Earnings Call: Q4 2016

Mar 7, 2017

Dear, ladies and gentlemen, welcome to the Brantec AG Results Call for the Full Year 2016. 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 Stephen Holland, who will lead you through this conference. Please go ahead. Right. Well, thank you very much Welcome, ladies and gentlemen, and thank you for dialing into our review of 2016 results. As As usual, I'm on the phone today with Joe Muller, our CFO. We are 2 months in the year of 2017 already, and to some extent, 2016 feels quite far away. Let me quickly summarize the main takeaways for the year 2016 for Brantac. And most importantly, the group reports the EBITDA above The high levels from previous year EBITDA totals 810,000,000 euros which is an increase of 1.9% on an FX adjusted basis. And clearly, Georg will provide some details on the financials later. We're delighted with a very positive business developed in our regions of EMEA and Asia Over the last couple of years, we've done a lot of work here to improve these performance in these regions, and we clearly see the efforts paying off. It It should be noted that 2016 was a year which was had some very meaningful headwinds in North America and Latin America. In North America, we saw weak demand due to the scrubbing oil and gas Customers on a negative industrial production growth overall. In Latin America, our business was heavily impacted by Venezuela EBITDA in our country came down to 0 as a consequence of massive currency devaluation earlier in the year. We combine these effects together, the headwinds alone represents an EBITDA reduction of around EUR 50,000,000 or 6% of the group over 2015. So let me point out our 2015 2016 acquisitions did make a significant contribution to our 2016 results And help mitigate these headwinds. We are overall happy with the performance of acquisitions. It should be noted that JAM, our acquisition in the United States, did not meet our fully meet our expectations so far. Just moving on to acquisitions, on to Page 4. On this next slide, you'll see you'll find a number of the acquisitions executed in 20 In line with our MA strategy, we signed a number of small and mid sized acquisitions in 2016. And moreover, we purchased Remaining shares in our joint venture, Zhongyang in China. Total investments in 2016 amounted to around about EUR 200,000,000. Now, we've multiple for acquisitions signed in 2016 is 6.8 times enterprise value to EBITDA. In 2016, we've executed acquisitions in 3 of our 4 regions, which really doesn't underline the fact that we are continuing with our strategy on a worldwide basis. You'll also notice on Slide 5 that we have made a number of small acquisitions so far this year. We invested in the acquisition of Petra Industries, where we expand our value added services in North America. We know the company very well and is providing various blending and packaging service to the industry for many years, and we're delighted to add it to our capacity for mixing and blending. Moreover, we acquired the Pipeline in Chemicals and Services Business of Greens Energy, a leading provider of integrated solutions in the oil and gas industry. Now this is combined with our existing pipeline cleaning business. This Position us very well for an expected increased demand in that area. Georg, I'll pass across to you. Yes. Good afternoon. I move to the income statement on Slide 7. On the slide, we are presenting the first part of our income statement. In an economic environment that clearly was not too helpful, we do record gross profit growth of 6% on a constant currency basis. Certainly, the gross profit growth was helped a lot by the acquisitions undertaken towards the end of 2015. EBITDA amounted to €810,000,000 and that was slightly above previous year's level. On a constant FX basis, EBITDA exceeded previous year by 1.9%. I provide more details on the EBITDA development on the next Slide, Page 8 holds a bridge, and it's a bridge from for the EBITDA from 2015 to 20 So you do see a full year bridge. Partly due to the weakening of the pound sterling and also a number of other smaller currencies, We had a negative FX translation effect amounting to a negative about €12,000,000 As mentioned in all the calls over the year, our operations in Venezuela are no longer contributing any meaningful EBITDA. In 2015, EBITDA from Venezuela amounted to €11,000,000 The good news is that, That headwind, the Venezuela headwind will be gone in 2017. The acquisitions contributed an EBITDA of about €52,000,000 This brings me to North America. Compared to previous year, our business in the oil and gas sector in North America Was hit significantly again based on a gross profit that was lower by €32,000,000 We estimate that this resulted in an EBITDA decline of about €19,000,000 However, There's also a piece of good news. We saw a clear stabilization in the course of the year, and we are confident that this more positive, Stable trend can be maintained throughout 2017. Our business in North America outside the oil and gas sector, So 25% are in the oil and gas sector, roughly 75% outside the oil and gas sector, continue to be impacted by The softer macroeconomic environment with industrial production in contraction. This resulted in an EBITDA decline of around €20,000,000 We achieved good organic growth in EMEA and double digit organic growth rates in Asia Pacific. This was partly offset by a weak development in the Latin American results also outside Venezuela. All in all, this resulted in EBITDA that is higher by about €13,000,000 on an organic basis. Combined, the effects resulted in an EBITDA of €810,000,000 for the full year 2016. I'll move to Page 9 and the P and L lines below EBITDA. Depreciation For the year amounted to €115,000,000 and amortization to €47,000,000 Amortization mostly represents customer base amortization from acquired companies. The amortization increased a little due to the higher M and A PBT in late 2015. Financial result amounted to a net expense of €111,000,000 Overall, earnings before taxes totaled €535,000,000 slightly below last year's level. For the full year, we recorded tax rate of 32.6%, slightly below the level of 34% to 35%, which we typically indicate. Earnings per share is €2.33 or €2.72 excluding the amortization And excluding the write off we have taken in Venezuela through financial results. Some details on the cash flow statement. In 2016, operating cash flow amounts to €539,000,000 This is a very high level and it underlines the good cash flow characteristics of our distribution business. So, fact that the operating cash flow in 2015 was even higher with €593,000,000 It's attributable to an inflow from working capital due to decrease in chemical prices in that year in 2015, which was not repeated in 2016. Let's speak about investment and financing cash flow. CapEx amounted to €138,000,000 slightly below our guidance of €150,000,000 Cash out for acquisitions is below previous year's level. This was exceptionally high due to the 3 bigger acquisitions at the end of 2015. Relevant in the context of acquisitions is also the line purchases of companies already consolidated. This reflects the payment for the outstanding shares in our Chinese operation under the name of Songzhou. The dividend payment in June totaled €154,000,000 and that is above the payout for dividend a year earlier. Let's move to the balance sheet and leverage on Page 13. On the slide, you see the information on net debt. Net debt amounted to €1,681,000,000 marginally above the level 1 year earlier. The group's leverage in terms of net debt to EBITDA stands at 2.1x And this is, therefore, on par with previous year. On Page 14, let me address the maturity Schedule of our indebtedness on the right hand side of the chart. We were active in the debt market this year already. In January 2017, It took the advantage of an attractive market condition for borrowers, and we refinanced our syndicated loan well ahead of schedule. The loan is our most important financing instrument, and it accounts for roughly half of our financial indebtedness. We pushed out the maturity from 2019 to 2022, so a new 5 year loan was signed up and paid out meanwhile. In addition to the extension of maturity, we achieved a number of improvements in the documentation. Among others, we were able to reduce interest charges slightly below the comfortable level we already had before. The The extension of the maturity of our syndicated loan underlines our strong financial profile, which provides very strong flexibility to execute our strategy. With respect to working capital on Page 15, the working capital at the end of the year amounted to 1,000,000,000 €354,000,000 We turned to working capital 8x in 2016 on par with the level that we achieved end 2015. 1 of our key KPIs is free cash flow. And in 20 Steel Brantac again delivered very strong free cash flow in the amount of €641,000,000 As expected, this does not fully repeat the high level we achieved in 2015. The 2015 free cash flow benefited significantly from a reduction in working capital due to a decline in chemical prices, and that did not reoccur nor was it expected to reoccur in 20 16. I close my part of the presentation with a view on the dividend development. We continue our track record of dividend increases, and we do propose a dividend of €0.05 per share for approval by the General Shareholder Meeting in June 2017. This represents a dividend increase of 5% compared to the dividend a year ago. The chart the bar chart illustrates That this proposal implies more than doubling of the dividend since our IPO in 2010. The proposed dividend of €0.05 reflects a payout ratio of 45%, and this confirms our commitment to provide continuous cash return to our shareholders. Going forward, we now intend to pay out a dividend between 35% 50% of the net income. We have adjusted the payout ratio slightly upwards in order to have some more breathing room on the upside. Back to Steve for a discussion of the segments. Thank you, Jorg. So I'm going to take you through the development segments for the full year on Page 18. First, we come to the EMEA region. 2016, EMEA grew its gross profit by 6.4% and EBITDA by 5.6 In an environment where that was only growing moderately, this is an encouraging performance And it's mainly attributable to organic growth developments. The addition of our smaller bolt on acquisitions contributed positively to the earnings growth in this segment. Depreciation of the pound sterling caused some translation headwinds, therefore FX adjusted growth rates have clearly exceeded the reported growth rates. In North America, the business was considerably impacted by the weak demand in the oil and gas sector in 2016. But the trend in this sector, as Georg has mentioned, stabilized in the course of the year. And in addition though, the macroeconomic position in North America was somewhat weak. On the other hand, acquisitions carried out in 2015 contributed positively and helped limit the adverse effects. As mentioned before, the GAN acquisition is below expectations due to competitive pressures in the marine fuels business. Gross profit in North America was up by 5.9 percent FX adjusted, thanks to acquisitions. Excluding the oil and gas sector, the acquisitions gross profit decreased by around about minus 1% on an FX adjusted basis. Operating EBITDA declined by 2.2% on an FX adjusted basis. Just let me remind you that we've taken measures to reduce capacity in the oil and gas sector to reflect the lower demand. And as a result, we saw reduction in headcount in this area of almost 20% at the end of 2014. However, clearly, the gross profit reductions in the oil and gas sector could not fully be compensated by cost reductions. To Latin America, which accounts now for only 6% of the group, our earnings were heavily affected by the loss of earnings contributed by contribution by Venezuela. Additionally, our business performance took from difficult economic situations in other Latin American countries, especially Brazil. It's led to a gross profit down to minus 13.4 percent and operating of on operating reduction of 27.6 percent, FX adjusted. Excluding Venezuela, operating EBITDA decreased by 14%. This decrease is mainly attributable to the poor performance in Brazil, But it should be noted this compares to a very strong performance in 2015. Coming to Asia Pacific, we are extremely pleased with performance in Asia Pacific. The region grew its gross profit by 33.7 percent and increased its operating EBITDA by 35.8%, both FX adjusted. This is due to a strong double digit organic growth as well as contributions from acquisitions. Before we move on to the outlook, let's look at the developments for segments in Q4. Development in Q4 was broadly in line with the developments in the full year, which we've just discussed. I would like to highlight the key points. The level of demand in the oil and gas sector in North America continued to show a sequential stabilization. Actually, this is the Q1 where the gross profit in the oil and gas sector was almost on previous year's level. After Q3, Brazil had another weak quarter, but please bear in mind that the country accounts for less than 2% of the group overall. And more of a reminder, the 4th quarter always contains some effects that come from cleanups. This can affect the cost of our income base in the region and can make the comparison with previous year's quarters more difficult. Well, there's no single effect, which I'd like to highlight at this point. I'll just come on to Page 20. We'll look at the oil and gas industry production. On this page, we show you the development of our oil and gas business as we have done in previous quarters. On the left side of the chart, you can see our oil and gas gross profit Has grown quarter to quarter in 2016. We're almost on the same level in last year in the 4th quarter, as you can see 21 previous year's quarter, 59 in the most recent quarter. On the right hand side, you can see the industrial production growth in the United States continues trend of improvement back towards the breakeven level at year end. And clearly, there's a more positive sentiment towards the United States in 2017. I may come to the outlook. We'll start with current trading and address the outlook for 2017. I'll walk you through the gross profit per working day on a monthly basis. For October, gross profit per working day increased by 9% as reported and 2.2% on an organic basis. In November, the growth was 8.2% as reported and 1.2% organically. In December, the growth was 4.8 And a decrease of 0.6 percent organically. January was a decline of 0.4% and minus 3% on an organic basis. In February, growth was 5.5% 2.4% organically. The global economy is expected to show some signs of recovery in 2017. In this environment, we expect our key performance indicators of GP, gross profit and operating EBITDA to grow. As in line with last year, we were expected to give qualitative guidance for the full year after Q2. We do have a positive view of the business developments in the European region, and we expect to see a progressive improvement in the North American environment. The oil and gas business is on a stable trend. This should not present a headwind in 2017. For Asia Pacific, we are optimistic and expect to see Continued positive development of our business, whilst clearly in Latin America, there remains some challenges. At U. S. Debt, we are constantly working on improvements in all regions In order to drive organic business growth, this includes numerous global, regional and local initiatives, and we maintain our strategic course in all regions. Price inflation is currently a widely discussed topic in the chemical industry, and we at Brantec are also seeing an upward trend across our full line product portfolio. Due to the past due nature of our business model and our fast inventory turnover, this should only be marginal, if at all, impacting our gross profit generation. The more important effect of increasing prices will be further investment in working capital. With respect to the potential price increases, we expect an increase in working capital due to the planned increase in business volume. For 2017, we forecast to allocate a little more than €150,000,000 to capital expenditure. With the aforementioned outlook on operating EBITDA, working capital and CapEx, we expect to see a Free cash flow that will be significantly above previous year. Coming to M and A, it remains is and remains a very important development and will also be the case in 2017. We've already closed 2 smaller deals in the United States, The pipeline contains many attractive targets from around the world with a special focus on Asia Pacific and North America. Brantec is and expects to continue to be a consolidator in the industry. Overall, we remain confident that Brantec is well positioned for further growth in 2017, And we're happy to take questions. Ladies and gentlemen, we will now begin the question and answer Once your name has been announced, you can ask your question. If you find your question is answered before it is your turn to speak, The first question comes from Rob Plant, JPMorgan. Your line is now open. Please go ahead. Afternoon, Steve and Georg. In North America, the gross profit growth accelerated in Q4, but the improvement in EBITDA went to decline in Q4. Was there any particular reason for that, please? No, In each and every region, we do all the true up for a number of provisions and accords towards the year end, Variety of environmental provision, pension provision, personnel related provision. This year in North America, it worked out to a degree that we had A couple of millions, a handful of millions to expense from provision increases, but not one specific item that needs to be pointed to. Thanks, guys. We shouldn't take that as a structural trend or a trend of I completely agree. For sure, not a structural trend. Okay. Thanks. Thank you. The next question comes from Joe Schwanjan, Bank of America Merrill Lynch. Your line is now open. Please go ahead. Hi, good afternoon everyone. Just a couple from me. I I was wondering if I can start just following on in terms of the EMEA developments and obviously good GP developments, elements, but it didn't really drop through to EBITDA. As you look into 2017, how do you feel about growth and particularly EBITDA growth in the EMEA division? Do you think But there is still the possibility that margins can rise. That's my first question. The second question is sort of similar, but with regards to North America ex oil and gas, you obviously you showed the chart there with the improvement to industrial production getting progressively better. Are you seeing any signs of life in terms of your non oil and gas activity that gives you any degree of confidence? And then finally, just a straightforward one on the tax Right. You mentioned obviously it was slightly lower than you initially guided to. What's your feeling for 2017, Gal? Well, I'll take it on the EMEA first. Yes, we're pretty pleased with the developments in the overall GP for the bigger region. And many of you will know we've been working pretty hard in terms of looking at efficiency gains and improving that conversion ratio. So for 2017, we are expecting to See the fruits of that labor insofar as the European business developing its conversion ratio progressively in 2017 And seeing that conversion of GP into EBITDA more pointedly than we managed to achieve in 2016. I think coming to North America, yes, you're quite unclear. You've seen that you can see the graph. And we do see in the marketplace Some degree of return of confidence from customers. We are a little bit cautious to select to be To some extent, because we believe that sentiment is running very high in the markets and expectations are very high with the new government in North America. We do believe that North America this year is going to see a step forward in Profitability for our group, clearly without the headwinds that we've had in 2016 and indeed in 2015, Those we'd expect to see North America step forward. I think I would probably want to call it in the second quarter as opposed to the Q1. I'm just being a little cautious. Those that know me, I'm generally speaking quite an optimistic person. I'm trying my best Not to overplay this one. Clearly, I would like to say it's going to go gangbusters from day 1, but let's just see how the first half works out. But I am convinced that 2017 is a year for North America to step forward in terms of performance. Still Georg here, Joel. To To owe you an answer on the tax rate, for the year, we record 32.6%. I think the year before, we had 33%. We do pay at least status quo, basically the highest tax rate within the group in North America. So we might well return to the 30%, 34%, 35% trend under the assumption that the North American business will See earnings improvement. At the same point in time, we all know there is a discussion outstanding if the U. S. Might lower tax rates going forward, But that decision hasn't been taken yet, and therefore, we didn't figure it into our guidance. Okay. Can I just a quick follow-up in terms of the 3 organic for January? Is there anything specific that you call out to explain that? I know it's hard to read too much into one specific month, but I'm just wondering if there is anything that you would call out around that. Yes. Well, actually, January 1st was quite a long month in terms of clearly the number is divisible by the number of days. And if you look at obviously the quality of earnings per day in January is one of the weaker months Because of clearly the rollover from New Year and what have you and start up of business and what have you. So the quality of GP per day in January is somewhat weak. And it was a longer month and arithmetically, it presents itself as a weaker performance. Okay. Thank you. Thank you. The next question comes from Roy Mackenzie, UBS. Your line is now open. Please go ahead. Yes, Eil. 2 for me first, just on price inflation. So firstly, can you just talk about the rate at which you've seen your enterprises to customers Increasing over the past few months and that's in terms of total cost to customers rather than just your gross profit. The second question then is on your markup. So With that improving run rate of organic growth in gross profit, is that all volume improvement? Or have you managed to see any gross profit per tonne expansion Over the or any change in that trends over the past few months. Well, that's a pretty complicated Question actually because you can imagine across our ranges, we have different dynamics by products and by region and by volume. I think indicative is we are seeing we have seen a significant increase in oil related products such as Solvents and what have you, you've seen our feedings through into the markets. All manufacturers and some manufacturers are Effectively reflecting increased cost of feedstocks, etcetera, etcetera. And we coped with those increases and but they are still going through. And we still see those increases coming through. We also see increases in the other side of the supply chain, which is more to do with non oil related products. So right across the range, we are facing price increases. Now this is generally as a result of improving demand for the chemical manufacturers because obviously they see And it can be conferencing and good for price increases. There's also some effects from outages of certain refineries and what have you, Which may well ease towards summer. So I think at the moment, we do see a manufacturing sector who are fairly Robust in terms of price increases, we're passing those through. I honestly think it's a little bit early to try and give you a definitive gross profit per ton or number or an indication of volume because clearly it is quite a Challenging time in terms of moving all these price increases through literally in the 1st 2 months of the year. Okay, great. And in general, obviously, again, there's such a huge range of products, mainly lost in mix. But I mean, do you think that in a price inflation environment, You find it easier to expand gross profit per ton or is that not something you pick out? Yes. I think first of all, I mean, overall, the overall market is not growing dramatically. So we do we are obviously clear as a market leader, we seek to improve our market share progressively over time. So we will see some increased volumes. But as a result of price increases, we do clearly To the opportunity to increase our level of GP where we can to contribute to increase overheads, increase operating costs and what have you. So you would expect naturally an improvement in our gross profit per tonne as a result of price increases. This is a fairly benign environment for us because clearly in the case of price decreases, we don't see the big swings around Let's say a manufacturer would. So, indicatively, in a price increase or even a price decrease scenario, we will Seek to increase our GP per tonne, but certainly the price volatility is not something we're afraid of. Okay, great. Thanks. And then just on the cost side. So firstly, the all other segments line was down €4,000,000 year on year, all of which basically came in Q4. Can you just remind me what runs through that line and why it was so different and anything that's changed in that all other EBITDA line? And then secondly, just again to follow-up with the comment on Europe. So the incremental constant currency Conversion margin was 30% for the year overall, but weaker in Q4. And is that because you've essentially kind of funding some costs, so building up The specialty business, are you kind of happy where the cost base will be sequentially in Europe, please? Well, I'll take the cost base question. Where we are at the moment in terms of our European businesses, we are, I would say, absolutely fully staffed in terms of this business. And all incremental volumes that come to the business are positive. We'll be converting at higher rates. We have a number of initiatives Underway, which we expect to enhance our GP performance and our cost performance, which is clearly one of our primary objectives for this year. The Rovi on the all other segments line, that's mainly headquarter costs and 1 small operating business, Which is not allocated to any of the regions, but mainly headquarter costs. The improvement you see Q4 'sixteen over Q4 'fifteen is mostly 'fifteen acquisition costs. So we have undertaken the bigger acquisitions towards the end of 'fifteen. And obviously, there were costs associated with these acquisitions, Which did not reoccur in 2016. Okay, great. That's all very, very helpful. Thank you very much. Thank you. The next question comes from Milo Bank, Goldman Sachs. Your line is now open. Please go ahead. Hi, good afternoon, gentlemen. Two questions from me on North America. So you alluded to that you've reduced your head count in North America. Can you remind us in terms of the cost that you've taken out, what is the run rate of cost savings into 2017? And then a little bit more of a medium term question. I think in the past you've alluded to that there's no structural reason for the North America margin not to go back So the 42%, 43% type of levels, but what do we need to see for that to happen? So do we need to see a couple of years of good growth and volumes to be back at previous highs? Or how do you think about this in terms of timeline and measures to be taken? Yes. I'll take the conversion ratio improvements for North America. We are We run a pretty lean machine in North America. And the ability of the business to start producing higher rates of conversion It's really on a pivot almost because we don't need that much to create the pickup in margins for North America. And so if we do see the and we can see progressively the improvement in industrial production Clearly, we're overcoming the oil and gas business. We are in a good position that any improvements in the North American demand is going to have a, Obviously, disproportionate, but it sounds excessive, but we'll have a significant increase in our operating margin in North America. We're not at this stage yet by any means of looking to hire new people or increase the size of our oil and gas business, etcetera, etcetera. So all the incremental income that we have is going to be converting at much higher rates. See, one rate on cost Savings, if I got your question right, Milu, you were basically asking the headcount reductions in North America, what's the additional savings in 'seventeen In over 2016. So our headcount reduction program in North America was mostly a 2015 ending course of 2016 program, which basically means half of the savings are there in 2016 already. So what you basically have as additional savings in 2017 over 2016 is half a year of savings on average. And I would guess that to be $2,500,000 to $3,000,000 Okay, understood. Thank you. Thank you. The next question comes from Andy Shoe. Your line is now open. Please go ahead. Thank you. Good afternoon. A few questions for me, please. Can I just start with the exit rates? I guess if you take January February together, It looks like you're kind of flat as a sort of start to the year. And given that Europe is has Growing and growing in Q4 and the macro data is pretty supportive. We actually still organically declining in North America. And again, for sort of flattish GP that you're indicating for the 1st 2 months of the year, are you You then still showing negative operational leverage. And secondly, I wanted to make some comments over JAM and the performance of that business. If I look at Q4, I think the incremental Acquisition contribution has come down slightly from Q3, but I guess if you could confirm, is that due to the TAT acquisition falling out, but some commentary around JN would be helpful. And then in terms of wage inflation, what are your expectations Please for wage inflation, particularly in the U. S. And what are you seeing currently? Thank you. Okay. Maybe, Ed, I start, it's Georg Kai, on a number of the questions, and then Steve will chip in. Let me take the acquisition contribution question first. It's more technical. We closed JEM and Berlin Windward in course of December 2015, TAT, if I remember correctly, only at the end of December, So that you see a slightly lower acquisition contribution in Q4 than the other quarters. Basically relates to the fact That for a couple of weeks of the 15 Q4, the data were already in. So it's not a full quarterly contribution. JEM performance, you do know that the JEM performance relative to plan was not what we expected. Across The year, it has not deteriorated further. It's a pretty stable contribution across The year up to and including Q4 and early this year. I think the in terms of wage inflation, We're probably talking between 2.2% to 2.5%. Yes. The gross profit per working day Beginning of this year, it's difficult for us to comment. I think at this point in time, we don't really want to give a too detailed, a too quantified commentary on regional development. I would like to leave with you that North America is not Shrinking, so GP in North America is not shrinking in January February. Latin America is pretty weak, which is part of the explanation for being overall flattish. And while Europe is growing, it's probably currently not at the Exactly same levels that we have seen towards the end of last year, but it's 2 months only. Can I then just ask you a little bit about Because even in Q4, if you add back the €3,000,000 hit from Venezuela, The business was actually declining quite materially in terms of EBITDA? Clearly, it's a small business, but Your comments there just in terms of LATAM being weak. Can you comment on Brazil? I think, Steve, you mentioned it's only 2% of the business, but clearly That is weighing quite heavily at the EBITDA level and it's even such to the extent of the group level. Yes, I mean, Latin America is a pretty difficult place at the moment. And it's actually splits into 2 areas really. If you look at the northern parts of Latin America, which is in Mexico, Colombia, Ecuador, etcetera, etcetera, those are in the right positive and Relative state and what have you. The more difficult areas are really Brazil, Chile, Peru And Argentina, which has been really just somewhat of a recession in terms of the Change in macro policy there by the government. So we have quite a lot of volatility in the southern part of Latin America, which is Was really increasing during the course of 2016. I think your Latin America this year is going to have a few challenges because of The Brazilian situation has not improved as yet. Although we are certainly maintaining our market share and what have you, but certainly the market itself is very difficult, Ultra competitive as people trying to maintain positions. So I think it's one of those things where we are it's a steady hand time for Latin America. We are working with it. I'm working on the team down there to stabilize the position, which continues today. So as I said, it's a smaller part of the business, but nevertheless, we're not ignoring it. We are looking at it and trying to get it to settle down of what was a very difficult 2016. Can I just add just 2 small ones just in terms of the southern Countries there, is there any reason why you pull out of any of those countries as with Venezuela? And then in terms of oil and gas, my final, final question Oil and Gas, are you in terms of gross profit for Jan, Feb, are you actually into growth territory at GP wise for Jan and Feb for Oil and Gas? As your question on lintels are pulling out of the markets, no, we wouldn't pull out the markets. There's no market which is in the Venezuela It is just a little bit volatile at the moment. I think for oil and gas, oil and gas across the patch in North America It's certainly solidifying in terms of the returns and the expectations and sentiment within the oil and gas sector of customer confidence, etcetera, etcetera, etcetera. So we and I think I said as early in the call, I'm trying not to overplay this Because I think you look let's look at the first half, but I think we are very, very well positioned North America to take advantage of not turning oil and gas. But I think at this stage, I would just what I can see is A far more solid customer base with a pipeline of orders which suggest improvement. Let's just see the numbers delivered in the first and second quarter. Thanks very much. Thank you. The next question comes from Josh Paribas. Your line is now open. Please go ahead. Yes, hi, good afternoon. My first question is on the organic growth in EMEA. It looks like it accelerated in the final quarter. And I wondered what the driver of that was? And then also maybe looking kind of Q4 and the beginning of this year, Have you seen any notable trends between your specialty business there and your commodity business? And then the next question, Sorry to harp on, but on the EMEA conversion margin and perhaps ignoring the quarterly volatility, but if we look at the year as a whole, it looks like Done decent organic growth, yet still conversion margins are down. And I wondered if you could just say at the end of the year what you thought the main driver of that was? I'm just trying to in terms of the Specialties and Industrial Chemicals, I would say that We are increasingly successful in our Specialty Chemicals business, which is about 30% of our total portfolio. And I would suggest that we are gaining market share in a number of important areas of specialty chemicals. Certainly, it's a small part of our portfolio. I think overall it would have grown slightly quicker than the industrial chemicals Part of our portfolio overall, but I would see that as more of an improvement for Brenntag rather than the same of the home the specialty chemical market is growing faster than industrial chemicals. I think coming back to Europe, clearly, we have a very clear expectation for Europe's conversion ratio improved during the total cost of 2017. There is no fundamental reasons why that shouldn't happen. I think we have invested quite heavily in And a number of programs in Europe during the course of 2016, including such things as procurement improvements, A number of consultancies in terms of harmonization of the European operation, integration of IT structures, Harmonization, product coding, a whole host of things, which are incremental in terms of the cost, but are not seen In terms of the efficiency of the organization as of yet, but those are the essential things that we need to put into place To go to the next stage of integration in our European business, which will be a more and more harmonized supply chain across Europe. And just to follow-up, is it fair to assume that most of those of the bigger investment programs have now come to an end? I'm just thinking November, I know you Talked a lot about procurement and it sounded like that investment program would be ongoing through this year. So I'm just wondering if we should expect more investments in that in 2017 or if it's largely done? No, I think the well, yes, insofar as the investment in the initiatives is Pretty much done. But the output of those initiatives is for 2017. Right. Okay. So We expect to get the benefits in 2017. Okay, great. Thank you. Thank you. The next question comes from Mudlowskian again. Your line is now open. Please go ahead. Yes. Good afternoon, everyone. A couple of questions. First on the acquisitions you did in North America, especially JAM. You talk about competitive pressure for that business. Can you be a bit more specific? What kind Competitive pressure are you seeing? Is it lower prices that you're being confronted with? And what actions are you taking? Secondly, also on the North American business. On oil and gas, in your outlook, you talk about a more positive environment for your customers in this business. How should we think about your cost base and potential operating leverage in 2017? Are you Keeping the amount of employees fixed or are you investing in the business or willing to invest in the business? And then thirdly, maybe a very foolish question, but Obviously, profitability of oil and gas has come down in the recent years. I'm just wondering what kind of oil price do you need to return to a €300,000,000 gross profit in that business. And then finally, on LATAM, I understand that it's a very small business, but you do talk about You expect operating EBITDA to grow in 2017. To what extent is that driven by positive FX? Thank you. Well, if I take the Oil and Gas Business in GAN, you're lucky in a break. Well, let's go on to oil and gas. As far as oil and gas is concerned, I think as I mentioned before, we are We've reduced our operations to a size which actually did not reflect the amount of GP that we lost Because we've maintained the core of our business and the business is in good position to grow significantly once the owned coal and gas GP returns. Now the question of whether or not we can actually achieve the levels of GP that were in the market previously And what oil price that might be. I think the more difficult and challenging question is really what is the shape of GP earnings that can be expected from an oil and gas industry that's had to live with very, very low oil prices. And what we've seen during the course of the last 2 to 3 years is the oil industry go through an amazing Transformation in terms of improving their breakeven points. And you've seen the breakeven points come down significantly in the oil and gas industry Where, I mean, for example, if you look at the oil price today, that the oil price where it is today would be and it would have been an inconceivable Break even scenario for the large number of drilling rigs and shale gases, shale gas sources 2 or 3 years ago. So the chemistry that's required to operate in these lower oil price environments is different. The services are different. So we are a very agile company and we are doing all sorts of things. And you have seen the small acquisition we've made on Pipeline Cleaning to actually add additional services to the oil and gas industry to capture new types of income as the business develops. So It's certainly not the same, but we have the expertise and the agility to capture more GP once that business picks up. As far as GAM is concerned, I mean, it's very straightforward, regrettably very straightforward is that the GAM business had a significant Marine Fuels business, which we said we talked about marine fuel. We have 4 or 5 barges and a couple of tugs in the Houston area, which fed the marine fuel market there. And what happened very simply was, as a result of the oil and gas Industry going to a significant decline. There was a recently large number of barges and tugs and then various Ancillary equipment, which became suddenly redundant almost overnight with the decline in oil. Now as And essentially, the owners of these equipment were seeking to gain any sort of revenue that they could find And they decided marine fuel will be a great place to go. Now clearly, that made us unexpectedly and made the market very difficult. It is as a consequence of an improvement in the oil and gas business and as a consequence Of leases expiring on some of those competitors' equipment, we expect to see an improvement in our position on marine fuel during the course of this year. So this is not a case of the acquisition has gone wrong, it's gone wrong forever. It's more a case of we had a pretty Big bump in the road as far as that particular acquisition was concerned. However, that market is not yet is not dead. And we certainly see the And when it comes to Latin America, We do have a pretty strong, a very experienced organization in Latin America. So we are around for many, many years. And we do have positive business development in a number of Latin American countries, including a strong base in Colombia, including a strong base in Mexico. So there's a number of countries within Latin America where we expect a positive development this year. And obviously, Brazil, which is roughly a quarter of our Latin American business, has had a difficult finish in 2016 And also didn't necessarily have a good start into 2017. To what degree on a net net net basis Latin America will grow in course of this year, will to a degree be dependent on how Brazil is developing going forward, But it's just March, so it's much too early to write all of the year off for Brazil. And there are other countries which is in Latin America where we are more positive. That's very clear. Thank you very much. Thank you. The next question comes from Adrian Pale, Commerzbank. Your line is now open. Please go ahead. Yes. Hi, gentlemen. Good afternoon. Actually, 2 questions left from my side. A bit more clarification ones actually. Just wondered, I had the impression that your free cash flow statement You gave after Q3 was a bit more upbeat. Now you came up with minus 16% versus previously moderate development. I think this has something to do with the working capital. And I was wondering whether there were some effects in Q4 That made or that caused the deviation here. Maybe you could again elaborate a little bit And overall, I just want to simply whether you could give us a figure for the organic growth you had in 2016. That would be, in fact, helpful. And then I might have some follow ups. Yes. Arjan, hi, it's Jorg. On the Free cash flow. Yes, good catch. We started the year with statement that we would see that we would expect The double digit decrease in free cash flow, we moderated the statement to a degree after Q3, and now we are at a double digit decrease. It's basically related to chemical pricing. So we spoke about chemical pricing already in a different context on this call. In course of Q4, We saw chemical crisis rise to a meaningful degree and that led to a more Significant outflow into working capital than what we expected after Q2 or Q3. We feel It's kind of in line with our general explanation that capital prices don't mean much for our gross profit and our EBITDA, But it can cause some working capital and therefore, cash flow volatility. Okay. So you would not say this is something structural? No, absolutely not. You're broadening your portfolio and so it's a bit harder to manage working capital. So that's not the case, right? No, for sure not. No. Yes. We are struggling a little with the question for Q 'sixteen organic growth. If you permit, The only organic numbers that we publish is basically the per working day numbers. Okay, understood. And one question also related to the non oil and gas business. In fact, it looked like that looking at the bridges you provided for the quarters that non oil and gas was a bit worse In Q4, despite obviously the industrial production showing a bit more positive momentum. So I was wondering whether in a certain area, you were more affected in your portfolio than in other businesses. So That is my final question. Yes, I think it's again a good spot, but at the end of the day, it's really in the noise. It's a whole range of products and regions and plus in the mid south and Negative in the Pacific and a positive in the Northeast. So I think I wouldn't read anything into that. So I think Yes. Clearly, it looks like on a quarter basis, most of these happened, but we don't have a structural shift in North America in terms of the outside oil and gas. And we'd expect to see a pretty normal looking quarter in 2,000 and for the Q1 of this year. Okay. And very final question on M and A. We have obviously not spoken too much about this yet. So I'm trying to sense I saw a couple of headlines over Bloomberg that you said you're going to plan to spend the usual budget in 2017. Nevertheless, I am trying to sense whether there is more activity you see in the short- to medium term with respect to M and A. And are we going to see most of your 2017 M and A in Asia at this time? Well, in terms of geographically, we are heavily involved in M and A in Asia Pacific. We're also in that hold in M and A in North America. And we see North America and Asia Pacific has been prime opportunities for us in the course of 2017. I think sometimes it's a little bit difficult to project how active we are in M and A, but we looked at over 25 transactions last year In terms of actually completing a possible acquisition, which we walked away from a value basis and we walked away from an environmental basis, Etcetera, etcetera, so many deals which can be done for various reasons. So we are very, very actively involved in M and A. And I would expect That was why we indicated that we expect to spend that $200,000,000 to $250,000,000 during the course of 2017. And if the appropriate target If converted, it could be even higher than that. So M and A is absolutely in our minds and on the Fourth one in our strategy. All right. Thank you. Thank you. The next question comes from Daniel Buchta, MainFirst Bank. Your line is now open. Please go ahead. Yes, good afternoon. Thank you very much for taking my questions. Two questions on the guidance. On the one hand side for EBITDA, you're guiding for meaningful growth. Could you I'm kind of trying to quantify what this means. So if I assume mid single digit, is this correct? Then the second On the guidance for the free cash flow, you guide for a significant increase despite or assuming stable chemical prices. And you I highlighted already that this is not the case. Chemical prices for certain commodities are massively up compared to the 2016 And many chemical companies guide free cash flow to be down in 2017. And how does this fit together with Your guidance. Thank you very much. Well, just on chemical pricing, certainly, where we are today is certainly roughly Increasing prices in the whole host of product ranges. But I do caution you a little bit insofar as That's for now. It's quite volatile at the moment. If I look forward 4 or 5 months, I can see new production coming online in the Middle East. I can see new production coming online elsewhere in the world And a number of units which are currently out of service for maintenance or unplanned maintenance could be back online, Which will change the balance of supply balance in the chemical sector. So I think you have to be a little bit careful about chemical pricing. It does move around, They are strongly up at the moment. In terms of the guidance, As you referred to, I think we did say we will give a constant guidance in Q2. But certainly, when we look at our Analyst Day, we do Stays to people that this business has a model of between 4% to 6% organic growth business and we certainly stand by that as being our Okay. But the guidance contains everything M and A, FX and organic growth, not only Meaningful growth is not coming from It includes organic and M and A. It excludes FX. Okay. Thank you. Thank you. The next question comes from Laurence Alexander, Jefferies. Your line is now open. Please Go ahead. Hi, good afternoon. This is Jeff Snell on for Laurence. In Asia Pacific, can you how are you thinking about margins? Can you exceed And can you exceed mid teens growth in 2017? And then as an add on, can you double or triple There in Asia without significant M and A, how do you view the opportunity in that market? As far as Margins are concerned. Are you talking about conversion ratios? Are you talking about gross margins? I guess you can talk about conversion ratios, I guess. Yes, please. Well, the conversion ratios, I think you have to be a little bit again, a little bit careful. I'm not going to be teaching people that already know how this works. But In terms of conversion ratios, we operate effectively a Specialty Chemicals business in Asia Pacific at the moment and then Industrial Chemicals, particularly in China. So Southeast Asia is specialty and industrial chemicals in China. We will do more industrial chemicals in Asia Pacific generally because to the demands of our suppliers and our customers. And if you add industrial chemical capacity to the range, you get Potentially a lower conversion ratio, but higher EBITDA. So we have to I don't want to become a hostage to Conversion ratio in Asia Pacific being what it is today forever and not grow the business. So we that is worth considering. In terms of doubling the size of the business, we'll obviously have lots to be able to do that with our acquisition. I think the reality is that whilst we've certainly gained significant critical in Asia Pacific. We're not there yet where there's sufficient critical mass for us to grow organically without further M and A. So obviously, we will grow organically, but I think to double it would be require more M and A. And if you look at this and say 3 to 4 years' It may be a different story. I can give you a different answer. In terms of the overall growth, we were expecting similar performance in 2017 as we saw in 2016. Thank you. Thank you. The next question comes from Radhijesh Guma, HSBC. Your line is now open. Please go ahead. Hi, good afternoon. Could I just confirm that the January organic decline of 3% you mentioned that was Gross profit or revenues before I ask the question, please? It's FX adjusted gross profit per working day. Adjusted gross profit per working day on an organic basis was down 3% in January. Yes. And it was flat for the 1st 2 months of the year. It was down 3% in January. It was up 2.4% in February, On average, it's about flattish, yes. Okay, okay, cool. So when we look at the chemical prices in Q1, The bulk chemicals, and I appreciate that specialty chemical prices will move with a lag. The Product price inflation hasn't changed much. So would it be a fair assumption to make that the volume growth has been Basically, it started off slow in Jan, but has still is still running at a lower growth rate than it was in Q4 overall. And the second question is on the inventory 3 turn, which seems to be coming down again. And we'd like to know if that's a Product of move towards specialty chemicals or is it a product of rising chemical prices? Well, first of all, in terms of the chemical prices, chemical prices are going up. I'm not quite sure whether I think you I'm not quite sure which or whether you You said they weren't going up, but there are prices going up in a whole host of ranges, particularly in solvents and the chlor alkalis particularly. So we are seeing volatility in pricing. So the increases in terms of our sales revenue It's a result of a combination of both pricing and volume. But I'm trying to draw into volume. We don't really comment on volumes generally because that's not something which drives our business in terms of it's not a key focus for us. But chemical prices are definitely moving up. I think we still have the inventory turn question open. Not sure what way you calculated inventory turn. I would suggest if you calculate inventory turn, so we compare Sales to inventory. It's difficult to take only end of period inventory, but sales for the full period because The danger is you compare different price levels in the calculation. If you use an average of working capital for the year, Then the inventory turn is slightly up in 2016 over 2015. So you are right in the long term time line that inventory turn comes Down a little, partly due to growth in emerging markets, partly due to more specialties in the business. It's not necessarily a 16 over 15 effect. Okay. Yes. So because if you use the end of balance sheet number Our balance sheet number that's flattered by a rising chemical price. So if you compare with an average over the period, What you're getting is inventory turn is actually increasing. I agree. Okay, perfect. Thank you. Thank you. The next question comes from Carl Green, Credit Suisse. Your line is now open. Please go ahead. Yes. Thank you very much. I've just got 2 remaining questions, please. Georg, just back to your point about the true ups in North America. I think you mentioned there were a handful of euro millions of Various charges for environmental provisions, pensions, personnel, etcetera. Can you quantify what those Charges amounted to just be a bit more specific and also what the delta was versus Q4 2015, just to get a sense as to how that's impacted The conversion ratio year on year. And my second question is just around the procurement benefits. You've mentioned that in the context Of the improvement or the expected improvement in the European conversion ratio as we go through this year, can you are you in a position yet to indicate The scale of the group wide procurement benefits that you would expect to see in FY 'seventeen, please. Karl, hi, it's Georg. Yes, I know it's Probably not the answer you are looking for, but I really cannot quantify the various true ups. They are not material in a group context, Even not in Q4, they are not material in North America in the full year context. I think it would be we artificially overplaying that To name a couple of 1,000,000 here and a couple of 1,000,000 there. Okay. Yes. I think it's a little bit early to I'm not sure I want to give guidance in terms of The outcome from the procurement process at this stage, we're being very careful about this and because clearly Supplies are very important to us, and we want to do this in a very responsible way. And It's quite a big subject area, but we really will be delivering what we hope in terms of savings on this particular program from April onwards. Basically, work is done. We should see you would see it more likely in the GP improvements on On Industrial Chemicals in the first instance. Okay, great. And just one follow-up question unrelated to this, if I can. Again, just on the A maturity extension on the syndicated loan. Did you say Georg that the rates had also come down, the coupon has come down on that? Or is it Broadly similar. It's just has it just extended or have you also got better terms on that facility? The rates have come down a little, so probably Say €3,000,000 a year, but the real benefit in this thing is pushing out the maturity 3 years And another set of documentation improvement. Okay, great. Thank you. Thank you. The next question comes from Christian Coors, Rabog Research. Your line is now open. Please go ahead. Well, yes, thanks. Good afternoon. Three questions left from my side. Maybe first, I think I've got your point regarding the conversion rate in North America that you expect an improvement this year. Looking into the divisional history, actually, you had conversion rates of 40% plus. Do you think that you can regain this territory or you think that the market has structurally changed meanwhile? Secondly, the M and A impact on EBITDA last year was roughly €2,000,000 Can you maybe remind us what is the approximate contribution from M and A on the 2017 EBITDA based on the transactions you have executed so far. And lastly, a technical question. Can you maybe Due to the fact that also due to acquisitions and different divisional performance, The divisional picture has changed a bit. Can you maybe give us an update regarding the sensitivity for a change in the U. S. Dollar, euro exchange rate on group EBITDA? If I can just, I'll take the conversion ratio for North America. So it's relatively simple. Yes, we fully expect North America in the plus-forty percent conversion ratio And that's certainly our aim to get there for this for 2017. Yes. The transactions that we already have closed in course of 2016 or or very early 'seventeen, but should deliver an incremental EBITDA 'seventeen over 'sixteen of about €17,000,000 If I take a little, translational U. S. Dollar sensitivity, so a strengthening of the U. S. Dollar by 0.05 So say from €110,000,000 to €105,000,000 average of the year over average of the year should increase our EBITDA by close to €20,000,000 Close to €20,000,000 That's more than I think you've guided in the past, right? That's true. We acquired the Lux Business In North America and a number of other entities in North America over time. Okay. Excellent. And if I may give a technical addition, €0.05 on say €1.30 to €1.25 is different than from €1.10 to €1.05. Okay. Understood. Thank you. There are currently no further questions. Okay. Well, thanks for no further questions. Thank you very much everybody for your questions. And thanks for joining this afternoon on our year end numbers. Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may now disconnect.