Earnings Call: Q1 2020

May 7, 2020

Dear ladies and gentlemen, and welcome to the Q1 2020 results call of contact AD. As our customer's request, this conference will be recorded. As a reminder, all participants will be in a listen only mode and after the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star key followed by 0 on your telephone for operator assistance. May I now hand you over to Kristin Cohen who will lead you to this conference. Please go ahead, sir. Well, thank you. Welcome, ladies and gentlemen, to the results call for the first quarter 2020 of Brintech AG. I'm Christian Copponen, and I'm here together with our CFO, Gilberto Miller. Today, we will walk you through the details of our business in the past quarter during these extraordinary times. I will start with the highlights and georg, will provide details on the financials the first quarter reporting period. Afterwards, I will talk about the progress we have made in our holistic diagnosis. Now I'll provide an overview of the business development in the first quarter. Due to the COVID 19 pandemic, we are all facing very special and unique circumstances both in our private and business lives. I'm going to speak about the impact of the virus on our operational and financial performance in more detail on the next slide. Despite the challenging environment, we accomplished a solid performance and the company demonstrated the resubmit nature of its business model. The group generated an operating gross profit of EUR 745,000,000, an increase of 7.1% on an FX adjusted basis. Operating EBITDA grew by 8.7 percent in constant currency amounting to 263,000,000. At 1000000, the free cash flow was about at the same high level we achieved a year ago. Also, we saw improvements in working capital management. Finally, our EPS amounted to in the first quarter. I would like to emphasize that on the one hand, we implemented a global crisis management and on the other hand, continued to work on the long term position of our company both at the same time. Our General Shareholders' meeting is planned to take place on June 10, 2020. In order proceed with the originally envisioned timeline, the Supervisory Board and the Management Board have decided to go ahead with a full virtual general shareowners meeting without physical presence of shareholders. We confirm our dividend proposal of per share as communicated in March. Of course, this is subject to the approval by our shareholders. Our confidence in the resilient and cash generating nature of our business model enables us to maintain our reliable dividend payments. It is fair to say that the spread of the coronavirus came unexpectedly in speed and scope. For every one of us. Against this background, we managed to handle this crisis very well globally so far. As you can see from our solid results, we had only limited impact on our business activities and financial performance in Q1. Of course, our primary goal has been and remains to assure the health and safety of all our employees and business partners. We have set up a global crisis task force and put our extended business continuity plans in place. We had no meaningful business disruptions. And as of today, basically all of our sites work fully operational. Brentac has proven its ability to deal with challenging conditions and circumstances. Looking into the near term future, we do see a high level of uncertainty and the situation around the world is quite dynamic. The diversification of our company strongly supports our students. Our global footprint and the regional spread will help us to cope with the challenges in times of crisis. We are servicing a broad and diverse range of industry segments with a customer base of around 195,000 customers in total. What will also be important in the current situation is our strong financial profile. Firstly, we don't have immediate debt maturities. The next main maturities due only end of 2022. And secondly, We have close to EUR 600,000,000 cash on our balance sheet plus around EUR 600,000,000 of committed and undrawn credit lines. Clearly, this crisis is not over yet, and the high level of uncertainty will remain in the months to come. Of course, the work of our crisis task force continues and the management team keeps monitoring the business development closely. We feel well positioned to deal with the challenging environment. With this, I would like to hand over to Dirk to lead us through the numbers. Thanks, Christian, and good afternoon. I will speak about the key financial figures for the first quarter 2020, starting with the development of operating EBITDA. So slide presents a bridge from the first quarter 2019 to 1st quarter 2020. Operating EBITDA amounted to EUR 239,000,000 in the first quarter a year ago. The translational foreign exchange effect was almost negligible at a positive EUR 3,000,000. Our acquisitions contributed EUR 9,000,000 to EBITDA growth in the quarter. In Q1, particularly in EMEA and Latin America showed a positive organic earnings development, both with double digit growth. North America declined by 6% organically, mainly driven by the weakness in the oil and gas customer industry. Asia Pacific reported a positive organic growth of 2%. As a side note, the fair share of the M and A contribution is allocated to Asia. On the next slide, let me provide some details of the business development in the regions. Despite the difficult environment, the company stayed fully operational in all regions. In EMEA, we showed a very strong result in the first quarter. Most of our customers kept their business operations up despite the crisis. Within our portfolio, some customer industries performed particularly strong, for example, the food industry or the cleaning industry. Almost all countries in EMEA contributed to the growth Gross profit grew by 13% on a constant currency basis. Operating EBITDA increased by 21%, whereas 19% is organic growth. So it does underline the strength and the visibility of our business. This is a good platform to build on, even if the environment should get more difficult going forward. I'm coming to North America. The Q1 results were clearly impacted by the weakness in the oil and gas customer industry, which in turn is mainly attributable to the significant decrease in the oil price. In particular, the demand of our customers in the upstream business was hit. Like in Europe, we saw good business development in other customer industries, However, this could not compensate the weakness in oil and gas fully. In total, gross profit in North America was on last year's level. Operating EBITDA decreased by 4.6% and by 6% organically. Latin America reported good results in the still volatile environment. In the quarter, we were able to grow operating gross profit by 16.5%. Operating EBITDA increased by 25%, Organically, this was an increase of 16%. We are also satisfied with the results we reported in Asia Pacific. In Q1, the business in China was clearly most affected by COVID19, given that there was a comprehensive shutdown in January and February. However, production in China is now getting back to normal which we have also seen reflected in our business. Cost profit in the region increased by 9.5% on a constant currency basis, This was also supported by acquisitions, mainly key high in Singapore. Operating EBITDA increased by 20% organically This was an increase of 2%. In summary, we navigated well through a difficult operational environment, We kept the business for the operational, and we delivered an increase in earnings. The uncertainty about the next quarter's remain tight and be staying very close to our market. I will skip Slide number 8 which includes a full set of segmental figures for your reference. Let me address the income statement particularly aligns below operating EBITDA on page 9. We reported special items, amounting to an expense of almost 1,000,000, Cristiano already addressed, and he will speak further about the progress of our holistic diagnosis. Sustential item relates to expenses for this effort. Depreciation amounted to 1,000,000. Financial results amounted to a net expense of EUR 24,000,000. So earnings per share stood at EUR 0.74 compared to EUR 0.68 a year ago, an increase of around 9%. So free cash flow was at 1000000, almost at a very high level achieved in previous year. And let me emphasize that upon Q1 2019 was a very high free cash flow in the story context, and we almost matched that number in the first quarter this year. As you see from the cash, free cash flow details, CapEx stood at 1,000,000. And let me add a technical remark. Since January 2019, we apply IFRS steam for rental and leasing in the interest of a consistent presentation, we deduct payments for rent and lease from the free cash flow. On the subsequent page 11, you can see that our financial liabilities amount to 1,000,000,000. This already includes capitalized lease liabilities under IFRS 16. The leverage stands at 2.0 times. Please note that the leverage calculation does also include the capitalized lease liabilities. In the text box on the right hand side, the UC indication, that risk calculation method increases the leverage by about 0.2 times. These days, we get plenty of questions on financial covenants. Our syndicated loan is the only instrument containing the financial covenant. The covenant requires the leverage to say below 3.46 times. You see we have plenty of headroom. In the current situation, which is characterized by a high degree of uncertainty, due to the impacts of the COVID 19 pandemic. I want to emphasize, once again, Grand Track's strong funding profile. We have a very balanced and very long term oriented maturity profile. The first main maturity comes up only towards the end of 2022. In addition, we have more than EUR 500,000,000 cash on our balance sheet and further 1,000,000 of undrawn and committed credit facilities. As you can see on the a quarter. We put increased attention on working capital management and achieved a working capital turn improvement to a level of 7.3x. In summary, We are satisfied with the financial results of the quarter. We delivered earnings growth, a high and stable cash flow, as well as an improved working capital management. I'll pass the presentation back to Christian. Thanks, Gerald. With the publication of our full year 2019 results, I talked about the strength of bank tag and the solid foundation we already have. We are the global market leader with a proven and strong business model. Our diversification makes us very resilient and the company is financially sound. This is a very strong setup in a crisis like the one we have at the moment. However, in the past years, Brentech was not able to grow earnings organically. We, as a management team, are convinced that organic earnings growth can and has to be achieved in a market like ours and with our position. In order to address this in a different and more effective manner in the future. We have started a holistic analysis at the beginning of the year. The efforts we make with this approach will lead to our overall objective, an improvement with our business performance particularly the generation of sustainable organic earnings growth. I would like to emphasize that in the challenging environment over the past quarter, we dealt well with both the short term crisis management and the continued work on the long term positioning of our company. We have made good progress on our holistic analysis. And the work carries on unaltered in scope and in speed. We are following our agenda and our objectives have not changed. Based on the first findings, we are currently detailing our conclusions. Defining distinctive initiatives and creating an overarching plan for implementation. For this purpose, and as we have entered into a new phase, we have now created Project Brandtech. This is a comprehensive project where we have allocated substantial, dedicated internal and external resources. Let me provide some more details of what project Brantac is all about. Project RentUp helps us achieving our overarching objectives. For the time being, The project is focusing on the following 4 major work streams. 1st, our operating model. 2nd, our go to market approach. 3rd, our site network optimization enforced our people and change. I would like to clearly point out that the project is not limited to these work streams. These are the major structural changes. We are targeting. In addition to that, we have also identified short term movers such as indirect procurement, working capital management and margin as well as pricing management. Project Rentals will be an extensive exercise. Today, I will share our current thinking with respect to the 4 major breakthroughs. I'll start with details on the first work stream operating model. Brantac is the global market leader in full line chemical distribution. This high degree of diversification has a lot of advantages. Due to our international footprint, we are already quite close to our local customers. We can leverage scale effects within our strong network across the industry segments which we are serving. Our broad product portfolio allows us to individually service our customers with tailor made offerings. We are not dependent on senior customers or suppliers. This diversification helps us to generate resilient results also in difficult conditions. Having centers, Foothline Kennedy Distribution will remain the core of Brantac's business model and Brantac continues to offer the most comprehensive portfolio of products and services however, we have to sharpen our profile towards relevant industry segments. This will expand our service offering and strengthen our position as a solutions provider. As a part of project printer, we are evaluating how we can further develop our organizational setup in order to create a stronger focus on attractive industries while at the same time better utilizing our scale as the global market leader. We are going to better leverage our specialist knowledge in this industry. This will lead to strong and long term partnerships with our customers and suppliers. The future operating model includes a centralized management and steering approach. Randstad will further develop its spec and business support processes. Based on this approach, we envision fit for purpose and cost efficient functions and business support services. This means that we're getting modernized, harmonized and standardized our business support processes and build advanced shared services for Brantac. Beginning of March, we already talked about the importance of customer management and the value delivery to our customers. This will be reflected in and focused on with our go to market approach, our 2nd web stream. We are going to create a more targeted and differentiated customer approach. Based on an advanced and stringent customer segmentation. This segmentation provides benefits for our customers and suppliers S and P helped us to better respond fully in the different needs of our customers. We will leverage our strong industry segments know how drive our segments specific offerings and provide the required customer focus. In order to achieve this, we will adapt our sales organization. The goal is to reduce complexity and to increase the focus within our brands and sales organization. This will come with an optimized and tailor made deployment of our Salesforce. The new setup will only permit an even closer proximity to our customers, but also an overall efficiency gain for our organization. The 3rd work stream of project bank that is called site network optimization. GranTech has grown significantly. We lost decades also through acquisitions, and so has our site network. Currently, we are operating around 6 forty sites globally. In light of our closed and earnings ambitions, you also see a significant potential to optimize this footprint on a yearly basis. Here, we see the largest of communities in our regions, EMEA and North America. We are well advanced in our comprehensive analysis of the network and are continuing carefully amongst others, topics such as customer proximity, service levels, capacity utilization, and strategic locations. Coming to our 1st web stream, people and change. Community distribution is a people's business, and we can only be most successful in the team that follows the same values and leadership principles. With the transformation, the company is going to grow through now, we also have to take care about getting and retaining the best people on board. The competence and leadership skills needed for the transformation will be defined and developed thoroughly, and will be reflected appropriately in our organization. The initiatives which will be implemented within Project Rentals strongly depend on the execution skills of our leadership team. Ladies and gentlemen, The transformation of our company will be a comprehensive journey. Project Rentals is an extensive exercise with a significant scope and wide ranging consequences. We are going to build on a solid foundation we already have, and we create a strong basis to drive sustainable organic earnings growth. The BrandTech Management team is committed to clear and transparent decisions. We will implement measures to drive change and we'll focus on diligent execution to unlock the full potential of our company. PR determined to open a new chapter for Brantac. As you can see, we have made good progress over the last couple of weeks. We are now working on the details and currently preparing registration making. We are going to keep you informed about the progress and the results of project ramps up before the summer break. Now I would like to turn focus to the current year 2020. Since we published our forecast in March 2020, The world has changed materially and the uncertainty around the expected effects of COVID-nineteen has increased considerably. Therefore, at the beginning of April, we have suspended our forecast for 2020 as outlined in the annual report. We see a high degree of uncertainty and expect continued challenging business conditions as we progress into Q2 and the second half of twenty twenty. Depending on how the spread of the virus continues, we cannot rule out a greater impact on the demand side. Also, it has to be seen how effective the measures of the different governments are. This might also influence our financial performance over the coming months. Of course, our top priority is to maintain the health and the safety of our employees while at the same time security supply for our customers. The forecast will be updated as soon as it appears that the pandemic has been contained and the effects on Brantac's further business performance in 2020 can be reliably determined. Finally, let me walk you through our roadmap for this year. I am delighted to say that we are fully on track. The Supervisory Board and the Management Board have decided to go ahead with our General Shareholders Meeting as planned on Chongqing. Due to the coronavirus and measures associated with us, the event we held as a virtual general and shareholders meeting. Also, we still plan to inform the capital market about the progress we've made before the summer break. However, we have to decide in each form and shape, we can do this once we have more clarity on how this crisis develops. With that, I would like to conclude, and now Gheorg and I are more than happy to answer good questions. Thank you very much. Ladies and gentlemen, we will now begin our question and answer session. You can dial 0 and 2 to cancel your questions. If you are using speaker equipment today, please use a handset before making your selection. And the first question is from Daniel Hopton, Credit Suisse. Your line is now open. Please go ahead. Hi, guys. Thanks for taking my question. Just three, if I may. I understand the the challenges looking at and the visibility that we have and understand from the full year results. I think you're looking to step away from monthly sales trends or or monthly performance. I was just wondering given the challenges that we've seen if if there was an indication maybe about how March and and then into April, what sort of performance you'd seen and and maybe how that that had that had changed. And second question is around the sort of 1,000,000 special charges or exceptional charges. I was wondering if you had any disability or or ideas about how we think about them going forward for the next couple of quarters. And then I think I was looking through, the results released, and it's in effect sort of, you know, the dividend clearly remains in play and and as does LNA going forward. I was just wondering if if you could provide any more flavor on M And A and if you're seeing any opportunities in in the market at the moment. Thank you. Let me start with the, most simple question that's, what field probably could take. This is the 7,000,000 charges. I mean, Pierre, maybe you can talk about this and then I'll take the other 2 topics. The, 7,000,000 charges you are addressing for Q1, almost completely, referred to consultancy fees in the context of the project. And I would expect the consultancy fees on, on a similar level to roll to Q2. See more relevant parties, whatever initiatives that measures we decide in the context of project brand We'll have, clear benefits, but they may also have additional cash outs. And we will provide clarity on those cash outs in our next Capital Market update? Again, we refrain from giving you a monthly indication of how our business is is doing. I think overall when you look at the first quarter, there was, I would say, solid demand in most business areas in most industry segments that we are serving, particularly also in March. So good uptick in demand. But again, across all the segments in a few exceptions, I must say, of course, the ones we have indicated before, which are, which are impacted by that. And so from that perspective, not specific about the quarter, We do, of course, expect for the 2nd quarter that, that could be impacts on the demand, how strong it will be. We really need to see for the whole quarter But again, we look in industry segment by industry segment, and things can be quite different here in there. An M and A situation, I believe, is clear to everyone. I mean, currently, the M and A markets are a little bit slow. We are not deviating from our typical guidance we have around M and A to spend $200,000,000 to $250,000,000 every year for this activity. However, we need to see now which kind of opportunities could develop. We stay alert and open and, and monitoring very closely most opportunities could develop. We have certain projects in our pipeline, which we continue to, to explore and continue to develop. So I think there's a more fundamental change in our strategy and our guidance to how we deal with M And A. And the next question is from Rory Mackenzie, UBS. Your line is now open. Please go ahead. Hello. Good afternoon. It's Rory here. My my first question, again, about kind of the the current business trends. So obviously, in Q1, gross profit was very strong than expected, and you called out cleaning and food and nutrition as 2 strong areas. Do you think the business benefited from volume seeing any pre stocking in those areas? And have you also seen maybe disruptive markets you know, more new customers getting pushed into the, I guess, distribution channel. Obviously, you hold also inventory, you've got good availability. I think that helps your, I guess maybe some more of your your pricing metrics, that's gonna help help to boost Q1. I think we cannot we cannot exclude that there could be here and there are prestocking. I mean, this is, I think, a very normal behavior, which you would see in such a situation. Again, this, we saw the demands across the industry segments besides the ones who are weak, relatively good. So from that perspective, we cannot exclude this but I would also not, not put too, too strong in emphasis on that. On the on the new customers, that's, I would say, difficult to say, because also suppliers at this point of time, of course, are more interested in a stable relationship with the distributing partners. And so, ending all the business in kind of situations cannot be expected and shouldn't be expected. So we saw here and there maybe some opportunities for Brenda because of availability, because of our global global presence here and there, but it's not a broad movement, I must say, that we can really say we have gained a lot of new customers during this time of crisis. Okay. Thank you. And then maybe turning to another within your your top line and to kind of the gross profit per ton that it sounds like source to kind of good expansion maybe through the first quarter. Is that mix, or or do you think that given the price volatility, that you you've seen the the business that's managed performed quite well and being quite commercial, whether it's maybe approach to pricing in some products? Well, we have, it's all of Sierra. That, gross profit per ton developed favorably. There is a sort of mix effect in there, particularly to more smaller quantity warehouse orders and a little bit away from the buyback direct orders, which does help, cost cost of return. Obviously, there is also an underlying favorable development in in the number of product groups. Okay. And so then just last one for me. Can you talk about how you prepared your cost base as you head into into Q2? For example, how many of your staff do you have on short time working schemes or or other furthering schemes? See, you see that the business development in Q1 was actually pretty good. So we run on relatively high levels of capacity utilization in challenging circumstances. So we need all hands on deck. And the gross profit development actually, Warren said. No question. There is a high degree of uncertainty going forward. And we are very, very tied with respect to hiring. I could almost say we don't hire, and we drive down 10 very possible. Okay. But but so there's no real comment on on the use of allowing schemes or similar at the moment? They exist for most, for example, in North America, but to a very small degree, again, because the volume development, the business development is still ahead of development. But the concept exists that we can extend if necessary. And the next question is from Tom Bolton, Berenberg. Your line is now open. Please go ahead. Hi. Good afternoon, guys. Thanks for taking my questions. I've got a few if I can. Firstly, just on EMEA on that very strong performance. I wondered if you can give any more detail, you called out a couple of sort of end market segments, which performed particularly well. Food and nutrition, for example, can you remind us how big that is within EMEA, and actually the group level actually impacts how that trended specifically through the quarter. The other question is divisionally, in terms of North America, oil and gas, if I'm not mistaken, is about 20, 25 percent to serve that business in the past sort of came back to 2015, 2016 when we had an oil and gas crisis. You you prepared a time called out what that segment was doing. Can you say where oil and gas was sort of run rating towards the end of q 1 or in March or or any sort of color on the development of that end market would be helpful. And then one final question, just following up on Rory's comment on the furlough schemes and use of those furlough schemes. Obviously, you've committed to paying the dividend. Does that limit the your ability to act at any of your further schemes in any of your geographies, for example, and in some countries, there's issues with your, you're accessing those schemes and paying dividends. I think that can be a problem. Do you see any issues there? Okay. I start and then Christian, of course, can jump in. And the the reference we made, to a particularly healthy development in in food nutrition and to a degree also in cleaning was more meant as examples for strong industries Actually, the vast majority of our customer industry is developing positively. So maybe we should more and point it out the negative spot instead of giving these 2 positive examples and the negative spots are obviously, on against North America and to a degree in the lubricants industry. Actually, both other customer industries are in the line degrees developing, pretty, pretty nicely. On your particular point, food in EMEA, food and nutrition in EMEA is a good double digit growth. So, Sandia trades 13% on a gross profit level. And it accounts for roughly 13% of the business in in EMEA, on that particular one. As you point out, and I'm changing to the next question, the reconfirmed hour in tension to pay the dividend on the 2019 earnings of EUR 1.25 per share, subject to approval of the general shareholder meeting on viewing tenant. It's important to us because, we have to resilient cash generative business model. We are reliable dividend payer and, who acting this way, we want to, to reconfirm and reassure the market, of this. We do not expect to make extensive use of firmware schemes in the, in the combined countries. As of today, I'm not aware of any provost team that actually fully did us of paying a dividend. Does that answer the question, Tom? Yes. And then just on the outstanding plans on the oil and gas. And how that percentage sort of in the specific period? No. No. As you say, on a guess, it's a good 20 center of our business in North America. And it's very, very tiny in the other regions also broad. In Q1, the gross profit of soil and gas business was about 9% down against previous year, but the trend is pretty negative. So I, I would be step, we declines to be stronger in Q2 and potentially Q3. Sure. The next question is from Markus Mayer. Your line is now open. Please go ahead, sir. I'll come back to to oil and gas. Your folks are recently acquired to the oil and gas distribution assets, in this current environment are the the impairment risks, and to maybe also can check them out, how you, do on what kind of basic assumptions, you know, time and testing is based on. The the second one is on Asia. What would have been that the underlying earnings close in Q1, excluding the T High cancer position, And then the last one is, most likely on Christian, has the current crisis that discuss an impact on the potential changes. You have in mind to print that out of any changes, if they happen faster or fewer, that would be also helpful. Thank you. Yes, I'll take the last one. As I've said, you know, we have managed to remedy both. So it was, of course, the short term crisis management necessary. And, I think we have which overall managed this, relatively low. But at the same time, we did not let go on our focus and our agenda to prepare the solid foundation for the future. So we stay the course. We are exploring the opportunities and developing project ramp up, unchanged. And so you're currently not decelerating the effort, which is running at high pace. So that's, managing basically the short term and the long term necessities and requirements of the company in the same time. I think on the impairment topic, I will hand it to Dirk and also maybe Asia, the impact of Tihai I think we can also answer. Let me take the, the incoming question first. We do test, our intangibles for impairments, obviously on a test generator unit basis, which key quotes a second in the case of Pentax. So we test on Asia, on North America, on Latin America, on EMEA and on the group. We had the last, the last fully comprehensive impairment test we see it based on the results of 2019. And you see a full elaboration of the impairment that in the end will be with very significant, cushions. Now after Q1 and given the corona crisis, we did not go through a full impairment test because we do not see a triggering event. We obviously cross checked our, our assumptions. Against the sensitivities we laid out in the full year. And for the time being, we do not see any impairment risk. The Oil And Gas business in North America is not a separate cash generating unit. So there will not be an impairment, specifically on that overall, a small part of the business. Earnings in Asia in Q1, obviously, EBITDA increase for Asia of 20%, which is predominantly or to a very high degree KeyHA acquisition related, the organic earnings growth in Asia in Q1 is 2%, still a positive number And if you, if you consider that China is part of the organic development and China wasn't a very comprehensive shutdown in January February, we do think that 2%, positive organic growth to be a pretty positive number for Asia. Okay, perfect. Thank you. The next question is from chetan Udeshi, JP Morgan. Your line is now open. Please go ahead. Yeah. Hi. Thanks for taking my questions. Just had one question, you know, I think to some extent, similar to the previous question on, can you help us understand the trajectory of demand you saw through Q1. And the point I'm trying to get is, again, similar? How to think about the divergence between, say, the end market growth versus what you guys did, especially in EMEA, in Q1. Oh, and in other words, have you seen any slowdown from the trends you saw on the end of in March, and what you saw at the end of April. Again, you know, I think we try to refrain from monthly, from monthly judgments, we can talk about business dynamics. Business dynamics is certainly clear, that while we are going from Q1 into Q2, the business dynamics become softer. And we do expect impacts on the demand side as we go further into Q2 compared to Q1. I think this is obvious that will be the case, and we cannot overcome this, totally. Understood. And can you help us understand maybe this is for your, what is the approximate split? Would you say, in your cost base between variable and fixed costs? So mean, just for for our sensory would be analysis if you want to stress our models and say, okay, the volumes are down. 10, 15%. How much can we come, come down in that environment? Yeah. I I I tried to answer, but would would caution you or caution the broader audience a little bit because, obviously, the question of cost variability relative to volumes, it's also a question of time access in the long run, everything is variable, obviously. On the very short run, so what is a crazy automatic cost reduction together with the volumes, I would say the immediate effect is probably around 30, maybe 40%. So $1.1, of course, profit generated less through volume decrease would lead to a cost savings of $0.30 to $0.40, but really take it with a grain of salt. If you, if you're seeing some longer term, 6 months, a year, I would give you, clearly a higher number. Thank you The next question is from Peter Olafin, Kepler Cheuvreux. Your line is now open. Please go ahead. Good afternoon, gentlemen. Two questions left for me. The first question is on what you call a project grant card, where you state that you will sharpen your profile. Does that mean that you plan to deemphasize, activities in certain industries or regional markets or what do you exactly mean, by sharpening your profile? And then, question for Gailog, what what do you and participate in terms of full year CapEx. Just to clear, just to make sure we are listening to that, is the question in the context of project brand pack was particularly if we want to deemphasize certain regions or customer histories. Right? ESB goes also in the in the interim report, you're right that you want to sharpen your profile, and I'm trying to understand what you exactly mean with South Business Total. Okay. Yes, let's let me take the project for Antonette Christian and then Akia will answer the question around the CapEx. We're sharpening with Vauxhall, I think I've spoken to the last couple of months since we had interactions that I believe that brands have needs to have a much different approach towards certain industry segments. Even before I joined, there was the exercise and the title that we call it that way to create a food and nutrition business to give this a sharper profile towards that specific industry segment. And I believe there are more industry segments where we should explore and develop our thinking of how can we tackle those markets better than we currently do, in our current, current setup. That does not mean that we are giving up areas or we are deemphasizing in areas because even, let's say, in our non specialty area, you can sharpen your profile by being very clear on what customers expect and that's, you know, delivering a ton of cost exposure as the lowest cost you can. I think this is what we mean with sharpening, clearly understanding what is driving an industry segment, what is driving the customer behavior and the buying pattern of those customers and then sharpening our profile there, which is also very clearly in line with our suppliers expect us. Who want to, you know, sell their products in certain industry segments most successfully. And this is what is unique by sharpening the profile. Yeah. On on the on the CapEx number, it's kind of a related answer. In in the context of project rental particularly the work stream of site network optimization. We are also thinking and rethinking CapEx, and I really can't give you a good number for 2020 at this stage. It will become part of the update that we plan to give to Capital Market before some. The next question is from Isha Sharma, MainFirst Bank. Your line is now open. Please go ahead. Hi, Derek. Hi, Christian. Thank you for taking my questions. The first one, we would be around the conversion ratio at email to be put meaningfully. Could you tell us how sustainable this is and if there is some temporary mix effect there? My second question you would be, correct me if I'm wrong, but I assume that you have a relatively high exposure to smaller business players. Due to the potentially higher financial impact in the current crisis, on these counterparties, do you see any credit risk for Bendak. Those would be my questions. Thanks. Let me start with the credit risk question. Might indeed, in distribution, you service, a, a good part of your customer base in distribution is SMB. So you have to deal with SME credit risk, but we are very experienced in judging on credit risk and in, in collecting. Don't forget that we also typically deliver customers with repetitive orders So we always have a tool in our hands that the customer will make sure as long as you can to pay our invoices because otherwise we would cut him from from a subsequent product stream. I would also point out that particularly in EMEA, not necessarily globally, but particularly in EMEA, we have a good share of our customer base credit insured. So through our processes, through our tools, through the credit insurance, credit risk is actually a pretty limited pretty limited risk for us. And you can see that over many, many years of history, in the current situation, We do continue to see very sound customer behavior, very sound customer payment behavior. It's very few exceptions, almost no increase in over dues. We are observing and cautious nevertheless and you go through the details of the quarterly report, you can spot that we actually provisioned about 1,000,000 for bad debt. They usually be in the Q1, we would provision maybe a 1,000,000. So we are taking some balance sheet precaution already but in the context of seeing this as a very low risk. Congratulations. Yes, conversion ratio in EMEA, it would rather be trading from answering. Obviously, Q1 was a very, very strong quarter for EMEA and that shows in very different KPIs. It shows in post profit. It shows in EBITDA. It also shows in conversion ratio I, I have all expectations that the conversion ratio in EMEA will will develop positively. But can I say Q1 easy to repeat? No. I can't. Understood. But I just wanted to understand if it is, more because of cost alignment, or is it, because of the mix effect? That would be super helpful if you just get a good flavor. A a a fair degree of conversion ratio development in EMEA in Q1 is attributable to the very strong cost profit. Okay. The next question is from Mr. Benoit, ABN AMRO. Your line is now open. Please go ahead. Yes. Good afternoon, everyone. A few questions from my side. So the first on your gross margin, Obviously, this increased quite a bit year on year to 23.2% and also driven by 3 out of 4 operating segments. So it is almost a company wide, development, except North America. Can you tell us whether this uplift is sustainable? Yes. I'm hesitating to answer with you because gross profit relative to sales. So what you call gross profit margin, Nothing, which is a major KPI for us. It is not a percentage of sales business. It is, of volume and gross profit per unit business, the improvement you mentioned is to a degree attributable to year over year, some of lower chemical prices, without harming our absolute gross profit. And that's exactly what you would expect from our business. So percentage you quote is sustainable if you assume a stable level of chemical prices. So this being more a technical explanation The more relevant point for me is gross profit in our business is very, very resilient. And I would not expect any gross profit shocks going forward. All right. Thank you. And then a second question, you already indicated that some industries did better? Have we know that from mid March, there was some hoarding at consumers and probably also maybe industrial clients. So, what is the risk of an unwinding of that? I would assume that certain sectors are probably slow to unwind, but it could be, for example, I've heard stories of certain customers buying a year's worth of volume in the first quarter, just to be certain that there would not be any low school issues. Is this something that you're seeing? I mean, this is a distribution business. So we deliver less mostly less than truckload small quantities to our customers, and while we have seen a positive development in, in, in Q1, we have not seen any buying pattern that indicates material pre buying in the order of magnitude you mentioned. As we said, we cannot rule out, there is an element of pre buying, but that should be limited in the context to the degree we can tell. The more relevant question is from our perspective, will the industry will we experience further in demand just because the production processes at our customers are not fully running. Hopefully not But that's the uncertainty we have to deal with. Right. And if I can squeeze in one final question I understand that you want to move away from monthly trading updates. I think that's very logical, but obviously this is a massive crisis where expectedly a significant drop in demand in Q2. So a lot of cyclical companies have given monthly numbers in terms of what volume development is. Is that something that you would be willing to give, March, April and perhaps an order book, indication for May? I think you said supercomputers are giving that to 100 completely a recipient company. No, man, joking aside, I can't, I can't give you, a a monthly number If you provide some comfort, April does not give any material negative indication that we should convey to you doesn't, but it is May June outstanding for the quarter, and it is an uncertain round. Okay. Well, that's helpful. Thank you very much, Gerald. Sure. And we have a follow-up question from Tom Bolton, Berenberg. Your line is now open again. Please go ahead. Thanks, guys. So just one follow-up from me. Just trying to reconcile some of the comments. I know you you won't give us kind of April 1 rates. But just thinking about kind of, historically, Brentech has been a a sort of something of an industrial production type proxy and I think kind of consensus views amongst economists' IP drop of sort of minus 14, 15% in Q2. And I'm just trying to square that back with the comment on the fixed or variability of of the cost base. If if you're only able to take out sort of 30¢ on the dollar of the the gross profit decline. How to think about that? And also if you're not using any furlough schemes as of kind of the end of April, maybe specifically what the question is as well is on the personnel expenses, that sort of 60% reserve OpEx what's the sort of split within that of fixed versus variable remuneration? Is there a lot you can do in terms of bonuses? Is there a lot of sort of slack there where you can you can move the needle on on cost to offset some of that perhaps volume decline that those industrial production sort of estimates would imply? And we have the same desire that that you have to predict the future and to work with the model. It is not easy in these times. Because you have to put in 3, 4, 5, 10 key assumptions. And every of these key assumptions is is highly unlikely. I hear what you say about economists forecast on industrial production, but how certain is that. So so nobody knows. And I, I, and I don't want to, to make those numbers, my old numbers. In terms of your specific questions on personal expenses, you are right. Roughly 60% of our expense base is a personal expenses. The majority of those expenses, of fixed salary nature So that will if if the super material gross profit hit were to occur, And I wouldn't necessarily expect that with or long term, but if it were to occur, it becomes a question of headcount. Okay. That's There are currently no further questions. And the next question is from Christian Kors, Robert Research. Your line is now open. Please go ahead, sir. Yes. Hello. Thanks for taking my questions. Just two left for me. First of all, you improved your working capital account in the first quarter. And is there are there any measures you're taking, or is this just more coincidence? And, you, you elaborated except for work, groups, for the project center. So that actually means that, Zach, that you're more focused on efficiency and growth, but not on, on cash flow and to work with capital in particular? And second question, oil and gas weakening and most likely to weaken further in the second quarter as you elaborated any rightsizing measures with regards to your, let's say, it's peak that people assume it will, yeah, volumes will come down quite heavily in the in the welcome. Thank you. Now we are talking first about the work streams. Can you note, as I said, these are the 4 major work streams to address structural changes we have in mind for the company. But at the same time, we have other work streams, which are addressing the most short term leaders. And this is working capital generation. It's just one example. And, so from there, we have to note certain initiatives to improve our working capital management and to a smaller extent, you can see this already reflected. Due to, but also other impacts have led to that improved working capital turnover, which we can report on the first quarter. So the work streams, as I said, are not only related to costs and growth. They're also looking on cash flow. They're also looking on working capital improvements. On the oil and gas business, I think Bjorg has elaborated already this There is, of course, a lot of uncertainty around the volume gas business also around the sectors in the oil and gas business. Which we need to, do, of course, very closely monitor and put the part of our North American business in particular. And they are also coming back to a question before, of course, seeing what the second quarter is predicted So from an industrial production standpoint, a few other things, is something which we are fully aware of and that we are clearly tightening our belts while we're going from the first quarter into the second quarter and react as early as possible to the movements you can see. And this is a particular issue for the Oil And Gas business. So here it's very clear that we stay alert that alert about customer behavior that we stay alert about our cost position, that we stay alert about our inventories and everything we have in that business. But this is normal management, I must say, in such situations, so nothing really special around this. Okay. Thank I'm sorry. No further questions at this point, but I'll hand back to the speakers for closing remarks. Well, thank you very much again for participating in the call. Well, very happy to be able to show us early results, to you and to investors and the financial markets. Think it is another proof point of our resilient business model, Brantac has a strong foundation we can build upon And, I'm very much looking forward to give you an update, before summer and how we have developed project Brentac and what the outcome of it is and what you can expect. So looking forward for further interactions in a couple of weeks with you. Thank you very much. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.