Ladies and gentlemen, thank you for holding, and welcome to the IMCD Analyst Call First Quarter Results 2016. At this moment, all the participants are in the listen only mode. After the presentation, there will be an opportunity to ask questions. The Chairman of this call is Mr. Van der Schlicke.
Mr. Van der Schlicke, please go ahead.
Good morning, everyone. I'm here with Hans Corimans, and we will be happy to answer your questions regarding our press release of this morning containing the Q1 2016 results. Following the acquisition in the United States, we re categorized our activities as follows: EMEA includes now Turkey and South Africa The Americas, containing the U. S. And Brazil, and Asia Pacific is unchanged.
The segment, Other Emerging Markets, has disappeared. Our Q1 results were robust with operating EBITDA increasing with 28% to €39,100,000 and it's plus 33% on a constant currency basis. Of all the segments, EMEA performed exceptionally well with revenue growth of 5% on a constant currency basis and gross profit and operating EBITA growth of +7 percent and plus 10 percent, respectively, corrected for currencies. All the growth in EMEA is organic. Asia Pacific showed less strong results with revenue unchanged, plus 6% ForEx adjusted and gross profit numbers and EBITDA decreasing with 1% 8%, respectively, corrected for currencies.
These numbers are plus 4% for gross profit growth and minus 3% for EBITDA. The results were partly influenced by higher cost of start ups in Vietnam and Japan, some timing differences of orders and currencies. The results overall and in the Americas are, of course, influenced by the first time inclusion of last year's acquisition in the United States, MF Cache, which has been renamed now IMCD U. S. As of the 1st April and by our acquisition in Brazil of Select Remy late last year.
Both companies performed in line with expectations. Our existing Brazilian business showed growth despite the continuing economic slump in Brazil. Summarizing, we are positive about the start of the year. And based on these Q1 achievements and the strong fundamentals of the business, we expect continuing EBITA growth in 2016. Ladies and gentlemen, I keep it short.
I give now an opportunity to ask questions, and Hans and I will do our best to answer them. So who is the first questioner?
Ladies and gentlemen, we will start the question and answer session now. The first question is from Ms. Fotiva from Deutsche Bank. Mr. Fotiva, go ahead.
Hi, good morning. Good morning. I've got 3, please. Firstly, looking at the Americas, could you state out what the contribution IMCD U. S.
Was in the Q1, please? And what is your outlook on that U. S. Business given obviously, competitors have been quite negative on the industrial outlook for the U. S?
Number 2, your EBITA was up 28%, but your net income was up 25%. Could you tell us kind of what moved on the treasury and whether what we should assume for tax and interest for the full year? And then finally, on Asia Pac, would you be able to talk a little bit more about kind of how much of this was due to start up costs? How much due to timing? And how do you think the EBITA progresses over the course of the year?
Year?
Yes. Well, first of all, as you know from my previous our previous sessions about quarters, I'm extremely, let's say, cautious and reluctant to talk about the results per quarter. And so I think we should always bear in mind that small differences can influence results. Events that in certain territories with respect, for example, to the possibility to get product or not can deliver can influence results. So I'm a little bit cautious to always immediately try to discover trends long term.
What we also will not do is to go too much into detail with respect to individual countries. I can say about the U. S. That they performed in line with expectation. It's clear that it is the U.
S. Is not abundant in growth. We do not experience the same negativity that we saw from some of our competitors. But what you see, of course, that in that market, prices are flat. So it's difficult to increase your prices in that market, which makes you, of course, then totally dependent on volume growth.
And that is, with very modest growth, also not too easy. Nevertheless, satisfying results in the U. S. As to Asia Pacific, it's a moment in time. We do not foresee, let's say, that we have a trends breach in trends of growth in Asia Pac.
It's clear, although that, of course, 50% of our results are coming from Australia, New Zealand, and that market is flattish. And that, of course, also influences our results. I think you
have 2 other questions. Then Silvia, your other question is, I think, a more technical one. That's the difference in growth between EBITDA and net result. And the guidance that we gave with respect to tax and interest. The guidance that we gave at the annual accounts at the year end session is still the same.
So no changes there. But what you typically see in a quarter like this is if you have a bit of fluctuations in things like deferred considerations, the end to end, the mark to market value of your interest drops that have an impact on the gap between EBITDA and net result. But for your modeling, the indication that we give with our year end figures is still in place.
Okay, great. Thank you. And could I just follow-up on the U. S? So you said that you're seeing kind of modest volume growth.
Could you just tell us sequentially if you look at I know that quarters obviously can be quite lumpy, but kind of Q1 versus what you were seeing towards the end of last year, has the volume progression changed in any way sequentially?
Well, I think you should not try to compare last quarter with of quarter last year last quarter of last year with the Q1 of this year. But I think if you compare I don't think there's a big difference in trend. The market is not exciting, but steady.
Okay, great. And sorry, I know I said 3, but if I could just ask one final question. Just a more kind of big picture question. So if you look at your 6% organic gross profit growth, could you just talk a little bit around how much of that comes from kind of new SKUs and new supplier agreements versus existing supplier agreements being kind of extended to more customers and winning more customers, if possible?
Sylvia, with about 30,000 customers and 25,000 different products, that is a very, very complicated question. And you see different things per segment and yes, we don't make that split internally in that level detailed level, to be honest.
The next question is from Mr. Gundogan. Mr. Gundogan, please go ahead. Yes.
Good morning, everyone. I have three questions. The first two are on acquisitions. Just wondering, can you disclose the impact of acquisitions on operating EBITDA? And also maybe a bit of a housekeeping question, would it be possible to have that number in the press release going forward?
And then the second question, can you talk about the seasonality of MF cache and selekkemi? I remember that you said that H1 is usually a stronger half, especially for MF Cache. Just wondering how Q1 sits into that because I do remember that MF Cache has exposed to coatings, which usually are have the strongest quarter in Q2. And then thirdly, on EMEA, very strong performance. Can you provide some more color on the strong operating growth here?
Market share gains, is it in Life Sciences, Material Sciences? A bit more color would be helpful. Thank you.
Perhaps your first question, Modulo, about the acquisition growth, the impact on EBITDA. But what we always struggle with is that we have a tendency to integrate activities in our own operations. And therefore, we can one that we can track and trace on the sales side revenue and margin, and that is why we disclosed these numbers in our press release and in the information that we share with you. On EBIT level, that's much more complicated because quite often after an acquisition, we make changes in allocating costs, we make changes in the organizational structure and so on and so forth. And therefore, we limit ourselves not only in this quarter, but also historically only to revenue and margin coming from acquisitions.
Your next question about seasonality of MF Cashe and Selectomy, I think when we acquired the company, we said to the market that basically we assume that the seasonality in these type of activities is more or less the same as in the overall IMCD business, meaning a bit more in the first half of the year and a bit less in the second half of the year, mainly driven by an always weaker December period. But it's not sixty-forty or something like that. So it's a bit more than 50 in the first half and a bit less than 50 in the second half of the year.
On EMEA,
first of all, as a general remark, of course, our business fundamentals, our underlying strength in EMEA is, of course, always there. We have very strong product lines, strong relations with top suppliers. And that means that as soon as the market is let's say, the demand is increasing, we will benefit from that. And we have seen that in certain areas of Europe. I could say most areas of Europe with some outliers.
Benelux performed very strong, Some other regions as well. But it's we will have to see if that will continue in the course of this year. There are also some signs of warning. We have a weakening pound sterling that could have some impact in the coming quarters. By and large, strong start in Europe.
And given the fact that we have such a wide portfolio, we benefit from that. So let's see how that will continue in the Q2 and after that.
Okay. Thank you very much.
The next question is from Mr. Perl from Berenberg. Mr. Perl, please go ahead. Yes.
Hi, good morning. My first question is also on the EMEA region. I just wondered if you could comment if there were any material supplier or customer wins that perhaps boosted your growth rate in Q1? And second question is on your headcount intentions. Your headcount is up 15% from last year, which I guess is mainly driven by MF Cache.
But I wonder what your intentions for headcount are from here. And should we expect that to increase broadly in line with your gross profit growth? And then third question just on the U. S. You've said in line with expectations.
Can we assume that means you're achieving organic gross profit and EBIT growth in the U. S. Year on year? Thank you.
The first question was on EMEA supplier wins. The result is not, let's say, not dominantly influenced by new supplier wins. It's based on our existing suppliers. Then our growth in people, of course, in this particular case, profit. We try to be extremely efficient here.
But if we grow, we have to add people. Most of our people are working in sales. That's our business. And without them, we don't we can't grow. So we need to add people in line with gross profit growth.
The last one, the U. S. I think I may add about the U. S. Is that we're extremely positive still about our business in the U.
S, also about the 1st year of cooperation and integration and also about the opportunities. Unfortunately, I can't say too much about that now, but we see very nice possibilities going forward of cross fertilizing our business. We see positive projects in that respect. And look, can I promise you year on year organic growth in the U? S.
Or anywhere else? My answer is no, nobody can. We try hard. We do our best. We will have positive surprises, I hope not too many negative, but I can't promise internal growth nor eternal beauty.
Sorry, maybe I can just follow-up on the U. S. I wasn't asking so much for your projections looking forward, but more of what the business has done since it's been integrated. Has it achieved so far has it achieved organic gross profit and EBIT growth?
It has some growth, but if you compare it to the track record in the past, it has been more flat. And the specific reason is, of course, that the market is not easy in the U. S, as you have seen with our competitors that have had massive decreases. So let's say, the growth potential easiest in the industrial U. S.
Market. And we have noticed that too.
Okay. Thank you very much.
The next question is from Mr. Thaler from the Rabobank. Mr. Thaler, please go ahead.
Yes. It's Thaler actually. David, good morning all. It's French. A couple of quick follow ups, maybe on Europe.
Your EBITA margin, if I do the math correctly, was about 40 basis points down in Q4 year on year and now up by 40 basis points even excluding Turkey and South Africa. Does this indeed underpin, let's say, the volatility you have been flagging before on a quarterly basis? So we shouldn't probably take the 40 basis points also for the coming quarters. Is that correct? And then also within EMEA, could you specify which countries specifically have improved their performance in the last quarters?
And then on the U. S. Again, do I understand correctly that specifically on Q1, the volume and gross profit trend year on year was about flat? Thanks.
David, perhaps first to catch up on your first question. As you know, our cost base is relatively fixed in our group because it's mainly people. And what you typically see then in a quarter where the sales is less, your EBIT margin goes a bit down, and that's what you typically see in Q4. In Q1, you have a stronger quarter sales wise, and then also your EBIT margin goes a bit up. On average, this is the usual fluctuation that you will see during the year.
Yes. So it's not so much related to any time of contracts or average, really operational average?
Yes. Yes. Great. Thanks. EMEA, I would say that most countries performed better than last year.
And I think you can say that in the U. S, it was more or less flat. In Q1? In Q1. Q1.
And in Europe, it's not like, for example, France and or Germany have improved their performance. It's really broad based? It's broad based, yes. Okay. Thanks a lot to Sjed van.
The next question is from Mr. Panafis from Kempen. Mr. Panafis, please go ahead.
Good morning, Pete and Hans. Just a few questions. At the full year stage, you sort of talked about potentially the commodity deflation getting a little bit better in 2016, which would sort of make your ability to raise prices a bit easier. Could you give us an update on that view?
Sorry, I missed you there to be honest.
No. So at the full year stage, I mean clearly currently especially in the U. S, it's quite difficult to grow through pricing because the whole industry is quite deflationary, I guess, the whole chemical industry. But as we move to the second half, that might get easier or
Yes. It's a good question. I but it's also, Jaap, difficult to predict. Of course, we as an organization, we are extremely focused on increasing and maximizing, of course, our margins by increasing prices. Until now, and particularly in the U.
S, it's been very difficult to do that in the industrial markets. A bit easier here in Europe. Overall, I can say that as GDP grows everywhere in the world is rather very modest, it remains difficult to do so everywhere. And it's not for nothing, of course, that the central banks try to pump so much money in the system to avoid these deflationary pressures. So it's of course, always in our business a mixed picture because we work in so many different markets, but it is more difficult, I would say, in the industrial markets.
And as you know, we are predominantly in the industrial markets in the U. S. So there, the effect is a bit stronger than elsewhere.
And then from a pricing perspective that comp should then get easier in the second half, correct? Because the commodity move from the second half should basically flatten out.
Time will tell, yes. Okay.
And then Hans, perhaps one question for you. I mean, when I back out the organic growth number for the group, I get to a number of sort of around 8%. Now I obviously appreciate what you said earlier. But is that sort of a number you recognize, 8% organic EBITA growth for the group in Q1, ballpark?
Yes. What we disclosed, Jaap, is the organic growth in revenue. I think Pete indicated also a couple of start up costs, and it's always difficult to allocate these type of things. And I leave it to you to calculate that number.
Okay. Excellent. I think my other questions have actually been answered. Thanks so much.
The next question is from Mr. Kumar from HSBC.
Mr. Kumar, please go ahead.
Hi. Good morning, gents. Just before we discuss anything else, I'd like to understand one thing. When you say prices, that you can't increase prices, pricing environment is difficult, are you talking about your own gross margin or the gross profit or the actual selling price you charge to your customer?
The actual selling price we charge to our customer.
Okay. So it's exactly what we understand, the selling price you're charging to customers. It can be confusing. Okay. So what you're telling us is that you're unable to increase the prices, but you're able to keep the prices you had in the previous?
Okay, great. So when we look at I mean, I did a fact package calculation on the numbers on the New Americas division now. And I'm getting 0% type growth number backed out for MF Kashak. You said it's flat. So is that the right organic number for MF Kashak or IMC U.
S. Now?
I'm a lawyer. So now we have to discuss if flat is 0%
No, it could
be minus 1%, it could be plus 1%. No, it's not negative. It's not negative.
It's not negative. Okay. So
They sometimes say 0 plus, but I don't know what that means. But it's absolutely listen, we are again, it's not we are not decreasing. We are flattish. It's 0 plus.
How much of that is caused by integration disruptions? How much of that is managed at the operating margin level? Because I'm assuming that inflation in the U. S. Is not 0.
So I'm pretty sure you got a bit of cost increase as well. So is the conversion ratio stable? I know it's a higher conversion market naturally, but is the conversion ratio stable?
Yes. It is stable, and I think we have a bit of cost increase, but not a lot. The business, of course, has continued in the same fashion with same management since we bought it. We haven't added costs in the business. And so there is some ability to compensate a slight cost increase, but the cost increase has been very modest as well.
Okay. That's very useful to answer. And finally, if we look back on the last year trends, the growth has been coming down from double digit to 5% to now 0. I don't know, is it a fair assumption to say that it goes negative before it starts improving?
No. I think it will go positive before it goes to 0 or before it go to negative. I'm optimistic about the future of the business going forward.
Okay. And there is no commodity in MF
The next question is from Ms. De Bruyne from Degroof Petercam. Please go ahead.
Yes. Good morning gentlemen. Thank you for taking my questions. Actually, they have basically all been answered. But I was just looking at working capital.
I know that you tell us not to focus too much on what happened during our specific quarter. But I was wondering what the increase in the working capital investment was driven by. Can you give us some more color on that one? Would that be driven by negative currency translation or is that more some kind of timing difference as well? Can you give us some more color on that one?
No, I think the increase in working capital follows the increase in revenue and nothing specific there or nothing to report on.
Okay. Because it seems to be much higher actually than the increase in revenue. So that's the reason why I'm asking. Is there any change in these payables or whatever or any specific trend in one of the regions?
No. But basically, you need to realize that a working capital number at a quarter end is just a snapshot of a certain moment in time. And paying a creditor just before year quarter end or just after or customers paying just before or just after have an impact on this number. If I look at the underlying trends, there are no changes there.
All right. So that's just some kind of timing impact, right?
No, no. True.
And regarding cash conversion margin, do you still stick to your guidance, which would be the higher end of the range?
The guidance is that we always have, but we try to end up with a cash conversion margin of 80% plus. The guidance is unchanged. And that has to do with the fact that asset light, so we have hardly CapEx. And the only change that you see is the change in working capital, and that follows the revenue trends.
All right.
So in an exceptional year, we have an exceptional growth in revenue that could lead to higher working capital investment.
Okay. Good. Got it. Thank you.
The next question is from Mr. Mulder from ING. Mr. Mulder, please go ahead.
Yes. Kjell Mulder from ING. Good morning.
Good morning, Kjell.
Yes. Good morning. Can you
say can you give some idea about the tax rate for 20 16? Yes. The guidance that we gave was somewhere between 25% 28% of the operating EBITDA after interest cost, and that guidance is still applicable. Okay. So there's no changes there?
No, no changes there. Okay. Thank you.
The next question is from Ms. Fotayeva from Deutsche Bank. Please go ahead.
Hi. A couple of follow ups, please. On your expansion in the U. S, from here on, would you expect to do more acquisitions kind of in the near term? Or are you currently focused on your projects to kind of cross pollinate, as you said?
And then secondly, could you just tell us how much of your gross profit growth was volume?
Thank you.
We will no, we will continue to look for opportunities in for acquisitions also in the U. S, and that will continue. So it's always end, end, and we hope that we can find the right targets and also close the right targets going forward. Price volume question is just too difficult for us in, again, what Hals explained, enormous number of products. Also the big differences in, let's say, prices of our individual products versus volumes, it doesn't give you any real guidance or indication.
If we do products which are €0.70 a kilo versus products that are €40 a kilo, it doesn't say you anything if there is a difference between price and volume. So I wouldn't focus on that.
My question was mostly volume versus kind of gross profit per SKU, so more kind of mix versus
volume. But We don't look at that anymore. Yes.
Okay. No
worries. And just
That's for the commodity guys.
Sure. Okay. Thank you. And finally, just on M and A in general, what is your how would you describe your pipeline at the moment?
It's lively, how do you say that, lively. So it's positive, hard work also. And you are not you are dependent on others when you can show some results, but we are optimistic that we will produce some results later in the year.
Great. Thank you very much.
No further questions.
Thanks. Thank you all for participating in the call, and I wish you a
good day.
Ladies and gentlemen, this concludes the conference call. You may now disconnect your line. Have a nice day.