Dear ladies and gentlemen. Welcome to the Q3 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 difficulty during the conference, please press star key followed by zero on your telephone to obtain assistance. May I now hand you over to Steven Holland, who will lead you through this conference. Please go ahead.
Thank you, good afternoon, everybody. Welcome to our call. As you know, I'm here with my CFO, Georg Müller, and this is indeed my last call as CEO as I step down at Christmas. Let me start with the highlights of the quarter. Our operating gross profit rose by 3.9% to EUR 722.2 million on a constant FX basis. I'd like to note that our newly established food and nutrition organization contributed well in the third quarter. Our gross profit growth was mid-single digit, which was clearly above the organic development of the group. We operate in quite a difficult economic environment at the moment. Checked our operating EBITDA stable against last year's Q3 on a constant FX rate and on a frozen GAAP basis. Q3 reported operating EBITDA of EUR 262.8 million. We reported an FX-adjusted growth of 13.9%.
This increasing operating EBITDA is heavily impacted by the application of the new IFRS accounting standard on leases. Underlying growth is somewhat flattish. The cash flow strongly increased by more than 60% and amounted to EUR 246 million in the reporting period. As we've always said, cash flow in our business is particularly strong in times of macroeconomic weakness, underscoring the resilience of our business model. We continue to execute on our M&A strategy and sign a number of deals and close further acquisitions. In the quarter and year to date, we've noticed a continued slowdown in the economic situation, which is impacting demand generally. This is broad-based in many industries and regions. With the amendment of our guidance range of 0%-4% operating EBITDA growth in mid-July, we've been taking a more cautious view regarding the overall market conditions.
The situation has definitely not improved since then, and we are facing a high level of economic uncertainty. We expect our operating EBITDA growth for 2019 to be around the lower end of our guidance. I will address the further details on the outlook later. Coming to our EBITDA bridge. On the last quarter, we had a positive effect from FX translation of EUR 6 million. The acquisitions contributed EUR 8 million in the reporting period. This number is net of the operating EBITDA associated with our biotech business, which we sold at the end of 2018. The positive effect from the application of the new accounting standards and leases on our operating EBITDA was EUR 30 million for the group. Both EMEA and North America were affected by the overall macro conditions in Q3, thus reporting negative organic growth of 4% and 3% respectively.
This is in line with what we've seen in Q2 this year. Latin America was not able to continue the growth trajectory in this quarter. We've reported negative organic growth of around about 13%. The business in Asia Pacific developed well in Q3, with organic operating EBITDA growth of 2%. Just coming to the regions now. First to EMEA. As I mentioned already, we saw a continued softness in the macroeconomic development and overall weak demand. While many countries in the region are facing the situation, Germany and France continue to be particularly affected by weak demand. With these conditions, we achieved a stable gross profit compared to previous year. The organic decline of operating EBITDA was about 4%. The new accounting standard on leases had an effect of around EUR 10 million on the operating EBITDA in the EMEA region. Coming to North America.
Since Q2 this year, we've seen a continuous weakening of demand also in North America. The current uncertainties around tariffs and trade are affecting customer behavior. Gross profit growth of 5% is resulting from a slight organic growth and from acquisitions. Organically, the operating EBITDA decreased by 3%. Despite the current slowdown, we have continued to invest in both people and resources, which are expected to pay back when market consolidation begins to occur. The effect of the application of the new accounting standards on leases amounted to around €14 million in the region. Coming to Latin America. After a strong first half, we see a high volatility in Latin America, and the region could not continue its growth trajectory. In total, the operating EBITDA declined by 13% in the quarter. The effect of IFRS 16 amounted to €2.5 million in the region.
We are able to report a positive extraordinary income below the operating EBITDA of around about EUR 9 million. This is due to a refund claim of Social Security charges incorrectly levied on our business. Coming to Asia Pacific. Although we see some economic uncertainty in Asia as well, China grew well in Q3 despite a softening economic environment and continuing challenges in the logistics infrastructure. In addition, our acquisitions contributed to the quarter results. The EBITDA grew by 2% organically. The effect of the initial application of IFRS 16 amounted to EUR 2 million in the quarter. Coming to acquisitions. We continue to execute our M&A strategy, and we acquired a number of targets in the last couple of months.
As you can see, we are active in all parts of the world, and since the beginning of the year, we've entered into these transactions with an enterprise value of EUR 260 million. In total, we've made 10 transactions so far. The majority of these transactions are all closed already. We expect those to close, which we've signed so far, until the end of this year.
Thank you, Steve. Good afternoon. I would like to speak about our income statement for the third quarter 2019. On page 11, you see the upper part of the income statement. In the third quarter, we saw a slight decline in sales of 1.4% on an FX adjusted basis. This reflects that prices for chemicals across our portfolio are declining. Our operating gross profit rose by almost 4% on an FX adjusted basis. That demonstrates well that we are able to protect our absolute gross profit contribution in a deflationary price environment. Operating EBITDA for the group grew 13.9% to EUR 262 million on an FX adjusted basis. The growth was clearly impacted by the initial application of IFRS 16. On a frozen GAAP basis, Operating EBITDA is flattish year-over-year.
On the next slide, below the operating EBITDA, you will notice a positive extraordinary effect in the amount of EUR 9.2 million. This mainly relates to the case in Brazil, where we have a claim for refunds relating to Social Security charges. The depreciation was higher than in last year's quarter. This is mainly attributable to the application of the new accounting standards on leases. Most of these expenses are no longer shown above operating EBITDA, but are split into depreciation and interest. The financial result amounted to a net expense of EUR 23 million. Earnings per share stood at EUR 0.83 compared to EUR 0.72 in the third quarter 2018. In Q3, we reported a significant increase in operating cash flow to EUR 290 million. The significant increase is partly due to working capital development. In the third quarter, we had a significant inflow from working capital reductions.
As most of the lease payments are now included in the financing cash flow, the operating cash flow benefits in the year-over-year comparison. Interest payments were clearly lower this year than last year. Last year, we still had interest payments on an expensive bond that matured last year. Let me move to the investment and financing cash flow on page 14. CapEx in the third quarter was higher than in last year's quarter and amounted to EUR 52 million, which is in line with our planning. In addition, we spent around EUR 24 million on the closing of acquisitions. In the application of IFRS 16, the line repayments of proceeds also includes most of the cash out in relation to operating leases. This effect is around EUR 27 million. Moving on to the free cash flow.
The free cash flow is a key performance indicator for managing our business. It amounted to EUR 246 million in the third quarter. That is more than 60% higher than in previous years. You will see in this table the relevance of working capital reductions. In connection with the first-time application of IFRS 16, we have already earlier this year adjusted the definition of free cash flow. In order to ensure comparability with previous years, free cash flow now also includes leasing payments in a separate line. On page 16, you see information on net debt and leverage. Net debt amounted to EUR 1.8 billion. A decrease compared to the end of the second quarter is attributable to strong cash flow generation. Leverage is at 2.0 times.
Net debt as well as the leverage ratio calculation exclude lease liabilities, and we did that to ensure the timeline that we present to you is consistent. Net working capital amounted to EUR 1.9 billion at the end of the quarter. Working capital turnover stood at 6.9 times in the third quarter. With that, I hand the presentation back to Steve.
Thank you. I would just like to start with the current trading and then address the outlook for the remainder of the year. I'll try and do this slowly. In July, the growth, these are gross profit for working day growth numbers. In July, the growth was 3.1%, 0.5% on an organic rate basis. In August, growth was 4.3%, of which 1.3% was organic. In September, it was -1.1%, -2.8% organically. In October, it was +1.4% and -0.5% organically. I think we said a little bit earlier on in mid-July, we adjusted our outlook for 2019 of operating EBITDA, which will be growth between 0% and 4%. We have been taking a more cautious position with regards to the economic developments for the rest of the year.
I think we're very much right in doing so. We are facing a persistently difficult macroeconomic environment with a certain high degree of economic uncertainty. As I said earlier on, against this background, we would specify our expectation that our operating EBITDA will be around the lower end of our guidance range. I think at that point, we're happy to take some questions.
We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once your name has been announced, you can ask the question. If you find your question is answered before it is your turn to speak, you can dial zero two to cancel your question. If you're using speaker equipment today, please hit the handset indicating your selection. One moment please for the first question. The first question is from Raghav Ladha of BNP Paribas. Your line is now open.
Oh, hi. Good afternoon there. I'll start off with two, please. On CapEx, firstly, you've indicated you started the investment program in North America. Can I please confirm that most of this is still around EUR 40 million? Any color you can share on progress made would, if you get an opportunity, would be helpful. Secondly, on just free cash flow for the fourth quarter, assuming sort of current conditions remain for the rest of the year, can you give us a sense for how different fourth quarter free cash flow could look versus the third quarter? Any sort of large movements you can flag would be helpful. Thanks.
In terms of the CapEx, which we've already highlighted, I think that EUR 40 million is still a consistent number, which we would go with. These are somewhat lumpy investments, and therefore it's not entirely certain at which period they'll be spent. I would think we've gotten most of those done this year, and they're absolutely in line with our strategy going forward.
On the question, free cash flow, fourth quarter. Obviously, you can deduct the EBITDA number from our guidance. I would expect, assuming unchanged condition for chemical production prices, I would expect a further inflow from working capital reductions. On the other hand, you would expect a certain degree of pickup in CapEx in the fourth quarter. Fourth quarter should well have very good cash flow, probably not exactly on the levels of Q3 due to the CapEx pickup.
Okay. Sorry, could I just follow up with the CapEx number for the full year? You guide to EUR 220. Now you'll have, from the Chinese sales only EUR 5 million. We should be looking at sort of EUR 215. Is that correct?
Oh, it's not for sure exactly how the timing of the things will fall. It will be anywhere between EUR 200 and EUR 225.
Okay.
The next question is from Peter Olofsen of Kepler Cheuvreux. Your line is now open.
Good afternoon. Two questions. First on IFRS 16, where in the Q3 report you still talk about the estimated impact on EBITDA of around EUR 100 million. Looking at the number year to date, it is already at EUR 86 million. Either this EUR 100 million for the full year is now overly conservative or in Q4 we will see a substantially lower number than what we have seen in the first three quarters. Maybe you could clarify this point. My second question is on IT costs in EMEA. I recall that in H1 you did incur some costs related to an analysis of the IT landscape. Did you incur additional costs in Q3? Has this analysis been completed now? When will you start to spend on the actual harmonization of the IT systems, and what would that mean for OpEx and CapEx going into 2020?
I take the IFRS 16 question. I know we did repeat the EUR 100 million IFRS 16 effect on a full year basis in the report. It might be a little light, probably EUR 110 is a more realistic figure. Anywhere between EUR 100 million and EUR 110 million, I would say.
Just coming up to the IT question. We are pretty much through the initial scoping phase for the IT in Europe. That actually is going to get through a further review in December. At this stage I can't give you more firmer details than that, but certainly we're at a point of actively deciding the rollout of that program.
When you make the decision, will we then see some shift from OpEx to CapEx?
I think that would be the case, because I think the scoping work that's been done so far has been issued to.
Okay, thank you.
The next question is from Rajesh Kumar of HSBC. Your line is now open.
When you look at 2020, do you think your cost base is in the right shape? Are there any potential cost actions in terms of warehouse footprint or logistics footprint or headcount you would need to tweak given the current trends of growth?
The straightforward answer to that is that there are actions underway at the moment in terms of looking at our operating costs, and these have been ongoing throughout this year. There's a bit of a balance to be made in some respects because we have been investing in some specialty chemicals, marketing and technical support functions within the business, and obviously investing in certain expansions of parts of our American business. At the same time, we have reduced operating costs in North America and in parts of Europe. There is more to be done. We do actually have, in real terms, a number of actions in place, such as a headcount freeze for the ongoing businesses. We are continually seeking to reduce our logistics costs and energy costs. All those three items are in clear focus.
Going into 2020, we very much see cost control and cost reductions as being part of the defensive approach to our business in 2020.
Thank you very much. Just in terms of the discussion you've had with your suppliers about plans for the next month or next three months, what is the kind of sentiment you are seeing in the supply chain? Are people looking to assure the volumes you're going to buy from or sell for them? Are they trying to renegotiate the prices you're getting because your volumes have come down? Basically, on a relative basis, have you become a more important customer for them?
Well, I like to have always been an important customer to them. Where we are at the moment, a reasonable comment would be to say that prices have come down. Prices are, in general, we do pay market prices. We don't see any one particular supplier discounting ahead of their competitors in a tactic to try and obtain more business from Brenntag. Clearly, we do have partnerships out there, we do have a partnership approach to our supplier base in terms of working with them in terms of sales and marketing of their products. We're not completely transactional in that respect. I think it would be fair to say that we've seen specialty chemicals under some pressure in terms of a lot of specialty chemical manufacturers are clearly searching for volume, and that's an area which is under some pressure.
This is in particularly the area of things like paints and coatings. You can imagine the car industry, which is very heavily involved in specialty chemicals, those areas are very competitively priced, and manufacturers are looking for volume. I think we have a pretty steady ship in terms of both the relationship with our suppliers and the pricing that we use.
Thank you very much. Appreciate that.
The next question is from Steven Pollard of Deutsche Bank. Your line is now open.
Hi there. Thanks for taking my question. Firstly, apologies, I missed the monthly numbers earlier on. I missed the first couple. If you could just repeat those, that would be incredibly helpful. Sorry about that. I also wanted to talk about specialties and food nutrition. Can you give us a bit of a feel for how specialties is going for you? I know you just talked there about tough pricing in some of the industrial specialties, but maybe any kind of organic gross profit growth you could give for both specialties and food nutrition would be great. You talked before about price weakness. Has that been beneficial for your margins? I know that at times when prices are quite volatile, chemical distributors can make decent margins as you can somewhat slow in passing those through to customers. Maybe if that's been a driver, that'd be quite helpful.
Just thinking about your guidance for the last point. You did roughly down 3.5% organic EBITDA for the first half. You've done minus four here. Your guidance for the year on an organic basis has you doing about minus two and a half, minus three at the low end. Are you expecting a bit of a star improvement on a year-on-year basis in the next quarter in order to hit that or kind of more of the same?
Right. Well, I'll try to be incredibly helpful and give you the numbers again. July was 3.1% growth, 0.5% organically. August, 4.3% and 1.3% organically. September, -1.1%, -2.8% organically. October was +1.4% and -0.5% organically. I think Food and Nutrition was around about 5%-6% GP growth in the period. If that's something you're looking for. In terms of just kind of generally specialties, as in to the previous caller, clearly there are pressures in specialties in terms of paints and coatings, because anything that involves the metalworking, even simple things like white goods, they require specialist chemistry for a number of finishings and what have you. Clearly, the car industry is a perfect example. I would say in those industries, the specialties are under some pressure because of a lower demand for products generally.
In terms of pricing, clearly, there has been some volatility in pricing. As you know, we have a relatively short lead time in terms of our stock holding. Whilst we certainly get a little bit of a positive when prices move, but it's not excessive by any means, and it's more of a cushion against any losses in the up or down phase. Again, no appreciable margin accretion during this period of volatility.
I think Steven was also looking for a little bit of color on how do we see organic earnings growth in Q4 relative to this year so far. The difference that you were quoting, Steven, are relatively small differences. Give or take, we would expect the first quarter organically to be on the same growth trend that you have seen year to date so far.
Great. Thanks a lot.
The next question is from Chetan Udeshi of JPMorgan. Your line is now open.
Yeah. Hi, thanks. I just had one question and to some extent, maybe this is a clarification. I heard you guys talking about some OpEx optimization or cost optimization program. If my math is correct, and if I were to add back the IFRS 16 benefit to your OpEx, then essentially it seems the OpEx was up close to 6% year-on-year in Q3 too, which is actually higher than your sort of FX adjusted gross profit growth. I mean, eventually any business model probably would want to have the other way around that the OpEx growth is slower than the gross profit growth. I think, can you maybe help us explain when that phenomenon become more visible here at Brenntag?
Maybe let me clarify the numbers and then I'm sure Steven wants to give some color. I can't follow the 6% OpEx increase in Q3 you mentioned. I assume, not sure, but I assume this is not an adjusted number. The OpEx increase in Q3, including M&A, has been 4.9%, on an organic basis has been 3%. The 3% reflects a general cost inflation in the market. Keep in mind, we are holding up, if not growing our volumes.
I think that's a fair comment from Georg. I would think it's also the case that in the current environment, we have held our volumes in the market. Our operating costs are not unreasonable in some respects. However, we do recognize that, and as you quite rightly point out, that in an environment where margins are under pressure, we have to get our costs down. Hence we have the hiring freezes, we have a number of initiatives on logistics and other things like travel bans and all sorts of things going on as you would expect any responsible company to do so. We are trying very hard to get those costs down. We have a mixed priority here in some respects. In terms of actually running our business, we clearly see an opportunity to grow our business in food and nutrition.
Therefore we don't have a hiring freeze in terms of developing our food and nutrition business. Clearly we see an opportunity to take a view versus market consolidation in North America, which is in itself is something which will pay back to the future, not necessarily today. That balance is one we have to achieve, but certainly we are very conscious of that our OpEx has to be in line with our ability to generate GP.
Understood. Maybe if I can follow up on Food and Nutrition. There seems to be some slowdown hitting the Food and Nutrition market as well. Has that had any impact on maybe the competitive landscape between Brenntag and your competitors in terms of building the business or in any shape or form that would be useful?
Well, as far as we're concerned, we are very happy with the development of our Food and Nutrition business. It's one of these things where we are effectively leveraging our size and market penetration in Food and Nutrition in a way which we haven't done in previous years. It's proving very effective. We are attracting more and more suppliers to Brenntag as their preferred channel to market partner, and we're attracting more and more customers. I'm quite sure and the market is not bouncing along, and why would it? Certainly from our perspective, we see a positive development and we have size and market position to take advantage of our current strategy.
Thank you.
The next question is from [Zander Gann] of ABN AMRO. Your line is now open.
Yes. Good afternoon, everyone. Just one very simple short question. It's on M&A. This has averaged around EUR 8 million in last three quarters. I know Q4 is a bit weaker quarter. Should we expect a number slightly below the number going into Q4? I have to say the talking numbers have been a bit higher than what I forecasted.
Zander, Mutlu had a relatively small difference, maybe six for the first quarter. You are wondering EBITDA contribution on the quarter, right, or M&A?
Exactly. Yeah. Okay. Thanks for that. Maybe just sneak one question more. It's on the IFRS 16. Just wondering, how is it possible that one is so much higher, and I'm mainly focusing on Q3, but also for the full year that higher than your guidance? I would have assumed that you know your contracts up front. Why is the absolute impact higher than what you guided?
Partly M&A activity, partly FX translation. Dollar relatively strong this year. It is 3,600 contracts. While in principle we know all the contracts beforehand, until you really work through the 3,600 contracts takes a little bit of a time.
All right. Thank you.
The next question is from Marcus Meyer of Berenberg. The line is now open.
Yeah, good afternoon, gentlemen. Three questions from my side as well. Firstly, on your oil and gas business, maybe I missed it in North America. Can you give us a kind of update there? We see continuously declining rig count numbers. Has this any effect on your business? Secondly, in your outlook statement, you said you do not expect macroeconomic conditions to show any improvement. The question is, do you see any end markets improving or any regions improving? Lastly, the question as the time is getting tougher for chemicals overall, do you again see the distribution outsourcing trend accelerating in this environment? Thank you.
In terms of our oil and gas business, clearly we do have an effect in terms of the softness in the market in oil and gas. A lot of the major service providers who we support have difficulty. We have a reduction in rig counts, so that has a knock-on effect in our North American business. I think it would be fair to say that our North American business is somewhat more broader based now than it was, say, this time three or four years ago when we took quite a knock on that. Whilst certainly it's not helping, it's not as crucial as it would have been in the past. In terms of end markets, I think geographically, we would expect to see an improvement in our Asia Pacific business in 2020, particularly in the area of, for example, in China.
You may well be surprised to hear me say that because we are finally getting to the point where the new sites are coming online and therefore our logistics costs will improve. We have made some good acquisitions in our Asia Pacific region, which we feel will generate additional growth in 2020. Particularly our business in India is expected to have a much better performance in 2020 as well. It's not particularly end market, but more regions. The rest of the market generally, I think it's more a case of will we see a recovery in industrial production in 2020 is a good question. The rest of the market is relatively flat. In terms of outsourcing, we do see more outsourcing.
What we're seeing is consolidation within major manufacturers in terms of they're looking at their channel market partners, and we have a number of partners who we are doing literally more and more and more with as they start to deselect a number of regional players. The outsourcing to some extent is by virtue of consolidation within the distributor sector as well as consolidation within the manufacturing sector.
Okay. Thank you so much.
The next question is from Isha Sharma of MainFirst Bank. The line is now open.
Hi. Thank you for taking my questions. Going back to the trends that you see, it would be great if you could shed some light going into 2020. Specifically, I wanted to ask about North America, which has started to deteriorate in Q2. You were practically the first ones to call it out. Do you see any risk there that it gets worse next year, and do you expect Europe to then be a soft? You talked about Asia getting better. Is it specific to Brenntag because of your investments in the past, or do you see this as your end markets in Asia in terms of demand getting better? My second question would be again on free cash flow, please. Last year in Q4, we have seen very strong inflow from net working capital. Is this a typical seasonal phenomenon?
What would be a fair assumption for that? In terms of falling chemical prices and low growth environment that we have right now, is it fair to assume that net working capital needs might also be very limited in 2020? Thank you.
Just continuing at this pace, I would say if you look at all the projections in terms of things like the Purchasing Managers' Index and other indices, it does have a look of weakness, continued weakness towards the end of this year. I think it's pretty certain that we're going to take a view in terms of our operating costs in the United States. I think the thing about the United States business is it is pretty flexible in terms of addressing operating costs where they need to be changed, and our management team will be looking at that obviously actively to react if the market doesn't improve in early 2020. At this stage, I don't see any significant upturn in demand in North America unless there's a particular change on a global level relative to perhaps the position versus China.
In Asia, I think there is a bit of a Brenntag story in Asia. We have made very good progress in Asia. I think sometimes it's easy to forget that we started from zero, now we're approaching a $2 billion business, if you like, in the Asia Pacific region. Therefore, I would expect us to continue to grow irrespective of the rest of the world. Growing at 2% or 3% or 4% in Asia Pacific represents an opportunity for us, and we'd expect Asia Pacific to take that opportunity.
Isha, on the free cash flow, indeed, the free cash flow pattern benefits in Q4 from a seasonal inflow from working capital reductions. Working capital forecasting and therefore cash flow forecasting always a little difficult because it heavily depends on pricing. If memory serves correct, then last year we had an in Q4 inflow from working capital well ahead of EUR 50 million. That's not an unreasonable assumption to go into this year. Just keep in mind that on the other hand, the Q4 cash flow will see some higher CapEx.
Perfect. Thank you very much.
The next question is from Christian Kohs of Research. Your line is now open.
Yes. Hello. Good afternoon. Thanks for taking my questions. First on M&A, actually, given the current macroeconomic downturn and the chemical prices coming down, does this have any impact on your M&A strategy and also on M&A pricing? You have a nice working capital inflow. Your potential M&A targets, are they more willing to sell their business due to the deterioration of the macroeconomic environment, or is the opposite the case due to the fact that they most probably also experience a more convenient cash flow position at the moment? Is there lower willingness to sell the business? What are the implications on the M&A side? Another question on working capital. Do you still strive for an improvement in the working capital turn, and do you have any measures in place?
Lastly, some years ago, you launched a global purchasing initiative, and I wonder, especially now with chemical prices under pressure and some suppliers are under pressure, is this not a good point to pursue this strategy and are there any ideas in place?
Coming to M&A, it's quite interesting. We have a few contradictions in terms of M&A, because clearly the slowdown in economic activity, you may well think that might prompt some people to think, "Well, it may be time to sell." Certainly, in chemical distribution, as you can see, the business model is cash generative, and therefore, a number of targets here will believe that even though their EBITDA is dropping, their cash position is strong, therefore the need to sell at the bottom of the market probably wouldn't be their first choice. We also have this dilemma in terms of there's so much liquidity left in the market in terms of cash availability in terms of borrowing cash, that the valuations have not really come down too much in recent months.
It's a dilemma in terms of reducing EBITDA and valuations not really moving in the right direction from the group as a purchaser. Having said all of that, there are still quite a number of targets out there for us to acquire, and we are more limited by capacity to acquire, i.e., the actual function of acquiring businesses limits our ability to only so many deals. At this stage, we certainly are not without the opportunity to buy businesses at appropriate prices in terms of valuation purposes. It's an interesting market, but a market that's still open for us. One other question was, I think, was on purchasing. Yes, you're quite right. There was an initiative a few years ago relative to reducing our average pricing, looking at the best possible product pricing. We have moved on quite some way, actually, in that regard.
We have an in-house digital marketplace developed since the pricing initiative a few years ago. The visibility of pricing is actually now across the whole of Brenntag in a digital sense, and therefore, you can imagine that we are now in a position that we can take advantage of the best possible deals that the group has to offer and work with our suppliers in a much more global way. We are already operating an increased, more optimized purchasing activity.
One question was left regarding working capital turn. This year, if I'm not mistaken, this was mostly driven by lower chemical prices, the strong usage improvement. Do you have also any intention to get the working capital turn up again?
As you rightly point out, Christian, this year's cash flow is pretty strong, and this year's cash flow is strong from working capital reduction, but it is very much helped by chemical price declines. We are also working on improvements of working capital turn globally. That gets, in terms of measures, pretty granular pretty quickly. To call out some themes, we work on improved usage of inventory cross-border. Inventory that sits in one country but can be used in other countries is made accessible to other countries. We are talking about payment terms harmonization, where a customer is also a supplier. We are talking about reduction of payment terms, particularly for smaller customers. We are, for example, also talking about improvement of planning processes.
Okay. Thank you very much.
The next question is a follow-up of Mutlu Gundogan of ABN AMRO. Your line is now open again.
Okay. Thank you. Steve, I just want to get back to one remark you made on the North American oil and gas business. Can you update us on the share of the oil and gas business of the overall North American business?
I would say, yes, so pretty much around about 22 or 23% of the North American business would be a fair guide.
Right, 22%. The share has come down. Is that because the earnings have come down or that the other business has grown or maybe both drivers?
It's particularly that the other businesses have grown.
Right. Okay. Because you've done several acquisitions within the business, just wondering, is there any risk of any impairments towards the end of the year?
No. It must be showing through our acquisitions with oil and gas. Nothing that we have at the moment is nearing impairment. I'm not sure whether you're confusing this with lubricants, maybe. We have made a lot of lubricants acquisitions, which are not in the oil and gas bucket. Lubricants business is basically distribution. Oil and gas is actually oil and gas processing.
Right. No, indeed. Right. Okay. Thanks.
As a reminder, if you would like to ask a question, please press zero and one.
Okay, ladies and gentlemen, I think we've run to the end of our questions. I'd just like to say on a personal note, that this is my last quarterly call. I'd just like to thank you all for your professional interest and courtesy during this call. Sometimes tough, but always fair. Thank you so much for that. I wish you all the very best for the future. Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.