Good morning, ladies and gentlemen. Thank you for holding, and welcome to the IMCD Analyst Call First Half Year Results twenty sixteen. 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 call to Mr.
Peter van der Slijken. Mr. Van der Slijken, please go ahead.
Yes. Thank you very much. Welcome to everyone. I'm sitting here with Hals Coriman, CFO, and we will be happy to answer your questions regarding our press release of this morning containing our half year results 2016. Our half year results were satisfactory.
Our operating EBITDA grew with 26%, which is 31% on a constant currency basis. Other highlights for the first half of twenty sixteen are that our gross profit growth was 20% to €194,000,000 which is a growth of 25% on a constant currency basis. Our net results, as you can see, by the way, on Page 7 of our presentation, grew 28% to €54,000,000 Cash earnings per share increased 25 percent to €1.01 per share. And we are also happy with the acquisition of the company Muzsla in the U. S.
And also Puerto Rico, which we completed on the 1st July 2016, a business that is focused on the pharmaceutical market. The results by operating segments in EMEA and the Americas are in line with what we reported after Q1. And I'm happy to report that Asia Pacific improved its results in the second quarter. The 1st 6 months have been positive, but we are cautious about the second half of the year. The post Brexit effects and the developments in Turkey were clearly noticeable in July.
Despite these negative factors and a volatile and generally soft economic environment, we continue to expect that EBITDA will grow in 2016 as a whole. And now I want to give the word to Hans Kormans with additional remarks on the numbers before we go to questions.
Good morning, ladies and gentlemen. I would like to, as indicated by Pete, I would like to give you a summary of the first half year financials of IMCD. And I would like to start on Page 9 of the presentation that you could find on our website. On this Page 9, you will see that revenue increased 21% in the first half of twenty sixteen compared to the same period in 2015. On a constant currency basis, IMCD's revenue growth was 26%.
Important driver of this increase were the acquisitions of MF Cache in the U. S. In June 2015 and the acquisition of Select Chemie in Brazil end of December 2015. The first time inclusion of this acquisition added 22% of our revenue. Further, we realized 4% organic revenue growth, whereby all regions contributed to this growth.
As explained in previous calls, revenue growth is important. However, for Distribution Business, gross profit development is, in general, even more important. Gross profit is defined as revenue, less cost of goods and cost of inbound logistics. In the first half of twenty sixteen, gross profit increased 25 percent ForEx adjusted compared to last year. This increase was a combination of the first time inclusion of the acquisitions, the ones that I mentioned before, adding 19% and a healthy organic growth of about 6%.
Changes in currency rates, unfortunately, had a negative translation effect of about 5 percent, resulting in a reported gross margin increase of 20%. Gross profit in percentage of revenue decreased slightly from 22.1% to 21.9%. The main driver of this average margin percentage decrease was the first time inclusion of acquired companies with an on average slightly lower gross margin percentage having a negative impact on the overall average gross profit percentage. Further currency fluctuations played a role, having an impact on local market circumstances and the usual fluctuations in the product portfolio. Reported operating EBITDA in the next lines increased 26% to €78,300,000 On a ForEx adjusted basis, operating EBITDA increased 31% compared to the same period of last year.
This increase was a combination of organic growth and first time inclusion of acquisitions. The operating EBITDA margin increased from 8.5 percent in the first half twenty fifteen to 8.8 percent in the same period of in 2016. The conversion margin further improved from 38.5% in the first half of twenty fifteen to 40.3% in 2016. As a general remark, I would like to make you aware that IMCD calculates the conversion margin as operating EBITDA, so without a D, as a percentage of gross profit. As you may have noticed, our more asset intensive peers calculate their conversion margin slightly different.
They use operating EBITDA, with a D, instead of EBITDA as percentage of gross profit to calculate their conversion margin. If we move to the next page, on Page 10, you will find the remainder of the P and L with the bridge from operating EBITDA to net results for the period. Net finance cost of €9,400,000 are about €3,500,000 higher than the same period last year. Bank interest cost was slightly lower than the same period last year and the increase in finance cost was mainly the result of adjustments of the market to market value of interest hedge contracts and revaluations of IMCD's deferred considerations, adding in total €3,500,000 to this cost line. Income taxes, about €1,000,000 higher than last year.
Amortization of intangibles increased to €4,500,000 mainly due to the acquisition of Cachet and Selectomy Non recurring items of about €900,000 mainly include costs related to successful and unsuccessful acquisitions. And finally, the net result in the first half of twenty sixteen was a bit more than €39,000,000 with cash earnings per share as indicated by Peter €1,001,000,000 in the period. This is a currency adjusted increase of 28% compared to the same period last year. On the next slide, Slide 11, you will find revenue, gross profit and EBITDA split per operating segment. The activities in EMEA generated about 62% of IMCD's total revenue and 67% of total gross profit.
Despite modest macroeconomic circumstances in this region, IMCD generated 7% organic gross profit growth. Gross profit in percentage of revenue further improved from 23.1% in the first half of twenty fifteen to 23.6% in the first half of this year. On a constant currency basis, operating EBITDA increased 8% and the operating EBITDA and percentage of revenue improved from 9.5% to 9.8%. All growth in this region was organic growth. In the second column, you will find the results of Asia Pacific.
A slow start in Q1 2016 was followed by a stronger Q2 resulting in 10% year to date revenue growth and 7% gross profit growth on a constant currency basis. Gross profit in percentage of revenue slightly decreased from 19% in 2015 to 18.5% in the first half of twenty sixteen. Local market circumstances, currency fluctuations and the usual fluctuations in the product mix were the main drivers of this decrease. Operating EBITDA increased 4% on a constant currency basis. It's fair to say that most of this growth in this segment is organic as the full year impact of the Kusal Schans acquisition acquired in April 2015 has a limited impact on the overall outcome.
Then on the next column, Americas, whereby Americas consist of the operations in Brazil and the United States. The comparison of the first half of twenty sixteen with the first half of twenty fifteen is difficult due to the 2 acquisitions in this region. First half twenty fifteen is a combination of 6 months IMCD Brazil, the former McKinney business and 7 days of MF Cachet. The first half of twenty sixteen is a combination of IMCD Brazil, 6 months Selectomy and 6 months IMCD U. S, the former MF Grafje.
Taking into account difficult market circumstances in the U. S, IMCD U. S. Had a reasonable first half of twenty sixteen. Revenue was flattish and gross margin was slightly higher compared to the same period 2015.
IMCD Brazil and especially the industrial activities had a more difficult start of the year with price erosion and an economic environment, which was far from ideal to put it mildly. Select from here the reasonable start of the year and the figures of Mudsler acquired on the 1st July are not included in our year to date June figures. In the last column, you will find the cost of holding companies and this includes all non operating companies, including the head office in Rotterdam, the regional office in Singapore and the new regional office in New Jersey in the U. S. On page 12, you will find a summary of the IMCD balance sheet at the end of June 2016 and the end of December 2015.
In this balance sheet, you will see that property, plant and equipment is relatively low as a consequence of the asset light business model. Intangible assets and related deferred tax liabilities are relatively high due to our private equity ownership history and subsequent acquisitions. Further, we have a healthy equity position of €681,000,000 covering 62% of our capital employed. But by the increase in equity compared to year end 2015 is the balance, of course, of net result generated in the first half of twenty sixteen, a dividend payment in 2016 of €23,000,000 and some currency fluctuations. A bit more detail on working capital and net debt evolution on the next two slides.
On Page 13, you will find an overview of the working capital components at the end of June 2016, 2015 year end 2015. In this overview, as you can see, we summarized the absolute amount of working capital, the end of the periods and perhaps more relevant, this absolute amount translated in days of revenue. Total working capital 49 days, and this is in line with the 49 days end of June 2015. End of December is as usual slightly lower due to reduced business activities in December. On the next page, Page 14, you will find a summary of the movements in our net debt position in the first half of twenty sixteen.
End of the last year's starting position of €438,000,000 €66,000,000 cash generated from operating activities, cash outs related to interest, tax, CapEx and dividend payments, adding up to a net debt position at the end of June 2016 of €418,000,000 The reported leverage ratio defined as, as you know, net debt divided by operating EBITDA was 2.8 at the end of June 2016. The leverage ratio calculated on the basis of definitions used in the IMCD loan documentation were 2.4x EBITDA at the end of June 2016. The leverage covenant in our loan docs requires a maximum leverage of 3.5x EBITDA. So with an actual leverage of 2.4 times, there's a comfortable safety margin. To finish the financial summary on page 15, you will find an overview of our free cash flow.
Cash conversion ratio improved 12% from 67% in the first half twenty fifteen to 79% in the first half of this year, whereby the main drivers of the increase were a higher operating EBITDA combined with lower working capital investments. CapEx of €3,100,000 was mainly IT related. So far, the summary of the financials. Peter, I'm not sure if you want to add something to the outlook or the remarks in Q and A.
I think we move to Q and A now. So who wants to have the first question?
The The first question is from Mudlu Gundogan from ABN AMRO. Please go ahead. Yes. Good morning, Peter and Hans. I have four questions.
The first is on the Americas. Your operating EBITA declined 7% sequentially. You spoke about difficult market circumstance in the U. S. Can you provide us a little bit more color whether it was mainly the U.
S. Or also Brazil that declined sequentially because there you spoke about a difficult start of the year? And then secondly about EMEA, again a solid performance in this region with operating EBITA up 8% in constant currencies. Would it be possible to provide a breakdown of the business groups or the regions that drove that strong performance? And then thirdly, about Asia Pacific, You pointed out that the conversion margin drops 140 basis points year on year.
At Q1, you spoke about timing of some orders and start up costs. Is that still the reason why the conversion margin is down for the half year? And then finally about your outlook. Pete, you spoke about a weak July. Just wondering, given that we're pretty far in August, was this just in July or has the weakness continued in August?
And how does that translate into your expectation for organic growth for the full year in terms of operating EBITA? Thank you.
All right. Thank you very much. First question about the Americas, and we talked then about the U. S. And Brazil.
I think if we talk about the U. S, I think you could have noted that our peers in the industry had also reported or reported significant weaknesses in the U. S. I think if you look at the underlying data about the U. S, it's interesting to note that industrial production in the U.
S. Fell year on year for the 11th month in a row, which seems to be the longest period in a non recession era. So it's not a healthy environment in the U. S. In terms of industrial production and these are, of course, our customers.
It doesn't say anything about the economy as a whole. As you know, of course, there are also service sectors, there is the consumption and all those. So it's but in the industrial production, a contraction has been seen in the almost the last 12 months. And we note that nevertheless and notwithstanding that we still have slight growth in our business in the U. S.
Brazil is now of course consisting our business consists of 2 different segments. 1, the what we now call the heritage IMCD sector in industrial markets, the business that we acquired 3 years ago and the other business that we acquired late last year, which is solely focused on the pharmaceutical markets. And in particular, of course, the business that is working in the industrial sectors has suffered significantly from the economic slump in Brazil, which last year where the economy last year contracted with almost 4%. So we note that as well. We prices are, of course, under heavy pressure and also volumes.
So we have to, yes, gear up for better times and also to further structure us in such a way that we can benefit from an upswing. Our Pharmaceutical business is solid, strong. And we of course this business is of course much less affected by general economic circumstances. Then your second question about EMEA breakdown of regions and segments, we don't do that. So I would like to start with that right now.
I think as a general remark, I can say that we have strong positions in most areas of EMEA, maybe a little bit less strong in the Southeast and also smaller and less significant. But in all the major markets of Europe, we are well represented. And I think also you can say the same from almost without exception with respect to the different market segments we are working in be it coatings or foods or pharma, personal care, etcetera. I think it's clear that markets that still benefit from also from demand from overseas, like for example, the personal care market is relatively steady, whereas other markets that may be more dependent on local demands are more affected. Then I think, Haralds, maybe you a few words on Asia.
Yes. Mutlu, you raised
a question about the conversion margin drop in Asia. And mathematically, you're right. And in the last publication, it was 47.3%. And this time, it's this quarter, 46.9%. So it's movers a bit around 47%.
Other than a bit of additional startup cost in Japan and Vietnam and the usual fluctuations in margin and product portfolio, there is nothing specific to report there. So there's not something really happening and having a negative impact on conversion margins.
Then on the outlook,
the outlook which we have, of course, provided is that we expect growth of EBITDA in 2016. We gave you some color of July. I think if you generally talk to people working in business, then I think generally July is regarded as weak. We have to see if that will continue. I think August is better, but we take it one step at a time.
So we don't want to go in too much details. I think what you have to and what I always, of course, stress about our business is that we have a very resilient business, a solid business, a business that is not invulnerable, of course, but solid cash generative business and that will continue to be that way, difficult to predict the next quarter. That's why I'm always very cautious. I look at this business already for a long time and I hope for a long time to come, and it's consistently working on executing its strategy. What the next month will bring, we will see.
But it doesn't change fundamentally, let's say, the foundations and the resilience of this business. Thank you.
Thank you.
The next question is from Peter Olofsen from Kepler Chevreux. Peter Olofsen, please go ahead.
Good morning. Two questions, if I may. First on the Asia Pacific region, it seems that both in terms of gross profit and operating EBITDA, the growth accelerated in Q2 compared with Q1. Could you shed some light on where you have seen this acceleration? Is it across the board?
Or were there particular regions that stood out here? And then on M and A, so you made 2 bolt on acquisitions at the end of Q2. According to the press release, the total consideration is around €13,000,000 I had actually expected a little higher amount here. So could you maybe shed some light on the profitability of Muiture, how it compares to your existing business in the U. S?
Okay. The
Asia Pacific question is simple. It's across the board improvement. On M and A, I think you have to if you look at the history of our business, then you have seen, of course, not a consistent pace in the way we acquire. And what we do in our acquisition strategy is that we look at gaps in regions, gaps in market segments.
And
we constantly are in conversation with owners. Many of them most of them are families or private owners, which makes sometimes these conversations not so easy. It needs to fit in our portfolio. It needs to be we need to be able to integrate it and it needs to also add to the portfolio that we have. And in this, let's say, collection and targets then there are many, many flowers in the fields and some of these flowers are small and some are bigger.
And the 2 that we have now acquired are smaller. One is very much aimed at further complementing our pharma strategy. And we although it's not a very big acquisition, we find it a very important one because it enables us and offers us a platform to further accelerate our pharma strategy. I think we are one of, if not the biggest pharmaceutical excipient distributor in the world, whatever that means. But it is a business that we are good at, where we know the main manufacturers, we know the business, we have a strong technical platform to sell the products for our suppliers.
And of course, it was vital for us to also have that platform in the U. S. And we will expand in the U. S. With similar suppliers that we also service in other parts of the world.
And we will restructure and rearrange parts of this company into a business that we feel will support our expansion in the U. S. Very nicely. The other acquisition in Kenya is a tip a toe in the water in East Africa. We have a big position in South Africa, which is doing very, very well despite very difficult local circumstances.
But we will, with our suppliers, try to expand in a controlled way also in other parts of Africa, in this particular case, East Africa. So I think we have never and will never commit to a number that we will invest in M and A every year. You will see years with slower M and A activity and years with very high activity. I cannot predict this flow because it depends not as you know solely on us, but we are very happy with
the first two steps. Peter, perhaps to add because I think that was also part of your question, the EBIT margin of these two acquisitions is far below the average of the IMCD Group, explaining the lower purchase price that we pay.
Okay. That's helpful. Maybe one follow-up question on EMEA. I think in your introduction, you referred to the Brexit. Is it mainly a currency effect that you have seen so far?
Or have you also seen effects on volumes on the demand levels?
Yes, also on the demand levels and not only in the U. K. And I think, of course, there is an immediate, let's say, effect because of the drop of the U. K. Pounds and that has a commercial consequence in the fact that we have to guard against margin contraction in the U.
K. We have to pass on the price increases because, of course, we are importing. And secondly, there's a translational effect and everybody can see what the pound has done. But we are not talking only about the U. K.
Of course, there was a general drop in demand. We also had the coup attempts in Turkey and that more or less stopped business for the whole month there. So not a great political environment in July, but we have to see if that was a just a first reaction and we will see what the year will bring further.
What proportion of your gross profit is derived from the U. K?
We never talk about the size of individual companies, but a country like the U. K. Is revenue margin wise, I think, close to countries like Germany, France. So in EMEA region, you talk about, I think, roundabout 12%, 13%, somewhere in that area. Okay.
Thank you.
The next question is from Josh Pudel from Berenberg. Mr. Pudel, please
go ahead.
Yes. Hi there. My first question is just on the U. S. Environment generally.
So you said the industry overall is having a prolonged difficult time. Two questions. Firstly, have you seen any pressure on the pricing of your services there? And then clearly, you're seeing any change in behavior from chemical producers? And I wondered if you could tell us what you think is happening to the penetration of 3rd party distribution for specialty chems in that market?
And then secondly, I just wanted to clarify your comments on MF Cache. You said there has been some growth. Can you could you just confirm over what period you're talking about? Is that the first half of this year? And can you confirm is that organic gross profit and organic EBIT growth?
Thank you.
Josh, perhaps to first answer your last question, What I said is that there was margin growth in the U. S. First half this year versus first half last year, and that's organic. So that is something that I can confirm. On the EBIT line, it's more difficult to comment due to the change in cost structure from if you move from a family owned business to a part of our group, but that has to do with, let's call it, family related costs and owners related costs.
If you would normalize, I think it's fair to assume that also on EBIT level, there was an increase first half this year versus first half last year, although modest.
On the first question, price pressure, yes, I think that you have seen in the U. S. And also confirmed I think by our peers that prices have let's say at best been flat. I think basically, I think 2 factors play a role for petrochemicals. Down the line, the oil price plays a role, of course, in also petrochemical products and secondly, the demand situation.
So there's a certain price pressure. Then your other question was about penetration of 3rd party distributors. I'm not sure what the question exactly is.
I just wondered given that there'd been an overall slowdown
in the U.
S. Generally, whether you'd seen your chemical producers trying to do more of their distribution in house and if that perhaps had an effect on overall outsourcing in that market?
No. That has not been affected. That's also not exactly how it works because of course you have long term relationships. There's not a trend or a tendency to now in source. So firmly no to that question.
Okay. Thank you. And then maybe just following up on the first one. You said you've seen margin growth. Can I just confirm, is that conversion margin growth?
I was talking about the absolute amount of margin.
Right. Okay. Okay. Thank you. The
next question is from Silvia Fotayva from Deutsche Bank. Please go
ahead. Hi, morning. I've got three questions, please. Firstly, again, following up on North America. Obviously, the MF Casa acquisition will be included in organic growth or has been for a couple of days already in H1, but will be fully included from H2.
So if you could just as you have said, at the absolute margin group, what about kind of the gross profit organic trends? Because we need to blend that with the rest of the group? And what about the comps? Obviously, that business started weakening. Could you just remind us of what the comps look like in the second half, maybe Q3, Q4?
Silvia, perhaps first to answer your second question, I think the comps are visible in our press releases of last
year. Because then at last
year we reported MF Cache separately from the other activities. Your first question, gross profit, what I indicated is that the absolute amount of gross profit increased in the first half of this year compared to last year, the 1st 6 months. And what I also indicated is that revenue was flattish. So as a consequence, the average gross profit margin slightly increased in the first half of twenty sixteen compared to 2015. I hope this answers your question.
Yes. So basically, organic gross profit, it's still growing basically. That's a little bit kind of flattish to growing. Is that fair to say?
Yes. By the whole MF Crochet, this is 6 months period minus the 7 days is presented here as acquisition growth.
Yes. But obviously, okay. So, okay, fine. Good. And then on the EUR 3,500,000 that you had within your interest line, so that you said was hedging plus the deferred value and movement in the deferred value.
Could you please give us some just some details on both of those impacts, please, and what you expect for the second half?
The combination added up to €3,500,000 It's roughly fifty-fifty split between the 2. Basically, what you see is we need to recalculate our deferred considerations each and every quarter on the basis of expected payout at the end of the earnout period. And that has an impact. And that ends up in the P and L on the interest line. And the other thing, as you know, that we hedge about 60 percent of our interest exposure by way of hedging contracts.
Interest dropped in the first half of this year. And as a consequence, you need to revalue your hedging contracts adding up to close to €2,000,000 additional non cash cost that you see on that same interest line. And therefore, what I wanted to stress in my remarks is that the overall cash out interest that we pay to the banks is slightly lower than the year before.
So we see depending on what happens to those two impacts in the second half, the underlying interest should be reflective of the underlying one that you had in the first half rather than
Yes.
A further change in interest rates will have an impact on the market to market value of these hedge contracts.
Okay. And in terms of the deferred consideration, how much is that now? Can you disclose that?
I think out of the top of my head, somewhere it was at year end, somewhere between €60,000,000 Now there is a schedule in the back of the press release showing some movements there. I think it's €62,000,000 or something
like that. Right.
Okay. And then finally, on the FX movement of 5%, so the net negative 5%, How much of that is related to the U. K. Pound?
Yes. We work in different markets with different currencies and the total impact is that 5% that you see bottom line. I don't have a split here per individual currency, to be honest.
I guess that would have been small the first half, but that could be a bit worse in the second half or Yes. Because we don't obviously have the individual countries' forces such a bit.
Yes. But it will also depend on what happens in Brazil, the U. S, Australia, India, Indonesia and so on and so forth. Maybe we operate in different countries with different currencies. And unfortunately, that had a negative impact in the first half of this year of about €3,000,000 on our EBIT line.
And finally, can you just double check? So you said that H1 GP organically was up 6%, but we have one extra significant digit in the Q1, which is 6.4%. Could you confirm if Q2 was closer to 5% or 6%?
Year to date, it was 6. This is what I can confirm.
Okay.
And I don't know the split out of the top of my head between the two quarters.
Okay. No problem. Thank you.
The next question is from Rajesh Kumar from HSBC. Please go ahead.
Hi, good morning. I'm sure by now you've had so many questions in the U. S. That you're wondering what's going on. The reason I think everyone is asking what the U.
S. Growth was is because we'll have to think about what organic forecast we put in. Now if I remember correctly, you said flattish to slightly up on MF Cash share in Q1. And now you're seeing a slight growth that would imply an improvement in Q2, which is better than the industrial production data. If you look at most of the chemical prices, that would imply that you're getting a bit of pricing tailwind.
Could we get some color on what sort of price versus volume trends you're seeing in the U. S? It could be for the first half of Q2, whichever you are more comfortable doing, in terms
of
selling price, selling value growth or the sales growth and then also gross profit level?
Yes. Well, difficult question. I will try my best. I think that you generally will see, as I said before in our business, prices are flat to being a little bit under pressure, whereas volumes we could we are able to get volumes a bit up. But we also and that's very important for us of course have been able to increase our percentage margin on on our business a bit.
So it's a mix of factors. I don't want to try to guess on the square centimeter exactly what was what. It is a it's a difficult environment. I think if you look at our peers, and I think you do, and you saw that in North America, they saw significant decreases of that business also outside of oil and gas. I think it depends very much on also on in which type of business you are.
We are trying to expand our business also in non industrial sectors like pharma, as I told before, but also personal care where we hope to be able to start with significantly in starting in the Q3. We have to wait and see, but I think I hope for slight growth also in the second half of the year.
Perfect. And on a slightly more interesting longer term view, what are you thinking about bringing some of your product portfolio from Europe into the U. S. And product from the U. S.
Into Europe and other regions? Yes. Have you yes, supplier?
Yes. No, absolutely. That is, of course, our, let's say, bread and butter in terms of what we call cross fertilizing our supply portfolios as much as possible. I think we're now talking with a significant supply in the U. S.
To work with us also in other parts of the world. And we're also talking with suppliers that we do in Europe to work with us in the U. S. So now that's a costed process. In the end, of course, we have to convince our suppliers that to also work with us in other regions, but that is something that we have done constantly and we will see success there as well.
This is not a process that I can that we can discuss quarterly because it's, of course, a longer process. It means very often that suppliers have to disconnect from other sales channels and that takes time. But yes, we are working on that.
Okay. And in terms of after the acquisition in the last 12 months, have you seen any supplier churn at Cashe at all? Or have you kept all the suppliers?
Yes. We have not seen a churn at all.
Thank you very much. The
next question is from Milu Buenk from Goldman Sachs. Please go ahead.
Hi, good morning, gentlemen. On the two small ones remaining from my side. First of all, on the M and A, you discussed a little bit what's happened year to date, but could you also comment a little bit on the pipeline and your outlook for M and A in terms of regional focus as well? And then secondly, a question on the cash conversion ratio. It went up year on year, but it's overall broadly in line with your guidance.
Is there anything to note there in terms of working capital underlying trends? Thank you.
Perhaps, Milu, to first answer your last question, cash conversion ratio, what we always say is that on a full year basis, the aim is to be 80% plus, so close to 90%. We have a normal working capital cycle whereby at year end, the working capital positions are always lower than during the year. So what you typically see is a pickup in working capital during the year and then a little bit of a drop in the second half of the year. At the same time, at the second half, at the end of the year, you will have the full year EBITDA plus a quite often a little bit lower working capital investment and that will help us to bring the cash conversion ratio, I think, around 90% or 90 plus percent for this year.
On the M and A?
On the
M and A, yes. I, of course, explained earlier in this conversation a little bit out of the processes, the types of businesses that we are looking at and also the type of owners. I think throughout our history, we have been doing M and A, some years very big, some years a little bit less. We have a good pipeline, but it takes time. Unfortunately, there are also in a pipe let's say, the companies the targets that are in the pipeline not always come out of the pipeline.
Some disappear out of the pipe. So it's not different from any other time. I don't think this will be a very frenetic year in M and A, but nothing unusual. I think we will continue with our process to do acquisitions.
Understood. Thank you so much.
The next question is from Jaap Pannefisch from Kempen and Co. Please go ahead.
Good morning, Peter and Hans. A few questions from my side. The first one is your current growth rate of around 6% organic. Could you talk us through how much of that is basically end market growth and how much is supplier import additions?
That's a difficult one, Jaap. I don't think we make that we don't make that distinction between the 2. It's also very difficult because we also have situations whereby we have suppliers that add product lines to our portfolio. Yes, but we have new suppliers, we have current product ranges, we have new product ranges of the same suppliers. We sell more.
We sell more to the markets. So it's I think we are not spending our energy to follow that.
Okay. That makes sense. And then, so if I think about the business now, first IPO, you obviously have a much bigger sort of strategic platform. Could you perhaps talk us through a little bit how that's helping you perhaps to win new business or how did you how you feel you're sort of strategically positioned now versus perhaps a few years ago?
Yes. I think, of course, one of our goals is to align as much as possible with the, let's say, the winners in the chemical industry or in the food ingredient industry. And I think it helps a lot that we are now where we are also in terms of size, but also in terms of geographic spreads. We have a lot of possibilities to work with our suppliers in many territories because we are seen as a global player. If I'm always hesitant to use these kind of terms, but in specialties, we become like that.
So for example, big companies like BASF or Dow Chemical or Baqer Chemie. In pharma, we work of course very strong with FMC. And that presence of us and the fact that we are everywhere helps us, of course, to helps somebody's screaming helps us to yes, to expand. So I think it is very positive. It also opens doors where some of them were closed.
Also the fact that we are in the U. S. Now and also seen as yes, not an American company, but a company that is has a good position there, helps us with American suppliers. So overall, I think our strategic position has improved.
And how do you see that reflected sort of anecdotally when you're pitching for new supplier wins that sort of IMGD is competing very well?
Yes. And I would love to give you some examples, but I find it difficult as long as they don't have come to fruition. But we started in Western Europe with Evodarant Food Flavors just recently and that will be a significant partnership. There are others that we are working with for more global cooperation. So yes, generally, I would say that that are good examples to give.
And I hope that we can also share a few in press releases later this year.
That's very helpful. And then one last question. In previous calls, we sort of talked about the commodity environment, which is obviously not very helpful for you currently. Obviously, in the second half and potentially into 'seventeen, you're actually lapsing easier comps on that basis. Have you seen anything in that area that perhaps the pricing environment in the U.
S. Is getting better going forward?
I'm trying to understand exactly what you mean, Jaapie.
Well, so basically there's not a lot of growth by price currently in your business, right, because commodities are not very helpful. I'm just wondering because the comp age from that perspective will get a lot easier in the second half but also into 'seventeen?
If prices start moving, yes.
Well, if the commodity prices
are based no longer declining and I know it's a small part of your business, but also incrementally growth through prices will be helpful for your business, no?
Yes, yes, yes. And I think generally if prices move upwards, yes, that's also in commodities even if you don't do them, it will be very helpful.
And have you started to see any signs of that already?
Not really. Not yet. No.
All right.
Thanks for taking my questions.
The next question is from Nathalie de Bruyne from Degroof Petercam. Please go ahead.
Yes. Good morning, gentlemen. Thank you for taking my question. Actually, just a follow-up maybe on Asia Pacific. You mentioned that the solid acceleration in Q2 was really across the board.
But I was wondering, could you be a bit more specific, give us some color in order to see whether we can extrapolate that into H2? So was that a gain of customers, suppliers or just mix improvements or just some clarification in there to see whether we can extrapolate it? Thank you.
Well, I think after the Q1, I said, listen, you can't put too much significance to a quarter. I think what you see here is a general trend of the business, a solid performance in most regions. Indonesia did okay. Philippines, so all across also Australia, New Zealand, not exciting, but okay. So I don't want to
yes, there's not a lot more
to say. It's a solid performance and we don't have indications that, that will change.
All right. Okay. Thank you.
Question from Mudlu Godogan from the ABN
AMRO. I had two questions. One is coming back to July. Pete, you mentioned it very quickly in your opening remarks. I was wondering, did you mention any volume impact in July, I.
E. A year on year comparison? And just wondering, when you mentioned July, I assume you're only referring to the EMEA region because you spoke about Brexit and Turkey. And then secondly, on the Americas or actually the U. S, industrial production indeed touched a low in Q2 and then started to pick up, I think.
Are you seeing any improvement in your business now in Q3?
About July volume, that was I think your first question. First of all, when we talk its volume is very difficult for us to follow because of the let's say, the breadth of our product range. So I don't have a, let's say, statement on that with respect to July, but you can safely assume that the volume was down because of the because demand was down. It was predominantly EMEA, but also the U. S.
Was not great in July. And the second question was about what about
About the U. S, about industrial production. It seemed that it was picking out throughout the Q2. But you just mentioned that July was weaker. So does it have to do with your
Yes. About picking up, it's yes, it's relative to the previous months or the previous quarter. And that's what it is. It's not relative to the year before. But it could be, but we haven't noticed that immediately.
Right. Okay. Thanks for the color.
The next question is from Rajesh Kumar from HSBC. Please go ahead.
Hi. Just one quick follow-up. In Europe and in the UK, because we have seen commodity prices improve slightly sequentially in dollars and euro and pound both have been weaker. I'm assuming the cost inflation is coming out stronger down in the U. S.
Do you think that's what you're seeing in the Specialty segment as well? Or is it more pertinent to the bulk?
I think it's more relevant immediately for the bulk. I think in specialties, if there is an effect, then that effect is, let's say, further down the line. It will take time to reach also the specialty sector. So there's not an immediate noticeability on the specialty side.
Absolutely, it will be 3 to 6 months, isn't it? That's the lag you typically see, especially given the production cycle and all of that. But when you look at the hedges and rolling over contract by Q4 this year, Q1 next year, some product price cost inflation, which you'll need to pass through to customers would be important, doesn't it?
It is, but it is one of our, let's say, core competencies is also, of course, to keep our margin and pass price increases through to the market as much as we can.
In a way, we'll give you an excuse to have that discussion customers? Yes, yes, yes. But of
course, if in a country like the U. K, of course, you when you compete with internal producers, you have a discussion with your customers.
And in Asia as well? Yes. Perfect. Thank you.
Okay. Thank you very much. All right.
The next question is from Silvia Fotava from Deutsche Bank. Please go ahead. Sorry, very quick follow-up. Just on Turkey, could you just remind us how big that is within the new EMEA region? And what kind of growth you were seeing until the coup and last year?
Thank you.
It's a smaller region for us. Nevertheless, of course, very profitable and growing, but it is a smaller region. So
Mr. Chairman, there are no further questions.
All right. Thank you very much. Have a good day.
Ladies and gentlemen, this concludes the conference call. You may now disconnect your line. Thank you.