Earnings Call: Q4 2014

Mar 18, 2015

Ladies and gentlemen, welcome to the Brantac AG Full Year 2014 Results Call. At a customer's 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. I now hand you over to Steve Holland, who will lead you through this conference. Please go ahead, sir. Thank you, and welcome and thank you very much for dialing in for our review of 20 14, earnings and discussion of the current trading. I'm going to turn together with Jorg Muller, our CFO. We'll be pleased to take your questions after his presentation. The macroeconomic environment in 2014 was characterized by a moderate recovery with some slightly weakening trend towards the end of the year. Our operating EBITDA amounts to €726,700,000 This is a solid performance and EBITDA is slightly above our guidance range of €700,000,000 €120,000,000 partly due to the stronger U. S. Dollar towards the end of the year. At constant FX rates, we were able to grow the business by 4.3%. The group was able to generate a strong free cash flow of €521,600,000 In line with At Scratchy, we were active in the M and A and signed a number of value accretive acquisitions in 2014. The total enterprise value of all acquisitions, which were signed in 20 14, which have been closed, amounted to more than €140,000,000 Following this successful year, we are delighted to submit Proposal to the general shareholders meeting for approval of a dividend of $0.90 per share. This represents a year over year increase of 3.8% And equals the payout of 41% of the profit after tax attributable to shareholders of Brentech AG. Just coming on to our acquisitions. As I mentioned before, we've acquired a business for a total enterprise value of more than €140,000,000 This includes the acquisition of Fred Hornburg, which we signed in 2014 and closed in March of this year. The acquisition helps to enhance our products and services portfolio or improve our geographical coverage in existing countries. Our completed acquisitions in 2014 include: Qumira's distribution business in Denmark, which means a major expansion of our Industrial Chemicals business in the region, Gafford in Brazil, which helps us to achieve critical mass in the most important market in Latin America Philco in the United States, which expands our large consignment business in the United States Qimab in Italy, which allows us to improve our position in the important Italian food sector The switch to chemicals in Colombia improves our market penetration in the specialty chemical markets in Latin America. You may notice the acquisition of Piomi in India is missing from the above list. We signed this transaction in September 2014. It has not yet closed and probably will not close judging from today's perspective. This is because the sellers were not able to meet our conditions precedent to closing. [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] We are confident the acquisition spending will see some pickup in the year ahead. We currently operate on an acquisition pipeline that contains targets in due diligence with a total enterprise value of more than €250,000,000 Before I pass you on to Joerg, I'd like to spend just a few moments on the rollout of our new branding, which included Connecting Chemistry as a principal scrap line to add further description to the Brenntech Brand. Feedback from our suppliers and customers alike has been very positive in terms of how they see the business model and the function of Brenntag in the supply chain, Creating literally hundreds of thousands of connections worldwide between manufacturers and end users. In addition, connecting chemistry is sold I would now like to hand you over to Georg for a discussion of the full year 2014 financials. Thank you, and Good afternoon, ladies and gentlemen. I'm speaking about the income statement. The world showed only moderate Even in this environment, we are able to report pretty strong results. The financials for 2014 once again reflect the robust nature of the business. We record pretty strong results for gross profit and EBITDA. Gross profit totaled €2,027,000,000 which represents a 4.8% FX adjusted increase against previous year. All of our regions to this growth of gross profit. So operating EBITDA totaled €726,700,000 We're presenting an increase of 4.3% at constant FX. If adjusting the year 2013 For the one off cost item relating to an old antitrust case in France, the growth rate of operating EBITDA is 1.9%. We are moving to the income statement with the P and L lines below EBITDA. Depreciation for the year amounted to €99,400,000 In addition, we recorded amortization of 35 €900,000 And the amortization mainly consists of customer based amortization in an amount of €28,300,000 The financial results totaled a net expense of €83,800,000 which compares to an expense of €60,700,000 in the previous year. The difference is mainly driven by an income item in 20 And net income item in 2013 is related to the revaluation of the outstanding payment obligation for the remaining 49 percent of our Chinese business, Songzhou. Overall, earnings before taxes remained high and amounted to €507,800,000 2.5% above previous year. For the full year, we recorded tax rate of 33.1%, Pretty close to the level of 34% to 35% that we usually indicate. Profit after tax amounted to €339,700,000 which is in line with the previous year. On the cash flow statement, on this page, we show the details for operating cash flow. So the The increase of cash flow is based on stable profit after tax, lower payout on existing provisions and some higher spending on working capital. With respect to the investment cash flow on the next page, spending for CapEx for the full year is €103,000,000 and that is About 8% lower than what we forecasted on CapEx in the course of the year. In the cash flow The statement, we show a spend under the title Purchases of Consolidated Subsidiaries and Other Business Units of €82,000,000 This relates to the acquisitions previously mentioned by Steve. The actual spending amount is lower Then the enterprise values of €140,000,000 As on the one hand, it does not include Fred Holmberg yet, Which was closed only 2015. And the spending in the cash flow statement does not include the debt that we have taken over with The main element of our financing cash flow is, as always, the dividend payment to our shareholders. I'll skip the balance sheet information and move on to net debt and leverage. Net debt increased slightly year over year by €68,000,000 to a total of €1,409,000,000 The increase in net debt is mainly translational And caused by a much stronger U. S. Dollar at the end of 2014, considering that the share of our debt is U. S. Dollar denominated. The group's leverage remained constant at 1.9 times. I will move 2 pages ahead to A small piece of our indebtedness is provided by NAR securitization and the AR securitization matures In June this year, we are currently considering our options. Given the strong cash position on the board balance And our mainly unused revolving credit facility of €600,000,000 we have all the financial flexibility that our group needs. The trade working capital amounted to €1,226,000,000 at the end of the year. In terms of working capital turns, we turned the working capital 8.6 times in 2014, A little below the 9.0 times that we achieved in 2013. 2014 again delivered a strong free cash flow of €521,000,000 Following €543,000,000 in 2013. The small decrease of €21,000,000 or 4% It's mainly driven by a higher spend for working capital. I'll pass back the presentation to Steve for a discussion of the segments. Thank you, Georg. Now let me take you through the developments of the segments for the full year on this Page 17 and Q4 view on the following page. Full year basis first. In Europe, it grew its operating gross profit by 4.3% on an FX adjusted basis, A strong development for the region. Operating EBITDA grew by 6.4%. Europe clearly benefited from efficiency enhancement measures In the past, we've looked at strong cost management performance. The conversion rate for the year totaled 34.6%, which was almost 100 Operating gross profit in North America grew by 6% in 2014, which is a pretty healthy growth rate. The operating EBITDA in North America was flat To last year despite the gross profit growth, which is mainly due to the higher cost expansion during the bad weather in Q1 and both of other resources in our oil and gas business And quite sharp inflation in transport costs during the year. I'd like to come back to that in the outlook statement. In terms of Latin America, our business in Latin America was met in Latin America, the FX adjusted gross profit growth of 6.1%. Following a weak start into the year, the development stabilized in the second half leading to an overall 2.9% growth in operating EBITDA. Venezuela and the existing business in Brazil had difficulty in the 1st months of the year, but have showed us a positive sequential trend during the year. Coming to Asia Pacific. Asia Pacific shows a 1.9% operating gross profit growth and the EBITDA was operating decreased by 13.1%. This is a result of the political situation in Thailand and the economic situation in Australia. It also reflects the expenditure in connection with the expansion of our management capabilities In the region, which are now broadly completed. As we'll show you on the next page, the Q4 trend was significantly more positive. So let me just reiterate. Our operating gross profit for the year grew by 4.3% and adjusted operating EBITDA grew by 1.9%. Before we move to the outlook, let's have a look at the developments of the segments in Q4 on page 18. On an overall basis, our position showed some improvement in Emerging Markets of Latin America and Asia Pacific. For Europe, the quarter showed a 4.6% growth of operating gross profit, In line with the development earlier in the year, this performance was broad based. North America had a stronger FX adjusted operating gross profit growth of 7.8 In Q4, you will notice that the operating EBITDA strongly increased in Europe and was lower than previous year in North America. Q4 each and every year is a quarter of various true ups, for example, with respect to accruals, provisions, supply and customer compensations and bonuses. On Group level, the net effect is not material. However, Europe saw some positives and North America saw some negatives this year. Coming to Latin America, segment of Latin America delivered strong 25.2 percent FX adjusted operating gross profit growth. With the sequential improvements of our Chinese business in 2014, which is continuing. Asia Pacific grew its operating gross profit by 2.7% and this into a 4.4% growth in operating EBITDA. It's probably worth mentioning that this is the Q1 for some time with a positive growth rate on EBITDA level, which we expect to continue. On an overall scale, the group delivered a robust performance in a difficult macroeconomic environment. We saw an FX adjusted operating gross profit growth by 7.4% and operating EBITDA grew by 3.6%. Based on the solid earnings developments of our group, we will propose a dividend of $0.90 per share to the General Shareholders Meeting in June. This represents an increase of 3.8% over previous year and underlines our commitment to the dividend policy. The proposed dividend reflects a payout ratio of 41%. I'm going to page 21, 22. Let me have a look at the outlook. We do have a positive view on 2015. On a global basis, we expect macroeconomic growth at rates slightly higher than those observed in 2014. We expect gross profit to grow and consequently also EBITDA to grow. We expect to benefit from a somewhat better macroeconomic developments in Europe. In North America, we have positive expect to return to growth in 2015. After the changes and the efficiency improvements we have carried out in Latin America over the last years, We expect to see continued improvement in the conversion ratio and therefore grow even in uncertain macroeconomic conditions in the region. Similarly for Asia Pacific, We expect to see a continued positive development following an improved performance in Q4. We expect to give quantitative guidance later in the year as we have done in the past. Many analysts and investors are interested to understand our position on oil and gas in light of the very sharp fall in oil prices we saw last year. For our business, the largest sales to the oil and gas industry are in North America. And our business is split between the upstream, midstream and downstream parts of the oil and gas sector. Upstream is affected by the fall in prices as some drilling rigs are now idle as a result of unfavorable economics. Midstream and downstream chemical production, however, are more favorably affected by the changes in terms of costs, raw materials and profitability. The effects of our business is broadly neutral. In addition, we see the upside of the North American and European manufacturing sector, particularly compared to a year ago where energy and Transportation costs were higher. Currency translation will have a positive impact this year. Last year, we translated the results achieving U. S. Dollar, mostly North America and Latin In euros 2 at the average rate of close to US1.33 dollars per euro. Current trading is around US1.1 dollars Should this rate prevail throughout the year, we expect a translation benefit of some €50,000,000 We do plan to some CapEx increases in the year by about €20,000,000 to support the future growth of our business. Finally, the free cash flow is expected to be meaningfully higher And then in 2014, based on different elements mentioned above. Now turning now to the current trading environment. We continue to see growth in the 1st 2 months of 2015. Gross profit per day for the 1st 2 months of 2015 were ahead of the same period in 2014. We see a reasonable start in Europe in 2015, which is running against a quite strong prior year comparable in the Q1. North America is headed off to a good start in 20 Clearly, last year's Q1 results were heavily affected by bad weather conditions. Actually, the weather in the first few months of 2015 are already quite difficult in some areas with a number of site closures, but we're very much better prepared this year compared to 20 14. Therefore, the impact will not be as large. In Asia Pacific, the positive development has continued In light of the 1st 2 months of trading in 2015 following on a good 2,040 last quarter. Gross profit per working day grew by 8.2% year over year in November, 4% in December, 5.6% in January, 4.1% in February. In closing, we are confident that we'll grow all the relevant earnings promise in 2015 with a mixture of both acquisitive and organic growth. In line with the solid improving macroeconomic conditions, Brentech remains very well positioned to capture new growth in both established and emerging markets. I would be very happy to answer any of your questions. We have a first question From Andy Hsu, Deutsche Bank. I'm sorry, Mr. Xu, your line has now been disconnected. We'll move on to the next person who is Rod O'Gomez, Exane BNP Paribas. Hello. This is Gerhard O'Gomez from Exane BNP Paribas. I guess, if any is around, I'll ask the question about gross profit per working day on an organic basis. And also I didn't hear February was at 1%. And I've got 2 more questions. The second one is Q4 conversion ratios in emerging markets, is this a new level that we can Put down for next year, were there any positive one off effects? And thirdly, apart from Fred Hulberg, do you Any cash out for the acquisitions that you've already made in 2015? Yes. Yes, it's Georg. Let me respond to the question for gross profit per working day growth rates on an organic basis. I'll pick up again with the November 2014 numbers. In November 2014 number, Gross profit per working day growth on an FX adjusted basis was 8.2%. If we adjust Additionally, for acquisitions, we end up with an organic growth rate of 6.3%. Moving to December, We had 4% on an FX adjusted basis. Additionally, adjusting for acquisitions, we are at 2.4%. January was FX adjusted 5.6% and organically 4.1%. February was 4.1% and on an organic basis 2.6%. We don't really have a specific thought with respect to conversion ratios emerging markets in Q4. There is no material one offs in there. We do see some improvement in the business in the emerging markets, particularly in Q4. So from today's perspective, I would not expect any pressure on their conversion ratios this year. And just remind me please what the third question was. You don't if I understand you correctly, you don't expect any further cash outs For the acquisition already made in 2015 apart from Fred Hollenberg, yes? Yes. The cash out for Fred Hollenberg will come. And there are smaller purchase price holdbacks, which we will pay on former acquisitions, but these are not material. Okay. Thanks very much. Thank you. We have Ani Chubak on the line. Your line is now open. Thanks very much. Good afternoon, Steve, Georg. A few questions for me, please. Just starting with North America. Could you just explain why that gross Perfect number was very strong for Q4 at +7.8%. Also in North America, I mean, a third of your North American business is oil and gas. So could you tell us what's happening in terms of the growth rate In the upstream business, which I think is 10% of that business versus the rest. And then in terms of the CapEx spend, is that EUR 20,000,000 a one off bit of CapEx that's going in, in 20 And where is that going please in terms of expansion? And obviously, whether that's sustainable going forward in terms of a new run rate? Thank you. Okay. David, to the upstream. Should I take it over, please? Yes. Let me start with the oil and gas question, Andy, to avoid a misunderstanding. Roughly 30% of our North American business is with oil and gas customers, so 10% of the group or 12% of the group, 30% North America, but that would include upstream, midstream and downstream. The upstream business is clearly less than a third of Oil and Gas Business in North America. If I look into gross profit development, oil and gas combined over all three segments, upstream, midstream, downstream, We are basically flattish since a couple of months. Yes, there is movement underneath between the speed pieces, But we would rather not disclose the underlying movement. It's not that material. The CapEx question, Mansek group has grown considerably over time. We have been and will continue to be very selective on CapEx. We actually expected to increase the CapEx already to some degree in 2014 and expected a Spend of €110,000,000 which we did not fully do. We only spent €103,000,000 out of a budget of €110,000,000 We expect to move to a level of about €120,000,000 going forward. I would not particularly call that a one off. I would more say This is in line with the growth the group has seen over time. There is behind the CapEx increase, there is not one specific additional project. We are basically talking about smaller growth projects around the world. We haven't responded yet to your On North American gross profit growth, I'm not sure if this was just general question about North American gross profit growth in Q4 or if there was a Specific gain on to it Andy? Sure. Just in terms, Georgi, if 30% of North America, which is oil and gas, is basically flat, then It implies the other 70% is basically growing, I guess, broadly at double digit growth rate. So just wondered where that strength is coming from, which customer segments are driving sort of It's very material growth in North America, please. And we are operating around the world also in North America, A very broad regional and customer industry mix. The business in North America gross profit wise It's generally going pretty well. There's no customer industry that is particularly worse To be noted specifically. But I guess in terms of your business generally tracks sort of industrial production and GDP. So there's quite a big Disconnect, I guess, even U. S. As a region being quite strong globally, just feels like, are there a lot of market share gain or So far, we are looking into pretty short time periods. It's not that long ago that the oil price has actually fall. We think that needs to be observed for a couple of more months or a couple of more quarters. Okay. Thanks very much. Thank you. The next question is from Alex Magni, HSBC. Yes. Good afternoon, everyone. Just to wrap up on some of the oil and gas related questions. I understand that the effect on The top line is roughly neutral with presumably some of the more upstream parts of the exposure under a bit of pressure being offset. If I were to think of the cost base, however, to what extent is the additional investment Brenntag made in that U. S. Business the oil and gas business last year sort of dedicated to those components, those bits of the oil and gas Exposure. So even though you can neutralize at the top line, should we expect to possibly see some gearing, some net negative [SPEAKER JACQUES VAN DEN BROEK:] Because the upstream infrastructure is essentially fixed and dedicated to that business. I'll take that one. Actually, during the course of 2014, we did invest time, effort, resources, people in the upstream area. And actually, and so today was before the knowledge of a major shift in oil prices. And But we are in a position where we can take some of that cost out because a lot of it is actually activity related. We do feel The business is responding very positively to the shift in requirements from the customers in this area. There's a number of rigs which have been Stacked and actually are not operating at the moment. And we have been able and are continuing to downsize resources where they're not required In that part of our oil and gas sector, I think also it's worth noting that you may recall there was a significant Inflationary effect in transport last year, which was in part driven by oil and gas in so far as oil and gas We're taking a lot of spare capacity out of the 3rd party distribution fleets. We would expect to see the reverse of that As some of the drilling units are not operating in the current economics and therefore equally we'd Expect to see the cost of transportation, which was quite badly hit in the first half of last year to be consequently Pushing in the opposite direction, we expect to see some savings on transport costs. So whilst it's clearly the Upstream area is going to require some, in fact, downsizing of costs where we can and we can do that and are doing that. We also see other elements which were affecting us as a result of the expansion of the upstream coming back in our favor during the course of 2015. Actually you've touched on it. But as a broader comment, if I look at the conversion rates pretty much across the group, they were Good. To what extent is the lower distribution cost and the lower diesel cost Helping to drive those conversion rates? Or is it as much as anything just additional Volume on a cost structure which is remaining more tighter? I think it's all of the above actually. I don't think you can actually separate Now it's one being distinctly more beneficial than the other. We do have a very tight control of costs. And in North America, in particular, We have taken action to make sure that costs are in line with requirements in terms of capacity and what have you. We do expect To see something like an 8% reduction in our transport costs and fuel savings, but you're clear there are also some other issues in In terms of availability of trucks, but nevertheless, we will see a reduction in operating costs in transport. And that obviously has a positive effect on conversion ratios in the course of the year. Okay. And then just last one on this whole theme at least from my side. If I look at your inventory holding at the end of the year, it's about 14% up on last year. And I understand that that was that there's going to be a lot of ForEx effect on translating that inventory. But in view of Sort of an oil and gas headline price that fell nearly sort of 50% or 40% between the middle of the year and the end of the year. I suppose what I'm asking is to what extent has that oil price fall been fully reflected in the price Of things coming out of chemical manufacturers, is there a forward selling issue That when this rolls off, we'll start to see the prices of at least the bulk side of the chemical inventory continuing to drip down? Yes. I think we haven't seen a really significant drop off in chemical pricing as of yet. We do expect, with the basic economics of oil being where it is, that we should see some falls in chemical pricing In oil related feedstock streams, I wouldn't we expect to see that feeding through into our business During the course of the Q1, not probably the Q2, which will have an effect in terms of freeing up working capital as a result of that. But we also expect, if we've been absolutely honest with ourselves, a better performance in inventory turn whilst Yes. We are on top of inventory, but we as a company, we're not satisfied with the performance of the year end. And therefore, we will put taking some internal actions to improve inventory turn in any case. Right. I don't expect any Significant shifts in pricing in a dramatic way. Okay. Great. Thanks. I won't have the phone. I might come back later. Thanks. Thank you. The next question is from Juss Frittakerma. Your line is open. Hi. Thanks for taking my question. I have 3, if I may. The first one is basically just a confirmation. So did I understand correctly that in your outlook for 2015, you're looking for U. And question is on the conversion rate, which was always stated to be the most important efficiency ratio for Brenntag. However, if I look at the current presentation on your homepage, the chart is no more included. And also this figure dropped In 2014 below 36% after levels above 37% in 20112012. So I was wondering is that ratio not in focus anymore? Where do you see this figure going forward? And the third question relates to the growth rates of gross profit and EBITDA. Basically, if I look at the CAGR From 2005 to 2014 and the more recent one, 2010 to 2014, there has been quite a slowdown. And I was wondering what's the reason for this? Is there anything structural? Or is that just a natural development due to the growth that or the size that Brantac has Already achieved. Thanks. Yes, Georg. Conversion ratio is in the focus as it has been. If it is at this moment not in the general company presentation on the homepage, it's due to update and It will be back on in a couple of days after we finished that layout work. With respect to U. S. Dollar translation, I'm not sure what the actual question was. I mean, we obviously have a U. S. Dollar trading currently much stronger Over the average of last year, we do generate roughly half of our business in companies that are U. S. Dollar functional And that will give us a tailwind we discussed. You need to help me what the exact question was. I was wondering if you would if you have stated The assumption for the U. S. Dollar in your outlook, do you have a certain ratio in terms of like 1.10, 1.5, 1.6? No. What we generally indicate to the market is a rule of thumb. And the rule of thumb is If the U. S. Dollar euro rate moves by 0 point 0 $5 so say from 1.15 to 1.10 This will impact the EBITDA by about €12,000,000 We don't have a Pacific U. S. Dollar euro expectation for this year. In the outlook statement, we mentioned the EUR 1.10 because EUR 1.10 is about what we currently have, And we deem it important to disclose that the translation effect on that basis will be pretty material. Okay, understood. Can just double check on your third I was looking at the growth rates of gross profit and EBITDA historically. So comparing CAGR of 2,005 to 2014 as it is stated in your current presentation. So there's the gross profit CAGR of 8% and EBITDA CAGR of 12%. However, if I look at the more recent Time line comparing 2010 CAGR 2014, the growth actually slowed down to gross profit 6% and EBITDA growth of 5%. So I was wondering where this slowdown in growth comes from? Yes. I guess historically, it's difficult to nail In terms of the timescales, I guess, we have had a number of recessions in Europe during this period. But nevertheless, I think, directionally, Yes. Our GP is increasing and has increased well in the regions during the course of 2014. And our expectation is that the ratio of GP conversion into EBITDA should be a higher conversion into a percentage of EBITDA improvement. So I would not see a 6% increase in GP as being a 5% increase in EBITDA. We should see higher levels of EBITDA under normal circumstances. So that's probably where I can probably leave it at that. Okay. Understood. Thanks. Thank you. The next question is from Simon Mitinotti, Berenberg. Hello. Good afternoon. I just had a question about your North American costs, operating costs increasing by something like 21%. I think you talked about Some changes in provisioning, which affected the number. I was wondering if you could give us more details on that. And also conversely, In Europe, I think you said you had a maybe better than expected margin improvement. And I was wondering if you could give us a sense of what, Let's say, an underlying improvement would have been without these one offs? Yes. It's Georg, Simon, I'm not even sure I would call this a one off. But each and every year end quarter is a quarter for usual cleanups In all types of provision, in customer bonuses, in supplier bonuses, in supplier payments of each and every type, I would reiterate that on a group level, the Q4 2014 over Q4 2013 Does not see any material movements between 2013 2014. Yes, obviously, the European segment this quarter Benefited from the cleanups, the North American quarter suffered a little bit. But we don't think it adds material value Now to dissect the segment movements for any particular quarter. Thanks, Georg. When you say I mean, when I look at the group in Q4, the group was still down 100 basis points versus last year. In conversion, you mean? Yes. Yes. That's the I agree. That's a theme That was with us through big parts of the year and it's basically from the growth challenges we had in Q1 and Q2. The gap was much narrower in Q3 and Q4. But am I not right to think that Q4 conversion margin was also down Year on year in Q4 specifically? Q4 conversion margin was a little bit down against previous Okay. And looking at Q1, what should we expect that conversion margin, Specifically, North America and Europe to continue to improve, do you think? The only reason I'm hesitating is to make a quarterly statement. We for sure expect further efficiency improvements in the group and we for sure would expect On the group level, on an annual basis to see conversion ratio improvements of 40, 50 basis points, I would not have a particular reason to believe this does not materialize in Q1, but conversion ratios on a quarterly level, so on a short time frame, Difficult thing. I guess also maybe my interest in strategy, directionally, you might expect to see North America improve. And 2014 was not the very best year we've seen for North America and that was surrounding cost base with very strong gross profit growth, but Therefore, I would expect to see 2015 as a much more balanced year for the North American business. And as a result, you'd We have a further question from Annie Chu, Deutsche Bank. Just three more follow ups please. Just in terms of Asia Pacific, what was the incremental cost Could you just run through, please, Steve, what's happened in Europe? The growth rate was pretty decent in Q4. So on a sort of countrywide basis, how does Europe look, please, by country? And then in terms of the M and A that you made in and the impact of M and A, When I look at the revenue contribution of €131,000,000 and a disclosed profit after tax number of €2,800,000 that implies a 2.1% profit after tax margin, which seems A pretty low margin. And certainly, if you look at the M and A contribution over the last 3 years, that is a very low margin Compared to the last 3 years, so could you just explain why that is the case? Has there been any sort of Issues with M and A that you've made over the last 12 months? Thank you. Well, I'll just take the European margin. I mean to be fair, It's a very much I think I may have mentioned it's a very broad based performance in Europe. We don't have any particular Outliers in terms of the businesses that are underperforming. We are pretty pleased with some of the what I would consider being previously weaker members of The group such as Italy particularly, which has shown sequential gains and improvements there. And again, The normal spread, if you like, is it's right Europe as you might expect. And in terms of the northern countries such as U. K, Nordic, Benelux, Germany Our strong and solid France remains A relatively weakish environment and we continue to work hard on our French business. Spain, Italy And in the right direction, Eastern Europe positive. We have hardly any effects From the Russian Ukrainian situation in our Asian European business, it's really quite a small contribution to our level to our business currently. So again, Europe, pleased with the broad based performance in 2014. And looking at so far, we appear to be heading the same sort of direction as trading starts this year. On the Asia Pacific, the additional costs taken in the regional headquarter in Asia Pacific Close to €3,000,000 €3,000,000 on a full year basis. I'm not sure I got the question on M and A, if I could ask you to repeat the Question? Sure. So actually, as in your annual report and accounts with the disclosure on M and A, which is actually Page 158, You on the note basically discloses revenues of €131,000,000 and on a profit Basis doesn't give EBITDA, but gives a profit after tax number of €2,800,000 which basically implies a profit after tax margin of 2.1%. And I appreciate that's the only profit number that I can see. But if I were to look at that margin Versus M and A over the last 3 years, that's a pretty weak margin. It's basically half the lowest margin over the last Of M and A over the last 3 years. I just wonder why that margin looked quite so weak. I was just wondering whether there's any issues in terms of What you've acquired was a significant earning more start up cost, but it just seems a lower amount of profit after tax contribution? It's mainly purchase price allocation issue. So what do I mean by that? The profit after tax number that is Disclosed in the annual accounts following the IFRS rules is a profit after tax number for acquisitions After customer base amortization. So it can be a number that varies widely between different acquisitions depending How much of the assets purchased is actually customer base and how much is goodwill and how much is tangible assets? It's from our perspective, not really a meaningful number. Okay. Great. That makes sense. Thank you very much. Thank you. We have a further question from Alex Bagney, HSBC. Yes, thanks. A couple of Follow ons. Just related to the provisions and the accruals that Sort of come out of the wash in Q4. I'm trying to understand What if you could just flesh out some of the more important sort of accruals and provisions and what makes them so difficult to sort of Accru for properly through the year. If I look at Europe, for example, the sort of volume growth, the gross profit growth has been relatively stable, Admittedly, a bit more of a jump in the U. S. So what is it that makes this a bit lumpy in Q4? Why is it I don't think we Accrue we accrue poorly on a quarterly basis. Again, on a group basis, there is no material impact on Q4. Why is the movement between the segments a little bit difficult? The type of things we are talking about It's a true up on environmental provision. It's a true up on supplier bonuses. It's a true up on customer bonuses. And these are typically accrued by a leading region, by one region within the group and you only do the distribution So SAI is distributing it throughout the group on the segment on a full year basis because it's quite a lot of workload. Crude in one region and there's essentially an interregional transfer that a part of it is That's what we're seeing. And is that what affected so if I look at Q4 last year, the conversion rate in the U. S. Was very, very strong. And actually that's what that was To my mind, it's creating the comp on this year, making this year's conversion in the U. S. Look weak, when Probably isn't as much as last year, it was something like 47%. Was that the reason that the Q4 conversion comp was so Challenging for the U. S? Was it these sort of accruals being washed? Yes. When I said a little bit earlier, the effect is not TUEL for the group on Q4 this year, but Europe saw some positive and North America saw some negative. It's actually exactly what you mentioned. It's not really negative North America Q4 2014. It's more positives Q4 2013, which did not repeat. Okay. Yes, understood. And then second one, in terms of, I suppose just coming back to the M and A contribution. If I looked at the total contribution from M and A, so you've called the 131 From the acquisitions done in 2014, if I rolled the 13s over as well, would I get something like EUR 160,000,000 EUR 165,000,000 of total M and A Contribution? Rough number? On sales basis you mean? Yes, on a sales basis. Honestly, I wouldn't know that number. We rarely think in terms of sales. Okay. You're asking 15 over 14 Which period are you asking? Yes. So if I look at the so the contribution to your revenue growth from acquisitions made in 2014 It's €131,000,000 But if I look at the rollover of the acquisitions made in 2013 for Lubrication Systems and Sky Environment, I get something like another €30,000,000 €35,000,000 I was just wanting a rough estimate on that. So the acquisition impact 14 over 13 is on gross profit around €30,000,000 €30,000,000 €30,000,000 €30,000,000 to €35,000,000 At around €10,000,000 on EBITDA, I have to admit I don't know a sales number. The number you are mentioning is that seem reasonable. Okay. And then just a last one on that. As I understood, Phil Chem wasn't a distributor. It was more a procurement business. So the margins there would have been sort of really low. So if I were to look at the P and L of Silkem, would it look very different to Your P and L in terms of where the margin falls? That's true. But in the relative to the size of the group, Silkem is not there. Okay. But if I looked at Silkem in relation to the total M and A contribution we're talking about at the top line, it might have been about half of all of the M and A? I agree. Okay. Perfect. Thank you. Thank you. We have a question from Chris Gallagher. Hello. Just a quick question on M and A. You talked about things that are in due diligence. Could you give us any view on regional areas you're focusing on? [SPEAKER JAIME SAENZ DE TEJADA:] Yes. I can take that. We still have a very positive view of North America. And you probably won't be surprised to hear that we are looking at Asia Pacific. We've carried out quite an extensive review of our Asia Pacific and a number of targets in that area. And we spent as you know, we've spent quite a lot of time and effort Providing resources into that region to allow them to grow by acquisition. So we are Our ambitions would be to grow our business in Asia Pacific this year by acquisition. But equally, we believe we have a number of Very sustainable and value accretive opportunities in North America. There will be we expect to see some add On bolt ons in Latin America, Europe, small additions, But nothing substantial is expected in terms of a major add on to the European infrastructure this year. Okay. Thank you. Thank you. We have a further question from Anishu Deutsche Bank. Just on a question on Asia Pacific. Could you remind me of the waiting please of China, Thailand and the rest of Asia Pacific, please, in terms of the split. And then just within those three buckets, what's happened, particularly in Q4 In terms of the growth rates, which I guess are all organic, they have us the 2.7% FX adjusted GP growth rate Look like split across those 3 buckets please. Yes. In terms of EBITDA, Thailand is roughly One quarter of our Chinese business sorry, of our apologies, of our Asian Pacific business. The other pieces you were asking for is Have me again, Andy. It's China, which is on the 3rd quarter of our Asian Pacific business. And Australia is much smaller. Australia is a little bit north of 10%, maybe 15% of our Asia Pacific business. And in terms of growth rates of China. China grew in Q4. Thailand and Australia were somewhat down against previous year. And the issue in Thailand, I guess, in Q4, there's been sort of less disruption, I guess. Tide floods were a long time ago. The military coup is probably over. It's obviously political instability. But why is that And Thai business actually down or did I misunderstand that was a full year on a full year basis or Yes. I mean, Andy, I think as far as Talend is concerned, the Talend used to be the largest part of the Asia Specific contribution, EBITDA contribution. I would have said in the last 4 to 5 months, Vietnam has actually become a larger contributor on a monthly basis in Thailand. And this is because Thailand itself is suffering economically in terms of People literally moving production out of the country and they've not been able to compete effectively against new markets, new producers such as the Vietnamese. So if I was going to give you a bit of a color for Asia Pacific in 2015, I would say that we will probably end up the year with Vietnam being a much more significant part of the Asia Pacific business. China continuing to grow Sequentially as it has been throughout the whole of 2014. Thailand, we would expect to be probably flat Until there's some serious sorting out of the country's direction. So this and Australia is flat, going nowhere due to the somewhat For Economics. So I think that's probably the best color we can give you in terms of where we see Asia Pacific. Great. Thanks very much. Thank you. The final question is from Sami Mitinotti, Berenberg. Yes. I'm sorry. I've got another question on the conversion margin in Q4. If you say that accruals and provisions wash off at group levels, can you explain why the margin in Q4 is down Almost 100 basis points. I'm asking this because you talk about the investments in oil and gas and the higher transportation cost That obviously had an impact in Q2 and Q3. And given that presumably those have had not an impact in Q4, I would expect the conversion margin in Q4 to be slightly stronger at group level. Well, I don't think your assumption of the oil and gas effect went away in Q4. Yes. Clearly, we're taking action to reduce our operating costs. Transport costs, I think were not There was no relief on transport costs in Q4 for North America. We see we do see relief on transport costs coming through now. It would be fair to say that when we got to the end of 2014, we ended up with an oil and gas business, which was geared up for growth, Which was and we're talking about the upstream element here, gated for growth, which has actually been in the opposite direction. So we've now we've obviously taken action to reduce those costs. Therefore, you will expect to see during the quarter 2015 those Conversion ratio is to go in the right direction. But I think, obviously, you can't nail it to just a quarter. It's just too short a period. Thank you. Thank you. And we have one last question from Carl Green, Credit Suisse. Yes. Thank you very much. I've got a couple of questions. The first one just around M and A. You mentioned that one of the deals fell over because the sellers Couldn't meet conditions precedents close to closing. Can you just elaborate on that as to exactly what happened and perhaps how big that deal was? Also, I suppose the second part of the M and A question is, are there any medium or sort of reasonably large sized deals in your pipeline as it stands at the moment? And then question 2, just back to this issue about chemicals pricing. When you made that comment about pricing holding up reasonably well, We're talking there about your purchase pricing or your selling prices there and just linking that to Working capital movement that we might see as we go through into Q1 and Q2, are you expecting to see I mean, I think you've hinted There might be a reasonable working capital movement positively in your favor. Can you sort of quantify that potentially? I think just on purchase price and selling prices, I think it would be fair to say that most chemical manufacturers are Trying to hold their prices as long as they can, even though they are benefiting that Quite considerably through reduction in raw material costs, but the selling prices into the outside market are being held aggressively. How long that will continue is a good question. But if I was my view would be that So you would see in terms of straightforward revenue per unit a drop in overall chemical prices The year goes ahead and clearly selling prices for ourselves will come down at the same time as a pass through model during the course of that pricing cycle. And therefore, you would see some whining of working capital in that respect. [SPEAKER JAIME SAENZ DE TEJADA:] As far as acquisition is concerned, the acquisition is concerned was PMA in India. And I think the value we say at the end of first radio was a little bit more, so €20,000,000 Yes. And I'm not sure I can really give you much detail as to why that transaction didn't go ahead because it is subject to agreements with the seller. But Suffice to say, and maybe this is perhaps a reasonable thing for people to take away that we as a company Don't get deal fever. And at the end of the day, if the transaction is not right, we don't proceed. And to some extent, I wonder if we get a little bit of criticism that we are ultra thorough on M and A. And we do walk away from a number of transactions which others may have taken. And in fact, we know quite recently which way it went to private equity where For values which we would never have considered. So in the case of the Indian one, it was just simply the deal was not would not have been correct had we signed it. I think that was the 3rd question. If you have medium sized deal to add? Yes. I think Yes. To be fair, I would say the largest transaction, which is currently in effectively Post of our actual due diligence would be over $100,000,000 Okay. Thank you very much. Thank you. We currently have no further questions. Right. Okay. In that case, I'd just like to thank everybody who's joined the call. Thank you very much indeed for your questions. And we'll finish the call there. Thank you very much. Thank you. Ladies and gentlemen, thank you for your attendance. This call is being concluded. You may now disconnect.