 3rd party cost and that is partly freight, partly warehousing and partly warehousing services.
And That even in North America is outsourced?
Also in North America, we outsourced logistics wherever we can.
Okay, understood. That's right, yes. And just on the Argentina growth, I appreciate a small part of your American business, but I noticed that if you calculate organic growth for North America or for Americas, it can be skewed by Argentinian exposure. Can you confirm excluding Argentina, you had basically double digit organic growth in Americas, please?
I guess you mean Brazil because Brazil is the big business. Yes.
Basically, wherever you see currency devaluations, both Brazil and Argentina?
You're referring now to Argentina, but Argentina is for us very small, very, very small.
Okay. Okay.
So The majority of the business in Latin America and South America is in Brazil. And when I say the majority, it's 99% or 95% something like that. So don't worry about high inflation in Argentina.
I now understand
the question.
Thank you very much. I appreciate
Okay.
Gentlemen, there are no further questions coming through. Please continue.
Yes. That concludes, I would say, the call.
Ladies