Dear ladies and gentlemen, welcome to the Brenntag AG results call for the first quarter of 2018. 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 key followed by 0 on your telephone for operator assistance. May I now hand you over to Mr. Steven Holland, who will lead you through this conference. Please go ahead, sir.
Thank you very much. Welcome, ladies and gentlemen. Thank you, everybody, for dialing in for our review of our results for the first quarter. As usual, I'm here with Georg Müller, our CFO, and as always, we're happy to answer your questions after the presentation. Let me start with the highlights of the quarter. We had a good start to the year, with strong results in both operating gross profit and operating EBITDA. The Group generated an operating gross profit of EUR 637.6 million, which represented an increase of 6.6% at FX adjusted. Operating EBITDA increased by an encouraging 10.2% to EUR 206.6 million, again, on an FX adjusted basis. The results are predominantly driven by organic growth in our business. Q1 2018 marks the third consecutive quarter with organic EBITDA growth for the Group as a whole.
In the first quarter, we clearly benefited from operating leverage, which resulted in a year-over-year improvement on our conversion ratio. The growth is broad-based. Our largest regions are clearly growing, whilst our smaller region, Latin America, reported flattest results in an environment that remains volatile. In addition to this, we are pleased with the development of our most recent acquisitions, which are operating on or above plan. As per share amounted to EUR 0.68, following last year's EUR 0.61. If I come to the operating approach, I'll take you through the overview of the developments of the business in Q1. I'll provide more details on the operating business units in a few moments. In Q1, we had a strong headwind for the US dollar/euro translation of around EUR 40 million due to a US dollar that was clearly weaker than it was in Q1 2017.
Our acquisitions contributed EUR 4 million in the first quarter. Please note that 2 of the acquisitions we announced at the end of 2017 are not yet closed. At the beginning of May, we closed the acquisition of Raj Petro Specialities in India, and we are working the closing of the others as soon as possible. In EMEA, we saw a good organic growth performance in the region. We are particularly pleased with North America and Asia Pacific, which both show strong organic growth. Again, the results in Latin America were flat last quarter, which we view to be a solid performance in a volatile environment. Quickly take a look at analysis. Coming to EMEA first, the region showed an operating gross profit growth of 5% and operating EBITDA growth of 6.8%, both FX adjusted. The EBITDA contribution of organic growth was 4%.
In terms of the efficiency program in the region, large parts are completed, and we're seeing the expected positive effects on the results. Coming to North America, we're particularly pleased with results in North American region. The segment continues its positive trend. The strong growth in Operating Gross Profit of 8.7% drove a very encouraging EBITDA growth of 13.1%, plus FX adjusted. The organic EBITDA growth was 13% in North America. This is broad-based across all customer industries. Coming to Latin America, we continue to see an overall volatile environment. In this environment, Latin America reported flat results in terms of Operating Gross Profit and Operating EBITDA. In Q1, we saw a good performance in Brazil, which balanced some of the weaknesses in other countries.
We will take some steps to move away from a high volume, low GP business in the region over the forthcoming quarters and reduce operating costs. Coming to Asia Pacific, we are very pleased with the global performance of Asia Pacific, where we continue to see a positive development. The region once again reported a double-digit growth of Operating GP and Operating EBITDA in the first quarter. The organic EBITDA growth was 8% in the quarter. These positive results were mainly driven by Thailand, Vietnam, and China. We continue to see this region with the highest growth potential going forward. Now I'd like to pass across to Georg.
Thank you, Steve. Good afternoon, everybody. I would like to walk you through our income statement for the first quarter. I will start with the upper part of the income statement on this slide 10. On a constant currency basis, sales increased by around 8% in the quarter. The increase is also reflecting the higher chemical price environment. Gross Profit showed a healthy growth of 6.6% on an FX adjusted basis. We saw particularly strong performance in the regions North America and also Asia Pacific. Operating EBITDA for the group grew even stronger than Gross Profit and amounted to EUR 206.6 million in the first quarter, an encouraging increase of 10.2% compared to first quarter last year. As a consequence, conversion ratio improved, and it improved by 120 basis points to 32.4% for the quarter.
I'll move to slide 11 and come to the part of the income statement with the lines below EBITDA. There are no major changes for depreciation and amortization. Depreciation for quarter one amounted to EUR 28.2 million and amortization to EUR 12.2 million. Financial results amounted to a net expense of EUR 19 million. That was an improvement against last year. In the first quarter, we recorded a tax rate of 28%. This is almost four percentage points lower than last year, and it is mainly attributable to changes of the U.S. tax rate. Earnings per share are at EUR 0.68 following EUR 0.61 a year ago. On the cash flow statement on page 12, Q1 reported an operating cash outflow of EUR 12 million. That compares to an inflow of EUR 75 million a year ago.
Both quarters, the first quarter 2018 as well as the first quarter 2017, were characterized by pretty strong increases in chemical prices, which in both quarters led to an increase in working capital beyond the usual seasonality. The main difference in cash flow in this quarter compared to last year's quarter results from an extraordinary payment, which we received last year, when in the first quarter we received EUR 48 million that were returned to us by the French authority. On page 13, you will see the investment cash flow and the financing cash flow. In line with our expectations, CapEx for the first quarter was about last year's level. There were no major payments for M&A in this Q1. Also, in neither of the quarters a dividend occurred. The dividend will be paid only in the second quarter this year.
In difference to previous presentations, we have put the balance sheet into the backup at the end of the slide deck. I will move on page 14 directly to the net debt and leverage information. Net debt amounted to EUR 1.598 billion, and that's on the same level as the end of 2017. The group's leverage stands at 1.9 times. We also put the information on the maturity profile of our indebtedness into the backup. I'll move directly to page 15 to the trade working capital information. Trade working capital slightly exceeded EUR 1.6 billion at the end of the first quarter. The increase is to a fair degree attributable to continuous price increases of chemicals.
In addition, working capital turnover was at 7.5 times in the first quarter. This is below the level we are targeting for this year. We do expect some improvement in course of this year. Coming to my last slide on page 16, in Q1 2018, we reported a free cash flow of EUR 27.7 million, about the same level we achieved Q1 last year. I'll hand it back to Steve for an outlook.
Thank you, Georg. Let's start with the current trading and then address the outlook for the year going forward. Let me walk you through the gross profit for working day growth on a monthly basis. In January, growth was 8.6%, 7% organic. In February, growth was 7.3%, 6.4% organic. In March, growth was 8.5%, 7.2% organic base. In April, the growth was 3.8%, 2.7% on organic basis. Just for clarity, generally profit per working day as a percentage is monthly in months such as April. For information, the actual gross profit growth for April was above 10%. Coming to the outlook, we have a good start in the year 2018 and can confirm the outlook which we gave you in the middle of March when we announced the 2017 results.
The global economy is expected to show further signs of improvement in the course of the year. In this environment, we expect our key proposed indicators of Operating Gross Profit and Operating EBITDA to grow on a group level. We continue to work on improving our profitability. Regions EMEA and North America will drive the growth of our business. The weakness of the U.S. has already caused strong translation headwinds for the group in the first quarter. This is likely to continue going forward. We still see the Asia-Pacific region as a segment with a high growth potential as the distributor sector develops further in the region. In Latin America, we expect some improvement in the overall economic environment. In terms of M&A, we continue to pursue our strategy. Currently, we are working on closing and integrating the targets we signed at the end of last year.
Overall, recent acquisitions remain on or above plan. Now we're happy to take your questions.
If you have a question for our speakers, please press 01 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 02 to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment, please, for the first question. The first question is from Sylvia Barker of Deutsche Bank. Please go ahead.
Yes. Hi, good afternoon. A couple questions, please. Firstly, on the numbers that you've just read out. In terms of the April rates, could you just talk a little bit about the trend there based on the previous three months? Secondly, on the working capital and general cash flow movements, could you just go back to explain to what was the one-off last year, first of all? Secondly, we can see that actually it's the receivables that have really increased sequentially, could you talk a little bit about that? Finally, on this provisions move of EUR 30 million, could you just tell us what that is, please? Thank you.
Okay, Sylvia. Hi, good afternoon. Maybe I take the questions in turn. The one-off last year in cash flow, I am sure you will remember, we are in an appeal procedure, since many, many years in the French antitrust case that goes many years back. We won the first round of appeal last year. Because we won the first round of appeal, we had the authority return EUR 48 million, EUR 47.8 million to us. It is an inflow in the first quarter last year. It did not cause an income because we recorded it directly into provisions. Not exactly the same thing, but in kind of the same context, you were asking for the movement in provision with respect to EUR 30 million. By the end of the quarter, we still had to pay the EUR 30 million amount to the French authorities, related to another part of that investigation.
That amount sat in provisions before, but because we had a firm payment date, we had to take it out of provisions and put it into liabilities again. It is just a line shift between provisions and liabilities. It does not include any net out or inflows. The actual outflow has occurred meanwhile, but in April, so in Q2. Increase of receivables, I assume you are primarily focusing on trade receivables. That basically goes in line with the increase in chemical prices and with higher business activities, be it organic growth or be it through acquisitions. Actually, the DSO do not in any material way deteriorate. The receivables increase you see is a direct consequence from us selling for higher amounts to our customers. April gross profit per working day trend. Maybe I go ahead and I am sure Steve can shade additional light on it.
I think our main message is the 2.7% organic gross profit per working day increase in April. Do not take any significant conclusions out of that number. April has been a pretty long month relative to last year. Last year, Easter was in April. This year, only the Monday was in April. In a long month, gross profit per working day actually typically sees some pressure. If I move away from the per working day figure to a month over previous years month figure, we have had in April a gross profit increase of more than 10%.
Okay, this is more around the adjustment method.
I wouldn't call it an adjustment method. It's about if you have many trading days in a month-
Yeah
you typically see a little bit of pressure on the per working day figure.
Okay. Great. Thank you. Just to follow up, so on the French antitrust, are there more cash outflows or inflows to come, or is that closed now?
You can see it in the risk report, in the annual report, and the small update in the quarterly report. First of all, just to be very clear, it's about an investigation of a situation that goes many years back. That's basically a 1998 mainly to 2006 investigation, which is still continuing. From today's perspective, the appeal on the EUR 47.8 million is still open. We won the first round of appeals, but the authority is still arguing the case in front of the court of appeal. We don't expect any more outflows at this stage, otherwise we would have provisioned. I also need to say that the investigation is not formally closed by the authority, so it can still take turns.
Okay, great. Thank you. Just after the end of the quarter, by region-
Just to be clear, Sylvia, again, it's a case that goes many years back. There's no substantial new development of any form or shape, and the risk situation has not changed at all. What you see in the balance sheet is basically just because the payments became due now.
Okay. No, that makes sense. Just in terms of the growth rates then, after the end of the quarter by region, have you seen any change? Obviously, the PMIs in Europe were running pretty high in the first quarter. Just could you comment by region if you've seen any difference just after that?
I would beg your pardon that for the month after the end of the reporting quarter, we won't give out an exact split per region. The general statement is there has not been a particular trend in any region. It's going pretty much in concert.
Okay, great. Thank you. I'll get back in the queue. Cheers. Thanks very much.
Thank you.
The next question is from Rory Mackenzie of UBS. Please go ahead.
Afternoon, guys. It's Rory here. Two from me on the margin, then I've got one more after that. Firstly, on the good drop through rates you've delivered. In EMEA, how much of the benefits do you think are now flowing through from your restructuring? In North America, drop through rate is also really strong. How are you managing the known headwinds there, like transport costs and wage inflation, and what kind of cost pressures do you expect to see over the rest of the year in North America? Those two on the margins first, please.
Hi, Rory. Steve here. I'll pick up on both of those, actually. On the restructuring program in EMEA, it's just about completed in May, actually. There was a larger part which was actually related to our French operation, which due to various procedures, just take a little longer. As I say, there is a contribution in the first quarter, but it's a little bit more lumpy the first part of the year, but it's such a small amount in real terms. I wouldn't get too focused on it. Coming to North America, you are completely correct that there's quite significant pressure on the transport infrastructure in North America. We do actually have a reasonably good position so far as those that have known Brenntag for quite some time will remember that we actually increased the size of our own fleet in North America.
Therefore, the flexibility of our organization to cope with transport cost increases is somewhat greater than it would have been without that action. Whilst there is certainly a cost pressure, we are able to mitigate that quite a lot by our own efficiencies. It would be fair to say that in certain instances that there are a number of transport surcharges which have come into play in North America to help overcome the price inflation in that respect. As far as wages are concerned, we're not seeing anything major shift in our organization that I could report on at this stage.
In terms of those transport surcharges, does that affect your own pricing for customers at all, or how are you thinking about that side of it?
Well, it's something which I think is pretty well known in the marketplace. When there's been, for example, significant increase in price of fuel or what have you, there's been surcharges to cover increased fuel charges. I think in this case, it's clear the whole market that the cost of distribution in North America has gone up significantly, and people recognize it. It's generally speaking, a small additional charge to customers to cover the increased cost of delivery.
Okay. Great, interesting. Then one more if I can on a bit more of a structural theme. In terms of the digital agenda in chemical distribution, what's the latest with DigiB? How is that progressing? Anything else that you'd flag as changing in the industry landscape? Some of the platforms in Asia I think are seeing a bit more chemical offerings. What's changing there?
Yeah, I think it's a very fast-moving environment. Clearly there's a lot of activity in this area. Lots of small startups with not particularly critical mass to speak of. In terms of our own organization, clearly we are actually running trials of our products at the moment with the key customer groups to determine exactly the functionality that they particularly want us to develop further before we launch it on a wider scale. We're pretty happy where we are. I think one thing which is certainly rolled out throughout our group at the moment is the digital health in terms of sourcing and procurement, which is proving to be very successful and is actually part of the program which we talked about last year. We're using our digital platform to help control and maximize the benefits of cost reductions from certain product areas.
Digital for us is moving forward. I don't see any major structural changes to the marketplace. All the major players in chemical distribution are at some place in the digital journey, but no one is particularly ahead.
Okay. Can you say how many customers or how many key customers you're trialing with at the moment? Is this still very small scale?
No, I think it's actually on a number of fronts. I can't really give you that information at the moment.
Okay, understood. Thank you very much, guys.
The next question is from Pieter Olyphant of Kepler Cheuvreux. Please go ahead.
Yes, thank you. Two questions from my side. First, on Latin America, could you be a bit more precise on which countries in particular were holding back the growth in the region? Could you also be more specific on the measures that you have started there? Then I have a follow-up on China.
Yeah. From the regions doing very well in point of view of the some of the continents in terms of Brazil doing well. We do see pressure in Ecuador, where we really have moved from excuse me, quite a large volume agricultural services style distributor to much, much smaller volumes. This is a little bit in my comments. I mentioned earlier on in terms of reducing large volume, low GP business and reducing operating costs in the same way. That's part of the action that we're taking to improve the profitability of Ecuador. There's been some cost and profitability pressures in Mexico and in Colombia, but we are pretty pleased that that's pretty much under control and heading back in the right direction, but nothing of any major significance.
I think overall, the economy in the Latin American region has been quite volatile in the last 18 months or so. As we say in our outlook, we do see that the return to more stable conditions in the general area itself. Again, looking forward, it's looking a much more stable picture.
Okay, thank you. On China, since last year you have a 51% stake in a JV for specialty chemicals. Could you talk about your plans and ambitions in specialty chemicals in China, both in terms of organic and inorganic growth? Could you also shed some light on chemical producers' appetite to outsource distribution to companies like Brenntag?
Yes. Well, we do have a joint venture, the Wellstar joint venture, which we signed last year, which is proving to be very successful. We do actually believe that in China our approach has been to approach Chinese growth, in terms of acquisition, on a managed joint venture basis, as we see that as being beneficial to both parties in terms of getting traction in the markets that we choose to serve. Our acquisition appetite and targets remain very positive for China. We do have a significant infrastructure in China, as you already know, and we are developing our specialty chemicals range in addition to the industrial chemicals range that we have already. It's a huge market, and the appetite for manufacturers to outsource has barely been touched in real terms.
We do, that's why we mentioned that we see Asia-Pacific as being a long-term, very significant growth opportunity for the group. We're talking about 1%, 1.5% market share at the moment. It's a massive opportunity for us.
You will try to address that opportunity by both organic and inorganic growth?
Yes, by organic growth and by acquisition.
Okay, thank you.
The next question is from Christian Kurz of Warburg Research. Please go ahead.
Yes, good afternoon. Thanks for taking my questions. First, on cash flow. Operating cash flow was down in the first quarter. In 2017, operating cash flow was down significantly versus the 2016 level. Do you expect for 2018 that you will at least catch up to the 2017 level in terms of cash flow from operations? Should we pencil in a figure below due to the beforementioned cash flows related to the cartel fines and the higher chemical prices? Secondly, you stated already that the efficiency improvement in the EMEA region were rather lumpy in Q1, but all measures completed in May. Does that actually mean then as of H2, you will be at the quarterly run rate of EUR 2 million?
Asking regarding the second self-help measures, the sourcing initiative, can you maybe shed some light on the rewards you've seen and materialized in the first quarter and in the quarters to come? Thirdly, the oil and gas business. Oil is surging to long-time highs currently. A couple of years ago, you faced tough headwinds in your U.S. oil and gas business, do you see here now that this business is picking up considerably on the higher prices, and what does that mean for your North American operations? Lastly, a question on Latin America, just a technical one, more or less. What is your exposure to Argentina? Is my note here correct that this amounts just to EUR 7 million annual gross profit? Is this still a valid figure?
Right. There are quite a few things there to say. I just remind you the savings on the restructure was about EUR 8 million a year. We're getting to quite small numbers here. I absolutely firmly expect to be up to EUR 2 million, if you like, as a run rate for quarter two, as far as the restructure is concerned. In terms of our sourcing project, that's on plan and I won't report that separately, but you do see that contributing to our overall GP development. I did mention earlier and to an earlier question, we are using our digital products to actually execute that program, which has proven very successful, both from a supplier point of view and from our own perspective. Oil and gas, it actually doesn't feel like years ago. Actually, I think it was about 2016 that we had the difficulty with oil and gas.
Yes, clearly our business in oil and gas has recovered compared to where we were in 2016, but I think it's fair to say that it's not at the same level as it would have been in, say, 2014, 2015, because the overall structure of the market has changed somewhat during the downturn. Whilst we're certainly pleased to see that is no longer a drain on our organization, it's actually contributing clearly, but it's not at the level as it was back in 2014 or 2015. Latin American question.
[Peter], I think you had a question about order of magnitude importance of, apologies, Argentina in our organization, and you mentioned that you noted down an annual gross profit of about EUR 7 million. That must be quite an old number. The annual gross profit in Argentina is give or take EUR 12 million by now. Still small in the context of Latin America, but much more sizable than a note you took earlier.
Okay. The cash flow question?
Yeah. My cash flow in our business, most difficult to predict. Much more difficult to forecast than earnings, for example, because cash flow heavily impacted by chemical prices. I would maybe point you initially to what we call the free cash flow, Operating EBITDA, minus CapEx, plus minus working capital change, where Q1 this year is a little better than Q1 last year. We would for sure, on a full year basis, expect this year to be at if not above last year's level. Going back to the 2016 numbers, it will depend on chemical prices. 2016 was a year basically without chemical price increases, and to go back to a 2016 number would require chemical prices to come down a little from where they currently are.
If you make the move from what we call the free cash flow, to the operating cash flow in the formal IFRS cash flow statement, then we cannot go back to the 2017 numbers because the French situation had an inflow in 2017 and will have an outflow in the second quarter 2018, and that is basically something you can't overcome in the other line items.
Okay, understood. Thank you.
The next question is from Carl Green of Credit Suisse. Please go ahead.
Thank you. Good afternoon, everybody. Three questions from me, please. Firstly, on Latin America, you've guided for meaningful growth for the full year overall. In terms of the moving parts as to how you get from that relatively flattish position in Q1 to a meaningful position, is that mainly due to the impact of the Ecuadorian situation washing out? Was there something else going on there you'd like to flag? That's the first question. The second question was possibly getting an update on the situation in France. It's something you talked about at the full year stage, saying that there was some challenges there and what you've done to resolve that. Finally, a bit more of a technical one.
I think there was an indication at the Q4 stage that you'd seen some accelerated site depreciation at a particular country in Europe in the fourth quarter with an expectation that that was going to repeat or that charge was going to repeat in Q1 of this year. It doesn't appear to have repeated. Should we expect another accelerated depreciation charge in Q2 or Q3, please? Thank you.
I'll take the Latin America and France. Look, in terms of Latin America, bear in mind Latin America is about 5% of the group. So we're delving into really quite a small corner here in terms of the overall effect on the group. We expect during the course of this year, Brazil to continue its improvement in profitability, Colombia to become stronger, Mexico to become stronger. As far as Ecuador is concerned, that's a small part of a small part, and therefore we expect that will certainly improve in terms of profitability during the course of the year. But that will probably require us to restructure that particular business unit. But we are really talking about really small numbers now, so I'm not sure that they're not really meaningful to the group. Latin America for us is more about macroeconomic stability.
If the region is stable and both politically and economically stable, then we will do absolutely fine during the course of the year, and meaningful improvements in our businesses, 5% or 10%, but it's not going to move the needle very far from the group perspective. So I'd like to put that into context. As far as France is concerned, I must confess I can't recall exactly what may have been said at the year-end in terms of specifics on France, other than to say in the reorganization, restructuring of the European business. Clearly, anyone that knows anything about French employment law or what have you, will realize it does take a little bit of time to execute restructuring and that certainly was the case in our French business. That is now all complete and effectively, the French business will be in its new configuration by the end of May.
Was there anything else?
Yeah. The question to Georg just about the accelerated site depreciation, which caused the depreciation charge to spike up in the fourth quarter than it seems to normally.
Yeah, of course. I don't remember the tech statement in Q4. It's true that part of our European efficiency program also means reshuffling some of the French sites. In that context, we had a pretty small amount of additional depreciation in Q4. It's done and over with. If at all, then there's a very small amount to come this year, if at all.
Okay. That's helpful. Just one more quick question, if I can, just in terms of, Georg again, your comments about expecting working capital improvements over the course of the year. Just in terms of understanding that fall in the working capital terms, how much of that was due to the very strong specialty chemical growth that you've posted? How much of it was just chemical prices, timing mismatches, et cetera, which are likely to reverse? I'm just trying to get a sense as to how we might see that working capital turn improve over the balance of the year.
Well, there's two elements, I'll cover probably the first element. Clearly, as we grow our specialty chemical portfolio, there is characteristically a lower turn business. That is certainly the case where we're growing our life science business probably faster than other parts of the business at the moment. You can see the effect of that. I'd also point out that we are really looking at inventory turn at the moment because you may or may not be aware that there's been quite a number of shortages in the marketplace. There are certain products where we may be slightly longer on the inventory that we might normally have carried to overcome some of the interruptions in supply from suppliers. Some of that will be unwinding during the course of the year. Any more questions?
Yeah. I think that's the essence of the answer, Carl. It mostly comes out of inventory turn, and we will move through the inventory. We have the regions move through the inventories basically product by product to review the specific situation.
Okay. That's very helpful. Thank you.
The next question is from Daniel Bucher of MainFirst Bank. Please go ahead.
Yes. Thank you very much. Actually, I have three questions remaining. The first one would be again on your EMEA restructuring. The cost aspect has been tackled already, but as far as I know, it also involved hiring new salespeople in several countries. Can you share a bit of light on where we are here in that phase and when we can expect, I would say, a top-line acceleration from this factor? The second one on outsourcing. I remember at the latest CMD in London last year, you said that the consolidation in the chemical producer space could help with outsourcing, for example, Dow, DuPont or Bayer and Monsanto. Is there already something you can see in the discussions that that might materialize? The third one on digitization again.
On the chemical news portal ICIS, one can see that Covestro and BASF have launched their own pages at the Chinese online portal, Alibaba. Do you see these discussions becoming more or stronger with your chemical suppliers and that they do these decisions, and what does that mean for Brenntag? Thank you very much.
Just in relation to the configuration of our sales force, product management resources and what have you. Clearly, that's an ongoing task at the moment. I can't really give you a very detailed answer as to how many sales positions we've filled and which ones we made vacant. I mean, suffice to say, you look at the performance of the business, and you can see that we're in the right direction. I don't at all feel that the business is currently out of shape relative to its performance on sales. We are pretty pleased with the recruitments that the new people we've brought in and the sort of positions that we felt were needed for firepower, if you like. In terms of digitization, yes, of course, we see, like everybody else, manufacturers are looking at various channels to market.
We actually, you may or may not be surprised that we have almost a stream of manufacturers wanting to visit us to look at our own DigiB business and see what we can do together and how we can work together, and how indeed they can use some of our tools to help run their own operations. I don't think that there's an exclusive one way or left or right as far as digitization is concerned. I think it's very likely that there will be some sales which will go to a digital platform, which were previously traded. I think if anyone looks at the Chinese example, a lot of the product which was traded is now on digital platforms, but there hasn't been a major shift in market share. It's just a case of just changing the way they do business.
At this stage, there's no significant change that we would track. As far as outsourcing is concerned, the market is obviously buoyant from the point of view of chemical manufacturers. As I've probably said to you in the past. Quite often when you get the more extreme value, either a downturn or an upturn, then the appetite to affect change is even higher. It's certainly the case that we are in constant and increasing conversations with major manufacturers to see how we can help them cope with the tailwind spend that they currently have.
Okay. Thank you very much. That's helpful.
The next question is from Knut Henkel of Equinet. Please go ahead.
Yeah. Thank you for taking my question. Good afternoon, gentlemen. You mentioned in your report that the prices for chemicals are up, and several times also during the call. As you don't offer any split between volumes and prices, is it fair to assume that it's easier for a chemical distributor to lift prices in such an environment? Is there also a strong price component within your growth numbers? Secondly, your competitor, IMCD, also reported numbers you're probably aware of, and they posted even stronger growth rates. Is it fair to assume that the specialties are on average growing at a higher rate than bulk chemicals? Thank you.
I would say that certainly our life sciences business, which is probably more akin to the competitor you referred to, is pretty buoyant and growing faster than the complete range of products that we offer. I think that's probably a fair assessment. I think as far as chemical pricing is concerned, I think we have to be pretty careful here because at the end of the day, the business is operating with 10,000 plus products across the range, and there's price movement at all times, both going up and going down. At the end of the day, customers expect value from us, and there isn't a never-ending opportunity for us to continue to increase our GP in a rising environment. It has to be fair, and we are fair in that respect. I think price volatility does allow us to recoup operating costs, increase operating costs, et cetera.
In that case, we welcome price movement. At this stage, I don't see any change to our business model.
Okay, thank you.
The next question is from Rajesh Kumar of HSBC. Please go ahead.
Hi, good afternoon, gents. Just to confirm, there have been no meaningful accounting changes since IFRS 15 has come into force. The second one is on the inventory turn side, noticed that there's been a slowdown. Appreciate you pointing out there have been some supply crunches. Have you seen any pickup in inventory obsolescence, or do you see any risk of that?
I didn't quite catch the last bit. What did you say, sorry?
Any risk of inventory obsolescence or write-downs?
Oh, right.
Yeah.
Well, let me say that. I'll say that first. Well, the answer is simply no. As I'm saying, we extended maybe a number of product lines to cover essentially shortages or outages and what have you. We're not carrying very long lead time, very long stocking levels in terms of our expected sales. No, that's not the case, actually. In fact, what I would say, actually, in terms of stock turnover and inventory management, we are getting more and more sophisticated using our various digital tools to make sure that we unearth slow-moving stock in a far more effective way than we ever have done before. I think that's not going to be a problem.
Understood. Thank you. That's very helpful. On the IFRS 15 one?
You have to help me what exactly you're looking for. The one that came in force now is basically the IFRS 15 on revenue with customers.
Yeah.
That has a completely marginal impact, basically because we don't operate a contract business.
Okay. The big impact will be from the 16 one, next one, next year, isn't it?
That's still under evaluation. IFRS 16, I'm not sure if everybody is aware on the call, is basically about the recognition of leases in the balance sheet and the P&L. That's still under evaluation, from today's perspective, you have to assume that for each and every distributor, including Brenntag, you will have impacts from that one.
Thank you very much. That's very helpful. If I may just ask a last one on the inventory point, just following up from what you said. Clearly, there is supply crunches and you are stacking up inventory in order to keep the service level up. Do you accrue greater level of supplier rebates on back of that? It's a service you're providing to the suppliers?
No, not at all. No. It's a service we provide to the customers. At the end of the day, it's a choice. We maintain stocks to provide adequate service levels. If we choose to extend stocking levels because we're not sure of our underlying either service reliability or supplier reliability, then that's a choice we make to our own service requirements. You hear of occasionally someone buying large quantities to try and attract a rebate, that is not the case in our case.
Thank you very much. That's very clear. Appreciate that.
Thank you.
As a reminder, if you would like to ask a question, please press 01. The next question is a follow-up of Sylvia Barker of Deutsche Bank. Please go ahead.
Hi again. Just three quick ones, please, as follow-ups. Firstly, on the inventory point, you were holding more. Would you say the customers were actually stocking up themselves ahead of time? Are you seeing any kind of, not destocking necessarily, but did you see any excess demand maybe in the first quarter from people actually stocking up? Secondly, just on your point of the acquisitions actually having contributed a little bit more than you expected, is that mainly the U.K. acquisition? How much would that actually help the conversion ratio, given that's a higher conversion ratio business, if I'm not mistaken? Finally, just on the benefits from refinancing, obviously the roundtable, you outlined what those might be, but would you just be more specific about what to expect on the interest line this year and next year, please? Thank you.
Well, first on the customer stocking up, I think it's extremely unlikely and sort of marginal. Clearly, customers can see the market like we can see the market, and if they're unsure, then they may take a view as we do if we feel there's some uncertainty in the supply chain. I think the actual emphasis has been more on us protecting the customer as opposed to the customer having to worry too much about the products that they buy from us. Bearing in mind they buy generally small quantities from us. It's not a case that they're buying large quantities, but which is a different dynamic altogether.
The U.K. acquisition, we announced the U.K. acquisition, Kluman and Balter, towards the end of last year and closed end of last year. That's a major part of the EUR 4 million acquisition contribution you have seen in the earnings gap, in the earnings bridge, apologies. Yes, Kluman and Balter is a little bit ahead of plan, but not materially in the group context. It's completely negligible in the terms of conversion ratio impact because in the European context and particularly in the group context, it's just too small to have an impact. I think you also had a question of how to think about financial results this year. The net financial results in Q1 was an expense of EUR 19 million. It's probably a reasonable run rate also for Q2.
Q3 and Q4 should be a little bit cheaper because we have this 5.5% bond that runs out middle of this year. Q2, use another EUR 19 million and maybe EUR 15 million for Q3 and Q4 each. Maybe pencil in another couple of millions because we are just moving into the Indian market, and India is still a little bit high in financial expenses. To cut a long story short, any number between EUR 70 and EUR 75 on a full year basis is a good number.
Thank you very much.
There are no further questions. I hand back to the speakers.
Right, okay. Well, thanks very much indeed, [a brief], for joining the call this afternoon. We appreciate your time. Thank you. Goodbye now.
Thank you. Bye-bye.
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