Earnings Call: Q4 2017

Mar 14, 2018

Dear ladies and gentlemen, welcome to the Brantac AG Results Call for the Full Year 2017. 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. Operator Assistance. May I now hand you over to Stephen Holland, who will lead you through this conference. Please go ahead, sir. Thank you. Welcome, ladies and gentlemen. Thank you, everybody, for dialing in for our review of the full year results of 2017. Today, as always, I'm here with Joe Mullen, our CFO, and we're very happy to take your Questions after the presentation. Let me start with the highlights of 2017. For 2017, we should encourage the results. Volcan's performance was broad based across our main regions. For operating gross profit and operating rigmar, we saw a return to organic growth for the group as well as contributions from our acquisitions. Group generated an operating gross profit of EUR 2,540,000,000, represents an increase of 6.5 percent, FX adjusted. Our operating EBITDA increased by 4.5 percent to a new all time high of €86,000,000 After a more challenging first half, we saw a clear improvement in our operations for the second half. In addition to the winning the operating businesses, We've implemented a number of initiatives in 2017 to improve efficiency, support future growth of our company. We are convinced that we've taken the right positions, and we expect A positive contribution in 2018 and following years. Also last year, we followed our proven acquisition strategy and acquired targets with certain enterprise value of €270,000,000 We were very happy that in 2017, we were able to sign acquisitions in all 4 of our regions. Companies we've acquired are small and mid sized chemical distributors, which are perfect fit for our network. With regards to the dividend, we're pleased that the Supervisory Board and Board of Management The gross to the general shareholders meeting, a dividend of €1,100,000,000 This represents an increase of 4.8%, and it's the 7th consecutive increase So if I'm looking to provide more details on the operating business in the regions, I'll actually give you an overview of the developments of operating the guitar for the group from 2016 to 2017. Last year, we had a headwind from U. S. Dollar euro translation of EUR 10,000,000 It was mainly caused by the weakening U. S. Dollar in the second half of the year. Our recent acquisitions completely met our expectations and contributed an encouraging €24,000,000 in 2017, which underlies the value accretion measure of our M and A program. Our main region showed a flat performance on an organic basis, which was in the results of a mixed picture in certain countries, which I'll explain later on. We have continued to see performance in North America, and we've increased operating EBITDA by EUR 23,000,000 representing an organic growth of 7%. In Latin America, we continue to see challenging conditions and a volatile environment. Against this background, the region reported a negative organic growth of 8%, There was a clear improvement in the second half of the year. Our Asia Pacific region showed a positive development and reported organic growth of 3% 2017. And now I'll turn to EMEA, which will take you through detailed developments for 2017. The The operating growth probably grew by 3.7 percent and operating EBITDA grew by 1.6% of FX adjusted. Overall, we saw mixed picture in European countries, in particular, with South Africa in the Nordic region and France, which helped out the growth in our Alenia region. You all know that we've implemented an efficiency improvement program, which will have a positive effect going forward. Welcome to North America. We're particularly pleased with the results in our North American region. The segment clearly has returned to growth. Last year, we saw strong growth in operating gross profit, which was primarily driven by organic development. There's broad based growth in all customer industries and also acquisitions, which Our operating EBITDA for the gross profit development increased by 9.7%. When we returned the business to growth in the first half of twenty seventeen, we faced some cost pressures, Continuing over time in transport, we saw clear improvements in conversion in the second half of twenty seventeen. In Latin America, we continue to see an overall volatile environment. Last year, we had a difficult first half, but a good performance in the second half with Positive contributions from Brazil and Mexico. In this environment, Latin America reported a flat operating gross profit and a negative growth in operating EBITDA Of 8% was on a constant currency basis. Whilst the situation movement remains challenging, we have put a clear market leader in Maginaga and very well positioned for future growth opportunities. Moving on to Asia Pacific. We're happy with the performance of our Asia Pacific region in 2017. In an overall positive macroeconomic environment, the segment reported an encouraging growth of operating gross profit of 11% and operating EBITDA of 12.7%. These results were mainly supported by the countries of Thailand, Vietnam and China. Also, the acquisitions performed above our expectations. We continue to see this region with the highest growth potential going forward. As we announced, we implemented the progress in 2017. We continue to improve our structures and processes. In addition to numerous measures in our countries, we've implemented 2 major initiatives. And for those that call us regularly, we'll already talk about these programs. First, in the EMEA region, we introduced an efficiency program that goes to streamline our Algonquin infrastructure, set of meter processes combined with combined with even stronger purpose on the expansion of our Specialty Chemicals business in the EMEA region. Last year, we took the cost for this program and now expect Savings of €8,000,000 per annum from 2018 onwards. 2nd, we continued with the launch of our global sourcing initiative in both regions of EMEA North America. This initiative focuses on certain parts of our purchasing volume with the goal to get more product groups centrally managed. The key benefits of this will be better and more optimized sourcing approach in general. The implementation of this project It's complex as one change in product sourcing can change 100 customers' application areas. The net Effectively, a step on this initiative amounts to EUR 20,000,000 per annum. We feel confident the initiative will deliver the expected results. Welcome on to acquisitions. We've been very active in acquiring companies that complement our portfolio. We signed 7 acquisitions all over the world with total enterprise value of €270,000,000 On average, we've had an EBITDA multiple of around 8x, We'll begin to be an attractive valuation. Some of these acquisitions will only close in the course of the year 2018 and therefore will contribute only partially to 2018. Thank you, Steve. Good afternoon. I'll walk you through our financial details, and I'll I'll start with the upper part of our income statement on Slide 12. Sales increased 2017 over 2016 by 13% on a fixed adjusted basis and a strong share of the sales increases reflecting higher chemical prices. The gross profit showed a healthy growth of 6.5% on a fixed adjusted basis and before a particularly strong performance in North America Operating EBITDA for the group amounted to €836,000,000 for 2017. This is at the midpoint of the EBITDA guidance we gave after the Q2 last year. The further income statement on Page 13, the lines below EBITDA, I would like to start with the second line on the slide, which is titled net expenses from holding charges and special items That amounted to an expense of €54,000,000 In this line, the charges for the EMEA efficiency program are included. And further on, the amount also includes a charge of €30,000,000 which the French competition also has imposed last December. There are no major changes for depreciation. Amortization is slightly lower compared to last year and amounted to €44,000,000 Financial results amounted to a net expense of €94,000,000 Earnings per share are at €2.34 Slightly above previous year. On Page 14, we give details on the impact Of the U. S. Taxation, the U. S. Legacies has made significant changes to the tax regime in the U. S. At the end of last year, the main change is obviously the reduction of the corporate tax rate from 35% to 21%. Given the high profitability and the significant size of our U. S. Operations, we are a significant taxpayer in the U. S. As a consequence of the tax reform, we will now see 2018 going forward a reduction of our U. S. Taxes, And we currently expect our tax rate for this group will go down to around 30%, three-0% from 2018 onwards. We take a look at the cash flow statement starting on Slide 15. For 2017, we reported an operating cash flow of €404,500,000 compared to €539,000,000 a year ago. The change to last year can be explained with a higher cash outflow for working capital due to the rise in chemical prices. On the subsequent page, I would like to talk about the investment as well as the financing cash flow. CapEx amounted to €151,000,000 in line with our guidance for the year. The cash out for acquisitions amounted €108,000,000 Please be aware that some of the acquisitions that we signed late in 2017 We'll only be closed and we'll only be paid in 2018. This is why the cash out is below the acquisition enterprise value of 2 €70,000,000 that we mentioned before. In the financing cash flow, you primarily see the dividend of €100 EUR52,000,000 that was paid to our shareholders in June last year. There has not been any major changes To the balance sheet, so I'll move directly to the page with the balance sheet and leverage. On this slide, you see the information on net debt as well as the leverage information. Net debt by the end of the year amounted to 1,005 €71,000,000 The group's deleverage stands at 1.9x, roughly in line slightly below the level of 2.1x we had Yes, sir. On Page 19, you see details on the leverage development as well As on our on the maturity profile of our in-depth business, I'll focus on the maturity profile of our in-depth business on the right Right hand part of the slide. In 2017, we have extended our maturity profile with 2 transactions. In January 2017, we took advantage of attractive market conditions for borrowers and refinanced our syndicated loan ahead of schedule. The loan is our most important financing instrument and now has a scheduled repayment in 2023. The second transaction was the issuance of the new fixed rate bonds in September last year. The new bond amounted to €600,000,000 is a mark it matures in 2025 and pays a coupon of 1.12%. Brantac has a maturity profile, which is very long term and which provides even more flexibility to support our overall strategy. On Page 20, you will find the working capital information. Trade working capital amounted to €1,500,000,000 at the end of the year. The increase in course of 2017 is mainly attributable to the price increase of chemicals. What is important for us is that our working capital turnover remains on the same high level As last year in 2017, we turned working capital 7.9x. We do report a free cash flow of €440,000,000 That's a reduction against the year ago. And again, the reduction compared to previous year is mainly driven by higher working capital, which in turn is driven by higher chemical prices. With respect to the dividend, we continue our track record of dividend increases and propose a dividend €0.0110 per share for the overall Public General Shareholder Meeting in June. This is around 5% higher than last Yes, and it is the 7th consecutive year with an increased dividend payment. The proposed dividend reflects the payout ratio of 47 And confirms our commitment to provide a continuous and strong cash return to our shareholders. I'll close my part of the presentation for the sake of reference and for business with an EBITDA bridge for the Q4. So We look at the on Page 23, at the EBITDA development Q4 2016 to Q4 17. We had a pretty strong devaluation of the U. S. Dollar in the second half of the year. So on Q4 alone, We had a negative FX translation effect of €10,000,000 Now if you think about 2018, On the levels that the dollar euro is trading right now, you would have to assume that negative FX translation will also stay with us through 2018. And for the full year, you would have to expect 2018 over 2017 and about €40,000,000 negative FX translation. Going back to the Q4 bridge here, the positive contribution from our acquisitions in the quarter amounted to €5,000,000 Regarding organic growth of our segments, we reported 10% for North America, 8% for Latin America and 14% for Asia Pacific. Yes, we saw a flattish EBITDA performance. I'll hand back to Steve for the outlook. Thank you, Jorg. I would start with the current trading and address the outlook for 2018. So let me walk you through the gross profit per working day numbers on a monthly basis. Nonprofit gross profit per day increased by 8.7% as reported and by 5.5% on an organic basis. In November, the growth was 7.7 percent as reported and 5.6% organic. In December, the growth was 9.9% An increase of 8.7% on an organic basis. In January, the growth was 8.6% and 7% on an organic In February, growth was 7.3% and 6.4% organically. The gross profit growth in January, Javier, is a very good start for the year in 2018. We don't see a change in these trends and expect Q1 to continue with a positive performance. Please be aware that Easter will partially go into March this year. So when looking at your own various models, it will have an effect In terms of reducing number of days trading compared to last year. Currently, outlook, we fully expect Q1 2018 conversion ratio to exceed Q1 2017. The global economy is expected to show further signs to be covered in 2018. In this environment, we expect our key performance indicators of operating gross profit and operating EBITDA to grow in line with past few years, and we will give positive guidance For the full year, after Q2. And now we're happy to take your questions. Thank you. We will now begin our question and answer session. We've received your first question from Daniel Buchta, MainFirst. Your line is now open. Yes. Thank you very much guys for taking my three questions actually. The first one on EMEA in Q4. I mean, do you hear the organic EBITDA growth was basically flat despite if we calculate the organic gross profit number being Probably the best one for the whole year. Can you explain what holds you back until to see a significant stronger performance? And how can we expect the EMEA restructuring program to help you here in this context in 2018 so that the performance hopefully gets Significantly better compared to Q4. The second one on North America here, obviously, a very good performance in my view And also sequential pickup again. Can you say any particular industries or businesses that have supported you here? And the last one, quickly on the restructuring measures. I mean, here, am I right if I assume Basically to be implemented from January 1, 1, and on the sourcing initiative, the same. So we can expect the full benefits on that in 2018. Thank you very much. And I'm just doing the restructuring. Yes. Daniel, hi. With respect to the phasing of the impact of our initiatives, so the €8,000,000 savings we expect from the EMEA restructuring as well as the euros 20,000,000 we expect from the global sourcing initiative. We are basically fully implemented on the EMEA restructuring. We are almost Fully implemented on the global sourcing. So it should be pretty pro rata throughout the year, maybe a little less in Q1. There is no strong phasing of ramp up for these 2 initiatives effects throughout the year. North American strong development comes across all regions, comes across all customer industries. You know we had a little bit of a challenge or a strong challenge, I should actually say, in oil and gas in 2016 and 2016. Oil and Gas is back to a good growth in 2017. It's growing somewhat stronger than the average of the North American business, But not so materially stronger that I will particularly point to that customer industry. In the Q4, yes, the organic gross profit growth rate was the best of the year, but actually, the quarters have not been 2 different, so it's a little bit less than 4% organic GP growth in EMEA in Q4. There's nothing which Particularly whole suspect that usual Q4 volatility year end effect, we would suggest not to think Too much about that specific situation going forward. We do fully expect conversion ratio increases on a year over year basis. Okay. Thank you very much. That's helpful. The next question is from Josh Poddle from Berenberg. Your line is now open. Yes. Hi there. First question, I wonder if we can just come back to EMEA. I mean, whether we look at the Q4 conversion margin Or the full year conversion margin. They're both down, which does look surprising given Good organic gross profit in the region. If you could just maybe explain in a bit more detail what exactly It's happening and if we stick to Q4 that would be helpful maybe split out by cost inflation and then Any one offs, if there are one offs? And then my second question, I just wondered in your slides on 4 and Slide 23, You've got quite a significant headwind from your Rest of World segment. I just wonder if you can detail exactly What's driving that? And then what we should expect from that segment into 2018? I'll leave it there. Thank you. Hi, Steve here. Just coming to you at the EMEA region. Obviously, we had in 2017, we did We have carried out a restructuring exercise, which is there to drive increased efficiency. And that Has an effect in terms of actually quite a number of people left the organization. And you can imagine that is it was quite a focus of management during the course of the year. Nevertheless, we seem to expect fully to see those benefits coming through in 2018. I would remind you that We did have a bit of an unhelpful development in our mortgage regime, which was affected by £6,000,000 EBITDA during the course of the year, And that has been corrected. So we're not expecting that to reoccur relative to the European business in 2018. And the €6,000,000 on EBITDA is actually quite an effect in terms of the over performance of our European business. Can I just clarify on that €6,000,000 Should you get that €6,000,000 back in 2018? Well, what I would say is that the $60,000,000 was a drag in 2017, and that drag has been eliminated. And how much there would be enough to land in 2018 Remains to be seen, but I'm actually convinced that we will not have the drag that we had in 2017. It's Dirk. Hi. On the rest of the world, EBITDA development on the rest of the world, it's mostly Headquarter expenses and headquarter bears a lot of our project costs, and these can be Volatile, depending on the number of projects we undertake and on the nature of the projects we undertake, What you see, Q4 2017 over 2016, so a €5,000,000 expense increase This mainly driven by a number of projects. And to name a few, we had M and A activity towards the end of the year. M and A project costs In there for the major acquisition, we had a professionalization of our HR IT systems, and we have a little bit of cost For the global sourcing initiative in there, none of them major, but they add up to the amount you see. 2018 over 2017 depends on what projects we ultimately undertake. I think it's We even have an assumption to assume the same rest of world EBITDA in 2018 that we have seen in 2017. Okay. Thank you. The next question is from Roy Mackenzie of UBS. Your line is now open. Go ahead. It's Roy from UBS here. 3 for me, please. 2 on growth. Firstly, can you just Call out any particular countries that really drove the strength in emerging markets, obviously both LATAM and APAC looking good into year end. I know you had said that China has been a bit more challenging. So any countries that really stood out for you on the positive side? And then secondly, in terms of the broader picture Outsourcing of chemical distribution, Steve. I think you talked about hoping to see some kind of larger scale announcements or shifts in the market As you got into this year, so anything you'd say about the landscape outsourcing or new contracts you'd highlight? And then just lastly, any comment on timing or any delays in passing on any product price increases, whether that's all working as expected? Okay. Just going to look at the emerging markets. We saw a recovery in our Brazilian business During the course of 2017, which drive the shift between quite a negative performance in the first half of the year, Latin America into positive. Also, the business in Mexico was particularly positive for the region overall. And coming to Asia Pacific, The business that we shared, which are stars, if you like, Vietnam, Thailand and indeed China. My only caveat with China is a very A 10% increase in our enterprise. Our Chinese business is going to gross margin very nicely. However, we do have quite high operating costs in China because Those that follow us will realize that we will be building 2 new sites in China in the next 2 years. And during the interim phase, which is Costly reasonably high. So the underlying performance in China is actually much better on a longer term basis than what you'd first seen at The first slide. In terms of outsourcing and new distribution and Graming, I mean, to be The momentum continues from all our major suppliers in terms of outsourcing and putting more with Brantag. I don't think I can really give you particular Supplies, I'm not sure I want to give you specific suppliers with a view from a competitive point of view, but I can say that we are expecting to see growth On a number of areas in terms of new distribution agreements, particularly in the area of Life Sciences during the course of 2018. I'm passing on price increases. It's the strength of the organization. It works nicely. I think what is maybe an interesting point to me, I was tracking the price movements as we see them. And interestingly, we still see some upward pressure on price It continues in the marketplace. So there's quite a number of price increases as we see being scheduled for April. Let's ask the Oak sales, that's initially around 1212. And is that allowing you to offset your own cost inflation with Expansion in gross profit per tonne, is the market kind of a tight enough? Do you start doing that now? Yes. I think that's a fair observation. And where In fact, market conditions, it's sometimes more difficult. In the current scenario, we do have an opportunity to recover operating costs. And clearly, I think some issues regarding transport costs going forward, and we are seeking to recover those incremental costs through to improve margins. And I think you can see our margins are We're doing quite well in this context. Great. Thank you. The next question is from Laurence Alexander of Jefferies. Your line is open. Please go ahead. Hi. This is Dan Mizuho on for Laurence. I was just wondering if you could provide color on sales force productivity. Are they performing to plan? Are things going as expected It's a very good question because on EMEA region, part of the The first one was actually to look at the sales force management within the region. And to be fair, we have made some decisions there to let go on the number of salespeople and replace them with different assets. That's particularly the and the original, and that's been the shuffle down now. I think generally speaking, the sales force, as we see it today, is very well positioned. We don't see any other major changes going forward. Okay. And then just with the M and A pipeline, I mean, just I mean, has it improved? Is it getting too high And also net debt to EBITDA, it's come down considerably obviously in I was wondering what your comfort level is with bringing that back up or what your target is for that metric. On the M and A and maybe you'll recall, just met there. On M and A, for those that, again, follow us, you've seen we made The announcement really towards the back end of the year. In fact, it's probably quite a unique event. We had 5 acquisitions in 1 week. I think I probably should indicate to people in the firm that there's actually multiple negotiations underway at any one time because you can't send it to be 5 So we do have a very active pipeline in acquisitions. We are still indicating that there's a range of about £50,000,000 It's been our normal spend. We fully expect to spend that in 2018. And we're definitely on with the closing those acquisitions, which On the leverage, we are running the company since several years now At a 2x net debt to EBITDA, we feel comfortable with that number. It's a very comfortable number that leads us headroom for Larger acquisitions should an opportunity arise. It's not necessarily that we expect such opportunity, but we feel it's valuable to have that Flexibility in case an opportunity comes around. We consistently set over time if and when leverage falls Substantially, sustainably below 2x, we will have a very serious look at increased cash return to shareholders. Thank you very much. The next question is from Arghas Kumar from HSBC. Your line is now open. Please go ahead. Hi, good afternoon, gents. This is Rajesh Kumar from HSBC. Could you tell us what would be the what has been the impact of Salesforce changes in EMEA On the profit growth, if any, or did you get a step down because you've changed the number of people there? The second one is, I know you referred back to price increases. And if we look at the numbers this year, It's the inverse pyramid. You've got a better sales growth, a slower gross profit growth and a slower EBITDA growth. Should we start Do you expect an inversion in that pattern in 2018 as you get this price increase through? And finally, the third one, rather boring. IFRS 15 and 2016, what would be the impact on KPIs such as organic EBITDA growth? And when you are calculating that for the remuneration committee, will you adjust for these changes? I understood that. So I hear here a challenge Okay. I'll just consider the sales force in Europe. I don't want to give anyone misleading view here. Basically, The European business has been doing some restructuring during the course of 2017. We did that to drive our sales efficiency, To increase market penetration, to do more to sell more products to more customers, that was the reason we did it. That in itself is quite a tough thing to do during the course of the year. That's done now, and we're pretty confident that Those consumers were not only right, but they're also timely in relation to growth in the market. So we can expect both sales force efficiency and sales force profitability To improve during 2018. And with that, we can expect to see an appropriate improvement in EBITDA. Clearly, we expect to see an improvement in conversion ratios within the European business during the quarter of 2018 compared to 2017 As we deliver more EBITDA out from the GP that's being generated, I think probably the IFRS question, I've got lost in, to be honest. Yes. If you want, I can repeat the question. Yes. That would be fine. Yes. So Effectively, I know that the way operating leases are being treated, some of the revenue recognition on the margins, They all are being reconsidered under IFRS 15 and 16. They're a combination of many changes. So when you are looking at EBITDA next year and your KPIs such as organic EBITDA growth, Could we get an order of modeling help on how much benefit or headwind do we get from the change in methodology? And then I'm assuming remuneration committee will do a like for like calculation. Just but I know you're not restating historic, which is why I'm asking. And then we talk about IFRS 15, so the sales or turnover recognition, which comes into force This year, you will see some statements in our annual accounts that we expect the IFRS 16 impact to be Super marginal, so impacting sales by less than 0.1%, less than 0.1%. And I think the opening balance of the equity will change by €6,000,000 So €6,000,000 or €3,000,000,000 nothing. If we go beyond IFRS 16 to the new standards for treatment of operating leases, we will apply those only next And we have not yet any reliable quantitative framework and not any reliable figures which we could communicate about What these effects will be next year? The remuneration committee hasn't dealt with the question So I cannot say what the outcome of that discussion will be. No, I appreciate that. But when I'm looking at the operating leases, You are going to capitalize them, so that should help EBITDA as such. Well, I mean, it's a Statement at the end of the day, and in terms of it's a change of accounting principles, that's about in the method of the business, we're not changing Also the point in remuneration, remuneration is based on performance and not changing accounting rules. Most of the you're right. Most of the operating leases We are still evaluating which shops operating leases will be capitalized, Particularly under the context that we also will get short term leases still might go without capitalization. Appreciate that. Thank you very much for the color. The next question is from Tom Sykes of Deutsche Bank. Your line is now open. Please go Yes. Good afternoon, everybody. Just first of all, would you be able to give some view as to the difference in growth in your More specialist business lines versus the more commodity chemical business lines, please. And would you pick out any Specialisms in any particular regions. Then just on EMEA, you do pick out in the annual report, Middle East and Africa growing quite quickly within EMEA. So I was just wondering actually how big that is now for you and Whether that has an effect on the conversion ratio at all? And then also just on EMEA, you have You mentioned the sort of end of year provisions and balance sheet true works. And I was just wondering What would be the line items which would be the biggest variability over the year or the quarter in that respect, please? Well, this comes to the industry. It would be sad to say that as we shuffle the range is growing A little faster than the Industrial Chemicals range. However, I would be I think we need to be a little bit careful because Particularly in the current environment where there's, again, significant demand and quite a number of shortages, but in the early Industrial Chemicals, The growth and profitability between the two categories is going to be what will probably change during the course of the year Industrial Chemicals profitability enables NCA and move forward relative to speculative. So it's not going to be a consistent picture with the current market dynamics However, it would also, to be fair, would be that we, as a long term option, would be increasing our specialty clinicals Multiple penetration in the area of food and breathing, life sciences, personal care, etcetera, etcetera. And we see those areas have been So get to a fairly steady and progressive growth going forward. I think for Middle East and Africa, Tom, Middle East and Africa is By now about 7% to 8% of our European EBITDA, so 7% to 8% of our European EBITDA. The biggest loss in Middle East and Africa for us are Turkey and South Africa. So these are the two pieces which are really in there. Conversion ratio, yes, the conversion ratio with Africa is a little bit below the European average, but there is no material impact on Europe overall. Okay. Thank you. And then just on the sort of I mean, this feel like it's a bit of kind of provisions, Balance sheet movements or whatever you've been pointing out on the end of year conversion. It's mostly in selling And what is behind it is basically true up of environmental provision, true up of Outstanding packaging material that is with customers through our credit notes and all these types of things. Okay. Thank you very much. And just on the A target to move more into the sort of the some of the specialist areas that you highlighted. How Skewed is the acquisition pipeline or acquisition activity towards those at the moment, Please versus sort of a picture of the group as a whole. I think it's fair to say that in our more developed groupings of Europe and North America, it's unlikely we will need much of the way of industrial chemical distribution assets. We already have an extremely well effective and dense network of operations. And therefore, those particular areas, Specialty chemical acquisitions are preferred. It's somewhat different in Asia Pacific insofar as they will be looking to increase the Level of industrial chemical distribution that they do in the region of their currently predominant specialty chemical distribution throughout the region. You may have seen our acquisition of Raj Petro announced in which will hopefully close in March, and that's particularly aiming towards Expansion of our Industrial Chemicals and Mitel's business in India. Okay. Thank you. And I know you get asked about it all the time, but just How aggressive is private equity for specialist chemicals businesses in developed markets? No, I think it's a new question, certainly, especially just there's relatively few large fiber equities Assuming chemical distribution, I can only think of 1 or 2 where you might see the better roll up strategy. And when it comes to valuations and what have you, we don't have an issue here because ultimately, the vast majority So One correction on the Middle East Africa statement. I said that the conversion ratio is a little bit below European average. Actually, I've looked up the number. It's a little bit above European average. It's my attention that the business in Turkey and partly South Africa is particularly a specialty business. The stake in Kurdistan has a major impact on Europe overall. That's all. Okay, great. All right. Thank you very much. Thank you. The next question is from Christian Kors of Warwick Research. Your line is now open. Go ahead. Yes. Good afternoon, Christian Kors. Thanks for taking my questions. Maybe first on the financial results. Looking back on the Q4, I was actually surprised It was down heavily, versus Q4 'sixteen. Could you maybe provide some color what actually And then looking into the future for the financial results, you mentioned that you are going to refinance a bond. I think it is The bond was at quite unfavorable terms. So can you remind us of the benefits From all the refinancing measures you have taken that are going to materialize in 2018 2019? The second question relates to the assets held for sale. I think it was a figure of roughly €50,000,000 What exactly are you selling? Is it Just nitty gritty or are you envisaging maybe also a major disposal? I remember that you Think about selling the Pharmaceutical Application business at the Nordic region. Is that right? Question regarding the global sourcing initiative. On Page 9, you said there could be more regions to be defined. Is there anything in the cards? And lastly, on CapEx, can you maybe provide us with an idea about your envisaged CapEx spending in 2018? Okay. Just in terms of the assets for disposal, you're correct in terms of it is actually the business in the Nordic region, The pharmaceutical business which we are looking at as a position on core for our business relative going forward. In terms of the results, I'll just interrupt. So but we shouldn't expect any impairments because Obviously, you mentioned that you have faced the €6,000,000 drag on EBITDA last year. So do you think that you can sell the business At least at book value? It's a small business. You see the assets had for sale in the balance sheet. We Epsilon had to undergo an impairment test as of this year, and the impairment test came back clean. Okay. In terms of the global sourcing initiative, it is principally focused on the EMEA and North American markets just at the moment. And that's just simply while we get this thing rolling and momentum behind it. It's taking some time to move this forward, and I have a few people a little frustrated on how long it's taking, but it is complex, But it is moving. And what we see already is that globally, we are Our sourcing has become far more focused in certain areas, particularly in Life Sciences, where we are significantly seeing benefits From a global approach to personal local approach. And as and when it makes sense that we will extend that into Asia Pacific and in Latin America In a more meaningful way, but there's a lot to go out just within Europe and North America at this stage. Okay. Okay. On the call, you started your questioning, I think, with the financial results. The Run rate savings, and I hope I don't confuse people here, the run rate savings from the cheaper bond, That was the more expensive one. The older, more expensive one that matures in the middle of this year is on a run rate basis, euros 20,000,000 But the savings kicked in middle of this year. So 10% this year and 20% next year, if you want to say so. Okay. Thank you. Financial results, Q4 2017 over Q4 2016, I would have to go back to the details. What I could find out in following through my papers here quickly is it's a number of smaller topics around As you said, a few interest items, there's nothing structural in there. If you need more detail, I suggest Thomas gives you a ring after this call To follow-up on the details So if you mention smaller topics, So before, you had a run rate roughly of €22,000,000 quarterly. So that run rate is actually still valid. I would agree. I would agree. Okay. That's fine. That's fine. And I think we have the correct question open, right? Yes. So we do point in the annual report to a CapEx order of magnitude €190,000,000 Okay. Yes, careful, 190, yes. But careful, we do move 2 of our sites in China, and we get heavy Safe support for moving the site. And the best estimate at this point in time is we will get Combined timing, not fully certain yet, but we will get combined €30,000,000 from the Chinese state. So if you offset that, you would be at a net of €160,000,000 maybe €165,000,000 Okay. That's clear. Okay. Thank you. If I may just one follow-up. It's more a philosophic question. Everybody, especially in the forwarding industry, is talking about digitalization, block Chain technology and they cite immense scope for efficiency improvement and also in the forwarding industry we see asset light digital players popping up. So I wonder, you have some similarities with the forwarding industry. I wonder whether this technology It's also something where you have an eye on and whether it can be disruptive to your business in a positive or negative sense. So maybe you can share Your thoughts with us on this issue. Well, it's a pretty big subject to talk around the phone. But nevertheless, actually, digitization It's with us, and we have invested and we continue to invest in the bones of our digital presence in our digital networks and markets. As far as freight is concerned, we would expect to be a beneficiary of So it's just in that particular environment. What I would remind you that we are approaching generally speaking with products which are hazardous products, Products which are regulated and therefore the market itself is quite narrow due to the expertise which is required to carry these products. And also remember that we actually do carry quite a significant asset base in terms of our own transport, our own drivers and what have you said. So on one hand, it gets me recognized that it's happening, it's freight forwarding, but we're not a transport company per se. We don't actually So transportation services is actually part of our service to customers selling chemical products. Okay. Thank you. The next question is from Laurence Stegall of ISI. Please go ahead. Your line is now Good afternoon, gentlemen. Two questions on my side, please. The first one is on North America. I think organic EBITDA growth was about 6.5% for 2017. I was wondering if you could give us color on the key end markets such as oil and gas. In Oil and Gas, Chemical Producers have talked about strong double digit growth for the year. I was wondering if this was in sourced or if you participated as well? And the second question, partly related to North America for Georg is on the tax rate. If we use a 40% split From the U. S. To your group number, I think it's very easy to get the group tax rate closer to 27% or 28%. Obviously, you guided to 30. So I was wondering if you could talk about the offset that or whether you're just being conservative. Thank you. Well, certainly not the market. Yes, we do see a recovery in the oil and gas business. Again, people need to be a little bit careful about oil and gas insofar The battery barrel of oil has been stabilized and battery has been increasing gently over the For 2017, we're just bringing to play more exploration, more volume, more drilling rigs and what have you. Well, there is a supply and demand scenario. So let's be careful that we could quite easily move into a situation which we had previously where we had almost Too many wells being drilled and too much supply, so which will affect the overall economics of the market. As far as Brantac in North America is concerned, we clearly took a very significant hit in 2015 2016. It would be fair to say that the business is stable and now growing. I don't think it will be I would exaggerate and say it's growing at double digits at this stage, The stage for its survey during the course of 2017, we would expect to see a more significant recovery in Ireland Gas business if the oil industry Now on the group tax rates, I think in our presentation, we said the group tax Rates will come down to around 30%, whereas we indicated 34% to 35% before. So 4 to 5 percentage points reduction. And when we say around 30, don't hold me against the question at this stage if it is 29%, 29.5% or 30%. I don't think there is a huge degree of conservatism in there. Yes, the U. S. Corporate tax Trade drops by 14 percentage points, but there are also some offsetting measures. None of them will hit us very hard, But there's a little bit of offsetting in pay taxes, I understand. So we won't see the absolute full degree of reduction. So around 30 going forward, Hopefully, a little bit too. Okay. Thank you very much. It's very clear. There are currently no further questions via the telephone lines. We've received another question from Mr. Green of Credit Suisse. Please go ahead. Your line is now open. Yes, thank you very much. I've got three questions if I can. Firstly, just on your comments around France being a drag within EMEA. Just looking at the disclosures, the French external sales were up 5% year on year. So let's assume that that's driven maybe by chemical pricing and therefore gross profit might Closer to flat. Are you suggesting therefore that France is a drag mainly from a cost management perspective? Is that a fair assumption? And how big a drag was it? You quantified Nordics at €6,000,000 Was France perhaps maybe half to a third of that Sort of magnitude. That's my first question. The second question, Stephen, just going back to your comments at the Q2 stage last year back in August, You did caution that Q1 of this year was likely to see a repeat of the profit pressures that you'd see in Q1 of 'seventeen in terms of phasing and timing of cost increases around rent, etcetera. Is that still going to be the case that Particularly given we're seeing that tightness around labor, rent reviews, etcetera, that you'll see a big pickup in costs in the Q1. And then my final question just around M and A. Just in terms of you've given us the average multiple. Can you give an indication as to the range of multiples you paid for the various You acquired and bluntly, how much more expensive were the bigger deals compared to the smaller sized deals, please? Just taking the cost base into the Q1 versus 2017 versus 2018. To be fair, I think we are at a pretty constant level now in terms of the changes which we saw in terms of bringing forward costs, which are Expense for the Q1 but then spread across the rest of the year, I don't see any major, major changes. I think my comments and guidance is that for everybody It's to assume that the cost base in Q1 is artificially higher as well for these charges compared to other quarters. But I would reiterate, my comment now was that we expect Q1 2018 conversion ratio to exceed Q1 2017. I think in terms of the overall M and A range, I mean, It does vary significantly between the type of assets that we're buying in terms of the whether it be a specialty chemical distributor, Well, there'd be a shoe in in terms of sort of a distributor that we're adding onto the existing networks. So I think valuations are not Is that helpful to you because we have significant circumstances around each particular deal? I think 6% to 9% probably A reasonable range, but I won't be too scientific about that. France. So you obviously had a very thorough review of the annual report already, the spot to freight figure. Yes, external sales in France are up 5%, 6%. But in chemical distribution, sales don't mean anything because or don't mean much because they're heavily influenced by chemical crisis. So also for the group, we show a 13% sales increase and a 6.5% gross profit increase. You are right to assume that the French gross profit is more flattish, actually slightly down. And then through cost inflation, France becomes a little bit of direct to the European EBITDA profitability. It is the French EBITDA is down EUR 2,500,000, EUR 3,000,000 you can see here. Okay. That's very helpful. And just going back to the North America. So just to clarify there, are you suggesting that over the last 6 to 9 months. You haven't seen any material increase in the rate of, say, driver or logistics inflation? No, that wouldn't be the case. There's a fact there's definitely been an increase in operation costs within North America. And obviously, you Everyone can see that we improved our margins in the coming quarters of 2017, but some of the margins were consumed by additional holding So in fact, throughout North America, it would be fair to say not just the chemical distribution business, but certainly Across borders, across industry groups, freight and freight forwarding is a really difficult period, difficult area for most people. Indeed, we're working with a lot of our manufacturing suppliers to see whether it's indeed the Brenntag fleet to batch load product into ourselves as opposed to depending on Well, the slide is provided. So there's cost pressure within that area. I'm not sure how much more cost pressure there will be in 20 'eighteen. Well, I think we've taken more of that pain already. But you can see it in the merchant ratio and what have you that there is an underlying Cost increase in transportation. I think we're now moving to a different stage in 2018. Okay. Thank you very much. There are currently no further questions. I hand back to the speakers. Right, ladies and gentlemen. Thank you very much for joining us, Satine, on our call. And no further questions, I think we can close the call at that point. Thank you very much. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.