Good morning, ladies and gentlemen, and welcome to this analyst call for quarter three 2018 results of IMCD NV. 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 Slikke. Go ahead, please, sir.
Good morning, everyone. I'm sitting here with Hans Kooijmans, and we are happy to answer your questions regarding our press release containing the first nine months 2018 results. These nine months results were strong, with operating EBITDA increasing with 26% to EUR 156.6 million, an increase of EUR 32.8 million 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 continued to focus on specialty chemicals and food ingredients and also keep investing in formulation expertise to help our customers to make products.
In the U.S., we are working hard to integrate E.T. Horn, which we acquired at the end of July, and in Europe to do the same with Velox, 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. For the numbers, I now give Hans the time to give additional remarks.
Thank you, Piet. Good morning, ladies and gentlemen, I would like to give you a short summary of IMCD's first nine months result. I would like to start on page nine of the presentation. We are happy to report a healthy 29% revenue increase and 30% increase in gross profit in the first nine months of this year. The gross profit increase was a combination of about 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%. 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 EBITDA increased 32% to EUR 157 million that Piet just mentioned. 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% in the first nine months of 2017 to 8.9% in the same period this year. The conversion margin, calculated as operating EBITDA in percentage of gross profit, so not EBITDA, but EBITDA 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. The net result before amortization and non-recurring items increased 33% to EUR 109.2 million.
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 first nine months. This working capital investment of about EUR 50 million was mainly the logic result of substantial organic revenue growth in the first nine months of this year. Year-to-date cash earnings per share were EUR 1.97, an increase of 28% compared to the same period of last year. On the last line of this page, you could see an 11% increase in our number of employees. 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. 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%. The acquisition impact in the first nine months in this segment is limited as it includes only the acquisition of Neuvendis in Italy in July last year. Velox, that we acquired end of September, did not contribute to the result. 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. In the first nine 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 L.V. Lomas, and the acquisition of E.T. Horn end of July 2018 contributed to these numbers. Operating EBITDA in 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. Asia Pacific, in the third 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. In the last column, you will find the cost of holding companies. As you know, this includes all non-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 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 two and a half million was mainly IT related. Page 12, shorter stays on net debt and leverage. Compared to the end of September last year, net debt increased with about EUR 113 million to EUR 620 million. 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 made, was 2.9x EBITDA at the end of September 2018. 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. That was a short summary of our year-to-date financials, and Piet and myself are now happy to take questions. Okay.
Thank.
Thank you.
Thank you, sir. Ladies and gentlemen, we're starting the question and answer session now. If you have a question or remark, please press star one now on your telephone. Star one for questions or remarks. Go ahead, please. 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 2016, 2017, 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? 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? 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? To what extent both parts of that region are contributing to the strong overall performance?
Okay. Maybe I take some of your questions. Asia Pacific, question whether or not we need more investments in our business is investments in people, but also in things like labs, et cetera. I think we never done, of course, there with investments. I think that we have established now in many countries, regions, a infrastructure that works, that generates income. 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. In that sense, we will continue to invest, but not at the same pace as we did before. 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, management infrastructure, we need to strengthen that further. I would say that we would not invest more people than beyond what we feel is productive. That's more business as usual. The final question was about the Americas and was about what? Organic growth? Color.
What you're seeing in North America and in Brazil, whether there is big differences or whether both are contributing to the growth?
Both are contributing. North America, U.S., Canada, is doing quite well. Of course, we are still very much in further streamlining, organizing it better. It is still doing tremendously well. Brazil consists, as we discussed before, about two major business segments. One 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, both Brazil and North America have contributed to this result and the growth of this result.
The much better performance of the industrial business in Brazil, is that due to internal measures that you have taken much more than improved market conditions?
It is both because, of course, we went, as you know, the last two years, through a very, very deep economic slump in Brazil. Also, because of internal measures, because of additional business lines that we were able to gain. It is a mix of reasons. As you know, in Brazil, we always have a dependency on sharp currency fluctuations, general economy. 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% year-on-year, which is a significant deterioration from the high growth that we've seen in the previous quarters. Then, also on Asia Pacific, while gross profit was down, your operating expenses were up by 27%, if my numbers are correct. That's a significant acceleration. Is that also because of investments? Any color here will be appreciated. Thanks.
Mutlu, Hans here. I think first to start with your question about the Americas, whereby you 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 E.T. Horn, a company with a much lower EBIT margin than the average of the group. As a logic consequence, you see more OPEX than the margin growth as a contribution from E.T. Horn. The other thing that you typically see in the summer quarter is that there is always a bit of what we call a summer dip, whereby the cost structure stays more or less the same, and the margin is always a bit lower than the first six months of the year. I think the biggest driver there is E.T. Horn.
On Asia Pac, to be honest, I do not really follow your question there. Could you re-explain it?
Yeah. If I look at the gross profit in Asia, it was EUR 52 million for the first nine months. I think you did EUR 35 million in the first half, that means roughly EUR 18 million. Now, if I take out currencies and there was no impact from M&A, that means that you're down 1% year-on-year versus the EUR 16 million that you reported last year. Obviously, I have a few assumptions here and there, is that correct that your gross profit is maybe roughly flat or down year-on-year?
No. The gross profit in Asia Pacific shows organic growth of 15% compared to last year, in the last quarter, 17%.
Right. Okay.
Currency adjusted. We saw a strengthening in the last quarter, and operating EBIT in that region increased 25%, compared to 19% in the first six months.
Okay.
We saw a bit the opposite of your remark.
Yeah. No, 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?
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.
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 or regional business, and whether there's been any material change. I know it's early with regards E.T. Horn. I wondered as well, whether you could talk about any integration milestones we should think about on the M&A side over the next 6 to 12 months that are particularly significant. 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. I think maybe to some, a surprising strong consolidation. I think we all know that recently Univar announced that they will acquire Nexeo, so more on the commodity front. We see, of course, in the past, Azelis acquiring businesses. We see the Maroon Group, another group that tries to further consolidate. That means, of course, that also suppliers will have to look at how they use their sales channels in that market in the future. 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 U.S. market, we 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. 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. Yes, in the next 6 to 12 months, you will see changes in the way we organized. We will do that diligently and carefully.
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. Changes in the U.S. market from, let's say, beyond what IMCD is, and the market is adapting to that. We play, of course, in specialties, a leading role in that.
Okay. 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? I guess, in terms of the remuneration of employees, are there any particularly marked 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 them?
On your first question, I would say that 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. Bidding is, of course, something that doesn't happen, but conversations and discussions with our suppliers take place. I'm sure that our competitors do the same. 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. 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? 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, say, pharma, food, et cetera. If you could have some color on that would be quite helpful. Finally, in terms of if you look at the leading indicator for bulk 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, in terms of the kind of volume trend from 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. 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. Let's not forget, we also will have situations where some suppliers will say, "Maybe you're not the right partner for us," for various reasons. Of course, our goal and our expectation is that we will grow our business overall by leveraging the relations that we had already. For us, of course, as senior management, it's 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.
It's very difficult to, let's say, give you some sort of guidance or timescale on that. 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, I would not pick one segment that really stands out on that. Volume trends versus bulk chemicals, maybe I'm too long in the business, I've stopped trying to understand these relationships exactly. If somebody can tell me exactly what the correlation is, let me know.
I think we continue to work very hard on adding product lines to our business. 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. I cannot give you any guidance on future volume trends.
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.
No. Okay. Thank you.
Our next question is from Nathalie de Brouwer at Degroof Petercam. Go ahead, your line is open.
Hi. Good morning. Thank you for taking my questions. I will stick to the Americas, actually. Well, you flagged the consolidation that is ongoing in the region, and the fact that it's accelerating, and we also see that. I was wondering, you already made two 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 effectively expand your presence in the country and afterwards leverage on your suppliers' relations. The question is more, do you feel that there is some pressure for you to make acquisitions there? 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. We don't feel that pressure. What we want to do is, as you know, we have done in the last few years, three significant acquisitions and two just pretty recently in with L.V. Lomas and with E.T. Horn. It's very important for us to integrate that now. I do not rule out that we will do other acquisitions. 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. We don't feel any pressure at this moment.
Okay. To follow up on that, given that indeed that market is consolidating, do you see actually, an increase in price paid, in terms of multiple over there?
Yeah. I think generally, maybe in the market in the last one or two years, you see a little bit of an uptick. It's a bit there, not only in the U.S. but generally, because of the good economy, you see some increase of multiple. Still in our view, within our, let's say, means. I would say yes, a bit. That's a general remark, I would say. It's not only for the U.S.
Okay. All right. Thank you. Perhaps then if I can have a bit more color on the organic growth that you see in the region. You flagged that substantial double-digit organic growth there. I assume that is the reason why the margins at EBITDA level stayed more or less stable to the 8% while 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. I think that we also benefit very much from a good economy in the region. 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. I wouldn't say it's in one particular segment. It's across the board. I would say favorable markets, favorable economy, plus the strong, as I said before, strong model, that gives us the opportunity to capture these favorable winds. As we all know, nothing is forever. Things change. We still feel very positive about the future.
All right. Thank you. That's it for me.
The next question is from Mr. Rajeev Bardalai of Exane BNP Paribas. Go ahead, your line is open.
Hi. Morning. I just have two quick ones remaining. Just on current trading, could I just touch on that topic again? Obviously some chemical companies have talked about demand conditions softening in October specifically. 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 the third quarter. 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 third quarter, saw a positive trend in demand. There are, of course, 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.
It is sometimes, let's say, a challenge for our logistic people, but we don't feel that is an impediment for growth of our business.
Okay, very clear. Thanks.
Our next question is from Mr. [Davis Peese] of Goldman Sachs. Go ahead, your line is open.
Yes. Hello, good morning. It's actually Mattia Gergole from Goldman Sachs. Three questions from my side. First one is just on the conversion margin in North America, a little bit now following up from the previous questions. You made the 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 a, say, comparable basis? Just trying to understand if there is some cost pressure building up in Americas and 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 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? Third question, just on the organic growth. I don't know how much you're willing, say, to elaborate, but clearly, double-digit organic growth is very strong. Probably much better than what we thought one or two 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, Hans.
Yeah, that was your question about the conversion margin and passing on price increases to the market. If you look at, we bought L.V. Lomas and E.T. Horn, two companies with an EBIT margin of around about 4%, and as a consequence, pretty low conversion margins. 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. What you can see now year to date at the first nine months of this year is that the gross margin in this region holds up to close to 20%, whereas it was last year. Which means two things. That 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.
That we at the same time are in a position to pass on price increases to the market. I missed your second question.
No, I will take that one. I think this is about cost pressures.
Yes.
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. 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. 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. It is a very important factor. I would say freight is. That means also that, to elaborate on that, is that we have to be very diligent in our recruitment policy. Also keep a very close eye on our productivity. The ratios are key.
Freight cost side, we mentioned, I think that is, of course, 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. These people, of course, also expect a career, but also a good compensation package. 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. It's a very good performance. We are not going to promise double-digit growth every year. We will do our best. We are very, let's say, focused on growth, on organic growth. Our history also demonstrates that we didn't have that every year.
Continue to work hard on it. It's now an exceptional year. Let's see what next year brings.
Okay. Thank you very much.
Our next question is from Mr. Henk Veerman of Kempen & 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%. Obviously, there's sizable contribution from synergies from your acquisitions in there. That gets me to the question, when you look at the acquisition of E.T. Horn and you compare it with the acquisition of L.V. Lomas, is it fair to say that your expectation on the sales or on the gross profit synergies of L.V. 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 E.T.
Horn kick in, should we sort of expect the same or at least also a significant contribution from those synergies of E.T. Horn?
Hmm. That's a difficult question, Henk. Listen, I think maybe the best answer is that we want to bring our business to the level, let's say, that you see today or improve it further. That means, of course, that we need significant synergies from our West Coast business. If it's equal to L.V. Lomas, Hans, I don't think we can say anything about that. I don't even know exactly what the numbers are on that. 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.
The options that we have, Henk, is on the one hand, increase gross margin in that business. The other thing that we could do is leverage supplier relations, do more business through the same structure or make the organization more cost-efficient. We try to turn all three wheels, let's see what comes out.
Okay, fair enough. Thank you.
Next question is from Mr. Quirijn Mulder of ING. Go ahead, your line is open.
Quirijn 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 percentage between Horn and Lomas, given the fact that Lomas was acquired last year, I think in September. That's my first question. The second question is about the cash flow. If I recalculate the third quarter against the first half year, your cash flow was something like EUR 55 million, if I'm correct, and that compares to something like EUR 53 million in operating EBITDA. 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%, in gross margin of gross profit was still 28%, the same level as the second quarter, for example.
Maybe you can explain to me what happens with the working capital in the third quarter, because in my view, the working capital was quite stable in that period.
Quirijn, Hans here. Perhaps to first answer your last question. What we typically saw is the growth rate in the third quarter was more or less the same as in the second quarter, so double-digit growth there. You see is that the investment in working capital, mainly driven by higher debtor positions. If you still grow the same level, you stay at the same debtor level, and you don't need to invest further. Most of the pain was in the first half of the year, and your math was right. We slightly reduced in the third quarter. Let's see what that brings towards year-end. I hope, by the way, that we also have to report a lower cash conversion ratio by year-end, because that would mean that we still grow significantly compared to last year.
On the acquisition growth, I think what we announced to the market is the timing of the acquisition and the revenue that we bought. What we see is, last year, we indeed acquired Lomas in September, 1st of September. There we have eight months of acquisition growth and one month like for like. E.T. Horn is, I always need to remember when we exactly closed it, but I think it was-
September.
It was just one month of sales in the numbers that you see.
31st July.
It's two months then.
Yeah.
Two months of sales in the year to date.
Yeah, exactly. Okay.
If you 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 Balboa of APG Asset Management. Go ahead, your line is open.
Yeah. Hi. Good morning. Can you hear me?
Yes.
Yeah. Hi. Thanks for taking my questions. My first question is in terms of your debt position. You are reporting EUR 620 million at the end of the quarter. If my calculation is correct, that means that you have a utilization in your revolver north of EUR 200 million. I understand there's some working capital investments there, my first question could be, are you comfortable with that utilization in your revolver? My second question could be, if you could tell me what the expected 12-month EBITDA contribution of your last two acquisitions, the Horn and Velox, please. My third question actually would be if you are considering to get a credit rating. Thank you.
The utilization of the revolver. I think what you know is that we have a revolver facility of about EUR 400 million. 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 two press releases that we sent out indicating the EBITDA that we bought. That's also what we use in the leverage calculations. We have at the moment no intention to get a rating for our loans. We issued a new bond, our first bond in the second quarter of this year without a rating, unsecured. The placing was very successful. We have the feeling that we can save us the cost of getting a 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, Piet, you said it several times. Just wondering because, 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 do you expect the impact to be less or to be later? That's the first question.
First of all, last quarter, of course, generally, nothing to do with, is always a bit softer because of the December month. I have no indication that the trend that we now see is very different in the last quarter from what we have seen until now. I said before, we are not shielded. We are not totally shielded from anything. If the demand falls out, we also, of course, note that. 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 food and in personal care and in construction, et cetera. As you know, we're very strict in not trying to figure out how the future looks like. I don't want to do that now. I cannot comment on what happened to one of our competitors.
All situations are different and, as I said before, we still look positive to the immediate future.
The question was more theoretical, so to say. I can understand that people would destocking 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. Just wonder if you had some general remarks on that. That's okay. Maybe a second smaller question. Do you know what the direct or indirect exposure is 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.
Yeah.
We don't directly deliver to the car industry, but through their, let's say, the companies that deliver to that, we deliver too. There is a connection. How big that connection is, I don't know. I can't say.
Okay. On EMEA, there have been outages, supply disruptions because of the low level of the Rhine. Have you seen any impact because of that, be it positive or negative?
No, we haven't. What we see, generally, is because of the fact that economies are doing well, that we have seen shortages in certain raw materials. That's more a general remark, but not so much because of, let's say, weather-related circumstances.
Yeah. Okay, just two more small questions. On L.V. Lomas, I'm to be honest surprised to see that your conversion margin is already at this high level, despite the dilutive effect. 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, Mutlu.
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. There's still work to do.
Yeah.
Yeah.
In terms of-- I assume you've done the low-hanging fruit, so to say, maybe more on the cost side. 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?
I would say both, but it's very important for us as well as, of course, is to add business also to our Canadian business or product lines. That's something we are working on. 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.
Final question, apologies for the long list. 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. Could that have a negative impact on Q4 compared to last year?
That should not have a specific impact on Q4 only because what we do is we accrue bonus provisions during the year.
Right.
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 question from Mr. Rajesh Kumar, HSBC. Go ahead, your line is open.
Hi, good morning, gents. 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?
Yeah. If you look at our P&L, Rajesh, what you see is that part of the freight cost, basically the inbound freight, as we call it, so the cost to get the good in the warehouse is part of our cost of goods.
That should then end up in our gross profit. The other part is reflected as third-party cost. What you see there is that on average, we pay roughly out of the top of my head, around about 3% of our revenue to third-party cost, and that is partly freight, partly warehousing, and partly warehousing services.
That even in North America is outsourced.
Also in North America, we outsource logistics wherever we can.
Okay. Understood. That's very clear. Just on the Argentina growth, I appreciate it's a small part of your American business. I noticed that if you calculate organic growth for Americas, it can be skewed by Argentinian exposure. Can you confirm, excluding Argentina, you had basically a double-digit organic growth in Americas, please?
I guess you mean Brazil, because Brazil is the big business.
Yeah. Basically, wherever you see currency devaluations, both Brazil and Argentina.
You refer now to Argentina is for us, very small. Very, very small.
Okay.
The majority of the business in Latin America and South America is in Brazil. When I say the majority, it's-
99
I think it's 99% or 95%, something like that. Don't worry about high inflation in Argentina. I now understand the question.
Thank you very much. I appreciate that.
Ladies and gentlemen, if there are any further questions or remarks, you can still press star one on your telephone. Star one for further questions or remarks. Go ahead.
Okay.
Gentlemen, there are no further questions coming through. Please continue.
Yeah, that concludes, I would say, the call.
Ladies and gentlemen.
Hello?
This concludes this conference. Thank you for attending. You may disconnect your line now.