At this moment, all the participants are in the listen only mode. After the presentation, there will be an opportunity to ask questions. I would like to hand over the conference to Pete van der Slijken. Please go ahead.
Good morning, everyone. I'm sitting here traditionally with Hans Kormel, CFO, and we want to give you an opportunity to give to ask questions about our Q1. Traditionally, also in the Q1, we do not give an extensive presentation as we have after this call our general meeting. So we don't have a tremendous amount of time. I just want to go through the highlights with you as we also published them in our press release.
First of all, I can confirm and repeat again that we are very pleased with the results in the Q1. We had in all regions double digit growth. And in particular also our organic growth was strong, so good results. Gross profit growth of 21% 27% on a constant currency basis. EBITDA increased with 17%, which is 23% on a constant currency base.
And then, of course, also net results even 25% on a constant currency base. Cash earnings per share, 20% growth. If I look at the different regions, I won't repeat for every region the results. Maybe a few words about the Americas. As you know, of course, in September, we acquired LV Lomas, which was a significant acquisition.
It's a
we're very positive about the developments. We have taken steps to integrate businesses and we are also working hard to increase our operating margin, which is with LV Lomas a bit lower than our average. But we see very, very good possibilities to bring them to a level that we find satisfactory. So looking back at the Q1, very positive. And with that, I would like to give you the opportunity to ask questions to either Hans or myself.
Ladies and gentlemen, we will begin with the question and answer session now. The first question is from Ms. Sarikonda from HSBC. Please go ahead.
Hi, this is Srini from HSBC. A couple of questions for me, please. First on Americas conversion rate. Could you give us more details on the impact on margins from inclusion of the newly acquired companies and the impact from currencies? And is there any price pass through phasing issue you're facing there?
And second on Asia Pacific, you've been doing some investments in this region. Are there any further investments planned? Or is it done now? And are you seeing a return from those investments in the region?
Thank you.
Okay. Thank you. First about the Americas, in particular, your question about margins and pass through. We don't have real problems to give increased purchase prices through to our customers. I think we very often do not have that problem, also not elsewhere.
LV low mass as we also reported last year has a significantly lower had a significantly lower operating margin mainly due to a higher cost base. And we are looking at that step by step to bring the productivity of this business on the level that we want. So if you look at our, let's say, legacy U. S. Business that is doing great with very satisfactory margins.
Lomas, again, is a fantastic company with a great supplier portfolio and we just need to optimize the organization more. So I wouldn't say I saw your note this morning where you said the problem is the margins. I wouldn't characterize it this way. I just want to say it's just a great opportunity for us to increase margins to the level that we are used to. I think on Asia Pacific further investments, as a general remark on that, I can say that we always are looking for possibilities to increase our business and also in Asia Pacific.
So if possible, we will also there further invest in possibilities to grow our business. Does that answer your questions?
Yes, I understand. And one follow-up on Americas margins. LV Lomas margins, you said significantly lower.
Operating margins, operating margin, right?
Operating margins, yes. So can you give us some numbers on that, like what grew the margins and when do you see the margins to come back to the IMCD average levels?
Yes. Come back is the wrong expression because we never had them. But what you need to understand in our business, in the Specialty Chemicals Distribution business that we have huge differences between companies outside IMCD and sometimes inside IMCD in terms of what margins operating margins are. If we look at companies that we try to acquire, we see a lot of difference for many reasons. With Elvie Lomas, the operating margin was more or less half of what we on average had ourselves.
And we
are increasing that already. And we have very, very there's no real reason for that, I would say. So we will because gross margins are more or less on the level that we look for. We could increase that even a bit, but it has to do with efficiency, with management strength, etcetera. So we see but we need time for that.
So we see in the future good possibilities to increase that margin.
Understand. Thank you. Thanks a lot.
The next question is from Silvia Barker from Deutsche Bank. Please go ahead.
Yes. Hi, good morning. Good morning. Firstly, on growth, obviously, a very, very strong quarter in terms of the organic gross profit growth. And it looks like that was definitely double digit in all three regions on an organic basis.
I don't know if you can give us a steer where that was actually North America kind of organically. But just to understand kind of what drives it because obviously it's quite strong acceleration versus Q4. Could you I know you don't like talking about kind of the tonnage or the volume versus GP per ton, but was there particularly strong development on either of the 2? So volume versus kind of the value per ton that you saw during the quarter? Or were there any supply relationships that perhaps drove that high as well?
Okay. Let's first agree that we would not speak about value per tonne. We never do that and because we don't know that. So that's typically something you discuss with
Per kilo rather.
Our colleagues, yes, even per kilo, which in itself is more relevant maybe. But because of the diversity of our business, where we have business of less than €1 per kilo and €40 per kilo, it's very difficult for us to have meaningful discussion about that. I think your question is more about is it price driven, volume driven? I would say both. I think we benefit, of course.
Let's not fool around that also from a very healthy demand and economy. I think everybody sees that in Europe and in elsewhere. So both volume and price go up. And on top of that, we have a very strong product portfolio and we try to of course increase that portfolio every day. And we benefit during favorable economic circumstances.
I'm not sure
And just on so have the price element, I guess, been particularly strong given we have seen perhaps prices obviously go up on the specialty side relatively strongly. Would you say that you've been able to pass more of that through maybe sequentially? I know it's difficult to kind of talk about in near term,
but is
that something that you would pick out or not?
Silvia, what you mathematically see is that our gross profit percentage remained stable compared to the Q1 of last year. So that means that if there would have been a price impact there that we have been in a position to pass it on to customers. And Pete said before, it is a combination of the healthy economic environment, strengthening the supplier base and selling more.
Sure. And in terms of the supplier base, did you see any I don't know, were there any supplier agreements kind of ramping up strongly?
Yes. Well, we don't speak about individual supplier arrangements unless we really need to, but we see very good possibilities and very positive conversations with suppliers to increase, let's say, representation both here in Europe and in the Americas. So also from that angle, business is doing well. And what we see, of course, also in North America is the benefit that we have of covering a significant part of North America now. And LV Lomas helps us also to increase our business because our coverage has increased.
And that's the credibility from us as a North American distributor has, of course, also increased. So that helps to benefit from supplier outsourcing.
Okay. Great. And would you be able to just confirm the North American kind of organic growth rate? Just because it's difficult to obviously base to split out exactly what the LVLOMAS contribution would have been.
You indicated double digit in all regions, and that is true, organic growth.
Okay. Great. And then I've just got 2 very quick ones. 1, on LVLOMAS itself, have you identified any agreements or any areas of the business that you would need to kind of get rid of or deemphasize over time? Or are you happy with everything that you've acquired?
And then lottery, just on the interest, you have refinanced again. Would you be able to give us maybe an interest guidance for the year please? Thank you.
On the first question, I think we are happy with the business as is in Alveolomars. And so there will be no major, let's say, changes there. On the interest. Now on the interest,
I think what was indicated in the press release is a one off cost related to the refinancing on the one hand to allow you to make a guess what you could expect in the Q2 plus the interest rates of the new facilities whereby the bond is of course fully drawn. So that's 2.5% on top of the €300,000,000 and that is fixed for the upcoming 7 years. And on the revolver, as you could calculate back from the reported leverage, I might understand that most of it is undrawn. So the combination will result, excluding that one off amortization, to more or less similar interest cost as what we saw last year.
Okay, great. Thank you very much.
The next question The next question is from Quirijn Milder from ING.
A couple of questions. So we have no clue on exactly what the organic growth is, but there's certainly an acceleration in this Q1 against the Q4. Can you give me an indication of what the seasonality effect is in the U. S. And in Canada?
Because we have no because it seems to me that there are some seasonality there as well and maybe more than before. The second question about the cash conversion. €18,000,000 put into the working capital. Is that a one off? Or is that something which you is that because of the good business?
Or is that something we are going to see in the second quarter as well?
Okay. And maybe the first question, seasonality. And specifically about the U. S, I don't think there's a specific seasonality in our U. S.
Business. I think generally as an IMCD, I would say the 1st quarter 2 quarters are stronger than the second 2. That's I think what we always mentioned. So there's no specific seasonality in the U. S.
Okay. That's not changed because of the acquisition of Lomas.
No, no. And then coming back on your cash conversion, Klirijn, I think it is the main driver is of the increased working capital is increased debt positions. And of course, when you sell more, your debtors move up slightly. And as a result of that, you invest more in working capital. Suppose that our sales level will stay on this same basis, then I think you should consider this as a more or less as a one off.
Okay. And then my final question about Brazil. Can you give me an idea about the situation in Brazil because it wasn't some sort of headache for you in 2017?
Yes. So Brazil is, as you know, is constituted by 2 different activities. 1 is mainly pharma and the other is very much focused on the industrial markets like coatings and plastics, etcetera. On pharma, we continue to perform very strong. And so that's a business that's doing very well.
On our industrial business, we make very good improvements in optimizing and improving the business. We are not still not there where we want to be, but it's going into the right direction. So it's, let's say, moderately positive about Brazil. Although the circumstances in that country, of course, remain not easy because of the not only the political situation, but also the currency situation and economic situation. But by and large, better than the let's say, in our business more improvement than last year.
Okay. Thank you.
The next question is from Nathalie de Breiner from Degroof Petercam. Please go ahead.
Yes. Good morning. Thank you for taking my questions. Most of them have been answered. So perhaps I will switch to something else, which is not linked to your results, but really more to a general market trend.
I read recently that some chemical manufacturers, BASF and Covestro among others, are actually starting to move to online distribution channels, a. K. A. Alibaba in Asia. And I was wondering if you would see that as some kind of a threat to your business or if to you that is some kind of a nonevent and you don't believe in it.
You have to be very careful to say that you don't believe in it as many, many other businesses have experienced. Of course, we look at these issues at digital solutions also very carefully. We have seen already for a long time, even after the let's say, the first Internet, I will say, push, let's say, in the early 2000s platforms and sales platforms for chemicals. We have seen that for a long time. And they have never gone away and they have never totally took off.
We are very well aware that also chemical producers are looking at these possibilities, in particular for standardized volumes and standardized products. And we feel that in specialties that is not the case and is still difficult. Nevertheless, of course, we invest ourselves also quite a lot in digitalization in how can we make lives of customers easier, How can we help them to make decisions? And how can we also transactionally improve our offering? So a threat, no.
But on the other hand, we're also very much aware of improving our model, our service level, and we're working hard on that. So I hope I can't give you let's say a very fixed answer. Well, this is going to happen. I think nobody knows. But we as in our role with our formulation expertise and our technical backup of to help customers formulate products, we don't see that as an immediate threat.
Okay. So meaning that your added value is much more in formulations, which we were already aware of. But then I'm wondering where are you with regard to the additional labs being built, especially in North America, because I understood this is pretty important and that with a broader presence, actually, you are able to gain suppliers relationships. So how is it evolving in this regard?
Yes. Well, we have so when we invested in the U. S, there were no labs. We have now a coating lab. We have a personal care lab in the U.
S. We are opening a pharma lab in the next few months in the U. S. And with Loma's, we have a very significant food lab in Toronto, which we will expand further. And that will be a very good and sophisticated aid for our food business, which is quite significant in North America.
So yes, we have invested quite a lot in that.
Okay. So you keep on investing in that.
So could we expect
to see more labs coming?
Well, yes, depending on the needs, yes. It could very well be that regionally we have to also invest. But as I just explained, already a significant investment. And if that cannot fulfill, let's say, the needs, then we will invest further.
All right. Thank you. Very helpful.
Next question is from Peter Olofsen from Kepler Cheuvreux. Please go ahead.
Good morning, gentlemen. Few questions left. First on the Americas, based on what you said about Brazil, is it fair to say that when it comes to the organic gross profit growth that North America grew a bit faster than Brazil?
I don't think so.
No. No.
So generally very happy also with the growth in Brazil.
So both likely seeing double growth double digit growth then?
Yes.
Okay. Then on supply conditions, I think in the full year earnings call, you talked about some disruptions and forest maturities last year.
Have you
seen that ongoing? Has it normalized a bit? Or is it still from time to time causing some headaches for you?
It does. And it is, of course, also, let's say, it signifies also the healthy state of the economies. We still see shortages in certain areas and under capacity, so to say. So yes, it's a headache. In some product lines, we would have we would love to have more products.
That's a bit the nature of the business. So it's not something we complain about. It's not, let's say, a big issue, but it is, yes, for certain of our market segments and product lines, we still face that.
Okay. But it has not been to such an extent that it has really limited your ability to grow in certain segments?
No. But we could have well, in the end, of course, if you don't have product, you can't sell and you don't grow. But I mean, it's not something that I want to now highlight here as a major problem. But of course, for individual product lines and market segments, it can be very it can be a nuisance. Okay.
But I think it's okay.
Okay. That's clear. Then on the holding costs, I noticed they were up a bit from Q1 last year. Should we expect holding costs in the coming quarters to remain at the same level as in Q1? Or could we see some further increases there?
That is difficult to predict, Peter. But what you see when the business is growing, we also strengthen support functions that we have centrally. And so there is a relation between the size of the business and what we do centrally. And another thing that you see Pete just referred to digitalization, we also invest there capacity and that leads to some additional cost that we
have in holding
at the moment.
But as you grow the business over time, we might see some increase in the holding costs over time as well. But maybe not major increases, but at least some.
No, no.
Yes. Okay. And then my final question relates to EMEA, where we saw pretty good growth. Were there end markets or countries that stood out? Or was the growth pretty broad based there?
Yes, it's broad based. It's many different, let's say, not only regions, but also market segments that do well. Pharma stands out as doing very well in the Q1. But generally, that's not a picture that is different from other years. No, I think that most of Europe has performed very well.
Okay. Thank you.
The next question is from Philip Richard from Goldman Sachs. Please go ahead.
Hi. All my questions have been answered. Thank you. Okay.
Okay. Then the next question is from Rajesh Kumar from HSBC Bank. Please go ahead.
Hi, good morning.
I'm hearing from some of your competitors that the suppliers are demanding for better payment terms in the sense the payment cycle has been shortened by some of the suppliers. Is that something you're seeing in your end of the market, specialty chemicals, that sort of thing? And the second one is a follow-up on the Alibaba question that have you ever tried to estimate what proportion of your suppliers' products do you distribute versus what they distribute directly? And how much of the Alibaba thing is sort of replacing their own networks versus 3rd party distributors?
Well, first question is about shortening payment terms. As a trend, we don't see that. So of course, we have discussions always, but we don't see a difference from past years. On the Alibaba question, And basically, what you I think you started to ask what percentage of is direct.
Yes.
Yes. I think these are relevant questions and also not easy to answer. I can only refer here to reports that have been done in the past by consulting firms like Boston Consulting. And that always centers let's say, what is through the distribution channel centers yes between 15% 20%.
Understood. So
Yes, 15% of between 15% or 25%. I mean it's so that means that 80% is more or less done direct.
Okay. So it's clearly an opportunity for them to probably expand a bit more into new markets through 3rd party channels, the bits they were doing in house. So is Alibaba competing with the in house bit or is 3rd party distributor? Do you have any sense around
No, not yet. It's too early. And in the end, you need to see also from what is the actual benefit for the customer to buy through Alibaba or direct or through the 3rd party channel. I mean, it's it must be also a need to look at we should be only blinded by these names because in the end, we talk about chemicals with a lot of additional, let's say, services that need to be done to be able to deliver chemicals and to handle chemicals. So there's a lot of, let's say, dollars necessary.
It's not a book or an appliance that you sell. It requires a lot more care. So it's I don't think it's so easy to just do it to just throw that on our Alibaba platform or an Amazon platform. But time will tell. I don't know, about All right.
There are no oh wait, there's one question coming in. Peter Olofsen from Kepler Cheuvreux. Please go ahead. Nobody. Mr.
Olofsen, you can talk now.
Yes, sorry. Yes, I had a question on APAC. Could you shed some light on what you're seeing in Australia and New Zealand in terms of demand trends?
Positive, but not exuberant. So some growth versus last year, but not the same let's say, not in the same league as we see in Europe or the U. S.
Okay. Because you on a constant currency basis, the gross profit was up 10% in APAC. And I don't think there was any M and A impact, so it's all organic. So then it's fair to assume that, that Australia and New Zealand, which is about half, is growing single digits and the other part of APAC is growing double digits?
Yes. No, that's a fair assumption.
Okay.
Mr. Chen, there are no further questions.
Okay. Well, thank you very much. Then I think the work is for me. Then I thank everybody and wishing everybody a fantastic day, glorious day, hopefully on the beach. All the best.
Ladies and gentlemen, this concludes the event call. You may now disconnect your line. Thank you. Have a nice day.