Hello and welcome to the Brenntag SE full year 2023 results call. Throughout the call, all participants will be in a listen-only mode, and afterwards there will be a question-and-answer session. Please note this call is being recorded. Today I'm pleased to present Thomas Altmann. Please begin your meeting.
Thank you, Annika. Good afternoon, ladies and gentlemen. On behalf of Brenntag, I would like to welcome you to the earnings call for our full year 2023. On the call with me today are our CEO, Dr. Christian Kohlpaintner, and our CFO, Dr. Kristin Neumann. They will walk you through today's presentation, which is followed by a Q&A session. Our relevant documents have been published this morning on our website and can be found at brenntag.com in the investor relations section. In the same area, you will also find the recording of this call later today. Before we begin, allow me to point you to our Safe Harbor Statement, which you will find at the end of the slide deck. Also, I would like to make one additional comment.
As communicated last year during our Capital Markets Day and in line with our advanced operating model for Brenntag Essentials and Brenntag Specialties, we will change our reporting structure starting with our Q1 2024 results. Therefore, the numbers presented today for the full year 2023 are still based on our old reporting structure. With that, I'll hand over to our CEO, Dr. Christian Kohlpaintner. Christian, over to you.
Well, thank you, Thomas, and good afternoon, ladies and gentlemen. I will start with the highlights of 2023, and Kristin will then walk you through the details of our financial performance. As usual, we are both happy to answer your questions after the presentation. Brenntag showed a solid financial performance in 2023. Based on our unique strengths, our global reach, and our broad portfolio of products and services, we again proved the resilience of our business in a demanding environment. Despite macroeconomic challenges, ongoing geopolitical uncertainties, and inflationary trends, we were able to report the second-best financial results the company has ever achieved. Sales amounted to around EUR 17 billion, which is 11% lower compared to a strong prior year period. Operating gross profits stood at EUR 4 billion, which represents a decline of less than 4%.
Our operating EBITDA came in at around EUR 1.6 billion, which is a decline of 9% to last year. Operating EBITA amounted to around EUR 1.3 billion, a decline of 13% respectively, but in line with our communicated guidance for 2023. Earnings per share stood at EUR 4.73 compared to EUR 5.74 in 2022. The combination of our solid operational performance and the continued inflow from working capital led to a record cash flow for the group. The free cash flow for the full year stood at EUR 1.7 billion, our highest free cash flow ever recorded, and a proof point for the strong cash generation capability of our business. In addition to our solid financial performance, we continued to execute our transformation journey with further substantial strategic steps.
The latest strategic announcements made at our Capital Markets Day in December 2023 explained our path towards Horizon 3 of our comprehensive transformation, which includes, among others, the disentanglement of legal and operational structures within Brenntag. We are intensively working to create independence and autonomy for our two divisions, Brenntag Essentials and Brenntag Specialties, and we are making good progress. Also, January 1st, 2024, was the go-live of our Advanced Operating Model. This also includes the portfolio shifts between our two divisions and the new reporting structure, which will become visible with our Q1 results. As we always strive to create shareholder value and to let our shareholders participate in the successful performance of Brenntag, we have decided to propose a dividend of EUR 2.10 to the annual general meeting in May. This represents a payout ratio of 43% and a dividend growth rate of 5% compared to 2022.
It is also the 13th consecutive dividend increase since our IPO in 2010 and a continuation of our dividend growth track record. In addition, we announced Brenntag's first-ever share buyback program in 2023 with a volume of up to EUR 750 million, which was successfully completed this week. Together with our dividend payment last year, this adds up to additional returns to our shareholders of more than EUR 1 billion over the last 12 months. These great achievements are based on the exceptional commitment and expertise of our people at Brenntag. Therefore, I would like to say thank you to all our Brenntag colleagues across the globe who worked relentlessly to serve our customers and business partners and who helped to achieve these results in a challenging market environment. Now, let me say a few words on the outlook.
We achieved solid results in the fourth quarter of 2023, returned to growth, and continue to see slight sequential volume recovery on a per-day basis. As expected, gross profit per ton normalized in the course of 2023 and stabilized in the fourth quarter. For 2024, we expect a continuation of these trends, which would lead to a better business performance compared to 2023, primarily driven by volume improvements. Due to the continuing uncertainty and the challenging market environment, we guide for an operating EBITA for the full year 2024 in the range of EUR 1.23-EUR 1.43 billion. Let us now take a closer look at the environment Brenntag was facing last year. The global market dynamics in 2023 were again characterized by various cumulating factors and continued uncertainties.
We observed inflationary trends in most markets, high energy costs in Europe, which affected some of our focus industries, and prolonged destocking in anticipation of falling chemical prices. The destocking dynamic, which we observed at our customers, added to the slower demand resulting from the uncertain macroeconomic environment. However, during the second half of 2023, the destocking cycle appeared to have reached its end. The war in Ukraine and the Middle East conflict are adding to the geopolitical uncertainties and led to additional stress on and new tensions in global supply chains and further negative economic effects. As a result, market conditions in 2023 were characterized by high price volatility, particularly for raw materials and transport costs. Our excellent and reliable supplier base, as well as our longstanding customer relationships, were essential to navigate 2023 well.
In this environment, our business model, with its global reach and our ability to draw on multiple supply chains, gave us the ability to capture business opportunities, one of the key competitive advantages of Brenntag. Ladies and gentlemen, as already mentioned, we continue to execute our strategic agenda, and here I would like to highlight our strong focus on value creating and on A. We have successfully closed or signed eight acquisitions in 2023 with a total enterprise value of around EUR 517 million. The majority of our acquisitions was associated to our specialties business and, in particular, focusing on attractive end markets like nutrition, personal care, and pharma, catering clearly to our strategic ambition to grow in the life science sector. But also, our M&A activity for Brenntag Essentials is clearly aligned with our strategic targets.
In Q4 last year, we signed the acquisition of Solventis, an established glycols and solvents distribution company operating from Belgium and the U.K., which provides Brenntag access to a state-of-the-art tollgate at the port of Antwerp, the major chemical hub in Europe. We will continue our M&A execution and are confident to reach our planned annual M&A corridor of EUR 400 million-EUR 500 million again in 2024. Now, I would like to hand over to Kristin, who will talk about the financial performance in 2023 in more detail. Kristin.
Thank you, Christian. Also from my side, a warm welcome to everyone on this call. I will now talk about our key financial figures for the full year 2023, and I will start with the development of our operating EBITA on group level. As a reminder, when talking about growth rates, we generally talk about FX-adjusted rates. This is important this year as we faced a sizable translational FX headwind. Please have a look at the bridge on the left-hand side of slide 7. In 2022, we reported an exceptionally strong operating EBITA of EUR 1.512 billion. The translational foreign exchange effect in 2023 had a negative impact of EUR 56 million. Our acquisitions contributed EUR 10 million to the operating EBITA growth. This includes six acquisitions closed in 2023.
Here, I would like to add that 5 of these acquisitions were closed in the second half of 2023, and 2 further acquisitions were only signed but will be closed in the course of 2024. Therefore, we expect to see a more meaningful M&A contribution this year. Looking at the EBITA bridge again, this represents an organic operating EBITA decline of EUR 201 million. Overall, we reported an operating EBITA of EUR 1.265 million for the whole group, which is in line with our expectations that we have communicated in our guidance announcements throughout the year. Compared to the very strong prior year performance, this represents a decrease of 30%. Our results were overall characterized by the continuously challenging market environment. As expected, volumes were below 2022. However, we have seen slight sequential improvements, particularly in the second half of 2023.
Gross profit per unit for the group was slightly higher compared to 2022 but characterized by a strong level in Q1 2023 and gradual normalization in the course of the year, which was according to our expectations. On the right-hand side, you will find a more detailed view by divisions and all other segments. Operating EBITA growth for Brenntag Specialties was -22%, and for Brenntag Essentials, the growth rate was -5% year-over-year. I will talk about the divisional development in more detail in a minute. The group EBITA conversion ratio came in at 31%, which is 370 basis points below the very strong level of 2022. Let me briefly talk about our Q4 development. When looking at our operating gross profit, the trends we observed in Q3 continued into the fourth quarter.
We saw slight sequential volume improvements on a per-day basis in combination with stable gross profit per unit, which led to an operating gross profit more or less in line with Q4 2022. From a cost perspective, we saw a significant reduction in Q4 compared to the prior year quarter, which is partly driven by one-off cost items booked in 2022 but also related to our cost-containment measures. This resulted in an operating EBITA of EUR 285 million in Q4, which is an increase of 12% compared to the prior year period. For further details on the Q4 financials, please refer to the appendix of this presentation. Coming to page 8, Brenntag Specialties reported an operating gross profit decline of 8% to EUR 1.5 billion in 2023. Operating EBITA declined by 22% and reached EUR 551 million.
The EBITA conversion ratio for Brenntag Specialties was 37% and below the prior year level of 44%. The results of Brenntag Specialties were affected by negative volume developments in 2023 in combination with falling sales prices, particularly in the first half of the year. Gross profit per unit was slightly lower compared to 2022. Let us have a closer look at our focus industries. Pharma and Water Treatment performed very well in the course of 2023, but due to their relative size, both could not compensate for lower demand in other segments where customers ordered lower volumes in anticipation of further falling prices. Nutrition and Personal Care, HI& I, showed a negative performance compared to the strong prior year earnings, especially driven by volume and price declines of non-branded ingredients. The performance of the Materials Science sector continued to be negatively impacted by muted construction activity across all regions.
Our lubricants business within Brenntag Specialties performed slightly below the prior year level. Operating expenses for Brenntag Specialties increased slightly year-over-year, mainly driven by M&A. On an organic basis, costs were in line with the prior year figure. Higher fixed personnel expenses and investments in the context of our strategic initiatives were more or less compensated by our cost-containment measures and overall lower volume-related costs. Let us take a closer look at Brenntag Essentials. Brenntag Essentials reported an operating gross profit of EUR 2.5 billion, which is only 1% lower compared to the very strong prior year and a proof point for the strength and resilience of our essentials business. Operating EBITA stood at EUR 849 million. This is 5% below the strong prior year figure. The EBITA conversion ratio for the division came in at around 34% compared to 35% one year earlier.
With the exception of North America, all regions saw a decline in EBITA compared to the strong performance in 2022. In EMEA and Latin America, our performance was characterized by lower volumes in combination with slightly lower gross profit per unit. The North American market proved to be very robust despite macroeconomic uncertainties and showed a strong earnings development, which was driven by higher gross profit per unit but volumes, which were slightly lower compared to 2022. In APEC, we saw a slight increase in volumes in an overall challenging environment. At the same time, this was not enough to compensate for the decrease in gross profit per unit. Operating expenses, including acquisitions for Brenntag Essentials, remained largely stable compared to the prior year periods. On an organic basis, the division was able to reduce costs compared to 2022 despite the inflationary trends and the IT investments in our future.
This is driven by overall lower volumes compared to the previous year and by our cost-saving measures. Let me briefly address the development in all other segments. In all other segments, which mainly include the holding companies, we recorded a negative operating EBITA contribution of EUR 135 million. Compared to last year's result, this is an improvement of 1%. The only operating company within all other segments achieved an operating EBITA below the prior year figure due to the trends in volumes, which we described earlier. From a cost perspective, we recorded a clear year-on-year reduction, which was mainly due to lower variable personnel expenses. Moving to slide 10, where we look at the income statement in more detail compared to last year, we generated sales of EUR 16.8 billion, a decline of 11%. Our operating gross profit stood at EUR 4 billion.
This represents a decline of less than 4% compared to the exceptionally strong prior year. Operating expenses, excluding special items, remained stable compared to 2022 on an FX-adjusted basis. I will talk about our cost development in more detail in a minute, but let us first continue with the income statement. Special items below operating EBITA had a negative effect of EUR 78 million. This is mainly related to provisions for legal risks in the amount of EUR 31 million, as well as costs associated to fires at a Brenntag site in Canada and a third-party warehouse in Turkey in the amount of EUR 29 million. For our Canadian side, these costs are net of insurance payments received so far and include loss of inventory, repairs, remediation of the resulting environmental damage, and maintenance of our business activities.
For the third-party site in Turkey, the costs are predominantly related to loss of inventory, also here net of insurance payments received so far. Depreciation and amortization amounted to EUR 384 million compared to EUR 406 million in 2022. The decline is mainly related to a goodwill impairment loss in Latin America, which we recognized last year. Net finance costs of EUR 120 million were significantly below the prior year period figure of EUR 148 million. This is mainly related to one-off gains from the valuation of purchase price liabilities counterbalancing higher interest expenses. Our financial performance translated into a profit after tax of EUR 721 million and earnings per share of EUR 4.73. This compares to the very strong prior year profit after tax of EUR 903 million and earnings per share of EUR 5.74. In summary, the results are in line with our expectations in a continuously challenging market environment.
To provide more clarity on the development of our operating expenses, we show an OpEx bridge on slide 11. In 2022, we reported operating expenses of EUR 2.510 Billion. The translational foreign exchange effect in 2023 had a positive impact of around EUR 60 million. Additional costs from acquired companies and for our DiDEX and IT investments led to an increase in operating expenses of around EUR 120 million. When looking at our underlying cost development, we were able to reduce OpEx by around EUR 60 million despite overall cost inflation, particularly in wages. The reduction includes variable personnel and transport expenses and is related to our cost-containment measures, which we initiated in the course of the year but also due to lower volume-related costs.
Our cost-containment measures included, among others, the closure of 25 sites and an organic headcount reduction of more than 500 headcount compared to the end of June 2023, which was achieved in a socially responsible manner and exceeded the target of a reduction of 300 headcount. Operating expenses for the group stood at EUR 2.457 million at the end of 2023. Let me emphasize again that we will continue to focus on our cost development and execute our cost takeout as announced at our Capital Markets Day in December last year. Coming to page 12 and the free cash flow. In 2023, we generated a record free cash flow of EUR 1.7 billion, which is the highest free cash flow Brenntag has ever reached.
The significant increase in Free Cash Flow generation is mainly due to the cash inflow from working capital, whereas we reported an outflow for investments in our working capital in 2022. Our working capital turnover was lower compared to the average working capital turn of last year and stood at 7.3x. The prior year was characterized by a strong working capital turn, particularly at the beginning of 2022. However, in the second half of 2023, we achieved continued improvements in our working capital management, particularly driven by lower days of inventory held and higher days of purchases outstanding. We remain focused on our working capital management, and we are confident to further improve our working capital turn this year. Let me briefly touch upon our value creation metric, ROCE. Brenntag consistently creates substantial value with our ROCE being significantly above our cost of capital.
For 2023, the ROCI stood at 18%. This is two percentage points above the average ROCI over the last 10 years and clearly above our WACC of 8.5%. Our ROCI before special items came in at 19%. Looking at our balance sheet, our net financial liabilities amounted to EUR 2.2 billion at the end of 2023. Our leverage ratio, which is net debt to operating EBITDA, remains on low levels and stood at 1.4x . On the right-hand side of the slide, you can see our current maturity profile, which visualizes our strong financing structure. With this, I would like to hand back to Christian to talk about the outlook for 2024.
Well, thank you, Kristin. Ladies and gentlemen, let me close with the outlook. For 2024, we expect a challenging business environment characterized by ongoing geopolitical uncertainty, macroeconomic challenges, and unknown outcomes of important political elections.
At the same time, we also expect improvements in overall demand, which would lead to higher volumes. Throughout 2023, we have seen a slight sequential volume recovery on a per-day basis and, as expected, gross profit per unit normalized in the course of 2023 and stabilized in the fourth quarter. We expect a continuation of these trends, which would lead to a better business performance compared to 2023, primarily driven by volume improvements. At the same time, we expect overall operating expenses to be higher than 2023 due to continued inflationary trends, mainly from personnel expenses and due to further investments into our DiDEX and IT initiatives. In light of the current economic conditions and the trends we just described, we expect the Brenntag Group operating EBITA for 2024 to be in the range of EUR 1.23- EUR 1.43 billion.
Our forecast takes into account the contributions to earnings from acquisitions already closed and assumes that exchange rates will remain stable on the level at the time of the results publication. With this, I would like to close the presentation now and thank all of you for participating in today's call. We're looking forward now to your questions. Thank you.
Thank you. If you do wish to ask an audio question, please press star 11 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star 11 again to cancel. Once again, it is star 11 to register for a question. The first question comes from the line of Rory McKenzie from UBS. Please go ahead.
Good afternoon. It's Rory here. Firstly, questions to check your comments on volume and price.
I think you said that in Q4, the average gross profit per unit had stabilized. So does that mean that with operating gross profit down 1.2% year-over-year at constant currencies, and then there's about a 1% M&A contribution, does that mean that organic volumes were down about 2%-3% year-over-year in Q4? Is that the only question you have? I've got two more on SG&A, but maybe just do the volume one first. Yeah. I thought you'd take all three and then go through it if that's fine. Absolutely. Of course. Yeah. So there are two questions on the SG&A. So it was down 3% sequentially Q3 to Q4, I think, but there were a lot of moving parts looking at the back of your accounts. Can you talk about what's in the other income line?
That looks like it was nearly double in Q4 this year than last year, and equally, some of the other cost lines reduced a lot as well in Q4. So can you just talk about any one-offs you'd call out either from last year or this year? And then secondly, on SG&A, can you just go through those comments again about how SG&A is going to increase further in FY 2024? I thought that one of the messages from your Capital Markets Day was that we're getting towards the point where you can start to see a net benefit from the investment versus savings plans that you've made. So just maybe update us on when you think that inflection could come through. Thank you.
Again, I leave the two SG&A questions to Kristin on the volume and price development.
I think we have seen sequential gradual volume increases throughout the year, and we always said second half of 2023 will volume-wise be slightly better than the first half. I think that materialized, and that is what we clearly see. Currently, my concern is not so much the volume piece. I think when we look at the current trading and how the first quarter started, we continue that trajectory, as we have said. I mean, volume appears to be recovering, actually also in Europe, which is, I would say, a positive surprise. On the pricing side, that's all what it is about, maintaining the gross profit per unit stable, and that what we have accomplished in Q4 was actually a good result. As for the time being, we see the pricing probably as the most critical debate going into Q1.
But from the underlying demand, it is true that the momentum we have indicated went from Q3 into Q4 and then also continues into Q1. Kristin, do you want to say about SG&A?
Yes. Rory and also hello from my side. If you look at the Q4 development, SG&A, yes, that is driven by twofold. If you look also in comparison to the prior year, if you look at the prior year, we had some one-off cost-out items in there and expenses. You remember that we had some one-off payments in Q4 2022. At the same time, we had some positive effects also here, one-offs in Q4 2023, and also especially in the other income. We had some asset disposals and also some income from divestitures, especially in the U.S. The asset disposals refer to disposals in China.
On top of that, we had lower net debt reserves we had to take, which led to a favorable cost position in Q4. However, on top of that, also our cost-containment measures kicked in, and also from the measures we initiated at the beginning of H2, we saw some better development. If you look into the year 2024, our OpEx is expected to grow by a mid-single-digit percentage point above prior year. This is primarily driven by higher personal expenses, not that much driven by higher headcount numbers but by inflation. And we will also see increased volumes, which will also lead to higher OpEx and also the always referred to DiDEX investments, which will continue in the year 2024. I hope that this answered your questions.
Yes. That's helpful additional detail. Thank you.
The next question comes from the line of Alex, one second. The next question comes from the line of Alex Stewart from Barclays. Please go ahead.
Hi there. Good afternoon. Thanks for taking my questions. There's two questions, both of them on the North American Essentials business. If I look back over your releases, the second quarter release in Essentials said you had a fall in operating gross profit per unit in almost all segments. The third quarter press release said, "In North America, the normalization in operating gross profit per unit was less pronounced." But then in the full-year statement, you say, "In the North America segment, operating gross profit per unit was well above the previous year." So for the first three months, operating gross profit per unit was sort of either flat or slightly down, and then for the full year, it was well above. That suggests to me that something changed in the fourth quarter.
Can you confirm that? And then related to that, I suppose, in North America Essentials, you booked EUR 20 million of depreciation in Q1, Q2, and Q3, oh, sorry, EUR 30 million, and then EUR 40 million depreciation in Q4. Could you also explain that? It'd be very helpful to have some context around both those points. Thank you.
So coming back to the depreciation, we had in North America to make a correction in our depreciation in the fourth quarter, which was around EUR 10 million because a lease contract, which we thought would be a lease contract, was classified as being investment in assets. And therefore, we had to increase the depreciation, and we had to reclassify that from the OpEx cost. So that was a misclassification at the beginning.
So therefore, if you take the average over all 4 quarters, you have the normal depreciation you can also take as an estimate for the year 2024. Coming to the North America gross profit development, that referred especially to the prior year numbers where we did not see such a pronounced GP per ton development for North America in comparison to EMEA. So that was a driver why the drop in GP per ton was not that big.
Can I just follow up on the depreciation point? Sorry. If you booked EUR 10 million additional D&A, does that mean that EUR 10 million of cost has moved out of operating cost and into depreciation? In other words, EBITDA is now EUR 10 million higher because of the reclassification of cost. Is that the right way to think about it? And is that what's going to happen through 2024, or is this a one-time adjustment?
So absolutely. In Q4, we saw a higher depreciation and a lower OPEX because we corrected that for the full year. Going forward, the D and also the OPEX is adjusted by the average, so to say, on a quarter-by-quarter basis. So that was a one-off effect in Q4, and that referred to the entire year exactly. Does that help?
Thank you very much.
The next question comes from the line of Rikin Patel from BNP Paribas Exane. Please go ahead.
Hi. Good afternoon. Thanks for taking my questions. Firstly, just a couple of questions on your guidance. At the midpoint, could you maybe elaborate what sort of M&A contribution you're factoring in there from the deals you've already closed last year? And then secondly, more just around the market.
So curious if you've seen any impact from the disruptions in the Red Sea year to date. And then also, given we've now had energy costs and gas prices decline quite significantly in Europe, have you also seen any increase in availability of products from suppliers? Thank you.
Let me cover that. Hello. How are you? When we look at the market and the disruptions, let me start with the Red Sea situation first. Currently, this is nonsense but not really a disruption. I think the prolonged shipping times are well known. I think we have now prolonged shipping times for about 2-3 weeks. But still, container availability, volume availability to ship products across the ocean is there.
You see that reflected in higher transportation costs out of Asia and China in particular, of about 2-3 times compared to where it has on a normalized level. But Brenntag typically is quite well positioned to pass on those increased transportation costs. So I would say not yet a disruption, which is comparable to what we have seen 2021 and 2022. It's intense, and we are dealing quite well with that. The competitiveness of the European chemical industry, also based on the high energy cost, is, of course, a concern. But I think I've frequently explained that we are catering to the domestic demand, which is in the market, and we can source also either domestically or from another source worldwide to bring in material into the end market.
So our exposure towards high energy costs from the European manufacturers, of course, it's not negligible, but it's not really not doing anything else. So that brings product availability. We don't see currently without one value chain, which are the ethylene oxide derivatives, because there has been massive plant shutdowns in the ethylene oxide derivative value chain, which then is going into surfactants predominantly. You see that there are currently quite some shortages. We see this and clearly hear this from our suppliers, but that's about it. I mean, what is encouraging for us when we talk about the volume development in 2024, what we see at this moment is what we have predicted is materializing so that we see recovering volumes, interestingly enough, different by those two divisions. We see some very good developments in Essentials in our industrial chemicals business volume-wise.
We don't see this yet in specialties, with the exception of the materials science sector, where we do see a slight volume recovery now from the very low volumes we had in the materials science part of specialties. That all gives me a good indication that actually the demand is indeed already picking up. It has been driven in the Essentials part strongly by North America so far, but also in the first two months, we see now also volume recovery in Europe. And that, again, is reflecting our prediction, what we have been given to you, that we do expect that 2024 volumes will be better than 2023 volumes. And I think the first two months do confirm that. Whereas the critical topic is, of course, pricing right now. I mean, you see that the manufacturers also seem to see increasing volumes.
So there's less willingness to support on the pricing level to move volume. So we need to see how that plays out. And that leads us to this guidance we gave to you also midpoint. So we have many moving parts. Some of them are actually quite good. And it's good news, actually, I would say, for the whole chemical industry that it appears that demand and volumes are recovering and improving in the first quarter already. And again, what it means at the end of the day, also geopolitically and with other uncertainties attached to it and the pricing topic, we need to see how that plays out for the whole quarter. So that's roughly the scenario as we see it at this moment. I hope that answers your request and your questions.
In addition to that, coming back to your M&A questions, included in the guidance and if you refer to the midpoint of EUR 1,330, we have incorporated all already closed deals, and we have incorporated a number which is between the low- and mid-two-digit million EUR number. For instance, if you look at the ones which are not closed yet, there is one major acquisition which will only close later that is not included in the guidance.
Okay. Thank you both.
The next question comes from the line of Chetan Udeshi from J.P. Morgan. Please go ahead.
Yeah. Hi. Thanks. Christian, I was confused about your comments on you said something about pricing is something which is uncertain, and I'm not fully sure how do I interpret those comments.
Are you saying that you see that as a source of upside, or are you saying that may be a source of downside for Brenntag because, clearly, those very low prices that you might have been able to buy at last year probably don't exist anymore? And also on a similar topic, is it a case that last year, Brenntag actually benefited from sourcing cheap chemicals from China and selling it in other parts of the world at higher prices? And now with Red Sea, etc., is that arbitrage reducing for Brenntag? Third question, any color on Q1? I mean, I heard you talk about the volumes, but in terms of EBITDA, would you expect at least that seasonal pickup that we usually see in Q1 versus Q4, or do you see different dynamics? And last one for Kristin, a quick one, any guidance on special items for 2024?
Because I saw in Q4, those were much bigger than at least I was expecting. And how much of those special items will actually be cash relevant? Thank you.
Yeah. And thanks for the questions, Chetan, and sorry for confusion. What I wanted to draw your attention to, that when we look at the moving parts of our guidance and we get confirmation of our clear prediction on the volume side, the pricing side can be going in both directions at this moment, to be honest, because we see now a relatively dynamic change in how suppliers and customers do behave. You probably don't hear this yet from the large suppliers, but I think at some point of time, you will see that they also observe quite a recovery volume-wise, at least in certain product groups. So we need to see how that dynamic is now playing out.
It's a day-to-day conversation and a day-to-day fight, if you want to call it that way, for the best commercial conditions. And that's what I wanted to allude and bring your attention to, what that could mean for Brenntag. So it can be both directions. Let's see how it plays out, adding also maybe if there are further pickups or further distortions in the supply chain of how that might go. But I just want to be very explicit when we talk about the positive development as the year started. We talk about the volume development at this moment. Benefiting from sourcing from China, yes, but not determining everything. I think we have, for instance, in 2023, also drawn on raw materials we brought from North America into Europe. So it's not always only Asia and China exporting and we serving the European market with access to cheaper raw materials.
I mean, it has been also a year, and here, I would agree with your assessment, that Brenntag had indeed a benefit of the tight and close relationship with our key suppliers who were interested to move volume into the market. And this has led to a gross profit margin increase, as I have commented this over the quarters in 2023 very clearly. Again, China is still a source of highly competitive raw materials out of China. And so I think we still draw on those capabilities. Again, it's one of our key strengths, which we are playing out. So Q1, the color, as I have said, we have a confirmation of our demand pattern in North America. For me, a little bit surprising is the positive volume development in Europe and also the positive indication for volume recovery in specialties in materials science only at this moment.
That tells me, knowing the industry quite well, that this is actually quite a good indicator that things in first quarter and second quarter will be probably better than a lot of people thought that it might be, at least from a demand standpoint if you're now. Let's see how the other moving parts play out. On the special items, I would refer to Kristin to give you a little bit color and granularity on this one as far as we can tell.
Absolutely. If we look back at 2023, roughly half of the special items have been cash relevant. Looking into the year 2024, I think we need to look at it from two angles. First of all, out of the fires, we still expect also some positive income from our insurance, which have not been reported and recorded yet.
On the second part, also on the legal topics, it could well be that there are still some cases coming because that refers to the sale of certain minerals. And it could well be that there are more cases coming. But on the other hand, we will also claim with third party to get reimbursed for that. So that is not that easy to predict. Overall, you know that we announced in the capital markets day in November in December, sorry, that there will be one-off costs for two things. First of all, to achieve the cost out. And the second part is then referred to the legal and operations disentanglement. We called out a number, all in all, for the two topics of EUR 450 million-EUR 650 million. And we expect a low three-digit million number of that coming in the year 2024.
I hope that this answered your question. And also here, cash relevance, that will be the bigger part here, will cash relevant.
Thanks. I didn't hear a specific comment on Q1 EBITDA, or maybe I missed if you mentioned it.
No, not yet, Chetan.
Once again, ladies and gentlemen, if you do wish to ask an audio question, please press STAR 11 on your telephone keypad. The next question comes from the line of Dominic Edridge from Deutsche Bank. Please go ahead.
Hello. Thanks for taking my questions. Just two, hopefully quite quick ones. Firstly, I know in the guidance, it suggests that the growth in specialties will be better than the growth in essentials in 2024. Is that just literally down to the base effect, i.e., that essentials perform better in 2023, or is that telling us something about how you're expecting the recovery in the respective markets?
And then the second question was just on the EBITA performance for the essentials business in APAC. Obviously, it seems very weak versus the rise in volumes. Is this purely a case of it being driven by the surplus of product coming out of China and therefore depressing prices, or is it a significant more competition in those markets versus other reasons, or is there something else you would highlight there? Thank you very much.
Yeah. Let me start with the second question because maybe you need to rephrase the first one because we didn't get it acoustically quite well. So on the EBITA development no problem. On the EBITA in essentials and APAC, I mean, APAC is also for essentials a tremendously competitive market, let's face it. And again, for essentials, the APAC market, with the exception of China, is still a small one.
So after the acquisition of ACMO, we have now built the tollgate, and Essentials is now penetrating the Asia-Pacific market. Let's face it, it's a very, very competitive playing field. China is still an issue, if I want to call it that way. I mean, we have seen gradual improvements, in particular in the second half, but the start into 2024 has been less than brilliant in China, I must say. Now we need to see after they come back from Chinese New Year and how that plays out. But for the time being, the Asian business for Essentials is not our core focus of concern or hopes or upswing. It is actually North America and Europe. We see encouraging business activity development in this division, as I said, also surprisingly in Europe.
Now, Dominic, could you maybe repeat the first question because I think we didn't get it clearly?
Maybe let me repeat it if I got it right.
No, no problem.
Maybe let me repeat it if I got it right. You wanted to know if the growth in Specialties is higher compared to the growth of Essentials in 2024. Is that correct?
Yeah. Because I think in your annual report, you say they're expecting better growth in Specialties versus Essentials. And I'm just wondering, is that just due to a base effect, i.e., Essentials performing better in 2023, or is that suggesting you're expecting more of a recovery in Specialties in 2024?
Absolutely. That is definitely the case. So we will see or we hope or we plan to see a higher recovery of Brenntag Specialties driven by both GP recovery, GP per ton recovery, and also volume recovery, exactly.
Okay. Thank you. And apologies for the misunderstanding.
No problem.
No problem.
All good.
If there are no further questions, I will return the conference back to you, speakers.
Thank you, Annika. This brings us to the end of the conference call. In case of further questions, please don't hesitate to reach out to the IR team. As a reminder, our Q1 results will be published on May 14th, 2024. Ladies and gentlemen, thank you very much for your interest in Brenntag and joining us today. I wish you all a good day and a great week. Goodbye.
Thank you. This now concludes our presentation. Thank you all for attending. You may now disconnect.