Good morning, ladies and gentlemen. Thank you for holding and welcome to the analyst call FY 2017 results IMCD N.V. 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 Mr. van der Slikke. Please go ahead.
Thank you very much. Welcome to everybody. I'm sitting here again with Hans Kooijmans, CFO, and we will be glad to answer your questions regarding our press release containing our full year 2017 results. Just some preliminary remarks. We are happy with the achievements of 2017. We have accomplished significant growth of revenue and operating EBITDA, and we have been able to complete a few strategic acquisitions. We have continued as we do in our business to improve our day-to-day operations and at the same time continue to focus on our longer-term strategy. Overall, our business performed well. Our gross profit growth was 12%, of which 6% was organic, which I think it's important to emphasize because there's sometimes a bit confusion, in particular with journalists about what is organic and what is the result of acquisitions. Half of our gross profit growth has been organic.
Our operating EBITDA increased with 9%, 11% on a constant currency basis. Europe or EMEA was an outlier with an operating EBITDA growth of 12%. In North America, we made an important step by acquiring L.V. Lomas. This business fits in our goal of building a national organization in this region. It also gives us an important position in the large food ingredients market in the U.S. and in Canada. Maybe before I give to Hans, I would like also to say that we are optimistic about delivering good results in 2018. Now I give over to Hans for additional remarks on the numbers.
Thank you, Piet. Good morning, ladies and gentlemen, I'm happy to give you a short summary of the 2017 full year financials of IMCD. As usual, I would like to start on page 10 of the presentation that you found on our website. As you could see, IMCD reports another year of growth. In 2017, revenue increased by 11% compared to 2016. This increase is a combination of 4% organic growth, the first time inclusion of acquisitions adding 8%, and a negative impact of Forex exchange differences of minus 1%. The acquisition growth is a combination of the full year impact of acquisitions made in 2016 and new acquisitions in 2017. Forex adjusted gross profit increased by 13%, whereby, as Piet just indicated, organic gross profit growth was 6% and the remainder the result of M&A.
Gross profit and percentage of revenue further improved from 22.3% in 2016 to 22.5% in 2017. There was an improvement in margin percentage in EMEA and Asia Pacific. In the Americas, we saw a 0.2% decrease of gross profit percentage, mainly because of acquisitions made. During the year, we experienced the usual fluctuations and differences in margin percentage in the quarters and between the regions. As you know, these variances were caused by local market circumstances, changes in product mix, product availability, and the impact of newly acquired businesses. The next line, operating EBITDA, is only included for your convenience and as explained in previous calls for asset-light business models like IMCD, it makes more sense to focus on EBITDA development. Forex adjusted operating EBITDA increased by 11% to EUR 162 million. This increase was a combination of organic growth and first-time inclusion of acquisitions.
The operating EBITDA margin slightly decreased from 8.6% in 2016 to 8.5% in 2017. We saw EBITDA margin improvement in EMEA, stable margins in Asia Pac, and some EBITDA margin erosion in the Americas. The conversion margin calculated as operating EBITDA in percentage of gross profit was 38% in 2017, which was slightly lower than last year. The reported decrease in EBITDA margin and conversion margin was mainly the result of the L.V. Lomas acquisition, the company with lower margins than group average. On the next slide, page 11, you will find the financial details per operating segment. The activities in EMEA had another year of strong performance. More positive market circumstances combined with a strong IMCD organization resulted in 7% organic revenue and 8% organic gross profit growth. Acquisitions added another 3%, resulting in total gross profit growth of 11%.
In EMEA, this 3% contribution of acquisitions was the full year impact of the acquisitions of Feza in Turkey and C&S in Kenya, both in 2016, and the acquisition of Neuvendis in Italy in 2017. Forex-adjusted operating EBITDA in EMEA increased 13%, whereby the EBITDA margin further improved from 9.6% to 9.9% in 2017. It is fair to say that most of this reported growth was organic. In the second column, you will find Asia Pacific. In this segment, about half of our business is in Australia and New Zealand, where we realized another good year with solid results and healthy cash flows. The remainder in this region is a combination of businesses in India, Malaysia, Philippines, Indonesia, China, and Singapore. Further, we have startup activities, as explained before, in Thailand, Vietnam, and Japan. All in all, in Asia Pacific, we realized 4% organic gross margin growth and a further improvement of the gross margin percentage from 20.1% to 20.7%. Additional own costs to further strengthen the local organizations and startup costs in this region had a negative impact on operating EBITDA and EBITDA margin. Operating EBITDA and EBITDA margin percentage were flattish compared to 2016.
The next column is Americas, a segment where Forex-adjusted revenue and gross profit increased both with about 30%. This increase was mainly the result of acquisitions completed in 2016 and 2017. In July 2017, we acquired Bossco, based in Houston, Texas, followed by L.V. Lomas in August. Gross profit margin slightly decreased to 19.8% in 2017. This decrease was the balance of the first-time inclusion of acquired companies with on average lower gross profit margins, partly offset by margin improvement and changes in the product mix.
Operating EBITDA increased 13%, and EBITDA margin decreased to 7.9% in 2017. It's fair to assume that most of this EBITDA increase and EBITDA margin decrease is the full-year impact of acquisitions made. In the last column, you will find under holding companies, all non-operating companies, including the head office in Rotterdam and regional support offices in Singapore and New Jersey in the U.S. The overall cost increase is a combination of about EUR 600,000 additional cost in 2017 and a one-off EUR 1 million pension cost saving in the comparable figures of 2016. On the next page, you will find the summary of the P&L lines from EBITDA to result for the period. Some general remarks. Amortization of intangible assets are non-cash costs related to the amortization of supplier relations, distribution rights, and other intangibles.
Most of these intangible assets relate to acquisitions made and our history with private equity owners before the IPO. In 2017, the annual impairment test showed comfortable headroom in all cash-generating units. In the comparable 2016 figures, there was an impairment loss as a result of a reassessment of our supplier base in Brazil. On the line non-recurring items, you will find costs related to M&A activities and some costs related to one-off adjustments of the organization. The development of income tax expenses, and to a lesser extent, the net finance cost, had a substantial impact on the net result for the period. To explain what happened on these two P&L lines, I would like to move to the next two pages. First, you will find a breakdown of the net finance cost on page 12.
As you can see, in 2017, finance costs are about EUR 2 million higher than previous years. The main driver is an increase in currency exchange results, EUR 2.4 million negative in 2017 compared to EUR 1 million negative in 2016, adding EUR 1.4 million to this cost line. Further, we had about EUR 1 million additional interest costs because of on average higher net debt positions due to acquisitions made. On page 14, you will find a summary of our income tax expenses, and we realize that tax calculations in an international group with different tax rates could be difficult for somebody looking from the outside. As a guidance for our tax costs, we always indicated to expect a blended tax rate in the range of 24%-28% of the result before tax, calculated as EBITDA minus finance and non-recurring costs.
As you will notice on the summary on the bottom of this page, IMCD's blended regular tax rate was 25.5% in 2016 and 2017, both in line with the guidance given. However, the overall tax cost in 2016 was positively impacted by reported one-off recognitions of losses carry forward of EUR 6.2 million compared to only EUR 600,000 in this year. Further, the 2017 tax costs include a positive non-cash one-off because of the reduction of the U.S. tax rate that compensated a negative one-off prior year adjustment of more or less the same amount. I hope this summary helps. For further details on the tax position, I would like to refer to our annual report that you can find on our website. On the next page of the presentation, you will find the calculation of cash earnings per share. Thereby, I assume that this is a self-explaining calculation.
It's clear that despite 11% operating EBITDA growth, the development of corporate tax had a serious negative impact on cash EPS growth in 2017. Nevertheless, at the EGM, we will propose a dividend of EUR 0.62 in cash per share, which means an increase of 13% compared to last year. This dividend proposal leads to a payout ratio of 30% compared to 27% last year. On page 16, a summary of IMCD's balance sheet. Property, plant, and equipment slightly decreased and still relatively low because of our asset-light business model. Intangible assets and the related deferred tax liabilities are high as a result of M&A and our history as a private equity-owned company. There is an equity position of about EUR 729 million, covering 60% of capital employed. The two other lines, working capital and net debt, are summarized on the next two pages.
On page 17, a summary of the absolute amount of the various working capital components and these absolute amounts translated in days of revenue. As you can see, the absolute amount increased with EUR 66 million, which includes EUR 63 million related to M&A in 2017. The remainder is a combination of increased business activities, adding EUR 17 million, and the impact of exchange rate differences of minus EUR 14 million. On the next page 18, a summary of our net debt position. The increase in 2017 was mainly the result of acquisitions made. Reported leverage at the end of 2017 was 2.8 times EBITDA. The leverage ratio calculated based on definitions used in the IMCD loan documentation was 2.7 times EBITDA, which was well below the required maximum of 3.5 times as set in the loan documentation.
I would like to finish the financial summary with the cash flow overview on page 19. As you can see, the cash conversion ratio further improved from 92.3% in 2016 to 97.2% in 2017. Main drivers of this increase were the higher operating EBITDA and lower working capital investment, whereby, as mentioned earlier, working capital investments were positively impacted by exchange rate differences. So far, a summary for the financials. Looking at Piet van, I think we are happy to take questions.
Ladies and gentlemen, we will start the question and answer session now. To be registered for a question and answer queue, please press star one on your telephone. If you have a question or remark, please press star one on your telephone. Go ahead. The first question is from Josh Puddle from Berenberg. Please go ahead.
Yeah. Hi, good morning. I've got three questions, please. The first one in EMEA. It looks like the conversion margin was down in Q4 in EMEA. I appreciate it's a tough comp, but if you can give any color on what drove that. The second question is really in North America. I just wondered if you saw any impacts, either positive or negative at the end of the year, following the hurricanes in North America. Finally, I know your views on quantitative guidance, but back at the IPO, you talked about the business being able to achieve organic growth around 5%-6%, which you've done, and I just wondered if that number is still appropriate over the next few years. Thank you.
Hans, do you want to give an answer on the first question? Conversion margin. The conversion margin going slightly down. Yeah, as indicated before, we always prefer to look at the full year picture instead of looking at the individual quarters. There is no specific reason for the change that you see in Q4 other than that we had, I think, a bit more own cost in that quarter, mainly as a result of outperforming the targets leading to higher bonus accruals in the last quarter. Other than that, it was just a regular quarter.
Okay.
On the second question, the hurricane had some impact. It's very difficult for us to quantify. We had, as you know, acquired a business, Bossco, in Texas, which was, of course, also affected by that. Our customers were affected by it. Definitely a negative impact, but very difficult to see or to quantify what it exactly was.
The organic growth guidance. Yes, I think it's important to emphasize that we Because sometimes you get these descriptions of acquisition machine, et cetera, but that we do this very much with the focus of being able to grow quicker than the mature markets. Why do we do that? By optimizing coverage and our structure, for example, in Europe with Pan-European distribution schemes. What we now also try to accomplish in North America by being more efficient, by delivering or decomplexing suppliers channels to markets, by critical mass that enables us also to invest more in IT technology and formulation expertise. The goal of all that is to quicker grow and take share of our competitors. Our organic growth guidance is still in that range of 5%-6% per year.
It's very clear. Thank you.
The next question is from Mutlu Gundogan from ABN AMRO. Please go ahead.
Yes. Good morning, Piet. Good morning, Hans. Three questions, please. The first one is on pricing. What we see is that there is significant inflation in a lot of upstream chemicals also due to outages and things like that. Obviously your supplier base is much more downstream. Can you tell me what kind of inflation you are seeing at the moment and what your expectations are? How does that differ between life science and material sciences? That's the first question. The second question is on Asia-Pacific. You prefer to talk about the whole year. If I look at the whole year, it looks like your volumes were probably down for the year. Obviously that's clearly below industrial production. Can you tell us what is driving that? Thirdly is about currencies. These have become a headwind now.
Can you tell us what at the current spot rates you expect the impact would be on operating EBITDA for the year?
Okay, Mutlu. On the first question, pricing. Inflation, yes, we see, let's say, the need to increase pricing. Again, we have, of course, as you know, very diverse product portfolio. We work in many different market segments, but it is safe to say that, in many of these segments and many product lines, we see price inflation and the need to also increase our prices. I think you can see also in our ability to keep our margin, that we are able to pass these price increases that we get from our suppliers through to the market. Differences between life science and the industrial products. Yes, to a certain extent. In particular, of course, products that are more petrochemical related are more subject to oil price changes. Although we are quite far from that, let's say, in the chain.
On the other hand, there are also many life science products related to energy or to other factors. The difference between that is not huge. I think it's safe to say that which we do not explain and cannot explain every time, but are also subject often to shortages in the market, shortages from our suppliers that do not help us, of course, or force majeures or these kind of things. This is a factor in our business and the shortages are, of course, now a bit more than usual because economies are relatively doing well. APAC, very diverse picture, of course, that makes it difficult for us to answer, let's say, in a generalistic manner. I think generally what we can say about Asia is that we're doing quite well in China and India. We are able to grow our business.
Where we see, let's say, ups and downs in Southeast Asia, where we are smaller in individual countries, more quicker subject to changes in demands of certain customers or changes in the ability of suppliers to deliver. What our strategic challenge will be is to, let's say, to become larger in these Southeast Asian countries. To be able to not immediately feel effects, either positive or negative, of these individual movements of demand or supplies. I would, let's say, to conclude a specific trend in APAC. I think that we are on a good track. As I said, in certain Southeast Asian countries, we need some more business. That's a challenge that we face in the years ahead. I think as Hans also indicated, we invested in Japan. We start there now in life science, in the pharma industry. Very positive about it.
It's also startup costs that we face. APAC is a mixed picture, where we'll further work on increasing our presence. Then the last question is currency. I don't know, Hans, if you have your crystal ball here. I think, Mutlu, Hans, it's fair to say, if you look at where currencies are today versus the euro compared to the Q1 of last year, the same period, then currencies like the US dollar, the renminbi, also currencies like the Aussie dollar are lower at the moment than where they were last year. There will be a bit of headwind, but difficult to calculate how much the impact will be at the moment.
Okay.
That has the lack of visibility in my crystal ball.
Yeah. No, that's why I asked at current spot rates.
Yeah.
Assuming current spot rates prevail.
Yeah, I did not do the math on that, to be honest.
All right. Maybe to get back to something that you mentioned, Piet, on the shortages. Did you experience shortages at certain suppliers?
Yes. That's not unusual, because we always have that, but I could say that it's now because of the demand in the market that is more frequent than usual.
Okay.
It sometimes, of course, also requires us to take more stock, in cases where we can foresee that a shortage will come or, for example, maintenance will take place, we take more stock. It's always a picture that requires a lot of improvisation. We see more shortages now in this market than normal.
Yeah. Sorry to go on about this, we know, for example, that BASF has had a fire in its Ludwigshafen plant. Did that impact you?
Yeah, that had also a bit of an impact, yes.
Okay, thanks.
The next question is from Nathalie Debruyne from Degroof Petercam. Please go ahead.
Hi. Good morning. Thank you for taking my questions. More general questions on my side. If I can start with the Americas. You're basically trying to replicate your EMEA business model and transpose it to the U.S. If I may, how long do you think it can take to get to the level of efficiency that you have in EMEA? Do you think that you can reach the same margin percentage that you have here in Europe, in the U.S.? Are there structural differences that would prevent you to get there? That's the first question. The second one would be, again, on Asia Pacific. You start up operations in Japan, Vietnam, Thailand. Do we still need to expect startup costs in 2018, or are you done with that? When do you think it can start to actually show contribution?
Okay. Thank you, Nathalie. On the first question, we, in particular, speak, I think about North America when you ask about replicating business model. Yes, I think what you see in North America and the U.S. in particular, is in specialty chemicals distribution for a long time, quite a fragmented approach. Local, regional players. I think you see for the last few years, a change in the sense that consolidation is taking place. We definitely feel that the way forward for that huge region is also to build an organization that can nationwide serve the market. Of course, that requires, like it did in Europe, it requires your presence in all local markets, and that requires, sometimes that we need to do acquisitions to fill gaps, regional gaps.
We made huge progress with the acquisitions that we did, in particular, also, of course, again, with L.V. Lomas, which gave us more presence also in the Western United States. We are not finished there. How long does that take? That doesn't totally depend on us, because we need also the right targets, but we are relatively optimistic that we can do that quickly. Maybe it's also a good moment to say to all the listeners that we are very much always in this business for the longer, let's say, view. We know the pressures of short-term results that we need to deliver, but we really want to build a company that has quality, and has a business model that can generate growth. Can we reach the same margins that we have in Europe? I definitely say yes.
I think there's efficiency gains to be made in many of the companies that we see in the U.S. and Canada. Yes, it's possible. There is, let's say, a slightly different model here and there, compared to Europe in terms of how you can reach your margin. I have the feeling that it is possible to significantly improve, nevertheless. On Asia Pacific, yes, I think next year we will have some start-up costs as well, I hope that we can show also growth.
Okay.
I hope.
Yeah. That helps for the Americas and showing some growth, as from 2018 in Asia PAC with the businesses that you were starting up. Do you think that we can expect that actually the new start of costs will be offset by contribution in terms of profitability from these new businesses?
If we're very lucky, yes. I think we will continue to invest. Basically what we do, of course, is trying to reach such a credible size that we generate quicker growth and confidence of suppliers to work with us. What we do is adding people, and covering markets, and that, of course, requires initial costs. It's difficult to totally predict if our business will offset that investment as well. We do our best.
All right. Thank you.
The next question is from Srinivasa Sarikonda from HSBC. Please go ahead.
Srini from HSBC. A couple of questions for me, please. One on pricing. Could you give us some color on how is pricing environment and how is the passing through happening right now? I understand that it happens in a bit of phasing and can we understand where we are right now? Also on Americas, excluding this acquisitions impact, could you give us some color on the gross margins, whether they're improving in the underlying business or are stable or what's happening there?
On pricing, I think I already elaborated on that before. First of all, I think it's very important to understand that our, let's say, organization is very much driven on maintaining and increasing margin. There's a great alertness on pricing in the sense that if we get high price, that we pass that through to the market. Again, on the basis of what you see in our gross margin, you can also conclude from that we have been successful in that. Not always easy. For example, in countries where currencies go down, for example, in United Kingdom, of course, they are faced with quite significant increases if they buy in euros or dollars. They have been very successful in passing that through. As a general rule, our organization is very focused on as quickly as possible passing that through.
Of course, we have competition and local competition sometimes that prevents that, but by and large, we have been able to do that. As a general remark, we see, let's say, price inflation, of course, in a broad array of our product program. We need to be very alert on that. On the other hand, it's also an opportunity for us because in the end, increasing prices is good for us.
Yep.
Your question on the Americas, and in particular, I think North America, I think we also reported that, Hans. Because you asked our performance excluding acquisitions, was flat. I would say flat-ish. A slight growth.
There was a little growth in the growth region, a bit flat and -1% organically on revenue. We made some investments in additional application labs, strengthened the structure a bit. All in all, I think the business in the Americas, excluding the acquisitions, was flat compared to the year before.
Okay. The investments might have in like affected your conversion rate. At the gross profit, you're saying you're broadly stable.
No.
Exclude that.
No.
Yeah. Okay. If I could, one more on inventory turn. It's tough if we include acquisitions to see what's happening with your inventory turn. Could you give us some color? I mean, excluding this acquisition impact, what's happening in the underlying inventory turn?
The main driver of the slight pickup in stock turnover days is the result of the acquisitions made. Mainly driven by the acquisitions in the Americas, but by the companies that we bought, not only operate on a lower EBITDA level, but also use a bit more working capital than the group average. Something we need to work on. The other thing that was mentioned earlier by Piet, every now and then, if we foresee shortages or shutdowns in the market, then we prepare ourselves to take a bit more stock on the books than what we should need for the short term. That also had a little bit of an uptick at the year-end figures.
Got it. Thank you.
The next question is from Rajesh Kumar, also from HSBC. Please go ahead.
Hi. Morning, gents. Rajesh Kumar from HSBC. Just following up on that point on pricing pass through all of that. Actually, in a much simpler way, could you help us understand how scale enables you to do that better competitively? I mean, you talked about scale. You need to build scale in some of the Asian countries. You've talked about desire to gain scale in the U.S. Broadly speaking, how does scale translate to either cost or pricing or price pass-through benefit in your business model? If you could get some color, that would be very helpful.
I'm trying to make the connection between scale and prices. Basically,
If-
Yeah.
If I rephrase it, say, for example, Srini and I get bored of working at HSBC and decide to start a chemical distributor, would we be buying at a similar price as you guys from any of the suppliers?
Oh, that's No. I think it's safe to say that we do not have pricing power. Our business is not centered around trying to, let's say, get reduction in price on the basis of volumes or whatever. We have close relations with our suppliers. As you know, these relations are mutually exclusive for certain regions. What we do is to, first of all, we need a margin. We express margin expectations. Of course, the supplier needs also a certain pricing. In the end, the supplier determines the pricing that he will charge us, and we are free to price the product in the market as we see fit. Right? In most cases.
Yeah.
That is a fine balance, in the sense that if the supplier prices his product too high to us, then we have difficulty of selling that against the acceptable margin. Basically, we very often work from price lists that suppliers give us. If you would start a distribution company, with a bit of luck, you would get the same price list. It's not so that we I think in commodities, we are not a commodity organization, so we do not buy large volumes that gives us a lower price. We are the extended arm of suppliers for specialty chemicals or specialty food ingredients. In that sense, we both have the same interest, the supplier and we, namely to optimize the way we serve the market.
It's maybe a bit of a long answer, but I think the notion of pricing power really is not valid for our business.
Okay. If we take that point, in theory, if you go with L.V. Lomas to a new market or M.F. Cachat, as you did in the U.S., you should be able to convince your suppliers to move to these markets sooner than later. Could we get some examples of how that worked between U.S. and Europe when that happened?
Yes, that's also on a general level. What we do, of course, if you look at the chemical industry or the food ingredient industry, it's an industry that is working most of the time worldwide. The players that we see in the American market or in the European market or the Asian markets are very often the same. What we try to do is, of course, to leverage our knowledge, our relations also that we have in the chemical industry to convince, like our competitors also do, to work with us in other regions as well. For example, if you take our pharma markets, we work with the major pharma excipient producers almost everywhere in the world. Why?
We have built up so much knowledge of that market that our suppliers, our partners, trust us to work with us also, let's say in regions outside of Europe. What it is, by and large, is to be able to have such a good business model and such a strong trust between supplier and us that they also want to work with us in other areas. That is very anecdotal, case by case. I don't want to go into that, but it is part of the success of our business is also linked to the ability to convince suppliers to work with us in territories, where we didn't work before.
That's super helpful, actually. If we just take that, this is the last of them, I promise. When you speak to your suppliers then, what is your typical criteria of success, and how do they remunerate you for that? Is that through a supplier rebate at the end of the year? How do they define success and how do they pay you for that?
Okay. First, let's say, how do you convince suppliers? That's of course very much based on how deep your market knowledge is, how transparent you are, how your IT systems work, how you can link with the supplier easily, how your formulation expertise is organized, et cetera. All kinds of intangible quality elements. We compete on quality, basically.
The reward is in the end then, first of all, that we are, let's say, the sole partner of that particular supplier in a region. If we have top products, we have an ability to make money. Sometimes that's done with rebates, sometimes it's just we work together in the market, sometimes it's a bonus. I think the most important thing here is that we work mutually exclusive in a certain market and have then access to premium products if we align with the winners in the market. That's of course what we want. The quality of our business is also to a certain extent determined by the quality of our partners.
The margin that we make is of course the difference between the price that we pay to the supplier and what we charge to the customers.
No.
That is the most important part of our income.
Appreciate that. Obviously there's a vendor rebate and bonus element.
Yeah.
In that margin.
No, the rebate and the bonus element is limited.
Yeah.
If you look at the total gross margin that we make, the percentage of bonuses or rebates is really limited in there. The biggest part, the majority comes from the difference between the purchase price and the sales price.
Understood. It's similar to basically, if you think of the EBITDA margin, it's similar to EBITDA margin, not gross margin, isn't it? The rebates.
Yeah.
Yeah. Thank you very much.
Thanks.
Ladies and gentlemen, you can still ask additional questions by pressing star one on your telephone. Go ahead. For additional questions, star one on your telephone. The next question is from Quirijn Mulder from ING. Please go ahead.
Good morning, everyone. A couple of questions from my side. With regard to Japan, you're building up their sales force and an organization, but you're not doing any business yet, as I understand. Is that correct? How long do you think you are going to invest? Because I think you started already in 2016 with it. What is the exact status of the Japanese organization, and when do you expect something to happen there in terms of revenue generation? My second question is about the U.S. With regard to Lomas, how do you look at the portfolio, the product they sell? Are there changes underway with regard to animal food or other things where you think, "Okay, their margin, or that's not my piece of cake." Maybe you can elaborate on that as well.
Okay. First question, Japan. Yes, we sell. We have business there, mainly in pharma, but also now in one or two other segments. Yes, we have business, still modest. On the U.S., Lomas, good product portfolio. We don't intend to change that. We have large relationships in different market segments, and we're very positive about that. What we will try to do is to increase our presence also in the U.S. market with the Lomas product portfolio and, optimize, let's say, the organization of Lomas in order to increase also the operating margin. We're very happy, I would say, with the supplier base of this company, and we do not intend to make any significant changes.
Suppliers are still with you in terms of they did not step out because of the acquisition of Lomas?
No. Yes, they are still there. That's an important question because that's, of course, always a risk when acquiring businesses that change could trigger change. That has not taken place here.
Okay. Thank you.
Anybody else?
The next question is from Mutlu Gundogan from the ABN. Please go ahead.
Yeah. Sorry, guys. Sorry to bother you again. Again, on pricing. Maybe a short question and short answer. What is your average contract length in pricing?
I think that's almost per order, Mutlu.
On the sales side.
On the sales side.
Oh, when you talk about the pricing list that you have, how quickly do those-
Oh. On the supplier side. Yeah.
Exactly.
Yeah. Okay. Hmm. That's per product range, different, but I would say, it's at least a month.
Okay. Correct me if I'm wrong, but if I look at most pesticide chemicals, they usually have longer contract terms. You as a distributor, you have much quicker changes of prices, so to say, from the supplier. Is that a correct conclusion?
Yes, I'm not sure what you mean with longer contract terms. I think custom in itself, we do not have, and I think also not, to a certain extent, the industry for a certain period. The contract terms, I think in our industry, are not really very long. Our contract terms with our suppliers could be a month, could be three months, could be even shorter. It's a very diverse picture. What we established with everybody is a, let's say, a controlled and organized way into change pricing.
Yeah. Okay.
It's not something that you, let's say, should be surprised by because we, of course, have also our commitments.
No, it's a bit of education. I never asked the question.
Sure.
thanks for that. Then maybe coming back to Asia Pacific, when you said that you will continue to invest in the region so that you will win contracts, obviously, that brings the question to mind, have you missed out on certain contracts because you were lacking certain size in certain countries?
Because if you're not really, let's say, significantly present, then you are not an attractive partner. Yes, we certainly have missed businesses because of the fact that we are too small or not present enough. Yes.
Is that region comparable to the Western region, so to say, EMEA, Europe? Here, I think we already think in European contract. Is Asia at that level already?
No, not at all. It's far away from that. Of course, you have all kinds of, not only different countries, but different currencies, different custom regimes. There's no real cooperation between countries or one market. We have sub-markets, different markets everywhere. There's a tendency now maybe from suppliers to say, "Well, maybe I want to work in a regional way with my distributors." Let's say that has no similarity yet with Europe as one market or the U.S. as one market. It's far away from that.
Yeah.
Local markets are really quite different there.
Okay. Let me then finish with a boring question. Hans, you already mentioned tax. Underlying tax rate, the same year-on-year. With the tax change in U.S., do you expect any change there for the next few years?
Basically, what we saw this year is a one-off EUR 2 million, we'll call it windfall, but income in the P&L, non-cash as a movement in the deferred tax liabilities. If the tax rate comes down there, that will have a positive impact on the tax that we need to pay in the Americas.
Yeah. Any guidance that you can give on that? I know that some of your peers are doing that.
No. I think it's fair to say that the bandwidth that we shared with you, the 24%-28%, is still valid. At the moment, we are at 25.5%. Let's see where we land next year.
Yeah. Okay. That's clear. Thank you.
The next question is from Milou Dunk from Goldman Sachs. Please go ahead.
Good morning, gentlemen. Just one question from my side remaining on the U.S. We've been seeing signs and hearing stories from other distributors that there is a shortage on the driver side in terms of transportation and logistics and that they're seeing a squeeze on costs. Are you facing similar issues and how is that working in terms of passing this through to your customers?
We haven't seen that, Milou, and I think maybe it's more valid for those distributors that are really transporting big volumes. We have not seen this yet. We have seen some price increase, but not so significant that it impacts our business.
Okay. Understood. Thank you.
Ladies and gentlemen, if you have a question or remark, you can still press star one. Mr. van der Slikke, there are no further questions.
Okay. Thank you very much.
Ladies and gentlemen, this concludes the event call. You may now disconnect your line. Thank you. Have a nice day.