Earnings Call: Q3 2016

Nov 9, 2016

Ladies and gentlemen, welcome to the Brenntag AG Q3 2016 Results Conference 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 Steve Mollont, who will lead you through this conference. Please go ahead, sir. Hi. Good afternoon, everybody. Welcome, ladies and gentlemen. Thank you Thank you very much for dialing in for our Q3 results call. As usual, I'm on the firm together with Jorg Muller, our CFO. And Again, as you can, we'll be pleased to answer your questions after the presentation. So let me begin with some words on the macroeconomic environment. Overall, the global economy remains challenging. North America showed another quarter over quarter with negative industrial production growth. Latin America continues to show clear downturn with negative industrial production growth rates as well. On the other hand, industrial production in Europe is growing moderately, The economy in Asia Pacific continues to grow at higher growth rates. In this somewhat challenging environment, we saw a similar picture on a macroeconomic basis with Remtech. Earnings in Asia and Europe grew. On the other hand, our business in North America continued to be affected by the weak demand in oil and gas as well as the difficult macro economy overall. As in the previous two quarters, our business in Latin America continues to suffer from the loss of earnings in Venezuela And we'll continue to do so for the rest of the year. Additionally, our business performance was clearly affected by the weak macroeconomic conditions, particularly in Brazil, She's currently in the recession. Overall, it's led to an increase in GP profits, our gross profit of 5.5% on an operating EBITDA of 2%, both on a constant FX basis. Earnings per share in the 3rd quarter amounted to about 60%, almost in line with last year's Q3. We were pleased to announce a number of acquisitions during the since the last reporting dates. And I can just give you a few details on those on the next page. We clearly consider the lubricants distribution market in the United States as attractive and contribute to ongoing consolidation. We signed further 2 acquisitions in the United States in the Blueprints business recently. As we signed the agreement to acquire Mesa County Petroleum Products in Oklahoma, This transaction is now being closed. We also signed the acquisition of the lubricants business of VOCO with activities in the United States and Canada. These two acquisitions will further strengthen our business in the lubricants market, expand our local presence and solidify our market leading position. Last but not least, we recently signed an agreement to acquire the distribution of EP Chemicals, which is based in Singapore. For this transaction, we will expand our footprint in specialty chemicals to that of specialty waxes in the Asia Pacific region. The total amount invested in 2016 now stands at around €200,000,000 The average multiple of acquisitions signed in 2016 is around 6.8x enterprise value for JAKI EBITDA. I'm going to hand over to Georg. Thank Thank you, Steve. Good afternoon, everybody. I'll take over my part of the presentation on Page 6, which is the upper part of our income statement, in a kind of challenging macroeconomic environment in Q3, we report a gross profit growth of 5.5% Operating EBITDA amounted to €205,000,000 and that's a number which was slightly above previous year's level. On a constant FX basis, operating EBITDA exceeded previous year by 2%. And I will provide more details on the EBITDA development on the next slide, that would be Slide 7. So what you see is like in previous quarters, a bridge for EBITDA from the Q3 'fifteen to Q3 2016, the starting point is the Q3 2015, where we recorded an operating EBITDA of €204,000,000 And then we are dissecting the different effects to walk to the Q3 2016. The first thing is partly due to the weakening of pound sterling and also a number of other currencies, we had a negative FX translation effect and that amounts to a negative €3,000,000 As previously expected and discussed, also in this quarter, our operations in Venezuela are no longer contributing any earnings. In the Q3 2015, operating EBITDA from Venezuela still amounted to €3,000,000 The acquisitions contributed an operating EBITDA of €30,000,000 in the quarter. We do see a stabilization, a sequential stabilization in the oil and gas sector. However, this still implies a reduction compared to previous year. Based on gross profit, that was lower by €7,000,000 compared to the Q3 of 2015, we estimate that this resulted in an EBITDA decline of €4,000,000 Our business in North America outside the oil and gas sector continued to suffer from weak economic performance with the declining industrial production. While our diversification for sure helped to mitigate the headwind, we do record an EBITDA decline of about EUR 3,000,000 Our businesses in EMEA and Asia Pacific continued to show organic growth. This was partly diluted by a weaker development in Brazil impacting Latin American results. All in all, this resulted in an EBITDA that is higher by €1,000,000 on an organic basis. All of the effects Result in an EBITDA of €205,000,000 for the Q3 2016. On the next page, you see the P and L lines below EBITDA. Depreciation for the quarter amounted to 28 point €3,000,000 and amortization amounted to €11,700,000 The financial result amounted to a net expense of EUR 23,900,000 growth. The tax rate was 33.9 percent within our usual or almost within our usual 34% to 35 Earnings per share is €0.60 or €0.66 if you exclude amortization. On the cash flow statement in Q3, the operating cash flow amounted to €180,000,000 up to €166,900,000 in the Q3 'fifteen. There were no particular movements in individual line items that are worth commenting. On Page 10, let's talk about investment and financing cash flow. Cash out for CapEx in the quarter totaled €27,000,000 On the UCS level, you might notice that there's a line repayment and proceeds, which has a €61,000,000 payout last year and only €3,000,000 this year that has to do with debt repayment that we undertook in course of last. I'll skip the balance sheet page and move to leverage on Slide number 12. On the slide, you see the information on net debt leverage, net debt amounted to EUR 1,604,000,000 at the end of the 3rd quarter. The significant decrease compared to the end of the 2nd quarter underlines the strong cash flow generation in the quarter. Group's leverage stands at 2.0x, below the level of 2.2 times achieved at the 2nd quarter at the end of the Q2 2016. I will move 2 pages ahead to working capital slide, Page 14. Trade working capital amounted to €311,000,000 at the end of the quarter, we turned to working capital 8.1x, which is the same level achieved at the end of the second quarter. 3rd quarter 2016 delivered a strong free cash flow of €190,000,000 in line with the level we achieved a year ago. That takes the presentation back to Steve for segment Thank you, George. And let me get you to the Development segment in Q3 2 guidance. In the EMEA region, in the 3rd quarter EMEA grew operating gross profit by 5.3 percent on an FX adjusted basis. This was mainly driven by organic growth, additionally some smaller acquisitions contributing positively. Operating EBITDA increased by 4.6% on an FX adjusted basis. The depreciation of the Great British pound caused some headwind, Therefore, FX adjusted retailing exceeded the reported rates. In North America, the business in North America continued to be impacted We are encouraged by weak demand in the oil and gas sector and a challenging macroeconomic environment. However, we do see the expected sequential stabilization in our oil and gas business. Gross profit in North America increased by 6.2%, FX adjusted. Excluding the oil and gas sector and the acquisitions, Gross profit declined by about 1% on an FX adjusted basis. Operating EBITDA in North America was The North America was only up by 1% on an FX adjusted basis. This is foremost attributable to the fact that we had the reduction of GP in the oil and gas sector could not be fully compensated by reductions. Coming to Latin America. In Latin America, we were clearly affected by the loss of earnings in Venezuela from an economic standstill. Issued the business performance impacted by the difficult political and economic situation in Brazil. As a result, GP in Latin America declined by 18.7%. Operating EBITDA declined by 40.1 percent on an FX adjusted basis. Excluding Venezuela, operating EBITDA was down by 26.8%. Significant decrease is also in terms of the very strong comparables in Q3 2015, particularly in Brazil. To Asia Pacific, Asia Pacific had another excellent quarter, clearly outgrowing the market due to a double digit organic growth and contribution from the acquisition of TAT, the region grew its gross profit by 36.3% and its operating EBITDA by 38%, on an FX adjusted basis. Growth was broad based with encouraging performances in both China and Vietnam. Just coming to the slide on North American oil and gas and IP growth. The oil and gas profit in Q3 amounted to US57 $1,000,000 which is a slight improvement compared to Q2. However, a clear shortfall against prior year's level was sequentially stable. The group will have suffered nearly a US40 $1,000,000 to US dollars gross profit loss in 2016 compared to last year. Shaftes and Wright on-site shows the development of the industrial production in North America, which remains weak with 4 consecutive quarter of negative IP growth, but the trend would suggest that that is improving. Coming to the outlook, I'd like to start with the current trading and then provide you with our current outlook for full year 2016. So let me walk you through the gross profit per working day on a monthly basis. So please bear in mind that the weakness in oil and gas sector has negative impact of about 2% of the gross profit generated by the group 1st 9 months 2016. So in July, gross profit per day increased by 6.9% as reported I'm paying 0.4% on an organic basis. In August, the growth was 5% as reported, but slightly higher than 1.2% organically, in September the growth was 5.2% and a decrease of 0.8% on an organic basis. In October, growth was 9% and 2.1% on an organic basis. Based on the Q3 results and the latest trends, we expect our operating EBITDA for full year 2016 to be between €800,000,000 to €820,000,000 That's fine. We maintain the lower end of our guidance issued after Q2 and have narrowed the range. While the main trends in our business remain unchanged, we have not seen we clearly will continue investing in our existing infrastructure as well as growth projects for 2016, and we confirm the indicated CapEx about $150,000,000 still a whole. Overall, the 1st 9 months were clearly impacted by a continuation of challenges, in particular for our North American oil and gas business and Venezuela. Although we are encouraged by organic growth in Europe and Asia Pacific and the sequential stabilization of GP in the oil and gas sector. Ladies and gentlemen, we will now begin our question and answer session. The first question is from Robert Plant, JPMorgan. Good afternoon, Steve and Georg. The 2.1% growth figure you just mentioned in October, Steve, is that coming from any particular area in particular? And do you think that's a sustainable trends improvement. Thank you. Just wanted to just take a look, just give us any information. It's Rob Biscay or Cai. It's not coming from any particular area. It's basically coming around the world a little bit of with the exception of Latin America, which is on weak levels. Okay. Thanks, Eric. Thank you. The next question comes from William Mackenzie, UBS. Hello. I guess that's Rory Mackenzie, actually, but still UBS. So two questions on Europe actually. Firstly, obviously, the rate of kind of profit drop through really fell back this quarter It's more like 16% drop through after 50% in Q2. Now I know, obviously, the cost base can be lumpy quarter on quarter, but it still feels like you're struggling to drive good operational leverage on the top line trends. Can you talk a bit about the cost base changes there and what we should expect for Q4? And what kind of inflation maybe into next year as well? And in the other area on Europe, it's obviously the gross profit growth slowed from the very good performance in Q2. Can you maybe remind us what was exceptional or one off within that Q2 gross profit growth? And whether you think this is more of a sustainable ongoing trend within Europe? Right. In terms of costs within the quarter, you're right. It has been a little bit lumpy in terms of Into Q3, and it's more of a comparison to prior year as well, where the benefit in cost control and costs benefiting previously were favorable. So it's a bit of a comparable number that we should look at. I don't really see that this has been a Q3 in Europe, I don't really see this has been a negative development Our Europe is slowing down dramatically. I think Q2 was an excellent result. We do have a number of initiatives in the European business, which we deem positive for the rest of the year. We would expect the actual pass through from gross profit through to EBITDA to improve in the 4th quarter accordingly. Okay. And next year, I mean, what would you expect for your kind of OpEx growth? This year will be maybe a 5%, 6% Underlying cost increase FX adjusted, do you think the next year will be the same or lower? I think the cost base is attributable to some case by the acquisition stand. And clearly, we will be looking to keep our cost increases in line with inflation or even below As we increase operational leverage in 2017, we are actually working pretty hard in Europe on a number of initiatives in terms of developing the European businesses performance particularly for 2017, just on GP generation and self efficiency, Which is that spending is now occurring in this year with a view to it delivering more performance in 2017. We're particularly focusing in the area of improving our purchasing of the very long list of products that we have in small loss around the European pace, we expect to see GP improvements as a result of that. Okay. And on the gross profit growth trends, 2nd quarter, we do think that the gross profit process that we demonstrated in Europe, Even in the Q3, 3%, 4%, 5% on average for the year organically are pretty much sustainable. When Q2 was a little bit stronger, I would just ask you to keep in mind that second quarter was a pretty long quarter in terms of working days. Okay. Do you have the Europe working there adjusted growth trends? Or is it kind of just something to be roughly aware of? Huawei, if you don't mind, I think on a quarterly basis, the working day adjustment makes it a little bit too technical and overstated to you. I only brought it up because you particularly asked if there was a reason for the very strong growth rate in Q2, and that's part of the story. Okay, great. Thank you. The next question comes from Andy Chu, Deutsche Bank. Thanks very much. Good afternoon. A few questions from me. Just following on from Europe, I think at the time of the Q2 call, you said that 3 quarters of the 8% FX adjusted GP growth rate was organic. So That would imply 6% for Q2 and taking the sort of headline 5.3%, maybe backing out a similar amount of M and A would lead sort of to a slowdown in growth in EMEA in Q3 at just 2%. So it does feel like quite a big slowdown from Q2 into Q3. So I just wondered though that magnitude of slowdown sort of Sound correct in terms of magnitude. And if that's the case, I mean, there's obviously there must be some reasons by country at least why That growth has slowed pretty sharply. Secondly, moving to LatAm, you mentioned ex Venezuela, that was a 26.8% decline in EBITDA, I wondered if you could let us know how much of that decline was due to Brazil. And then my last question for now, in terms of North America ex oil and gas for Q4, as the IP growth comps get easier into Q4, do you think it's possible to get back into year on year EBITDA growth organically in North America ex oil and gas. Thank you. Right. And just in terms of Europe, Q2 versus Q3, we don't really see a we're not seeing a significant sequential slowdown in our European business. And I know the numbers If you look at the numbers, that would this, it's just a bit of sharp downturn. But in terms of what the way we see it in the marketplace, looking at the opportunities that are presenting themselves, This is a I think this is a quarter over quarter issue. And at this stage, I would not say Q4 is expected to be a slower quarter, effectively a declining performance from the European Region, I would expect the European region to put in performance in Q4. So I wouldn't read into the Q3 European numbers as being As a long term directionally negative development. As far as North America is concerned And IP improving IP performance, I think our view in North America is that we do see the green shoots, if you like, North America, and we have some evidence of quite significant price increases in the North American market in the chemical sector, Which as you probably know are always a good thing in terms of volatility with the market and for chemical distribution. And our view is that with the stabilization of the oil and gas revenues, oil and gas grid GP and effectively improving overall industrial demand in North America, we might expect a more positive outcome. So it will result in a queue for year over year improvements, I can't tell you that without going through it in more detail. On Brazil or Latin America, Andy, in absolute numbers, the EBITDA for Latin America Q3 over Q3 previous year declined by €6,000,000 Out of the €6,000,000 3,000,000 are Venezuela, EUR 2,000,000 are Brazil and the remaining EUR 1,000,000 is split over several countries. And just sorry to go back to Europe, I don't quite understand why the growth. I know you said there's no sort of slowdown, but the numbers sort of suggest Okay. I think we had a little bit of hard time to follow your explanation what you are comparing, so we wouldn't need to hear that explanation again. Sure. Maybe just if I just use the headline numbers because there's not a lot of M and A, if I'm correct, in terms Q2 and Q3, a few percentage points. I don't know if I'm wrong if I'm not wrong, I think it's pretty similar to sort of Q2 and Q3 effect. But In Q2, the FX adjusted GP growth rate was 8.3%, and that's fallen to 5.3 In Q3, so the numbers suggest a slowdown despite sort of commentary on the potentially that may not be the case. But maybe sort of Looking just at Q3, is there any sort of differential development through the quarter? First of all, you are right That the acquisition impact in Europe on a gross profit basis is around 2%. The observation you have, I would put it into a 1 quarter longer time line. If you go through the 3 quarters and the Q1 was FX adjusted growth 5.9 percent, second was 8.4 percent, the 3rd was 5.2 So it's more that the second quarter was kind of on the strong end of things. I wouldn't see this as a drop off from Q3 to from Q2 to Q3. Okay. And then just in terms of Q3, was there any differential as you went Through the quarter in growth rates that you had particularly, I mean, clearly, it's a little bit of a weaker quarter given some of the sort of Southern European holiday patterns, did you see any sort of weaker sort of July, August and a pickup in September? We do have the usual holiday season in Europe in July August. And in that sense, July August are weaker months, But each and every year, so it doesn't really impact the growth rate pattern. Okay. Thank you very much. The next question comes from Moodle Gundogan. Please go ahead. Yes. Thank you and good afternoon to everyone. I have three questions. First on M and A, those added $13,000,000 to your EBITDA. Based on your disclosure in the various press release, I would have expected a higher number. And given the fact that I think the JEM and GH Berlin Windward is the biggest component of that. Is that also the driver behind the shortfall of profitability? So that's the first question. The second question is on LatAm. I mean, thank you for the detail on or the split actually in for Brazil. Could you also give us that number, the EBITDA decline year on year for the previous quarters for Q2? Because it seems that You're starting to see that now while Brazil has been in recession for a couple of quarters already. So just wondering why you're seeing now a bigger impact. And then thirdly, on Oil and Gas North America, I mean, it's good that we're seeing the stabilization. Can you talk about the phasing of gross profit throughout the quarter? Has it been equally spread over the months? Or are you seeing a pickup in the last few months? Maybe I'll take oil and gas. Oil and gas is, As you'd like to point out, sequentially stronger quarter over quarter. I would say that the Yes, particularly in the quarter, towards the end of the quarter, we saw a larger improvement, In the area of pipeline cleaning business in InSpec, which is really the which is now operating at a higher level as it was earlier in the year, and for those that follow this particular subject area, will may remember that our pipeline cleaning business basically, which is a strong component of our oil and gas business, has been put on hold. It was put on hold pretty much by a lot of the use our services whilst they were operating at full rates. And now we do find that we are doing more and more pipeline cleaning Towards the back end of the year as opposed to on a more evenly spread basis. So oil and gas is sequentially Stronger going forward and don't believe that we will do more pipeline cleaning in particular. Yes, Latam, I'll try to help. So for Brazil, I mentioned in the Q3, in the Q3, the Brazilian EBITDA declined by €2,000,000 I don't have the full details with me, but I can tell you that in the first half, so over 2 quarters, In the first half, the earnings in Brazil declined by €1,000,000 So Q3 was a much sharper decline than the first half of the year, And it's a mix of some sequential slowdown, but even more so, Brazil had a very positive trend in course of last year. So particularly in Brazil, the comps are relatively difficult in Q3 and Q4. Yes, indeed, because Q4 is an important quarter for you. So would you expect that deterioration To worsen actually in Q4? No, I would say not. We think we are where we are as far as Brazil is concerned. Clearly, Venezuela is a write off for the year. I mean, at the end of the day, that would not be we've written that off already. But I think the Performance for Brazil, Q3 versus Q4 probably was obviously unchanged. Ma'am, just to avoid a misunderstanding, I thought maybe rightly or wrongly the question was relative to Q4 last year, and they did have a very strong Q4 in last year. Is that what you meant? No. What I actually wanted to gauge is that whether the indeed The decline in profitability was picking up sequentially. So when you say it was $1,000,000 in the first half and then $2,000,000 in the third quarter, That indeed indicates that it has worsened. So just wondering going into Q4, should we use the €2,000,000 as a run rate for a, Let's say, more important quarter or Yes. The tour is a reasonable thought process for Q4. Okay. All right. And then maybe finally on the question on acquisitions. Yes. I think, well, you're correct insofar as The most significant acquisitions in 2015 were Burling Windwood and JAM. And it's correct that JAM has seen some headwinds in terms of the GP related to the marine fuel business, which Has not bear performance back quite a bit this year relative to marine fuel. And that's It's probably a situation that probably won't improve towards the end of this year, maybe early into next year. But that's so the acquisition is behind plan. Okay. Thank you very much guys. The next question comes from Adrian Peel, Commerzbank. Yes, hi everybody. Actually, three, four questions. Sorry to bother again on the development in EMEA, but just to be clear about it, Since the sequential drop looks a bit steeper this time, would you be willing to explain a little bit on the Regions are anywhere, probably the profitability was declining more relative to Q2, Thinking probably also about the UK. And a question somewhat linked to that, I mean, it's not Quite clear to me how the competitive dynamics have evolved taken from the Univar conference call. They said they want to be more Aggressive, obviously, in Europe. I was wondering whether you're seeing this to some extent or is that it's just not meaningful enough relative to a big market? And also having said this, what I was seeing as quite interesting here is that, I heard them say, the suppliers want definitely their distributors to grow. And since organic growth in these times is obviously hard to achieve, I was wondering whether you could elaborate a little bit on the support you get from the supplier level On a more broader scale, is that actually improving? And how's the situation here? 3rd question, probably a bit more financial. Actually, your wording, when I got this correctly, has a little bit changed in terms of free cash flow actually improved to some extent. So obviously, as you keep your CapEx guidance, this must be attributable to Your working capital development, I was just wondering what are you seeing here right now? Is there an improvement on the receivable side or where is it Coming from and last but not least, maybe since we are already progressed in a year and 6 to 7 weeks Probably to go. I was wondering whether you could update us on your M and A budget. Is there still a chance that you exploit some of the usual guidance that you gave? Or should we expect some M and A to shift into 2017? Thank you. I'll just take a few of these. First of all, in terms of the Univar question, I actually I didn't hear the uniform call, so I will have to take your word for it. I would suspect As far as UVA is concerned, clearly, I mean, they're clearly significantly smaller than the Brantec in the European arena. And My understanding, rightly or wrongly, is that they are looking to improve their margin performance in their business overall. I advised, but I would not anticipate any significant competitive threat to Brent, especially in Europe in overall terms. And clearly, we're well positioned to deal with that. In terms of the comments about suppliers wanting to see their distribution businesses grow, I would concur that is the case and indeed when we talk to all the majors such as Shell or Dow or BP or what have you, they continue to stress their desire and their policy to increase the use of the distribution channel as a channel to market partners to reduce the number of distributors they're working with. And in particular, we can look at all of those names, particularly in Asia Pacific, where I would say now we were dealing with Exon, Shell, BP and other major companies in the Asia Pacific region from an outsourcing point of view in an increasingly accelerated way. As far as M and A is concerned, I think we indicated €200,000,000 Yes, stick to the €200,000,000 €250,000,000 budget, and we We did spend around EUR 200,000,000 this year already, yes. And I mean the pipeline is active as is always. And I would say probably about 200 to 250 holes as Georges just said. I'm not sure we've got the country analysis for Yes. Hi, Mande. Europe, again, we would see Europe nicely growing. Also in Q3, there's no Noteworthy differentiation between the countries that we would like to point out. You asked for U. K. Post Brexit vote. The U. K. Business is holding up well. So there's no development, particularly no development related to Brexit, which gives us any earnings concern. You also referred to the report of expected development in the 3rd quarter report, and you spotted that we uplifted the forecast for free cash flow a little bit. That's actually due to working capital development. The working capital development is benefiting to a degree from the fact that chemical prices have continued to decline Until now, in course of this year, even now, it seems price declines have come to a halt. But basically, Because prices for chemicals are lower than we initially expected, we need to tie less money into working capital. All right. And just quick one, you were saying in your presentation that your usual tax bucket is around 34%, 35%. So that's the figure we should expect for the whole of 2016, but we're not changing it before anything. Yes, it's a good figure. All right. Okay. Thank you. The next question comes from Daniel Buchta, MainFirst Bank. Yes. Good afternoon, everyone. Just two questions on my side. The first on CapEx, I mean, you guided for €150,000,000 this year, But so far, you have spent around about €70,000,000 so €80,000,000 is left. So is the €150,000,000 still valid? And can we expect the rest really to come in Q4? And then I mean, obviously, in North America and in the U. S, we had a quite important event today. Do your customers Kind of give you a feeling on what they expect from this and can we expect an improvement here still on the back of this event. And What we also are seeing in October, the oil price came back again to below 15%. And does this somehow impact your trends in the oil and gas business there? Or can we expect the slightly positive trend to continue based on this. Thank you very much. Yes. Well, as far as oil and gas is concerned, I think I'm actually somewhat encouraged by the fact that in 20 16, we've actually had the oil price all over the place Below 40, above 50. And if you look at our GP generation from our oil and gas business, it's looking pretty stable. So I think we've managed to find ourselves an optimum level of being able to operate within that within the scope of the oil price, which I think is a positive development for us, particularly going forward into 2017. As far as CapEx is concerned, yes, I can I fully appreciate what you're saying about the capitalist ban? We do tend to authorize projects which are kicking off in the Q1. And the nature of the investment process can be quite lengthy because of the sort of things that we're doing. So quite often, the actual capital expenditure doesn't really get booked Until the towards the end of the year when there was a sign up of the completed projects. So That's more a feature of the project planning and project execution, but I we do fully expect to be around about the 1,000,000,000 the election Oh, yes, the election, all right. What happens again? Look, we're like And on this call, I'm sure we're all scratching our heads, what does it mean? I suppose at the end of the day, I mean, it's purely a personal view that the President-elect professors to be somewhat more business friendly than maybe perhaps the other candidates. And if that's the case, then clearly, that's good for everybody in business. So your customers don't give you any feedback or are much more negative, you move a bit The big question was a little bit They're shocker, I think, in terms of the results. So I had no negative or positive feedback I can share with you. Okay. Thank you very much. The next question comes from Karl Green, Credit Suisse. Yes. Good afternoon. Good hello to everyone. A couple of questions from me, just operationally first of all. Just in terms of the UK and the impact of the sterling devaluation, Can you indicate what proportion of chemicals you're distributing into the UK are actually imported? I'm just trying to get a sense of potential transactional impacts on the margin, particularly into the Q4 early next year, whether that's something we need to be thinking about in terms of The conversion ratio going forward. And the second question just goes back to that pipeline cleaning comment that you made. Just to put that in context, can you indicate what the roughly what the revenues were in the last full fiscal year and what you're budgeting for the current year acknowledging that the Q4 is likely to see a pickup. And then I've got a couple of small follow ups, if I can. Yes. So I I can't really give you a full detailed breakdown on the oil and gas business between pipeline development and the pipeline gaining services and all the other services. We don't really want to give that level of detail. It's more of an indicative give us some indication as to why we think the oil and gas business is Stabilize going forward and has some growth potential for us. I can't really give you that much detail. Kyle, on the UK, roughly 70% of what we sell is sourced locally and roughly 30%, 25% to 30% is imported into the Most of that time, most of the products that we import are not produced in the UK. So each and every distributor to the market has to import some product. So we are not in a competitive disadvantage to others. And so far, we haven't seen any negative transactional impact. I think just to follow-up on that point, it's certainly the case that the UK has increased its prices to cover any exchange rate related increases in prices for products delivered into the UK. So most of the effect would be of a transactional nature as opposed to operating nature. Okay, great. That's very helpful. And then a couple of smaller follow Just on the cash flow statement, Georg, there's a fairly big inflow from a line item called other non cash items and reclassifications €45,000,000 in the 9 months to September. Can you just run me through what is in there and how that's likely to look for the full year? And linked to that just in terms of net debt movements based on current spot rates acknowledging your significant dollar borrowings, roughly what sort of full year FX impact you're expected to see on net debt, please? Okay. Not so easy because it's a mixed bag of items. But in the 45,200,000 you are referring to on the cash flow statement There's basically also the P and L entries that are non cash effective. The most relevant item is actually the Venezuela write off. We have written off €27,000,000 of Venezuela in Q1, noncash. It reduced earnings. So it reduced the starting point of the cash flow statement. And within the EUR45,000,000 EUR27,000,000 is actually Offsetting it to show an appropriate cash development. I don't have the exact split of the remaining 2017 or 2018. It's a very broad mix of items. Okay. That's clear. Because that 27,000,000 that went through the finance expense line, didn't it, further up in the P and L? Yes. Okay, great. And then the net debt FX impact, if possible. Net debt FX, I would have to go through the details. If you think about FX effect on net debt, end of 2016 over end of 2015, it actually won't be much because most of the of the foreign exchange effect on debt is in U. S. Dollar and the U. S. Dollar hasn't changed much. There's a little bit of an impact on the British pound, but not much. I would assume it's But I'm guessing a number. It's an about €10,000,000 to €15,000,000 decline in net debt from FX items. Okay. Thank you very much. The next question comes from rojesh Kumar. Please go ahead. Hi, good afternoon, gents. Just following up on the non financial basically the financial expense item, which are non cash. Could you give us some idea on how much of that relates to currency swaps? The second one is on LATAM Brazil. I'm sure you will be initiated by the B word after this call. But If we look at the I think we've discussed this in the past that Your selling prices tend to be in U. S. Dollars in Brazil. Obviously, the costs are local. So when we get sequential currency improvement in Brazil, one would expect pressure on the conversion margin. I'm trying to look at how much of the margin pressure there stems from transactional ForEx impact And then how much of similar effect can we expect in the UK next year if the pound Stabilizes. And finally, your inventory turn now looks like it's sort of stabilized at 9 times In the last 2, 3 quarters, you have highlighted that a move towards Specialty Chemicals and a bit lower volumes in oil and gas were contributing to that. Do we see that going down further? Or do we assume that to be the level you would target, I. E, you would keep adjusting the inventory if it starts going below that. Yes. Maybe I start in the order of sequence you asked. You are right that in principle, the currency swaps go through that same line, other noncash items and classifications The cash flow statement, apologies, I don't have an exact figure at hand. It's in this year not a meaningful figure. It could become a meaningful figure, but this It's pretty miniscule. Apologies, I don't have the number at hand. With respect to transactional FX In fact, from the indirect dollar impact you referred to in Brazil and then you're asking the question for the UK, Again, I have to apologize, but we had the discussion, I think, over the recent quarters, and we disagree with your analysis of the principal fact. I'm happy to take it again offline and discuss it again, but I can't give you the number because we don't follow the logic. The logic is chemical prices in Brazil tend to be in dollars. We disagree. Can I beg your pardon and take that Question offline, I think it's difficult in a very broad call? Yes. Maybe I could take your question on stock I think you're quite rightly in terms of point out that isotope is relatively stable. And clearly, we seek to increase I'll share of specialty chemicals on a continuous basis around the world, and we see the benefits of that And for example, in Asia Pacific, but I would also say that the group is working very hard to to effectively bundle more products together as a group, and we are pushing hard to further extend the availability of products to our customers an increased stock turnover as a group and improve our working capital turn, which is all about efficiency throughout the world. And these are some of the larger initiatives that we have running on a global basis. So I would say that I would not anticipate A reduction in the stock turn level for our business in the immediate future. That's very useful to understand. I mean, Your gross margin clearly has gone up this quarter. And to some extent, that would be a mix towards Specialty Chemicals. And To some extent, that's just the fact that you're one of the biggest distributors in the world. You've got a very effective product procurement, can you sort of give us some flavor on how much do you think is impact of specialty in the mix versus how much of that is you procuring at a lower price than most other competitors? To both. No, I think it's probably these things probably do this on more of a one to one call, if that's all right, because it's a A long and somewhat convoluted answer to your question. I must suffice to say, if you take the group as a whole, there's not been a significant switch Towards specialties or industrial chemicals, broadly, the mix is broadly the same. But you will see some regional variations. And equally, margins are Equally moving around both in Specialties and Industrial Chemicals in a relatively consistent way. I don't really see it as being a step change in either direction in terms of margin development and or mix change within the company. So it would be a null effect. But Okay. I mean, there's some points that you've raised probably better off than a one to 1 person on the call. Thank you very much. The next question comes from Andy Chu, Deutsche Bank. Hi, there. Just some follow ups for me, please. Just in terms of the M and A contribution, which is a significant part of the bridge and contribution, I think that you've been running at €13,000,000 €14,000,000 of EBITDA contribution for the 9 months. So can I just confirm that, that should be the sort of right sort of run rate of growth Into Q4, or should we think of anything else that might make that number materially away from 13 to I think you could check that number? It's been a reasonable assumption. Okay. And then on LatAm, Just to clarify the decline of €6,000,000 I think you mentioned Venezuela 3 Brazil 2, but that kind of indicates that the rest of LatAm is kind of net net going backwards, doesn't it? So No, it's not actually. I mean, you can the we see some countries are clearly are growing, but you've got, for example, Economies like Chile and Peru, which are relatively small in the context of Latin America is small in real terms, so they're the smallest part of our company, but within Latin America, Brazil is clearly an important part of Latin America business. But the smaller countries like Chile and Peru, which are heavily affected by the commodity prices such as copper, ore and what have you are clearly struggling with mining and what have you. So I think that's certainly a bit of a drag, but we do see positive contributions from Mexico and Colombia and what have you Overall. Okay. And my last question is just to sort of double check-in terms of the exit rate for October, the Plus 2.1%. I guess the comps a little bit easier or significantly easier because that's when the oil and gas impact first began to bite Last year, so is it fair to say that actually nothing's really changed in terms of the underlying trading from a group perspective, the comp Just a comp effect that's driving you into positive growth? Or do you actually see anything that makes you sort of think that October is actually slightly stronger? I think this is a between quarters discussion really to some extent. And just as Q2 was strong, Q3 looks weaker versus Q2. Q4 would be probably stronger versus Q3. So I think we're in the mix, We don't see material change to the business. The business is solid. Great. Okay. Thanks very much. Thank you. This concludes our Q and A session for the moment. Okay. Ladies and gentlemen, thank you very much indeed for taking the time on this historic day. And I know you've hopefully been tracking with me on my screen today North America, but we do appreciate you taking the time to join us on our call. And at that point, we'll close the call. Thank you very much. Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.