Dear ladies and gentlemen, welcome to the Q4 and full year 2019 results call of Brenntag AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press star followed by zero on your telephone for operator assistance. May I now hand you over to Christian Kohlpaintner, who will lead you through this conference. Please go ahead, sir.
Yes. Thank you. Welcome, ladies and gentlemen, to the results call for the full year 2019 of Brenntag AG. I'm very pleased to kick off this call today. My name is Christian Kohlpaintner, and I am the Chief Executive Officer of the group since January 1st. I'm here with our Chief Financial Officer, Georg Müller, and together we will walk you through the presentation. Georg will present the review and the financial results for the full year 2019, and afterwards, I will talk about the outlook and provide insights on our current work and future initiatives. First, I would like to take the opportunity to introduce myself. I'm a chemist by education, and I have spent most of my career in leading and well-regarded chemical companies like Hoechst, like Celanese, Budenheim, and the last 10 years, Clariant.
Throughout the years, I've worked in a broad range of functions, for example, in research and development, in operations, in marketing, in sales and innovation, and of course, in general management. I started my career in Germany and then worked in the U.S., in Switzerland, and also lately in China for Clariant. This journey gave me the opportunity to work with many different nationalities, education, and cultures over the years. I very much enjoy working with people from many different cultures, and I deem diversity as a very valuable asset for our company. I very much appreciate the opportunity of working with my colleagues on the management board and the whole Brenntag team. Brenntag is a great company with a strong business model and a lot of untapped potential. I'm convinced that we will make use of that and lead the company into an even more successful future.
It goes without saying that I will do my utmost to achieve this. For now, I would like to hand over to Georg, who's going to talk about the review and financials of the full year 2019. Georg Müller?
Thanks, Christian. Warm welcome. Let me provide an overview on the financials of the year 2019. All in all, 2019 was not an easy year for us, especially in terms of economic environment. We had to deal with the sluggish economy in Europe and an increasingly negative dynamic throughout the year in North America. We weathered this well. Let me briefly discuss the key figures and the development. We were able to increase our gross profit on a constant currency basis by 3.4% to more than EUR 2.8 billion. This is partly through our acquisitions. On an organic level, so excluding the acquisitions, gross profit was slightly ahead of the level of the previous year. In terms of operating EBITDA, we passed the billion mark and report a figure of EUR 1.002 billion. On a constant currency basis, this is an increase of 11.3% over previous year.
Obviously, the application of a new IFRS accounting standard for leasing has led to the significant increase in EBITDA. Excluding the change in accounting standards, EBITDA was marginally below previous year on an FX adjusted basis. A demonstration of the resiliency of our business model in 2019 is the cash flow generation. We were able to increase our free cash flow by around 60%. Earnings per share were slightly ahead of previous year's level at EUR 3.02. At the beginning of 2019, we have implemented a new organization for the Food & Nutrition business. We now have a more focused and more dedicated organization. We do address our customers' needs even better. This is now fully rolled out. We generated above-average growth in 2019. Brenntag has been very active in M&A for years. 2019 is a continuation of our activity.
We have closed a total of nine acquisitions and thereby further expanded and strengthened our business in all regions of the world. We will propose a dividend of EUR 1.25 per share to the general shareholder meeting in June. Since the IPO 2010, our dividend has increased each and every year. Let me move to the acquisitions on page six. Overall, we closed nine transactions. They represent an enterprise value of around EUR 260 million. We made acquisitions in all four regions. We have executed on our strategy in a still highly fragmented market. To provide transparency on the development of operating EBITDA, on page seven, we provide the bridge from 2018 to 2019. 2018 operating EBITDA amounted to EUR 876 million. We benefited from a positive translational effect on EBITDA of EUR 25 million, mainly as the US dollar strengthened against the euro.
Our acquisitions have contributed EUR 29 million to the EBITDA growth. The first time application of the accounting standard IFRS 16 led to an increase of EUR 116 million. The new standard redefines the treatment of operating leases. Expenses from leases are now recorded as depreciation and interest. The following four bars show the organic development in our regions. The difficult economic condition led to an organic decline of 5% in both EMEA and North America. In Latin America, we recorded a pleasing development with an increase of 12%. In Asia-Pacific, EBITDA was almost stable with a slight decline of -3%. EBITDA for 2019 totaled EUR 1,002 million. Let me move into the regions with more detail. In EMEA, we had challenging market conditions throughout the year. This was particularly the case in Germany and France, where we noted a pronounced weakness in demand.
We attribute this primarily, but not only, to the automotive sector. We achieved a gross profit in EMEA of EUR 1 billion and EUR 142 million, which was at the level of the previous year. On a frozen GAAP basis, EBITDA in Europe decreased by 5%. In North America, the environment has deteriorated considerably since mid of 2019. This trend continued also in the fourth quarter. From our point of view, this is a general weakness in industrial demand and we do not see material differences between our customer industries. For the full year, gross profit increased by 3.4%. On a frozen GAAP basis, EBITDA decreased by 2%. Latin America reported good earnings development in 2019. Gross profit in the region increased by 6.5% on a constant currency basis. Also, we have continuously been facing a volatile environment. We were able to achieve frozen GAAP operating EBITDA growth of 16%.
In the Asia-Pacific region, we again grew strongly in 2019. The share of the segment now amounts to around 10% of the group. On a constant currency basis, gross profit rose by 14.7% to EUR 267 million. Both the acquisitions and the organic business contributed. EBITDA growth on a frozen GAAP basis amounted to 14%. Let me provide the EBITDA bridge on a Q4 basis on page nine. EBITDA in the fourth quarter of 2018 amounted to EUR 213 million. The positive translational effect in the fourth quarter amounts to EUR 5 million. The acquisitions contribute an additional EUR 6 million, and the effect of the IFRS 16 application resulted in an increase of EUR 30 million. European growth rates were similar each quarter around the year. EBITDA decreased organically by 4% in comparison to previous year's quarter. North America suffered from a weak macroeconomic dynamic.
As a result, EBITDA decreased 16% organically in Q4, which is certainly weaker than expected earlier. In Latin America, EBITDA increased organically by 36%. EBITDA in Asia-Pacific declined organically by 8% in the fourth quarter. I will move to page 10 to the income statement, particularly to the lines below operating EBITDA. We had positive special items of EUR 8.6 million. This relates to the recovery of Social Security charges in Brazil. Depreciation in 2019 is impacted by the new IFRS 16. The figure for amortization is similar to previous year. The financial result shows an improvement. In total, net income for 2019 amounts to EUR 469 million and is 1.5% higher than in 2018. The cash flow has developed very positively in 2019. We have reached a free cash flow of EUR 837 million. This is the highest amount we have ever achieved.
Compared to the previous year, this represents a very significant increase of around 60%. The free cash flow is positively influenced by a release of liquidity from working capital. CapEx was at EUR 205 million. This was slightly below our guidance of EUR 220 million. How did we make use of the free cash flow? We paid EUR 251 million for interest and taxes last year. Payments for M&A transactions amounted to EUR 195 million. Be aware that figure does not include the debt assumed. Including debt assumed, we acquired enterprise values of around EUR 260 million. Finally, we paid a dividend for the fiscal year 2018 in June 2019, amounting to EUR 185 million. The leverage was at 1.9x at the end of the year. This is a slight improvement compared to the level at the end of 2018, mainly due to positive cash flow development.
Our equity has increased by approximately EUR 280 million in 2019. Working capital at the end of the year amounted to close to EUR 1.8 billion, slightly below the level of previous year. A major factor influencing working capital at Brenntag was the prices for chemicals. These fell in course of 2019, and this had a corresponding impact on all three components on working capital. The working capital turnover rate was seven times in 2019. Let me close my remarks with explanations on the dividend. The management board and the supervisory board will propose a dividend of EUR 1.25 to the general shareholders meeting in June. We pursue a very consistent dividend policy, and the dividend now proposed represents the ninth consecutive increase since the IPO 2010. In terms of net income, the proposed dividend represents a payout of 41.4%.
This puts us pretty much in the middle of our target corridor of 35%-50%. In total, we will pay out an amount of EUR 193 million to our shareholders. This concludes my remarks on 2019, and I will hand over to Christian for the outlook.
Many thanks, Georg. Now I would like to share with you how I spent my first weeks in office and also what my first impressions are. I would like to look ahead and outline how we as the management team see the next chapter of Brenntag. Before I officially started as CEO at Brenntag in January, I had already made myself familiar with the company. Of course, the knowledge I gained in my previous positions helped me to do so. I frequently worked with chemical distributors and of course, Brenntag was one of them. I already had a solid understanding of the business model and the company itself. Once I took office, it has been key for me to getting to know the company and our employees. It is important to interact with the employees immediately and to listen to their perspective.
I spent time visiting locations in Asia, in Europe, in Canada, and the United States, and I will also visit Latin America shortly. I received a lot of input on the culture and the processes at Brenntag. Wherever possible, I held town hall meetings with all employees on site, as well as numerous round table discussions with our talents and future leaders. I will continue to host such events in the future, and this should form an essential part of our internal communication. One main observation all over: Our employees are highly motivated, dedicated, and very open to foster and embrace changes in the organizational setup. The will for change could be felt everywhere. Of course, I have also established contacts with some of our most important customers and suppliers.
I learned how Brenntag is perceived as a valuable and a reliable business partner with a strong position in the chemical value chain, and how further business opportunities could be developed. Last but not least, our shareholders are a very important stakeholder group for our company. Let me emphasize this. For me and the entire management team, communication with the capital market is essential. I consider it very important to know and understand the views of our owners. I will therefore be in close contact with our shareholders and listen to them to understand their requirements. We will take this into account when making decisions. Of course, we will provide open and transparent information in the future about what we intend to do and why we are doing it. Best-in-class investor relations starts with the way we communicate with our shareholders.
Brenntag is a healthy company with an excellent market position and reputation. We are the global market leader in a highly fragmented industry. We are not only the global number one by size, we are also in a leading position in most regional and local markets. We have excellent and long-standing relationships with our customers and with our suppliers. Our partners appreciate our reliability, our quality of service, and of course, our financial stability. These relationships are the basis for prosperous business development and are something we can build on. Many of you know and appreciate that Brenntag is a highly diversified company. There's no concentration regarding individual customers, suppliers, or products. Furthermore, our business is spread over many customer industry and many countries. All of this makes Brenntag a highly resilient company that generates attractive cash flows.
These cash flows have been distributed in form of dividends to our shareholders and have also been invested in M&A projects. Brenntag has been very active in the consolidation of the market. The acquired companies have made a significant contribution to the growth in recent years. Finally, I would also like to emphasize that Brenntag is in a sound financial condition. However, an honest assessment of the situation also points to the fact that in recent years, Brenntag has not grown earnings organically. This may have been partly due to external influences, but at the end, the company's organic growth over several years has fallen short of its undisputed potential. An overall disappointing performance. I would therefore like to give you an impression of how we intend to approach an improvement and where we are currently standing. Brenntag has a very solid foundation.
The business model is proven, and we are the leader in our markets. Our diversification makes us very resilient, and the company is financially sound. My fellow board members and I are convinced that organic earnings growth has to be achieved in a market like ours and with our position. However, as this was not the case in the last couple of years, we need to address this in a different manner in the future. We are therefore currently running a holistic analysis of the company. In this diagnosis phase, we are evaluating all the key areas of our value chain, and we are looking for potential for performance improvements. I would like to mention only a few examples, such as commercial efficiency, global site network optimization, business support services, or admin infrastructure.
Of course, we also verify which product areas, customer industries, or regions are particularly attractive for us or could become attractive in the future. This is a very comprehensive analysis in which we also deal with decisive performance drivers like leadership skills, competency levels, and execution capabilities. The corporate culture of Brenntag needs to become more performance-driven and more execution-focused. During the analysis phase, we are identifying areas where we see room for improvement. Let me give you some first indications on what this means. Brenntag is the global market leader in chemical and ingredients distribution, the scale is currently not sufficiently translated into competitive advantages. We will improve our market focus across countries and regions to leverage knowhow and our expertise to service our customers and suppliers even better.
By doing this, we will expand our leading position in the industry while increasing our organic and long-term earnings growth. Brenntag, in many cases, has a rather complex organization that is not in line with the rather straightforward business model of chemical distribution. We therefore need to reduce organizational complexity and harmonize our internal business services and processes to create synergies and leverage benefits from scale. We have the reputation of a strong customer focus, and we will further improve our customer orientation to serve our clients in an even more targeted way, globally and locally. We have customers from different industry with different needs. We will address this by making differentiated and tailor-made service offerings for the individual customer. We, as a management team, will make clear and transparent decisions. Afterwards, we will consequently implement measures to drive change.
There will be a focus on thorough and diligent execution in order to unlock our full potential and to deliver on promises. We will continuously monitor the execution and report on the impact. As you may sense, we are opening a new chapter for Brenntag. I cannot quantify the potential for organic growth of the operating EBITDA today. As part of our open and transparent communication, we will keep the capital market regularly informed about the progress being made. Let's have a quick look on the outlook 2020. We are striving to achieve profitable organic growth for the years to come. This is very exciting. I would now like to turn the focus to the short term and come to the current year 2020. Please let me provide you with an overview on the current environment. Brenntag is very well positioned in the market to achieve organic growth.
In addition, growth will come through acquisitions. We made a number of transactions in 2019, and we are already active in 2020. We are not fully independent from the macroeconomic environment. Economic conditions were quite difficult in 2019, we don't expect a change in trends in that respect for the current year. Increased short-term uncertainty also rises due to the COVID-19 virus. It is therefore extremely difficult to make a precise forecast. Assuming that the effects of these risks remain limited, we currently expect a positive development on operating EBITDA. As just discussed, we are currently actively [audio distortion].
Ladies and gentlemen, due to a technical issue, we will pause this conference at this point. Please stay on the line. The conference will be resumed shortly. Thank you for your patience. Dear ladies and gentlemen, thank you for your patience. The conference is now being resumed.
Yes. Welcome back. We obviously had a small technical problem. I will close up my remarks with the communication roadmap 2020, on page 20 of the presentation. Before the summer break, we will host a Capital Markets Day in London. Here we will report comprehensively on the key findings from the analysis. We will also speak about measures and the implementation schedule. The exact date for the event will be communicated by our investor relations department. We will be very pleased to welcome you at the Capital Markets Day in London. Now Georg and I are more than happy to answer your questions. Thank you very much.
Thank you. Ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial zero and one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question is answered before it is your turn to speak, you can dial zero and two to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please, for the first question. And the first question is from Markus Mayer, Baader Bank. Your line is now open. Please go ahead.
Yeah. Good afternoon, gentlemen. Welcome, Christian. I'm looking forward to further discuss [crosstalk].
Markus, how are you?
Morning. Good to hear your voice again.
Yes, absolutely.
Regarding Q4, I have a question. Maybe you can specify how the development was over the fourth quarter and also going into the first quarter? Have you seen any kind of effects from coronavirus so far, from the logistics side, for example? That would be my first questions.
Yes. I will probably ask Georg then to answer the question about Q4 and what we currently see I can maybe build on. Let me take the coronavirus question first. First of all, the safety of our employees has the highest priority. This is absolutely clear. We are currently, of course, following all the recommendations by the various governments and agencies of what to do. When we look on the impact on our business, it's very limited at this point of time. We don't see any major negative impact at this point. From that perspective, we see this impact overall limited. I would give maybe the chance to talk briefly about Q4 to Georg, and then we can maybe come back to me again afterwards.
Yeah. Markus, hi, it's Georg. You asked for the development within Q4 and then how it rolled into this year. Relatively stable development within Q4, December somewhat weaker, and then it continued established to better than established into 2020. To be open, I do know that in past, we underlined the inner quarterly trends, by providing gross profit per working day, growth rates on a monthly basis. We have decided that we do not speak about monthly gross profit per working day trends on a monthly basis going forward. We do know it's a data point that is interesting, but we also think the release of these data points has not always been helpful in past. It's a very limited time period. There is a volatility in the figure.
It's not super easy to draw conclusions out of it, and it received a focus that was an undue focus from our perspective. Finally, none of our competitors is disclosing that level of trend detail.
Okay, understood. Thank you. Another question, if I may. Your financial leverage is now at 1.9x, so the lowest basically since the IPO. Maybe you can shed some light how you want to use your balance sheet beside M&A. There's also increased cash return to shareholders on the agenda as well.
Yeah. Let's see, going forward. Obviously, 2019 had a super strong cash flow, helped by the decline in chemical prices. Leverage now slightly below 2x . We always said continuously that if and when the leverage falls substantially and sustainably below 2x , we will consider higher cash return to shareholders. Maybe 1.9x is still too close to that mark, but to a degree we are heading into that direction.
Okay, thank you so much.
The next question is from Steven Goulden, Deutsche Bank. Your line is now open. Please go ahead.
Hi there. Thank you for taking my question. I just wanted to ask on the guidance. You were saying, hopefully in a relatively benign macro situation, you do an improvement in organic EBITDA. If I look at the comps on organic gross profit, they're pretty easy this year. I think consensus is sort of going for around 2%-3%, or certainly was, on the organic GP front. If at best there's going to be a slight improvement in organic EBITDA, does this mean that you're kind of committed to various cost investments that maybe were made last year, hence the obviously weak North American EBITDA on an organic basis? Can you give us any indication of the rising costs and the operational leverage that that puts on the business, and how we should think about that in regards to the growth this year?
That's my first question, then I got a follow-up, if that's okay.
Okay, Steven. Hi, it's Georg. Sorry for the technical glitch a little earlier in the call.
No worries.
Let's see if I got your point. We are absolutely convinced about the growth characteristics of our business model, also considering our positioning in the market. In that sense, we do expect growth for gross profit and for EBITDA, also considering the acquisitions that we have already undertaken. If I look more short term, I think we have to broaden our view to a degree that the macroeconomic globally is highly uncertain. North American macroeconomic, if you look into industrial production growth rates, if you look into purchasing managers' indexes, is certainly on a negative trend. Short term, some uncertainty there. While we don't really see impact of COVID-19 on our financial at this stage, it is something out of our control. It's very difficult to give an exact prediction for this year under the uncertainty of circumstances.
Okay. Understood. Obviously, some time on the call was spent, and apologies because I was cut off from the call earlier on, so I had to dial back in. Apologies if I missed any more details. We talked a lot about kind of refocusing the business and the potential to improve from here on in and the strategic strength that the business has, et cetera. If you could just give maybe some kind of tangible examples there, that would be very helpful. By that I mean, if you were going for cost, if you were going for more focus across and de-layering, reducing complexity, et cetera, where would you see the low-hanging fruit? Where is the easy focus there?
Similarly, in terms of being more focused in terms of product provision, obviously you've been focusing on Food & Nutrition as a business, but is there anything else that looks particularly interesting at this point that even in a broad high level sense could be something to go for or some kind of example you could give us? Thanks a lot.
Yeah. Thanks, Steven, for the question and I kindly ask you for your understanding that I'm now the ninth week in office.
Sure.
We are currently undertaking this diagnosis phase, which is in its full swing. I really cannot say anything about more specifics for the time being. We will, of course, and hopefully you will not cut off at that point of time, present during our Capital Markets Day before the summer break, what are the measures, in which direction they're going and what impact it will be.
All right. Understood. Thanks a lot.
You're welcome.
The next question is from Rory McKenzie, UBS. Your line is now open. Please go ahead.
Hi. Good afternoon. It's Rory here. Firstly, I want to focus on the Q4 results. That's maybe a bit of view. Ex IFRS 16 at constant currencies, your EBITDA shrank by nearly 8% year-over-year, I think, in Q4, compared to being flattish over the first nine months. I appreciate it was a tough quarter and gross profit was a bit softer, but really wanted to understand why the cost growth looked so much worse at the end of the year. Two specific things I want to ask about within that. Firstly, I saw that miscellaneous provisions increased about EUR 7 million in the quarter. What's in that? Secondly, the all other segments lost increased to EUR 5 million. What's in that? Anything else that explains that kind of cost increase in Q4? Thank you.
Okay. For Q4, it's growing high. For the very specific point you raised at the end, I probably have to come back tomorrow with the details. If I characterize Q4 generally, you are right that the organic growth rate in Q4 obviously has been a pretty weak growth rate. That's particularly through the negative dynamic in North America. The growth in Q4 in North America has been particularly weak. General macroeconomic weakness to a degree. Some softness in the oil and gas market is starting, but more so now in 2020, only toward the end of Q4 2019. Then we had a particularly positive margin situation with one of our largest products in 2018 that faded out in course of 2019. Difficult earnings development in North America. I need to come back to the specific provision point you raised tomorrow.
What this generally is two AdBlue for a significant number of provisions towards the year-end, part of them being environmental.
Okay, understood. Thank you. Then, Christian, if I may ask you more about your comments that Brenntag's scale hasn't translated into a competitive advantage. I appreciate you'll probably say again, it's early days, and you'll speak to me more in the summer. Would you say that's because you think that Brenntag's assets or network haven't been used to the fullest? Is it more that Brenntag hasn't been focusing on the right things? Would you say that Brenntag's scale have caused diseconomy to scale, I guess? Actually, it's too broad, too spread, and not being focused. There might be elements of both, but interested to get your sense on that kind of scope of question.
Yeah. No, I guess you're right. It's both. This is why we have work streams assigned to look in particular into our site network overall to understand, are we leveraging the site network globally? Also to better understand why the growth could not be realized, although we are in this leading position and should be profiting from the overall market developments. Again, this is part of our diagnosis and of our analysis. I think your assessment is correct, that it's probably both of them.
Did you encounter Brenntag much in your previous roles?
Well, I did, particularly when I was CEO of Budenheim, where Brenntag was a very strong partner to Budenheim. A large portion of the business was done through Brenntag. I encountered them in my role in Clariant a little less. Overall, I knew the company, I know the people, and I know how the strong customer focus this company has, and the professionalism and the professional way of how they're dealing with the business and trying to address their customers' needs. From that perspective, I always had a very positive impression of Brenntag, which is consistent with the reputation and the brand the company has.
Great. Good to hear. Yeah, look forward to hearing more in due course. Thank you.
Well, yeah, just checking back with the miscellaneous provision question. This is really not organic development. This is additions from acquisition. Provisions that came into our balance sheet via the acquired companies, plus some FX translation. The run rate usage and add-ons are basically matching up.
Understood. Thank you.
The next question is from Daniel Hobden, Credit Suisse. Your line is now open. Please go ahead.
Hi. Just three from me, if I may. One is around, obviously you're running this review and doing an awful lot of work. Would it be fair to say that there's going to be a little bit of an M&A hiatus whilst you work out actually where you're going to focus? Or is it EUR 200 million- EUR 250 million target spread throughout the year, as has typically been the case? Question number two on North America. Obviously, that was quite a weak performance. I think you've addressed it a little bit. I was just wondering, are you losing market share there? Or is that broadly being seen across the industry? The third question was just on the review currently being undertaken and the deep level it's going to. Are you doing this internally? Or are there external consultants being hired to run the process? Thank you.
The first two questions I would ask Georg to take over on M&A and North American business development, and I will then respond to your third question about the analysis and diagnosis.
Daniel, hi. Take the market share question first. The way I understood the question was if we were losing market share in North America, particularly in Q4. As always, chemical distribution is a space where the market size is not 100% clearly defined and is not frequently researched. On a very short-term basis, it is difficult to make a market share statement. I will say that in the strategic holistic diagnosis we are going through, we also do look long-term into market development and market share development and what our conclusions are. You will hear more from us in that context in course of the year.
To specific question on Q4 North America. All that I've seen about data released from people that are active in the same market space as we in North America indicate that we clearly have not lost market share in North America in Q4. It was just a weak market. M&A, you know that the EUR 200 million-EUR 250 million spend always has kind of a guiding line for us as an average over several years. It never has been meant as a number that must be spent each and every year. You have seen, and will see years with lower spending, and can well see years with higher spending. I can't say how 2020 will ultimately work out.
The last question about the diagnosis. We are performing this with a strong internal team, where we have brought seasoned and highly experienced Brenntag managers to an internal team, which is now very strong and directly working with us here, basically next door. We are supported with an external consulting company helping us to get as an objective view as possible.
Cool. Thank you.
You're welcome.
The next question is from Adarsh Radhay, Exane BNP Paribas. Your line is now open. Please go ahead.
Good afternoon. I had three questions, if possible. The first one was on free cash flow. You've guided to free cash flow being significantly lower year-on-year in 2020. Just wondering if you could share some color on the moving parts within this, and what the magnitude is really when you say significantly? The second one is on North America, just regarding the investment program Brenntag has undertaken in 2019. I think you previously, or Manfred previously had commented on the investment program there being less macro dependent. I was curious to know if maybe there is an opportunity for some sort of Brenntag-specific organic growth momentum in the region in 2020, potentially. The third point was the question was on organic growth. You mentioned that you're identifying product areas and customers to focus more on.
I appreciate it's early days, but do you think there's areas you would like to exit or move away from? Any color on sort of initial thoughts on whether that's something we could expect through 2020 would be helpful. Thanks.
Shall I start on the free cash flow point? Our very strong free cash flow in 2019 of EUR 837 million has been substantially helped by a release of liquidity from working capital in an amount of EUR 161 million. Say 20% of that cash flow are working capital chemical price driven. I would not necessarily, we can't know, but I would not necessarily expect the chemical price decline to repeat. That EUR 160 million might fall away out of the cash flow. I also will say we will refocus our work on working capital management, on working capital turn improvement. Hopefully even in times where chemical prices don't fall, we can see better working capital cash flow than in past. I beg your pardon, I can't give you an exact guided figure for free cash flow for 2020.
CapEx program?
Yeah. On the CapEx program in North America, Adarsh, I assume you particularly refer to our statement that we earmarked EUR 45 million, I think, for warehouse upgrades and logistics upgrades in the context of changes in the marketplace. We are executing on that program. Roughly half of it is actually spent in 2019 and is part of the reason why we had a CapEx of EUR 205 million in 2019. I would, because as you say, these are structural opportunities, I do currently expect us to continue with that program. Nevertheless, we are in a holistic analysis, and we also do review our considerations on that element of investments. Remind me what the last point was.
Yeah. I will take this one.
Okay.
Addressing your question about which kind of product groups, customers, regions we will focus on. Again, it's early days, but for me, it's a very important question, where does Brenntag need to strengthen its presence? Which industry segments are particularly attractive for Brenntag because they create higher growth rates and higher profitability than maybe other industry segments. How we will strengthen that presence there by putting more resources behind it, but also how we address those markets and what kind of operating model we put behind? The same is true also for regions, that I need to understand the growth potential this company has in the non-traditional markets, particularly here in Asia, and what it could mean for Brenntag as well when it comes to growth and further development of the company?
These are just two examples to maybe shed some light on that specific statement we have made.
Okay. Thanks.
Thanks.
The next question is from Tom Swoboda, Société Générale. Your line is now open. Please go ahead.
Yeah. Afternoon, guys. Thanks for taking my call. I've just got one question, and apologies if it's already been asked and answered as I dropped off the call for a portion of time.
A rather large competitor of yours in North America is obviously still going through a merger integration process, and they identified dis-synergies in terms of supplier relationships and supplier agreements that would probably fall out or come out of the business as a result of that integration. Have you seen anything in terms of additional business out there in terms of North America? Have you won anything on the back of that, maybe at the back end of 2019 that we might expect to be coming through in 2020, please?
Tom, hi, it's Georg. These things are moving. We indeed have taken over the one or the other supplier relationship and benefited from the synergies that competitors had in their mergers. This works out as expected. We are not at liberty to disclose names of suppliers or specific programs.
Okay. Are you able to talk about the sort of materiality? Were they reasonably large suppliers?
I would rather not, particularly given the difficult state the marketplace is in North America right now.
Okay, that's fine. Thank you very much.
Thank you, Tom.
The next question is from Daan de Wit, ABN AMRO. Your line is now open. Please go ahead.
Yes, good afternoon, everyone. A few questions from my side. The first one is on the guidance. You expect organic EBITDA growth for the year. Can you talk a little bit how you want to achieve that, what the most important drivers are? Is that operating leverage from higher volumes that you are thinking, or should we pencil in a benefit from cost savings? That's the first question. Secondly, it's related to the first question. Can you talk a little bit about the phasing of this organic growth? A lot of chemical companies, they are expecting a subdued first half, after which growth should turn positive. Is that also what you would expect?
Finally, Christian, I know it's early days, but maybe a bit more about you as a person or as a CEO in terms of what we should expect and how you're looking at Brenntag now. Do you think that you would be more prone for evolution or revolution?
Let me start first, de Wit. It's Georg. I can't give you an answer on the first half year or second half year question. I know some people are talking about it. I do not know how they know. Given the uncertainty right now, our statement is on a full year basis, but we can't really break it down by half year or by quarter. In principle, we would expect our growth to be generated by top-line improvement from volumes and margin. It's not geared only towards one. A margin improvement very often comes from our value-added services, from additional services we provide to the marketplace. There is also an increased demand for chemicals and therefore, in principle, a positive volume development. You had a second part to the first question. I apologize, you have to remind me.
Yeah, that was the phasing that you said, you cannot say whether it's going to be H1 or H2. That was the second question.
Okay. Let me ask your question about what can you expect from me as the new CEO. Again, I want to reemphasize, Brenntag is a very strong company, has a very strong position, is the leading player in that field, financially very solid. I think we build on a very strong foundation, and that doesn't require really revolutionary new things. I'm very clear on my expectations when it comes to accountability and execution. No matter what we will show you and we'll explain to you in the Capital Markets Day of what we are going to do, the focus will be on diligent and thorough execution. That's, I would say, what you can expect and count on from me as a CEO.
Thank you very much.
The next question is from Laurence Alexander, Jefferies, your line is now open. Please go ahead.
Good morning, or good afternoon to you guys. This is Dan Rizzo on for Laurence. We were just wondering how you're thinking about digitization. Will you have investments driven by what customers indicate they want, or use digital investments to kind of shape the relationship with the customer?
Again, it's also something I need to better understand. We have put a significant effort behind our digital initiatives, and I think there has been excellent groundwork laid. Still, I would say a lot of things to do and a lot of things to really making it happen. I believe digitalization will be important for the chemical distribution sector and space. We will do our utmost to address the needs of our customers through the digital channels. Internally, also, digital is very important when it comes to questions like automation, when it comes to basically asking questions, what can digital do to standardize and harmonize processes? I see it actually in many dimensions where digital will play a role and has to play a major role for Brenntag.
All right. Thank you for the color. Just one more question. Just in the U.S., are you seeing share gains beyond what you previously expected given the consolidation in the region?
Say that again. I couldn't understand the first half of the question.
Are you seeing share gains in the U.S. beyond what you previously expected given the consolidation in the region?
If I may, I think I gave a little bit of framework on how we think about market share in response to an earlier question. I can't really give a short-term answer for Q4. You will hear from us more about how we think about market share in the course of this year.
Great. Thank you very much.
Thanks, Laurence.
The next question is from Rajesh Kumar, HSBC. Your line is now open. Please go ahead.
Hi. Good afternoon, gents. Thanks for taking the question. Two if I may. First, what are the impressions you're getting when you speak with customers and suppliers in their initial assessment in terms of what are their points of excitement and what are their pain points which you would like to address? Second is, you clearly mentioned that organic EBITDA growth is one of your focus points. Digitalization is the second one. Basically, how would you define success at the end of, say, 12 or 14 months' time? Are you still trying to discuss with shareholders and the various stakeholders how to define success criteria?
Okay. Again, thanks for the question, I have talked to customers and suppliers now intensively, and I think Brenntag has indeed a very good position with them. In particular, when I just take the example of our global reach, we are present in 76 countries, this is highly attractive for many of our suppliers. Plus also, if I may take a second example, the reliability and the brand and what that stands for, solidity, compliance with regulatory topics and many other things, which gives many of our suppliers the confidence that when they want to enter into a certain geography, Brenntag is the right partner on their side. From that perspective, I believe this is the positive side. Supply chain excellence, logistic execution, this is always the pain point.
This is, of course, why, as I mentioned before, our diagnosis will also focus on what and how can we leverage our global site network in the best manner to satisfy the needs of our customers and suppliers even better. Last but not least, depending on the industry segments you are talking to, those customers sometimes require different things. A Food & Nutrition customer cannot be compared with a lubricants customer or cannot be compared with an oil and gas customer. I think we also need to clearly understand the differentiation in the needs of the various industry segments and how to address that. How does success look like? I'm here to bring Brenntag back and return it back to organic, profitable EBITDA growth.
This is how success at this point of time is looking like. Of course, we want to basically build and restore credibility by delivering the promises we have made.
Understood. Very clear. Christian, just in terms of [audio distortion] growth.
You're hard to understand. Sorry, I need to ask you.
Is it any better? What I was asking is that why do you look at organic EBITDA growth? Because obviously you control EBITDA more than organic growth, profit growth. Why not start with combination of organic growth, profit growth and organic EBITDA growth? Why just organic EBITDA growth?
Yeah. It's Georg. Maybe I take that. We didn't necessarily want to limit the statement to organic EBITDA growth. We do think that's the key growth measure. It will also be about top-line growth in terms of gross profit. It will be about expense development. It will also be about deployment of capital, which you either will find in the capital employed or with the expenses it carries below EBITDA. Bear with us a little. We will be very outspoken over the year how exactly we will measure and convey success to you.
Understood. The key performance indicators will be debated and finalized during the review.
Absolutely. I would dare to say today it will be evolution, but not necessarily revolution.
Very clear. Thank you very much.
The next question is from Chetan Udeshi, JP Morgan. Your line is now open. Please go ahead.
Yeah. Hi. Thanks. Sorry, I was late to the call, so apologies if this was already answered. I just wanted to touch base. I don't want to preempt what you might say in your Capital Markets Day later this year, but in terms of focus on Asia as a key growth region in the future versus maybe sticking to your core European and North American businesses trying to improve operations there. How would you prioritize between those two topics in general?
I heard one topic, meaning prioritize Asia over the other regions. What was the second topic you wanted to ask me? Is it only Asia versus the mature markets, Europe and North America?
I think the point here is the intention to focus more on operational improvements, that is probably under your control over the next six, nine, 12, 18 months, or is it going to be more about driving organic growth through maybe broadening your reach in Asia, because Asia is still a smaller part of Brenntag. I'm just trying to understand where is the prioritization within the company at the moment in terms of how to drive the organic growth in the future.
Yeah. Thanks. Now I really understand. I think it is actually both, to be very honest. We have to do improvements in our operational performance. It brings me back to what I said before, accountability and execution of things we have been saying we do, we will execute. There will be improvements in the operational performance, but we also need to balance out with our medium and long-term plans, strategically of where we are focusing the company on. As I said, industry segments, specific regions, those are questions which are on the table, and Asia, of course, need and will play an important role.
Thank you.
You're welcome.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press zero and one on your telephone keypad now. The next question is from Knut Henkel, Baader Bank . Your line is now open. Please go ahead.
Good afternoon. Thank you for taking my question. Another attempt to drill down into the North Americas, if I may. Would you say that you, as an industry, underperformed the general economy in that region? As you say, you kept your market share, what about the industry as a whole? That would be my first question. The second question is more general on resiliency. I think the resiliency in terms of the cash flow pattern, of the anti-cyclical cash flow pattern is well understood. In general, there are a few chemicals out there that obviously presented more stable results in 2019 than Brenntag. Would you say that 2019 was exceptional in terms of resiliency, or is it due to the specific geographical composition and specific developments, especially in the fourth quarter, that led to the results as of today? Thanks.
It's Georg. Really, there is no data on the chemical distribution industry on a short-term basis to answer the question you had on, did we, as an industry, underperform the overall macroeconomic development in North America in Q4. Having given the disclaimer, I would still say no. The distribution industry is well-positioned in the overall landscape, and it is playing its role. I can't really quantify at this stage. Resiliency, we don't compare ourselves to any chemical producer names. Different business model, different degree of diversity. They are much more dependent on certain customer industries or certain product groups. If you compare Brenntag with its global presence, its 190,000 customers, its 10,000 products, so its broad range of diversity to any chemical producer who is by nature a narrower animal, you will always find some who are doing better or some who are doing worse.
We do see the resiliency confirmed by the relative stability, though not fully satisfactory, but relative resiliency of EBITDA and particularly the strong cash flow development.
Okay, thanks.
The next question is from Christian Cohrs at Warburg Research. Your line is now open. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. Maybe first on, leaving your holistic analysis aside, in light of the softer market environment in North America, and most probably also a soft market environment in the first quarter in North America, do you evaluate any short-term measures like right-sizing capacity there, travel restrictions, hiring freeze, in order to address this? Secondly, also with regards to a probably challenging market condition in 2020, what are your CapEx plan? Is CapEx expected to remain at the level of last year, or will you actually cut your investments in light of the market conditions? Then just two housekeeping items. First, is it fair to assume that the M&A contribution of the transactions you have already carried out and that are going to materialize then in 2020 stands at a rough EUR 18 million for 2020?
Could you remind us maybe, is there some sort of rule of thumb for your FX sensitivity? How does a change in the US dollar-euro relation translate into EBITDA? That would be helpful. Thank you.
Christian, hi. It's Georg. I know you kind of said I should leave the holistic analysis side or the holistic diagnosis. I won't. It is a so important project in our company right now that it is very relevant for everything we consider. Having said that, obviously, if you operate in a difficult, uncertain marketplace like we do, irrespective of any broader project, you keep the belt very tight, and that is what we do. We are very careful with spending globally, but particularly in North America. We have indeed already reduced workforce in North America the last two, three months already. I would frame this more as what every prudent businessman does, keep the belt tight if the conditions are difficult. It comes above and beyond of the holistic analytics work that we do. CapEx, always more a long-term story.
We wouldn't react with our CapEx plans to short-term changes in market circumstances, that would not be prudent. Nevertheless, you might have noticed we did not give you a CapEx number 2020 in the forecast report, and we did that for exactly the same reason. We are reviewing our CapEx considerations pretty broadly. The two housekeeping items you had, indeed, M&A already executed will contribute EUR 18 million to maybe EUR 20 million of EBITDA 2020 over 2019. The FX sensitivity is around, if US dollar/elEuro moves EUR 0.05. US dollar/euro EUR 0.05, you should expect the EBITDA impact give or take EUR 20 million.
Okay. Thank you very much.
You're welcome. Thank you.
There are currently no further questions. I hand back to the speakers for closing remarks.
Well, thank you very much for dialing in and having the conversation. Apologies for the technical glitch we had. We will make sure that this will not happen in the future. It was interesting to have also the dialogue with you, and I assume we will see each other anyhow in the following days now during our roadshow into London. Looking forward to working with you and basically being able to tell you about the next chapter of Brenntag in more detail as we progress. Thank you very much for dialing in, and talk to you soon. Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.