Yes. Thank you.
Hello, ladies and gentlemen, welcome to today's Brenntag AG full-year 2015 results call. Throughout this, all participants will be in a listen-only mode, but can ask their question at the question-and-answer session. I will just remind you, this call is being recorded. Today, I am pleased to present Steven Holland, CEO. Steve, over to you.
Thank you. Welcome everybody to our 2015 results call. I am on the phone together again with Georg Müller, our CFO. I will go straight to the numbers. In 2015, Brenntag sustained good performance in Europe, Latin America, and Asia Pacific. It was clearly a more challenging environment in North America, particularly in the oil and gas sector. As a group, Brenntag has developed well in 2015 with respect to earnings, and particularly when it comes to cash flow. You might actually have seen prior year's gross profit as well, and operating EBITDA in 2015. Gross profit increased by 11.8% to almost EUR 2.3 billion, and operating EBITDA increased by 11.1% to EUR 877 million. Growth was supported by a strong tailwind from the stronger U.S. dollar. On a constant FX basis, gross profit increased by 2.4%.
Through the full-year 2015, we faced greatly weak demand from customers in the oil and gas industry, which had quite an impact on the group. If we exclude oil and gas, the group's gross profit grew by 4%. The operating EBITDA of EUR 877 million is a bit off the guidance range of EUR 790 million to EUR 810 million, which we published in November. On a constant currency basis, the operating EBITDA increased by 0.7%. Our free cash flow was particularly strong in 2015. We generated free cash flow of EUR 764 million, which is up almost 60% on last year's number. Earnings per share were EUR 2.36, and adjusted earnings per share were EUR 2.68, which is about a 15.5% increase compared to last year. If you could please consider the proposal to the general shareholders' meeting to approve a dividend of EUR 1 per share.
We had a year-on-year increase of 11.1%, a continuation of our trend of dividend increases. In line with our M&A strategy, we signed a number of value-accretive deals in 2015. The total enterprise value of these acquisitions amounts to more than EUR 550 million. I'll just go straight on to the acquisition slide. All in all, we completed 10 acquisitions globally. Our two largest acquisitions were executed in the U.S., which were J.A.M. and Berlin-Windward, where we acquired two specialty lubricants distributors, both of which rank among the top five players in the market. With these two acquisitions, we have significantly expanded our existing lubricants distribution business, which we think the market is highly attractive and subject to ongoing consolidation. A very important acquisition for us was the TAT Group in Asia Pacific, a strategic move for Brenntag in the Asia Pacific region.
TAT is a leading distributor of industrial chemicals and pharmaceutical products and services. It has excellent warehouse and logistics infrastructure in the region, which we expect to grow substantially during the course of 2016. In Europe, we've executed a number of bolt-on acquisitions, which will strengthen our position in individual countries. Namely, Fred Holmberg in Sweden, Quimicas Meroño in Spain, and Parkoteks Kimya San in Turkey. In South Africa, we acquired Lionheart Chemical Enterprises, a specialty chemical distributor servicing the food sector. Early in 2015, we also entered the Middle East distribution market by establishing a majority stake in the chemical distributor, Trychem FZC. The company is located in Dubai and has active distribution platforms throughout the region. All these acquisitions are value-accretive and help us extend our product portfolio and geographic coverage. I'll hand over to Georg.
Thank you, Steven. I want to go through the financials of the group in some details, and we will start on page six. On the slide, you will see the first part there, the part of our income statement. In an economic environment that showed the lowest growth rates for years, we were able to grow gross profit as well as EBITDA double digits. The reported growth was strongly supported by currency tailwind, and particularly by the appreciation of the U.S. dollar. However, gross profit and EBITDA also grew on an FX-adjusted basis. In 2015, we mainly operated in an environment of falling chemical prices. This clearly had an impact on our sales, which were down on an FX-adjusted basis by 4.6%. Due to the price pass-through of our business model, we did not see a negative price effect on our gross profit.
Our pricing is based on absolute gross profit contribution, and it is not a simple percentage of sales. Cost management is a key area for us, and also in 2015, we managed to keep cost increases well under control. Conversion ratio in 2015 is about flat, 35.6% after 35.8% one year ago. When we move on to the P&L lines below EBITDA, depreciation for the year amounted to EUR 108 million and amortization to EUR 76.9 million. Keep in mind, amortization mainly represents customer-based amortization for acquired companies. The financial result amounted to a net expense of EUR 112 million, and this compares to an expense of EUR 83 million in the prior year. The difference is driven by the purchase price obligation for the remaining 49% of our Chinese company, Zhong Yung. Earning 49% in Zhong Yung in 2017. Zhong Yung continues to be highly successful despite the slowdown in the Chinese economy.
As a consequence, we have revalued the purchase price obligation at the end of the year, the purchase price obligation now stands at EUR 53 million. Overall, earnings before tax is total EUR 549 million, which is 8.2% ahead of last year. For the full year, we record a tax rate of 33%, close to the range of 34%-35% that we typically indicate. Earnings per share is EUR 2.36, that is 7.2% above the previous year. If you include customer price amortization, if you exclude the change in the Zhong Yung purchase price obligation, this comes to an adjusted earnings per share of EUR 2.68, that's 15.5% above previous year. I would like to provide a brief update on a specific topic, this is about Venezuela. Actually, it's more 2016 relevant than 2015.
We translated our balance sheet and our earnings in Venezuela from local currency into USD at an exchange rate of about 30.5 bolivar to USD. For that, we used the so-called SICAD rate, which was one of the different rates available under state-controlled conversion schemes. In February this year, recently, the state of Venezuela changed its complete exchange rate regime, since then, the conversion ratio of 30.5, or the SICAD system, is not any longer available. There's no certainty at all about the details of the new regime at this stage. We opt to be pretty conservative and pretty prudent in the accounting of our Venezuela operation.
We expect that the devaluation that occurs in Venezuela could result into an asset write-off through financial expenses of about EUR 25 million, that would be a worst case, that's a 2016 event, it does not impact the 2015 accounts. Going back to 2015, in 2015, we generated an EBITDA in Venezuela of about EUR 12 million. As a precautionary measure, we currently assume that we will not generate any meaningful EBITDA in Venezuela going forward. I'm moving on to the cash flow statement on page eight. In 2015, we achieved a very strong operating cash flow of EUR 593 million after EUR 359 million in 2014. This is partly driven by higher earnings, in addition, we achieved a cash inflow from working capital. Let's quickly talk about the investment and financing cash flow.
CapEx amounts to EUR 126 million, that's in line with our guidance. Cash outflow for acquisitions in 2015 amounts to EUR 500 million, we have taken over some debt for some of the acquisitions. The actual cash spend is a little bit below the EUR 450 million of enterprise values, we have mentioned in the context of our acquisition activity for 2015. You will also note in the cash flow statement a capital increase of EUR 34 million. This is an inflow from the warrants that we issued as part of our convertible in November. The line repayment and proceeds from borrowings is mostly a net effect from the issuance of some convertible, as well as the repayment of the accounts receivable securitization program earlier in the year. I'll skip the balance sheet page, move on to financial debt and leverage on page 11.
On page 11, you would see the net debt leverage. Most of the acquisition spending of more than EUR 550 million was actually done from cash flow. Net debt increased only EUR 256 million during the year. The group leverage stands at a comfortable level of 2.1 times at the end of the year. On the subsequent page, you can see our strong financial profile that provides pretty strong flexibility in execution of our strategy. At the right-hand side, you can see the maturity profile of our indebtedness. After the repayment of the securitization program in June and the placement of the convertible in November, the maturity profile is even more long-term. Our main financing instruments are the bond with a repayment in 2018, syndicated loan in 2019, and convertible in 2024. Net working capital amounts to EUR 1,268 million at the end of the year.
The current working capital 8.0 times in 2015, and that's flat against the third quarter, but below the level achieved a year ago. We did deliver in 2015 a very strong free cash flow of EUR 764 million, and that's significantly up against the previous year. The increase was driven by a reduction in working capital as well as an increase in EBITDA. I close my part of the presentation with the discussion of the dividend on page 15. We continue our track record of dividend increases and propose for approval by the general shareholders' meeting a dividend of EUR 1 per share. This is an 11% increase. Not only earnings growth, but also cash return for shareholders. I hand the presentation back to Steve for a segment discussion.
Thank you, Operator. I would like to give you a development for the segments for the full year on this page, with the Q4 view on the following page. Full year basis first. In Europe and the Middle East, we grew our operating gross profit by 3.6% and operating EBITDA by 3.2%, both FX-adjusted. European business continues to develop strongly, especially chemicals and value-added services with increasingly tangible regional success rates. In North America, we saw a reduction in demand from oil and gas customers, additionally momentum for the rest of the economy slowed down during the course of the year. In this environment, operating gross profit decreased slightly by 0.5% on FX-adjusted. If we look at gross profit growth by customer industries, we can clearly see the weakness in oil and gas.
These customers reached a gross profit reduction of EUR 39 million, which equates to approximately 13% of the gross profit generated in our oil and gas business. The strong growth was almost completely compensated by the growth in other customer groups. We see all the details on one of the following pages. Operating EBITDA increased by 4.6%, FX-adjusted. A strong translation tailwind released a strong growth of 13% on a as-reported basis. The North American business has started to reduce the overall capacity in our oil and gas business to reflect the lower level of demand, and as a result, we saw a headcount reduction of more than 100 people during the course of the year. In Latin America, we showed a strong increase in earnings in 2015. Operating gross profit grew by 9.8%, FX-adjusted, from more efficient benefits from efficiency enhancements implemented in the past.
This resulted in a strong growth in operating EBITDA of 39.1%, FX-adjusted. Clearly, 2015 was a strong year for Latin America. Coming to Asia Pacific, operating gross profit grew by 2.3%, FX-adjusted, which clearly benefited from increased operating efficiency, resulting in a substantially higher conversion ratio compared to last year. Operating EBITDA grew by 7%, FX-adjusted. Welcome to the outlook. Let's go to the performance of the segments in Q4. As far as Europe is concerned, in Q4, operating gross profit increased by 3.4% in the fourth quarter. In light of the overall weak environment, this is a good result for our European business. As the conversion ratio in Q4 2014 was comparably high and EBITDA in Q4 2014 ended slightly below the level of last year, FX-adjusted.
Coming to North America in Q4, our business in North America continued to be plagued by a combination of weakness in oil and gas and the loss of economic momentum. In total, operating gross profit decreased by 5%, FX-adjusted. The full year, let me give a breakdown on gross profit from the customers in oil and gas. Customers in oil and gas declined by about 23%. Gross profit from all the customer industries increased by 8%. The Q1 business acquisitions closed during the course of December did not have much of an impact on the quarter. In Latin America, Latin America reports an increased earnings in Q4, with gross profit growing by 3.2%, FX-adjusted. This resulted in a strong growth in operating EBITDA of 15.7%, again, FX-adjusted. Asia Pacific grew the operating gross profit by 2%.
Operating EBITDA could not fully reach the high levels of Q4 2014 on an FX-adjusted basis. The acquisition of the TAT Group was closed at the end of December. On page 18, you'll see the progress that we've shown you in previous presentations, and I'll leave them there for information purposes, and I'll move on to the outlook. When it comes to the outlook, the world has not really become an easier place since 2016. The low oil price continues to cause a weak demand from customers in the oil and gas industry. However, we think we have the worst behind us. The high comparables remain with us for Q1, and we expect a more normalized position from Q2 2016 onwards. From today's perspective, no major currency translation effects are expected in 2016, and the US dollar/euro is currently trading close to last year's level.
We did some significant acquisitions in 2015, and the acquired businesses will contribute to the 2016 earnings. Chemical distribution continues to be resilient. Industrial business, we have plenty of growth opportunities, and we as a global market leader are extremely well-positioned within these industries. Combine all these factors, we expect good growth on all the relevant reporting parameters in 2016. Europe and Asia Pacific will contribute to the growth, so will North America despite the challenges from weak demand from oil and gas. Keep in mind that a good part of our 2015 acquisition program was in North America. Following up on Operator's comments, we might see some earnings decline from Latin America given the devaluation aspects of Venezuela . In CapEx, we expect to allow allocated around about EUR 150 million for CapEx in 2016.
The M&A pipeline remains full and active. We would guide you in the usual spend between EUR 200 million and EUR 250 million for 2016, also benefited from strong free cash flow. Overall, despite some obvious challenges from the macroeconomic environment, we remain confident that Brenntag is well positioned for further growth in 2016. In respect to current trading to our Q1 expectations, let me walk you through gross profit per working day on a monthly basis. In respect to this, please keep in mind that a weakness in the oil and gas industry on Q1 has a negative impact of around 3% of the gross profit generated by the group. [We are 93% from oil and gas]. These are all FX numbers.
Gross profit for working day declined by 0.6% as reported, and was negative 2.2% organically. In November, the decline in margin was 2.7% as reported, 3.9% organically. In December, gross profit working day grew by 4.2%, was about flat organically. In January, gross profit today increased by 8.6% and +2.5% organically. February, the growth was 5.2% and flat-ish organically. In 2016, we expect to give guidance after Q2 as we have done in past years. Highlights of effects we take Q1 now. 2015 has comparables which are quite high in Q1, particularly in the area of oil and gas. There was a movement on Easter into a Q1 event as it was in Q2 last year.
Despite all these challenges on the macroeconomic level, Brenntag continues to perform strongly. We are positive and excited about the future prospects and the development of our business. That gives you a good sense of our outlook. We are happy to take your questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, could you please press zero, then one on your phone keypad now in order to enter the queue. After I announce you to ask that question, and if you find that question has been answered or you want to retract that question, simply press zero and then two to cancel. There will be a brief pause while all the questions are being registered. Our first question is from the line of Rob Plant with JPMorgan. Please do go ahead. Your line is open.
Hi, Steven. Two questions, please, on North American oil and gas. I think you mentioned a 23% decline in Q4. Do you still expect oil and gas in North America to decline across the quarters of 2016? You mentioned, Steve, that you've taken out 100 people. Clearly, oil and gas was a drag on the margin in North America in Q4. Do you think the cost base is properly aligned now?
Yeah, thanks for that. As far as the sequential movement of GP generation, oil and gas. If you go back out 2015, you can see we had three relatively stable quarters, which is around about 65, 64, I think 61 for the last quarter, 61 including, of course, December and the Christmas holidays. We seem to have a trend of relative stability in the oil and gas gross profit generation. At this stage, we've nothing to tell us which suggests that there's going to be a further deterioration of oil and gas gross profit generation. I think we are looking at stability as opposed to a continued decline as we saw in Q1 of 2015. As far as costs are concerned and people concerned, yes, we have taken over 100 people out of the organization to right-size the organization.
I think we are there or thereabouts in terms of the required people to operate this business. Therefore, we don't see any significant change beyond the 100 or so people that have left us during the course of 2015.
All right. Thank you.
We're now over to the line of Nomura and Andy Chu. Please go ahead, Andy. Your line is open.
Thanks very much. Good afternoon. A few questions from me, please. Starting with Venezuela. It's clearly been an issue and sort of perennial issue in terms of Venezuela. Could you just sort of clarify exactly why you're expecting virtually no EBITDA, such a prudent view, and I think it's sort of indicating that the market should take EUR 12 million of EBITDA out of 2016 numbers. Is this a business that you would like to keep sort of longer term, given all the issues historically? Secondly, on oil and gas, I guess we're sort of most of the way through Q1 now. In terms of what you've seen in terms of the run rate, why you gave the confidence to make your statement that we should see sort of sequential stability in gross profit in North American oil and gas.
Just to be clear, in terms of January and February organic working day FX-adjusted GP trends, you would be running at 5.5% for January and 3% excluding the impact of oil and gas. Is that correct? If so, where are you seeing the sort of growth coming from, by region or by country? Thanks very much.
Andy, hi. Let me maybe start off and jump in if I miss any of your questions or points. With respect to Venezuela, in the extreme uncertain political and administrative environment, and given that the state of Venezuela basically has completely withdrawn any reasonable exchange rate mechanism in play we are with here. We would assume that we do not want to bring any more pro-
Into Venezuela from outside to sell it locally, it just doesn't make sense anymore, which basically means the only activity that will remain in Venezuela for the time being is a little bit of local activity of local sourcing and local selling. We downsized the operation significantly over the last couple of years. We just have about 30 people in Venezuela today, and there just won't be any meaningful EBITDA generation from today's perspective. With respect to 2016 numbers, yes, 2015 was still a reasonably successful year in Venezuela, generating EUR 12 million of EBITDA, and it won't reoccur this year. The Venezuela effect will be a negative effect of EUR 12 million EBITDA of 2016 over 2015. I think the second point you had was, I'm not sure exactly what the point was, oil and gas, about sequential stability.
We would assume for this year, and this will be based on the trends we have seen the last couple of quarters, we would assume a quarterly gross profit run rate in oil and gas in North America of EUR 60 million or maybe a bit lower. The gross profit per working day trends which we quoted includes the oil and gas in effect. If you want to exclude oil and gas, the numbers were about 3% higher.
Okay. Maybe one last one just in terms of J.A.M. and Berlin-Windward. Can you give us some flavor of how those large businesses are performing since you've taken them on board? Clearly, the macro in the U.S. isn't particularly friendly at the moment, could you give us an idea of how they are performing, please?
Yeah. Certainly, Berlin-Windward is pretty much in line with our expectations. J.A.M. is more difficult because they do have a marine element to their business, and there's more synergy. This synergy was at the very start of the integration for J.A.M. Overall, first quarter will be a slightly down quarter for both those. I think probably the best effects come on those two is really in Q2.
Right. Thanks so much.
Next question is Georgina Iwamoto at Goldman Sachs. Please do go ahead, Georgina, your line is open.
Yes. Hi, good afternoon, everyone. I have two things. On LatAm, could you clarify if you continue to have any transactional FX benefits in Q4 and what we should expect for that going forward? Then going back to your January and February run rates, could you just talk a little bit about what that looks like by region, please? Thank you.
By region, in terms of the January and February, obviously, we're not splitting it out by region. To give you a flavor, geographically, we still see positive numbers in Europe and Asia-Pacific and Latin America. In fact, we see positive numbers in Latin America despite Venezuela. This is a reasonably good environment for us there. North America clearly has its higher comp back to prior year on oil and gas, other industries are up to our expectations. As far as
Okay. That answers the question on regional color on gross profit per working day, Georgina?
Yes, it does. If I can just follow quickly. In the U.S., ex-acquisitions, what was the run rate in Q4 organically, if you can just give us that? It's about 6% local currency.
What I would say is in the U.S., ex-acquisitions and ex oil and gas, we see small positive gross rates in gross profit.
Okay. Thank you.
That's basically every month. Latin America is a volatile, complex environment. I have a very hard time to single out what some people call transactional FX effects. I would, in general words, say that the gross profit benefits of the devaluation of a number of local currencies even out because mostly the devaluation has evened out.
Okay, thank you.
We're now over to Gerhard Orgonas of Exane BNP Paribas. Please go ahead. Your line is open.
Yes, just one question, please. Could you tell us what to expect for PPA amortization following the recent acquisitions going forward?
You mean for customer base amortization?
That's right, yeah.
I have to come back with an exact number. Do you think it's 50? 30?
I think it was 20, I think, 15.
Yeah. We had EUR 36 last year. We would expect this to go up to EUR 55, about.
EUR 55 million. Okay. Thank you.
Yeah. This increase is due to the recent acquisitions.
Yeah.
Okay, we're now over to Mimi Bunq of Goldman Sachs. Please do go ahead, your line is open.
Hello, good afternoon, gentlemen. Thank you for taking the questions. A couple from my side. First of all, in the fourth quarter, you've seen a little bit of a pickup in North America outside oil and gas. Can you just say if that's broad-based or if there's anything specific to it? Also in the fourth quarter, the conversion ratios in Latin America and Asia-Pacific actually down quite a bit. Could you explain what the reasons are for that? Lastly, on the oil and gas, you've given us the split in the past about upstream, midstream, and downstream. Can you give us a little bit more color on how these segments are performing, and if their mix have changed as upstream has proven more negative than the rest? Thank you.
Right. Yeah. In terms of the North American performance, it is pretty much across the board as no one segment has outperformed the other on excluding the oil and gas elements. I think maybe perhaps we highlight the food ingredients and life sciences being particularly positive, but not outstanding beyond any other particular industry. As far as the oil and gas upstream, midstream, downstream, we don't really see any significant change to our model in 2016. Although to be fair, midstream is really taking a little bit more pressure as the price of oil has started to reflect that area. Again, not super significant compared to the difference in the run rates.
What I said, I think we had the question on subsequent improvement on conversion ratios in Latin America and Asia-Pacific in Q4. I would generally cite that there is a good economic environment. We have good gross profit growth and cost control. It's a case of positive operating leverage.
Okay, understood. Maybe one additional one. It's under Zhong Yung. You've said in China that the business has performed really well. Throughout the year or because of the devaluation in the fourth quarter has been significantly higher than for the other quarters. Can you shed a little light on the performance there?
No, I think Zhong Yung is actually a case of continuous improvement really. The business has developed very nicely and value-added services. We're taking more and more customers, international customers that are wanting to use our services in China is increasing all the time. It is actually a very positive story for the development of that business.
Okay. Understood. Thank you so much.
Okay. Thank you.
We're now over to Simon Mezzanotte at Berenberg. Please go ahead. Your line is open.
Hello. Good afternoon. A couple of questions on conversion margin. Maybe if we talk about North America, I think in Q4, you reached a level of 36%. I guess normally Q4 is the strongest month from a conversion margin perspective. I was wondering if 36% is the new normal for this division. What do you think in 2016 is that level trending to? Similarly in Europe, I think over the year, if I'm not wrong, you've seen 1.5% organic growth at gross profit level, and understandably not much margin improvement. My feeling is that Europe is really improving slightly above the 1.5% organic growth level recently. I was wondering if that continues to be the case. Should we expect some margin improvement in Europe for 2016?
In North America, I wouldn't regard 36% as the new norm for conversion ratio in North America. I think Q4 is quite a tidy quarter in many respects, and there are all sorts of things there, like annual rebates, this, that and the other, and maybe Q2, low activity in oil and gas, and that may have been affected towards year-end. I would expect to see the conversion ratio back up to some not dissimilar levels. Normally, I would expect us between in the forties, so maybe 39%-40% + 46%, 45%, but certainly not 36%, as you've seen in the Q4. I think as far as Europe is concerned Europe is in a really good position in terms of organic revenue growth. Improving GP will have a very positive effect on the conversion ratio. That's really where we are.
To some extent, that business now I would say, at a tipping point. Unfortunately, the economic environment is not so fabulous out there. Nevertheless, the efficiency gains that we've been looking for have been delivered, and therefore, I would hope that any incremental growth in GP is going to really start showing that conversion ratio.
If I can follow up on North America, is it realistic then to expect maybe in H1 of this year with oil and gas still being a bit of a problem, is it realistic to expect a year-on-year margin similar to last year in even the first half of this year? Should we expect further deterioration year-on-year?
Okay. I always have a little bit of a challenge of commenting on and forecasting conversion ratios on a quarterly basis, because a quarter is just 12 weeks, and you can always have volatility. Maybe directionally, I can help and say on a full year basis in North America, full year basis, we had 38.8% in 2015, and we would expect a rate on a similar level, maybe a slight improvement this year. In Q1, I would not be too surprised if Q1 still comes in a little bit below last year's level, because Q1 will still have an oil and gas hit, which the other quarters shouldn't necessarily have anymore.
Thank you very much. Maybe just last one on Venezuela. If you could quantify the gross profit contribution as well, that would be helpful. Thank you.
I can. I just need a second to pull the number up. The gross profit contribution Venezuela last year was around EUR 19 million. EUR 19. I know it's a very high conversion, EUR 19 gross profit, EUR 12 EBITDA, but that was the mechanics of the business so far.
Thank you very much.
We're now over to Warren McKenzie at UBS. Please go ahead. Your line is open.
Thanks. Yeah. Three from me, please. First, again, on North America. General Industrial productions have been weaker under the platform for growth even ex oil and gas in H1. Can you give a review there for the rest of the market? Do you expect any positive growth in EBITDA excluding M&A in North American market in giving outlook? Two more, but maybe just that one first, please.
Yeah. Well, I think most people would agree that the North American macroeconomic situation is somewhat more challenging than it was at the beginning of 2015. We do believe that we've got the basis of our business in terms of organic growth and what have you is actually solid outside of oil and gas. We are expecting GP growth in North America this year. In fact, we're expecting North American to grow full stop, excluding oil and gas. I think we don't have a negative outlook on North America.
Okay, great. I just want to ask in Europe, where you've seen trends. Can you talk about that by country or region? Anything you spend. I mean, how is Germany doing, basically, given the input from there?
How is Germany doing? What is Germany doing? What the hell is wrong with these people? Look, as far as Europe is concerned, I hesitate to do this, but I will. Really it's a very similar story in terms of U.K., Nordic, positive, very much positive, Germany positive, Eastern European positive, Italy positive, Spain a challenge, France a challenge.
Okay.
That's why we particularly asked for Germany, maybe because I'm German. I would disclose a little bit more detail. Germany has grown EBITDA last year around 5%.
Okay. Great. That's helpful. Then just a thought on the working capital. Obviously, the past five or 13 shows the turnover falling pretty steadily. Can you explain how much that is due to the mix changes over time? Also, this year, obviously Q4 being the weakest quarter for growth. That must have had a benefit on working capital. What do you expect there for the next year? I know it will rise differently, any more detail there would be helpful.
I think in terms of working capital term, clearly we've been looking at working capital term very carefully, and I think we've turned around about eight times has been the number which you see today. We would be disappointed to see that number go any lower and any meaningful change to that number during the course of this year. Definitely we'd like to see that number go up.
Okay. That's great. Thank you.
We're now over to Christian Lutz at DekaBank. Please go ahead, your line is open.
Yes, hello. I have a question concerning Asia Pacific. You have acquired TAT Group in Singapore. Very strategic. This is very important for future growth ideas in that region. You will take over the 100% of SunYang in China. Can you elaborate a little bit on your growth expectations when these two companies, together with your increased network where you have invested heavily over the last years, what do you expect to grow during the next three years in Asia Pacific, including these two items? Thank you.
Well, absolutely. We fully consolidated Zhong Yung already, so that's already in our numbers.
You have a group on that company now, I believe.
Yeah, we own 51% at the moment, but we do consolidate already.
Yeah.
Let's take that. That's already in the numbers. Asia Pacific generally has been more challenging macroeconomic effects more recently. We would expect to see high single digits in the Asia Pacific region over the next three years. TAT would come on top. I think Christian asked question specifically. Yeah.
Do you have to invest also a further above average in that region into that business?
It's a good question, actually. It really just depend on how we structure our product portfolio in the region. We are being encouraged very strongly by suppliers and customers to invest more in the region in terms of physical assets. We are a rather cautious organization, and we do have some good assets on the ground now with TAT, and therefore I would prefer probably to hold that question a little bit longer while we get ourselves settled down.
Okay. Are things more stabilized in Australia and Thailand currently?
I would say Australia and indeed New Zealand. We are really pleased with Australia and New Zealand. The ones on the way up. Thailand, I'm afraid I can't say the same for Thailand. Well, it's clearly not a disaster, but unfortunately, it's a tiny business, which used to be our largest business in the Asia Pacific region, continues to be relatively weak.
Okay. Last question, if I sum it up, all the acquisitions you have done in 2015. When I include an EBITDA of approximately EUR 60 billion in total on a year-on-year basis, 2016 against 2015, coming from EBITDA, is that roughly a right number?
What's the number, Christian, you mentioned earlier?
60. Six, zero.
That's about right.
Thank you very much.
It's Andy Chu at Nomura. Please go ahead. Your line is open.
I do apologize, it's actually Rajesh Kumar at HSBC. Please go ahead.
Hi. Good afternoon, gents. I am just trying to understand how your discussions with your suppliers is progressing.
sorry to interrupt you. I can hardly hear you. You have a lot of background noise.
trying to understand how your discussion with suppliers are going to in the new year in terms of pricing and volume thresholds. volume benchmarks from last year would be lower. are they agreeing on slightly better supplier takes this year than last? what sort of pricing benchmarks are you going to go through?
Well, in general, as you know, we operate a price pass-through model in our business. pricing is whilst clearly it can be up and down. It is operating gross profit contribution that we're concerned about. If you're looking for a sort of general market feel for pricing in general, I would say that obviously we saw some unwinding working capital during the course of 2015 as prices tended to fall during the course of the year. Oil-based prices are probably now where they're going to be in terms of the settled into the sort of new levels. I really can't see any major price erosion out there in the marketplace, nor do I see any major significant increases in prices because clearly demand is relatively subdued in a number of major markets.
I would think it's more a case of really pretty much status quo certainly for the first and second quarter.
That's largely in US dollar or is it basically currency, but in Europe, a lot of that would be euros, but most of the other places is it US dollar?
Well, I'm not quite sure. All our business in Europe's obviously in the euro and there's really very little business which I would say is dollar denominated other than perhaps in, say, Latin America in certain countries that have that issue. Or if you are buying large consignments of oil-based products, we're not in that position.
Okay. If you looked at the inventory turn, following on from the earlier question that, how much of it is due to a bit more mix to specialty chemicals, and how much of that is more due to slow down in volumes? Is there a risk of inventory write-down in coming quarters?
I think that there's a gentle drift of the business in terms of we are increasing our share of the specialty chemicals market, no doubt.
A certain number of our acquisitions have been of a specialty nature in addition. That does, if you like, change the mix somewhat. I wouldn't say that the stock turnover number is hardly changed from the previous year. We might expect that to speed up somewhat in the course of this year.
Thank you very much.
We go to Peter Olofsen at Kepler Cheuvreux. Please go ahead. Your line is open.
Good afternoon. I have one question left on the volume trends that you saw in 2015. Did you see a meaningful difference between specialty and industrial chemicals, or was it a broadly similar trend that you saw then?
Yeah. It's really difficult. Volumes are not really a metric which drives our business. You're probably aware that gross profit contribution is the primary driver for us. Talking about volumes and specialties, you're on a road to confusion because clearly it is a GP discussion as opposed to a physical movement of product. In general, volumes were obviously large in oil and gas. Across the rest of the range, it's a mixed picture, but nothing dramatically in either direction.
Okay. Thank you.
We're now over to the line of Andy Chu at Nomura. Please go ahead. Your line is open.
Thank you. A couple more, please. Just in terms of the strong cash flow performance and looking at the working capital inflow in Q4, is there anything other than pricing and sort of volume weakness? Are there any sort of one-off timing effects in there that sort of boosted the cash flow for Q4 and the year? Then in terms of oil and gas, could you give us a steer as to how much oil and gas contributed to Q4 Group's EBITDA, please?
On the cash flow and working capital, there's no one-off effect in working capital in Q4. There's no significant volume effect. There is pricing effect in there, and there's usual seasonality in there. We typically have the lowest working capital end of year and the highest middle of the year. In that sense, you would expect some ramp-up of working capital in Q1, but not necessarily year-over-year. Sorry, what was the second question at the end?
The decline in EBITDA. It was driven particularly by oil and gas.
I-
That's derived from what I was looking for.
We say we had in North America an oil and gas GP in Q4 of $61 million, and that comes at a conversion of about 40%.
140%.
Okay.
That you've probably got 12%, something like that, [of EBITDA] from oil and gas. Is that right?
Sorry, I have to ask again. I'm not sure what the 12% refers to.
I was just trying to get the number in terms of the percentage of oil and gas in Q4.
Yes, I would agree.
Okay. Thank you very much.
Okay, we now have [SunLife]. Please go ahead. Your line is open.
Afternoon, everybody. I wonder if you could just clarify the movement in the year-on-year of the EMEA FX-adjusted EBITDA, please. I think in Q2 that was +4.8%, income +2.1%, and now you're -0.6%. Could you remind us, was there something particular in Q4 2014 that was a one-off benefit at all? Because I noticed your EBITDA has now sequentially declined for two quarters on a reported basis in Europe. Is there also any FX in that? Also, just in North America, have you already taken out a reasonable amount of cost in the U.S.? I just wonder whether you're taking any headcount out at all ex the oil and gas businesses, if you've taken the chance to try and optimize the North American business, and have we already seen some of that cost benefit in Q4, please?
I'll take the North American one. The answer is yes, we have reduced the headcounts in other parts of the North American business, but not substantially. That headcount reduction did actually occur during the course of 2015. You'll see some effect, some of the positive effects of that, hopefully in Q4, but also some of the costs associated with that in Q4, which I think will probably be broadly a wash. No discernable benefit plus or minus as far as the cost of that. That would be that this cost savings associated with that will roll into 2016.
Europe had, I would say, Tom, Europe had a strong first half of the year in 2015, a little bit weaker second half in 2015, and you see that in the weaker growth rates. Europe started well into 2016. There was no particular one-off in the fourth quarter 2014. It was a good quarter, and we face a high comparable.
Okay. Thank you. Are you able to venture at all what the ballpark, the level of cost savings you may have made in the North American business would be, please?
Yeah. You should probably go for a run rate between $7 million and $8 million.
Okay, perfect. Thanks very much.
Well, just to remind participants that if you wish to ask a question, could you please press zero and then one on your phone keypad now. There'll be a further pause while any further questions are being registered. We have a final question, and that's from the line of Christian Kaufmann of MainFirst. Please go ahead, Christian. Your line is open.
Thank you very much, gentlemen. It's just a follow-up clarification on the margin you mentioned. I mean, first of all, it was already clear that on an absolute basis, we're touching base in 2016. I guess the question is more on the magnitude. I understand from the comments you made and what you say in the presentation with efficiency enhancement and where you go, that you expect an increase in the underlying earnings organically. Is that correct?
That is correct.
When we take into account the Venezuela issue, and let's just assume that is worst case happening and that the EUR 12 million will be erased on the EBITDA level. Do you still expect to, let's say, grow underlying, taking this into account in 2016?
Yes. Not in Latin America, though. I'm not sure if the question was referring to Latin America or the group.
No, that was referring to the group. Great. Thank you very much.
Okay. At this stage, Steven, unless there are further questions in the queue, may I just ask to call back to you for any closing comments?
Okay. Well, thank you very much, everybody, for your questions. I think we covered everything we had to cover. Again, thanks very much for joining us, I will call the end of the call there. Thank you very much.
This now concludes the call. Thank you all very much for attending. You may now disconnect your lines.