Earnings Call: Q3 2017

Nov 8, 2017

Dear ladies and gentlemen, welcome to the Brantac AG Q3 2017 Results Call. 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. May I now hand you over to Mr. Holland, who will lead you through this conference. Please go ahead, sir. Right. Thank you very much, and welcome everybody. I'm here today in London with Georg and the team. And we have a I have a lot of analysts around the table with us joining us for our Analyst Day. Obviously, we're happy to answer your questions after the presentation. So starting with the Q3, we're very pleased with our results in the Q3 of 2017. The group generated Gross profit of EUR 619,400,000, representing an encouraging 7.7% on FX increase on an average adjusted basis. We're also pleased with the operating EBITDA performance of EUR 216,000,000, an increase of 8.5% FX adjusted. Both the gross profit and operating EBITDA were driven by organic growth and the positive contribution from our acquisitions. All regions contributed to this positive development And I'll go through each region in detail relating to the presentation. In terms of earnings, earnings per share were $0.65 which is an increase of 8.3% over last year. Last but not least, in September, we successfully placed a corporate bond to announce a €600,000,000 at extremely attractive funding conditions, and Georg will go through this A little later on, with that point, I'll pass across to Georg. Yes. Good afternoon, everybody. Let me walk you through the income statement, through the upper part of the income statement first. So sales again increased Strongly this quarter on a fixed adjusted basis by about 14%, and that's pretty influenced By continuing increase of chemical prices, I'm sure you have seen that the sales increase That impact our working capital, and we'll come back to it a little later in the presentation. When it comes to gross profit, we for sure Continued the positive trend we have seen this year so far, and we showed a gross profit growth of 7.7% on an FX adjusted basis. Operating EBITDA for the group grew somewhat stronger than our gross profit. Operating EBITDA amounted €216,000,000 in the 3rd quarter and what we feel a piece of pretty good news is that All regions, all our 4 segments contributed to the EBITDA growth of 8.5%. We did adjust operating EBITDA for expenses related to the efficiency improvement program in Europe because we think it will allow going forward a better comparability of operating performance. The cost associated with that program recorded so far Amount to about EUR 5,000,000 in the Q3, and we have treated them as special items, and you can actually see them In the P and L on the next page, there is a line next expenses from holding charges and special items. That's the second line on the table, And that's where we record and will record the still outstanding expenses for the European Efficiency Improvement Program. The other lines of the P and L, no major changes. Depreciation in the quarter amounted to €28,100,000 amortization to €11,200,000 financial results and net expense of €21,800,000 And that's pretty much in line with the numbers we recorded for last year. Tax rate at 33%. It all leads to an earnings per share of $0.55 and an encouraging increase of 8.3%. When it comes to cash flow, I won't speak too much about cash flow. But in the Q3, we recorded an operating cash flow of EUR 124,300,000 And that compares to EUR 180,000,000 a year ago. On the one hand, the cash flow benefits from the increase in profit after tax That was mentioned already. But on the other hand, also this quarter, cash flow was impacted by a comparatively high outflow for working capital Due to rising chemical prices, it is a normal, it is to be expected consequence in chemical distribution in an environment of rising All of the cash flow lines are all of the lines to the operating cash flow are mainly unchanged against previous year. When it comes on the next page to investment and financing cash flow, in line with our expectations, CapEx for the Q3 had a payout that is slightly above last year's level. You do see a major change, a major element in the cash used for financing activities. And you see in that line mainly the inflow for the EUR 100,000,000 corporate bond that we issued in September this year. We still had the cash on our balance sheet at the end of September. It's not on the cash on the balance sheet anymore. In early October, we used the funds to redeem parts of our syndicated loan facility. On Page 9, you see the information on net debt and leverage. Net debt decreased and stood at EUR 1.6 €1,000,000,000 at the end of the Q3. Due to the already mentioned bond proceeds, the gross debt increased, not so the net debt. The net debt actually decreased. Group's leverage stands at 1.9x net debt to EBITDA. The absolute amount of trade working capital was about stable. Throughout the quarter, we turned to working capital 8x in the quarter, Which is about the level we achieved also in 2016. Steve mentioned it already. I would like to lay out the details Our latest transaction in the debt capital market, in September, we successfully placed a corporate bond with a volume of EUR 600,000,000. We took good advantage of the very attractive conditions in the debt market. We issued the bond with an 8 year maturity And a coupon of 1.1 8%. With the transaction, we managed to further strengthen our financial profile. We lengthened the maturity profile considerably at what we feel to be very attractive interest rate. So bond is primarily intended as a refinancing, a kind of early refinancing for the one bond which we have on the balance When it comes to the balance sheet, you do see the significant Increase in cash and cash equivalents on the balance sheet, that's temporary end of September only. I would also mention an additional line or 2 additional lines that we have on the balance sheet, which is small but new. You do see that we now record for EUR 22,000,000 assets held for sale, And that comes from a reclassification of a smaller business by the name of Biosector that we consider noncore And that we intend to sell within the next 12 months and that leads to a requirement of reclassification on the balance sheet. That actually already concludes my part. I go back give it back to Steve for a discussion of Segment EBITDA. Thank you, So before I provide more detail on those segments, I'll go through the bridge and the development of our operating EBITDA for the group in Q3 versus 2016 versus Q3 2017. In the Q3 2017, we had a headwind of U. S. Dollar euro translation of around €7,000,000 Our Acquisitions contributed EUR 7,000,000, and we're very pleased with the performance of our acquisitions year to date. The EMEA region delivered organic operating EBITDA, EBITDA was 2%. We are particularly pleased with the organic growth in North America, which stands at 8% for the 3rd quarter. In our regions of Latin America and Asia Pacific, both showed good organic growth rates of 13% and 6%, respectively. I would like to emphasize that we expect Latin America to remain volatile going forward. Now if I take the I'll let you through the detailed developments of the segments for the Q3 on the Page, in terms of EMEA, in the 3rd quarter, the EMEA region operated in a positive macroeconomic environment. The segment reported gross profit growth of 4.2% and an operating EBITDA growth of 3.7%, as FX adjusted. These results are moderately higher than Q3 of last year and mostly driven by organic growth. Our efficient program in EMEA, which Was mentioned by Gil a few moments ago is on plan and accelerating. Coming to North America, we're particularly pleased with the results in North America. Gross Profit grew by 9.7 percent and operating EBITDA increased by 12.3%. The gross profit growth is a good continuation of trends we've seen in the first half 2017 and the conversion to operating EBITDA continues to improve. The positive development is broad based Stable and improving Oil and Gas Industries and business performance along with regional development initiatives and the successful integration of our Loops business, including recent acquisitions. In Latin America, as mentioned previously, the macroeconomic environment in Latin America remains somewhat volatile. And although we are We have significantly increased our results in the region versus prior year. Our gross profit in Latin America grew by 5.2% on a constant FX basis. Operating EBITDA grew by even higher by 17%. And this development was mainly driven by a pleasing performance in Brazil, which continues to recover. Turning on to Asia Pacific. Our region Asia Pacific showed a good earnings development. The gross profit grew by 15.7% Operating EBITDA grew by 17.6%. These positive results are attributed to both organic growth and the contribution of our acquisitions in the region. I'm particularly pleased with the organic growth in Thailand, Vietnam and China during the quarter, and we will continue to invest in management to fuel further organic growth. Now I may come to the outlook. I'll start with the current trading, slow down at this point, because I know you have to write things down. So these are the gross profit per day numbers. So in July, gross profit per day increased by 8.6% As reported and 5.6% on an organic basis. In August, GP per day increased by 8.8% As reported and 5.7% on an organic basis, in September, GP per day increased by 11.8% As reported, an 8.8 percent organically. In October, the growth was 8.6% as reported and 5.8% on an organic basis, so a similar trend to the previous 3 months. With respect to the outlook, we continue to expect our key performance indicators gross profit and operating EBITDA to grow on a full year basis. Also, we confirm our expectations of an operating EBITDA for the 2017 year in the range of EUR820,000,000 to EUR 850,000,000. This guidance is based on the latest trends and midpoint of the guidance implies organic growth of about 5% in the second half of the year, And the October numbers are fully in line with its expectation. The guidance ranges to be under some pre exceptional items, I. E. The cost of the EMEA efficiency program are not included, This seems no material change in the U. S. Dollar translation compared to the last 3 months. In 2017, we've seen an increase in chemical prices, and we expect the price remain on a higher level for the rest of the year, due to that and due to increased business volumes, we expect an increase in working capital year over year. With respect to CapEx, we still forecast to allocate some €150,000,000 in 2017. And now we're very happy to take your questions. Okay. Thank you, Steve. Thank you, Georg. We are now starting with Q and A session, and we are taking questions from analysts here in the room in London first, And we'll then take questions from the line. First question comes from Rob Plant with JPMorgan. Thanks, Thomas. Steve, you mentioned Q2 some detail about The efficiency programs and improvements in Europe, I think the two areas were investing in the specialist sales team And also rationalizing the property portfolio, the warehouses, etcetera. It sounds like that's on track, but can you give us some more detail, please? Yes. Well, we as you know, we've announced the efficiency program in Q2. We are pretty much on track now in terms of the movement of people. It's quite a change. It involves about 300 people essentially moving out of business and about 150 people coming into the business. And this is basically focusing the The company's ability to develop our Specialty Chemicals portfolio. And for that, we're on track. We fully expect The amount that we put aside for this process to be to effectively be allocated before the year end and the recruitment process that are underway as I speak. And this is really to focus on our growth in specialties from an existing business, which is very successful. We'd like to create more even faster than we are today, particularly in Europe. When it comes to the facilities, the with the consolidation of our this has been driven by what I would call detanking, if you like. So we're basically not reproducing a me too Facilities going forward. So we are essentially looking at where we spend our capital expenditure, our investments, strategy and what have you. We are looking to essentially increase utilization on some sites and reduce the capability on other sites and reduce our total cost to serve. So that's an ongoing exercise. And where we can accelerate that, we will be doing. Our next question comes from Laurie McKenzie with UBS. Hi, thanks. 3 for me, please. Firstly, can you We'll talk about the volume growth trends against the gross profit per ton trends in the quarter. You can shoot the next question, Natalie Capri. The next one, in the U. S, there's been no real hurricane disruption, which claims a good job on your part. Can you say whether there was any disruption during the service? And if you actually managed to gain share through that process? And then maybe the third question, Can you talk about the current trends you're seeing in China? Obviously APAC builds a bit. I think there's been some regulation change there. So will that impact your business Yes. Well, when it comes to the hurricane, and there's obviously a lot of talk about the hurricane. It wasn't that we didn't know it was coming. And so we do actually plan for these type of events in the those areas that are affected My situation first were the conditions. And so we were pretty much geared up already to try and mitigate the effects of the hurricane. What we did get is business interruption left or right of the event, if you like. I think we were certainly, like everybody, a little bit surprised about the Flooding, I'm saying something early on in the today that we have fences around security fences around the sites and some of our sites have fish In the security fencing, such as the height of the floods. But we did actually take the steps which we thought were necessary, and I would actually like to publicly Thank you. All our guys in the Houston area in particular did an amazing job. So there is there was an effect, but honestly, it's a little bit in the noise. So there's some places and minuses, but I'm not to the point where we would separate it out as being a hurricane effect. Just coming on to the China, I'm not sure your point in China. We our Chinese business is, as I noted highlighted in my report that We're pleased with the organic growth in China. It's fair to say that the Chinese authorities aren't becoming Ever keen on both safety and environmental aspects of the chemicals business generally. And to that effect, we are moving At least 2 of our sites into chemical parks with the assistance of the Chinese government, and they're helping us do that. So there will be effectively brand new chemical distribution facilities for Brantag in back to 2020, And that's with the assistance of Chinese government. Will there be any disruption as a result of that? No. We expect to Managed that process again. We know it's coming, and therefore, we will plan accordingly. Then the first question It was basically to get some information on the gross profit development split into volumes and gross profit control. So for the quarter, for the group, we recorded an FX adjusted gross profit increase of 7.7%. Out of that 7.7 percent gross profit increase, a little bit less than half is through volume increase And the other part is gross profit per ton increase. You see the effect of pretty healthy gross profit per ton increase Throughout the globe in all segments, strongest in North America. Sorry, how was that I wouldn't attribute it to that in any isolated manner. We have gone through a pretty Strong price management exercise in North America throughout the years, particularly in those regional operating companies A little bit soft on the stand. So it's much broader than the hurricane. There's no denying that the hurricane created a little bit So next question comes from Sylvia Parker with Deutsche Bank. Yes. Hi, good afternoon, everyone. Two questions, please. First of all, on the European conversion, obviously, that's Turning a little bit better. How do you expect that to develop over the next couple of quarters? Then secondly, the business you mentioned you intend to sell, How material is that profit wise? Is that split out as a discipline? And then finally, on the balance sheet. So obviously, again, running at kind of And Lois, since the IPO, the M and A spend has been what it's been over the last few years. You've got I have a new M and A team I think you highlighted at the last Capital Markets Day. So are you changing your approach there at all? Or Should we expect more of the same? Or can we expect more dividend payments, etcetera? Thank you. Well, the European conversion Subject is a never ending subject, and not just for you, but also for us. And all the changes that we have underway at the moment are to drive efficiency. So the European conversion ratio is the number which the European management team are Totally on to. We have seen a small improvement. Could it be more than that? Does it need to be more than that? Yes, it does. And We are pursuing everything we can to improve the conversion ratio in the European space. And that will require Further consolidation, further efficiency gains in Transport Logistics, further people consolidation and the way we operate as a European business. So that's pretty much I would expect to see that continue to improve over the years ahead. What was the other The business that we reclassified, the small business that we reclassified as SSL for sale, It's a history of pretty volatile earnings. We have had years with €2,000,000 EBITDA. We have had years with €6,000,000 EBITDA. Part of why we consider it non core is that the characteristics of the business is such a volatile one. This year is more in the range of EUR 2,000,000 earnings. And by what business is that? Sorry, the Biotech business. The Biotech business. The Biotech business. It's basically a business that's Focused on selling to the pharma industry, of preparing and selling at urine, so a type of ingredient into the recommendation industry. Now your question on M and A, we there's no deviation from our strategy in M and A terms of the sort of spend we expect to make. We're still aiming for our 200 to 250. We are hopeful that we will not end the year Where we are in terms of the current spend, we do have a couple of projects which we are optimistic will run before year end, but you we never know Until it's signed, certainly, I would expect the 200 to 250 to remain as a target. Given you've changed a little bit your M and A organization over the last 12 months, have you had any change in terms of Going for more small deals in specialties in Erith or has the pipeline changed at all? No, I think I would say probably the regional emphasis is still North America and Asia Pacific. And I think that remains the same. I think what we're probably more what we're probably most confident on is actually not being drawn down long avenues of never ending which owners eventually in general say they don't want to proceed or we find out there's not an appropriate match In terms of due diligence or compliance, what have you, so we are the M and A team is together now is More discipline in terms of making early decisions to withdraw if the deal is not the right deal. Thank you. Next question from Josh Butler with Stearns Bank. Yes. Hi, good afternoon. First question, one of your competitors has talked specifically about rising freight costs in the U. S. Just wondered what you're seeing there and what the impacts might be on in Q4. And then secondly, your conversion margin In Q3, maybe in positive, just wondering if there's anything one off to call out in that, either positive or negative. And then just coming back to the EMEA conversion margin. If we look at this quarter specifically, I wondered if you could tell us what is holding that back, The comment on freight costs, I think it is reasonable it is a reasonable comment actually that the freight costs are moving up in North America. And particularly in the area of chemical And chemical transport generally, there is actually a perceived shortage in the chemicals space Of train drivers and new drivers coming into that into the industry. So I think it would be a it's a fair comment to say that freight costs Moving up in North America. As far as the conversion ratio in North America is concerned, there's nothing in particular that I can point to which would suggest a one off Developments. And this point was on Europe, I believe. Yes. On the EMEA conversion margin, just wondering what was holding that back in Q3? I don't think there's any one particular factor holding it back. I think The EMEA region is a complex region with lots of moving parts. So I don't think there's one particular factor that's bigger to hold you back. So next question from Mila Boink with Goldman. Yes. Thank you. And the first one is also Coming back on the improvement in the North American conversion margin, a very solid improvement. And with these types of growth levels, would that be sort of fair to extrapolate All the way back to, in the end, your peak margin that you've reached above the 40% in this business. You're saying that GBP 200,000,000 to go back to So effectively, would it be fair to extrapolate the strength Of the improvement that you've shown 120 basis points this quarter was this year? I would say A lot of things you said, and I'll repeat them. I cannot do. And a little bit, you also mentioned the 40%, which is a number which is Probably years out from here. So first of all, I would completely agree that on the current level of gross profit growth, We will continue to see operating leverage as we have seen in Q3 and improved conversion ratio further over time North America, there's no question about that from our perspective. To go back to the peak days that we had 2014, 42%, 43%. Keep in mind that we lost a fair share of our oil and gas business since then. We basically lost a It's a business that's now on a much more positive trend, but the peak days We are still way ahead of. So to cut a long story short, it's 40% in North America over time in reach for sure. It's a number well ahead of 40% in reach. It would need a stronger rebound in oil and gas than we currently see. Good. Got it. Very clear. Yes. You should also balance out that we have some loose businesses in the North American portfolio now, which converted the 32s and 33s. So a bit of a mix change in the North American business. Yes, fair enough. One more question on the free cash So the working capital, you pointed out higher investments because of higher chemical prices. But I also noticed With the risk of being too nitpicky on the details that you dropped your line on working capital turn improvement, is there anything to highlight there? I think our view on working capital turns is that working capital turns are Yes, depending on what exact time frame you look at the quarter year to date LTM, you might see a fluctuation of 0 0.1, 0.2 times turns. I'm not sure what exact comparison you are looking to. We feel that working capital turns are in good and stable Keep in mind, working capital is turning a little slower in Asia and in Latin America than in North America and Europe. So to the degree you get some mix shift over time, some strong growth in Asia over time, you might see a little bit of pressure on terms, But it's not a topic I would call where I present. All right. Thank you. The next question comes from Kai Greene with Credit Suisse. Thank you very much, gentlemen. Three questions, it's obligatory 3. Firstly, just back on the U. S. Oil and gas. I know you're not going to call it out specifically. I think you said that in the last quarter. You don't want to specific numbers, but you're saying it's improving. Are we talking high single digit, low double digit improvements? Just an update on how that's improving, that would be helpful. You also mentioned Scandinavia at the Q2 stage has been a problem area. That was raised or flagged again, excuse the Scandinavia situation. What was European constant FX GP growth have looked like excluding Scandinavia? So how much of a drag is Scandi on that business? And the Question just on the bond refinancing. Just so I understand this correctly, you're basically just going to pay the coupon. You're not going to refinance the 2018 bond. You're not going to pay any redemption charges. It will just run with that bond concurrently. Is that correct? Yes. Matt, On the bond first, you are right. The 2018 bond does not have an early redemption option. So it will sit on balance sheet until the middle of next Here, the high coupon from that bond will fall away middle of next year. On oil and gas, basically Throughout this year, basically all three quarters, the gross profit in oil and gas is growing 15%, give or take. So it's stronger than the rest of the North American business, but not so outstanding that it moves and drives the North American performance. Yes. The part of the North American business is also very, very strong. Perhaps the third question is Cape May. On the U. S. On the you are thinking on the quarter or you can just kind of Either just in sense of how much of the drag is on the region. It's if you permit the rough number, it's roughly 2% of the European EBITDA. Sorry, it's a 2% It accounts for 2% European EBITDA, in which case it's 2% direct on the European. It's a last number. I would have to go back to the details. Any more questions here in the room, yes. Next question comes from Daniel Buchta with MainFirst. Yes. Two questions, if I may. The first one, I mean, Congratulations on the good results. But I mean, compared to the softer trends in the first half in your view, what has changed so that the trends That you are reporting are so much different because if I see the broad macro picture, nothing has changed dramatically now in Q3 was already very favorable in my view in the first half. And so in your view, what are the main drivers that you are now Showing and reporting accelerated trends. And especially on that regard, I think especially the organic gross profit growth number you have mentioned in September was Very strong, especially given it was the month with Hurricane Harvey having an impact. And the second one coming back M and A, I mean, you mentioned there is nothing different. But in your view, do you see it as a more difficult in the current environment to buy businesses because of the improved Macro environment so that the owners are not willing to sell at reasonable prices, as I would say. Thank you very much. Okay. Well, I think as far as the current performance and the trends, I think if you look at the first half, the first half of this year was quite difficult in so far as, so you saw low conversion ratios in the Q1 in North America, Better performance in the second quarter, and almost reversed performance in the European business in terms of decent first quarter and weaker second quarter. There is no fundamental reason that we can see that I think a change the business In a very meaningful way, we've been working pretty hard at growing our gross margin and capturing organic growth on a Constant basis, I think we're just seeing the fruits of that hard work coming through now. This is quite a the thing about Braintac, It's a very defensive business. You look at this business, it can go through some pretty bumpy roads, but it does take some time to move it. So equal the defensive nature of the business also sometimes creates a bit of a momentum change, struggling to some really growing. And I think what we see now It's not shifting gear, which we hopefully will maintain. When it comes to M and A, there's never a good time to buy a company. All these companies are And equally, in a downturn, people are not selling business because they're cash generative. They've got lots of cash in the government's store at low EBITDA. And when it's in an upsized scale, they're looking for a higher price. So It's always going to be a negotiation, but I don't see that there's any change in our ability to or wish to buy businesses That's good prices, but obviously, clearly, prices of which are value accretive to our business. Just a quick follow-up on the September. The most per working day I would suggest not to overdo on the data point of 1 month only. You always have to look at the data series. Why was September so strong a number? First of all, September was a relatively short month in terms of number of working days, And that always benefits the per fracking day number a little bit. And secondly, yes, North America had strong growth rates in September, but they were also pretty weak in August, which is not Surprising given that the hurricane came end of August, so we certainly had a negative impact in August, but some catch up in September. No, don't read too much into the same number. Okay, great. Thank you. One more question from Silvia Baca with Deutsche Bank. Thank you. And just to follow-up, so the oil and gas business is growing at about 15%. What is the conversion ratio on that business at the moment? It's I if you permit, I would kind of decline the answer. So what I mean is don't forget, we are running an Integrated business and part of the oil and gas business, not all of it, but part of the oil and gas business is using the same infrastructure than the rest of the business. I have to play with allocation keys so that I can show whatever result desired at the end of the day. It's mid-30s, but it's More an estimated number than a calculated number. Okay. Thank you. We've got a question from Rory McKenzie with UBS. Yes. So I don't want to delve too much into the North American margin again, So you mentioned that the contribution from acquisitions was stronger than expected in the U. S. Was that on gross profit? Was that on the conversion margins? How did acquisitions do And where in particular were they better? And was that enough to move the dial in the overall margin or not? It's Okay. How do I pick you up? It's when first of all, in the Q3 in North America, The acquisition effects are not that super material anymore. They basically come from the 2 Smaller loops acquisitions that we have undertaken late Q3 or early Q4. Last year, Directionally, the gross profit development of these acquisitions is fully in plan. So cost synergy realization is much ahead of plan. That's perfect. Thank you. Next question from Jeff Schmale with Jefferies. Good morning. From the M and A front in Asia, who are you competing with on deals? And as it relates to regulation, moving facilities, environmental issues, Are you buying customers? Are you buying facilities? Are you where are we on the integration phase in terms of do they need more capital than maybe your Tuck ins that you buy in North America or Europe. And then also, on the digitalization front, could you update us a little bit on what's going on there? And Maybe some detail on how we can sort of see those results going through? So exclusive deals, not in terms of Asia Pacific. In terms of the digital space, we have our DigiB business, which is actually based in Holland. And that's essentially we started our digital network business in Germany, in Berlin about a year ago now. We now operate in Amsterdam. We have an additional warehouse in Amsterdam. And that is now being worked Into a fully operating model. But what we're doing within the digital sense is we're actually starting to operate At Brantag internal marketplace. And our ambitions are very simply this, that we will we're effectively going to use our digital Space to our digital marketplace within Brantec, which is a big market within itself to allow us to trip over our shoelaces and fall flat in with our digital business before we unleash it on customers and subject them to equal and unnecessary behavior. So we are very, very pleased with the way we're going on our digital business and our digital journey, and that is accelerating. Was there anything else you wanted to ask? We currently do not have any more The first question is from Raghuram Kumar of Equinox. Please go ahead. Hi, good afternoon. Just on the financial side, could you give us some color on the difference in the specialty capital type of business What is the bulk of the pipeline? Are you seeing different relative growth rates down in the 2? What are the margin implications of that, please? Hi, it's Georg. Thanks for the question. I hope I got the question. A little bit technical difficulty is on the line. I think it was a question for differences, The recent differences in organic growth rates of specialties and industrial chemicals. And we do primarily segment and focus the business In regional segment, so the split you are mentioning plays some role, but it's not the key difference for us in managing the business. Over a very long time period, we would see some strong growth in specialty Gross profit and industrial gross profit, maybe 1 to 2 percentage points stronger growth in Specialty Chemicals. I cannot say over the recent period, over the recent quarter, I The next question is Two questions. First one, both on Namibia. Can you give us a bit more or a bit color on what are the particular challenges you see in terms of weak demand? Is it a particular vertical that faces the weak demand? And to what extent is the Disposal of Brantec Bio Sector associated with that. Thank you. Sorry, are you asking for a specific region? We missed that. Yes, yes. It's about Scandinavia and whether it's like a particular industry that faces It's Mickey Maazord. It's an overall problem of Scandinavia. And yes. Now I can answer that to the Bear in mind that the Scandinavian business, our Nordic region is relatively it's a relatively small region within the European business. And within that, the bio sector Probably in the past could have contributed to 25% of the EBITDA. And that business is a business not isn't contributing significantly at the moment. And that has a disproportionate effect on Scandinavia. So it's I wouldn't say that the Scandinavian region itself is in Poor Shay. We definitely don't feel that by effect of the business we want to be longer term, and it has had a short term effect on our business In Scandinavia. Okay. Thank you. The next Question is from Rudolf Gandhagen of ABM AMRO. Go ahead. Yes, good afternoon. I hope you can hear me. I heard a Very bad echo on the line. So I have three questions. The first is on the guidance. The midpoint of your full year guidance It implies a Q4 EBITDA of EUR 198,000,000, which would be flat year on year and a deceleration compared To Q3, can you tell us what the reason is for that, consider the guidance, so to say? The second question is on North America. Can you talk about your current employee turnover and how that compares to the historical average? And then mainly your commercial And then thirdly is on Latin America. It's a good thing to see that the conversion margin is up again. Can you tell us what you see as the potential for this region, in particular because the historicals Apply less given that you've exited Venezuela. So just wondering what the potential of this region is. Thank you. Hi, Mudlu. It's Georg. Maybe on the guidance question. We must not forget that we will face a pretty significant Translation had to end in Q4. So last year's Q4, dollar €1,000,000 was, if I remember correctly, about €108,000,000 roughly €108,000,000 Yes, currently, EUR 116,000,000 EUR 117,000,000 EUR117,000,000. So we will have currency translation headwind in Q4. Reaching The midpoint of the guidance range actually does imply an organic EBITDA growth in Q4 of about 5%, give or take a level. So reaching the midpoint of the guidance range implies a continuation of the growth trend we have seen in Q3 roughly. I think I was a question I understood, were you talking about commercial turn actual turnover staff in North America? Is that your question? Exactly. So the turnover in sales force in North America? Well, yes, I think we have an average turnover in North America of around about 6%. We there's no I'm certainly not aware of any particular segment of our workforce, which is It's a number faster than that, and certainly our sales force, including our sales force, it's a relatively stable sales force community in North America. Okay. Thank you. When it comes to Latin America, I think the potential in Latin America is and has been quite a volatile region in terms of the Profitability, and you're quite rightly to point out Venezuela is another part of our Latin American business and in the past was a very Significant part of the business. I think it would be fair to say that when we look at Maschin America for the future, we do see growth From where we are today, and we see an improving picture both in Mexico, Brazil and Argentina. So but the size of that region will, to some extent, depend a little bit on acquisitions in the future. And at the moment, we do have some interest acquisitions. Our primary focus is really in Asia and North America acquisitions. Right. I mean, maybe to ask Steve. So historically, I think you did More than 40% 45% in 2011, also that's Asia Pacific. So you did mid-30s In Latin America, is that still possible with the current business that you have in terms of conversion margin that is? I hope we got the question right. The question was, is mid-30s conversion ratio in Latin America still achievable? Yes, it is. Okay. Thank you. The next question is from Tom Sykes of Deutsche Bank. Go ahead. Yes. Thank you. Sorry, just to hop back again to the North American conversion rate. But just to be clear, Are you getting volume leverage and volume based improvement to your conversion ratio in the U. S? Or Is the conversion ratio largely going up by the fact that your gross profit per ton is increasing? And given that you put in Some cost last about this time last year into the North American oil and gas business again. Do you think you start annualizing that and get a better Volume based conversion benefit in North America going forward. And then just on the Oil and Gas business, it's obviously integrated in part to the rest of the business. But would you say the incremental conversion, Although it may be at a lower absolute level, the incremental conversion from improved oil and gas, is that higher than the average? Would you expect that to add to the conversion ratio of North America overall, please? So, Heidt, I would caution people a little to look at conversion ratio on a quarterly basis. It can be a volatile and a little Misleading number. Obviously, the efficiency of the organization, the conversion ratio Benefits from leverage of gross profit over the cost base, and that can actually be both. It can be Leverage that comes from price management, so gross profit per ton, if you say so, and it can be volume leverage. We would expect to see both in North America. We had a gross profit increase that was stronger than volume increase, but we also had volume increase. So we actually To see both parts of leverage. Oil and Gas, yes, for sure. We kept Part of the organization, a clear part of the organization to be able to service orders in the oil and gas space if and when they come back, And that's now what we are seeing. So incremental conversion in oil and gas is for sure bigger than the average conversion of the oil and gas business. Okay. And just on the gross profit tonne, do you think given that there may have been some hurricane effect, is it Quite sticky where you've put the new prices. And is there any more or are there any more gross profit per ton benefits That you think may come through from the programs you're putting through, please. Hi, Steve here. In terms of We clearly are seeking to maximize those numbers on a continuous basis. We don't I foresee any reasons at this stage why there should be any significant shift in our gross profit per tonne. It is A number of course a very large number of tonnes, if you like, so it doesn't move that much in real terms. So I think fundamentally, this business is sticky. That's the right term to use. I think we don't see any major changes. Okay. Thank you very much. There are no further questions over the phone. Okay. In that case, well, thank you very much, Dee, for everybody who joined us on the phone, and thank you everybody that's joined us here in London. And we'll close the call there. Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.