Earnings Call: Q3 2014

Nov 5, 2014

Dear ladies and gentlemen, welcome to the Brenntag AG Q3 2014 Results Call. At our 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. May I now hand you over to Mr. Holland, who will lead you through this conference. Please go ahead, sir. Thank you very much. Well, good afternoon, ladies and gentlemen, and thanks a lot for joining our review of the Q3 2014 earnings. For those of you who've joined us over the phone, I'm here with Bill Fidler, our Board Member for Bank of America and Guillaume Muller, our CFO. We also have most of the sell side analysts with us and we're hosting an Analyst Roundtable blitz today here in London. Let me just say some words on the macroeconomic environment. Overall, the global economy remains on course of moderate recovery. However, the picture is somewhat mixed where we see a positive trend in North America and a softening economic developments in some countries in Europe. The overall economic environment in Latin America remains weak with low growth rates in industrial and production. The Asia Pacific economies continued to grow into Q3 2014. In Thailand, a slight upward tanker was seen after a weak environment in the first half of the year. Australia showed a slowing economic development with only marginal growth in industrial production. In its mixed environment, Brenntag Group was able to grow gross profit by 4.5% on a constant FX basis. The operating EBITDA in Q3 2014 Amounts to €189,100,000 and this represents an increase of 3.1% on a constant FX basis. Pushing the first half of twenty fourteen where FX development provided some headwinds, this was not the case in Q3 due to the strong U. S. Dollar recently. You'll find that our FX adjusted growth rates are very close to the corresponding as reported rate. This positive development is translated into an earnings per share of €56,000,000 which represents an increase of 7.7%. We were able to announce the signing of KeyManc acquisition in Italy And Piyoma in India. Both companies provide increased our strength of our market position in the prospectus segment, and we will provide you with more information later in this presentation. Moving on to the operating highlights. On this page, we are showing you how this translates into a full set of numbers. Gross profit totaled €520,300,000 4.5 percent of the previous year as previously mentioned on an FX adjusted basis. Operating EBITDA €189,100,000 again 3.1%. The EBITDA GP conversion ratio of 36.3% is Slightly below the 56.8 percent conversion ratio of Q3 2013. Nevertheless, we'd like to emphasize the positive conversion ratio trends. Q3 conversion ratio is the highest this year so far. Our free cash flow for Q3 2014 was €137,700,000 €168,000,000 in Q3 of last year. Moving on to the acquisitions we made. On 31st October 2014, we closed the acquisition of Chemo in Italy. In 2014, we expect Kinab to generate a sales in magnitude of €32,000,000 and an EPS of €3,600,000 on a stand alone basis. EVAVE is a dedicated supplier of food ingredients and semi finished products for several food subsectors in Italy. This acquisition Helps us to become market leader in several food industry segments in Italy. We were pleased to announce the acquisition of an Indian based distribution platform, Pioma. The transaction is not yet closed, but is subject to conditions precedent. For 2014, PMA expects it to reach sales of about €17,000,000 and EBITDA of €3,800,000 On a standalone basis, CMO is leading distributor of ingredients in Pharmaceutical and Personal Care and Food Industry across India. This follows the successful acquisition of Ziatek in Mumbai last year. Now I hand over to Georg. Yes. Thank you, Keith. Let me walk you through our income statement. Starting on the gross profit line, the figure was actually already mentioned. The quarter delivered a gross profit totaling €520,300,000 and €520,300,000 of gross profit We present an FX adjusted growth rate of 4.5%. It is relevant that all our regions Europe, North America, Latin America, Asia Pacific contributed to the growth of gross profit. On an operating EBITDA level, operating EBITDA for the Q3 amounted to €189,100,000 And that we present an FX adjusted increase of 3.1%. Talking about The conversion ratio, the EBITDA to gross profit for the quarter was 36.3% And that is slightly below still slightly below the 36.8% conversion ratio we realized in the Q3 2013. However, if you look into the earlier quarters this year, we are on a track. We continue our track to close the conversion ratio gap against previous year. We mentioned the main rationale in the previous quarters. To a large extent the lower conversion ratio is attributable to the initiatives That we have started to grow gross profit and we already faced costs ahead of the actual gross profit generation, Which was a drain to conversion earlier this year. But you will see as I already mentioned that this quarter's For the sake of good order moving through the income statement below EBITDA, depreciation for the quarter amounted to 25 €200,000 and amortization added up to €9,400,000 The financial result is a net expense Of €21,800,000 and that is below last year's expense of €23,300,000 And to a large extent, the reduction in financial expenses is attributable to our refinancing earlier this year in March. Overall earnings before taxes amount to €132,700,000 And that is 6.5% ahead of last year. We recorded tax rate of 35% for the 3rd quarter In line with the 34% to 35% indication we generally give. Earnings per share amount to 0 point 56 dollars Or $0.60 if we exclude amortization and any changes of the Song Jong liability. Moving to the cash flow statement, first to the operating cash flow. So operating cash flow amounts €107,100,000 and that follows €84,900,000 in the Q3 2013. It's outside the door. There's a little bit of beeping noise. I hope it doesn't impact the telephone lines so much. It's Ahead of the door, which hopefully will be gone in a minute or so. I'm still on the operating cash flow slide. Keep in mind when you see the operating cash flow improvement this quarter that last year's quarter was impacted by the payment To the in France relating to the French competition law case and that amounted to €48,000,000 So some of the improvement this year actually comes from the non repetition of this one time payout. That positive impact on the cash flow is partially offset by some cash outflow For working capital in the Q3 this year, which we didn't have last year. Moving further down the Cash flow statement. Investment cash flow is in line with the level of the Q3 of last year. And actually there are no special items in the investment cash flow. Financing cash flow shows a Cash out of about €38,000,000 and that actually represents that we use a share of our cash generation To repay some of the local borrowings, which is which frequently occurs in the normal course of business. I would skip the balance sheet information and go to the leverage information on page 13. Net debt decreased to the core during the quarter by €43,600,000 And now amounts to €1,466,000,000 at the end of the 3rd quarter. The decrease of net debt is mainly driven by ongoing cash generation of the business. The positive impact of Cash generation on net debt is partly offset by a strengthening of the U. S. Dollar. So the conversion of our U. S. Dollar debt into euros at a Stronger rate partially offset the net debt reduction. The group's leverage remained constant at 2.1 times And remaining constant means it is in line with last year's Q3. I would skip the leverage time line and probably also the maturity profile and move to The working capital information on page 16. Trade working capital amounted to €1,248,000,000 at the end of the quarter. And in terms of working capital churn that represents a slight decline in working capital terms to 8.7 times on a year to date basis. If you prefer to look into working capital terms not on a year to date basis, but on a last 12 months basis, You do see very similar figures on a last 12 months basis. Working capital turn amounts to 8.6 times. The cash flow generation the free cash flow generation of the quarter amounted to €137,000,000 It is somewhat below last year's cash flow generation and that is driven by some cash out for working capital increase in course of this quarter. And I would hand it back to Steve. Thank you, Bjorn. Now let me walk you through the developments in the segments for the Q3. Turning to Europe first. Europe's operating gross profit increased by 3.2% on an FX adjusted basis. This quarter is a continuation of an ongoing solid operating gross Developments in Europe, both demonstrating growth and resilience. The operating EBITDA increased by an FX adjusted of 4.4%. It should be noted the efficiency in Europe in Q3 improved with a conversion ratio of 34.3%, which compares to 30.9% in the Q3 of 2013. Into North America, Brenntag North America's operation GP growth accelerated in the Q3 of 2014 to 6% On an FX adjusted basis, while we still face higher cost pressures from a number of factors like higher transport costs seen across most regions of the United States, We've been increasingly successful in recovering these costs with effective sales price management and other efficiency measures. As a result, our EBITDA growth in North America almost fully matched the GP growth rate with a 5.2% on an FX adjusted basis growth. In July, in May, results in Latin America were again influenced by the situation in Venezuela, although we now we start to run against lower prior year comparables. At the same time, the macroeconomic situation in Brazil remains somewhat uncertain ahead of the recent election. On the other hand, our business has benefited from improvements in some of the sub regions As well as the contribution from our recent acquisition, Gabor based in Brazil, and we're delighted with its performance to date. It's doing well. As a result, we are reporting a 7.5% increase in FX adjusted gross profit. The operating EBITDA increased by 8% on a constant currency basis, The first positive growth since Q4 2012. Into Asia Pacific. Asia Pacific showed a 2.1% growth in operating profit on an FX adjusted basis. While the situation in Thailand has improved and is stabilizing, we continue to see weak economic demand in levels in Australia. At the same time, we've seen impact from our investments in the upgrade of our capabilities in Asia Pacific, where we want to build our infrastructure to Promote further growth in the region, and this is reflected in higher personnel expenses. We are now approaching the end of this process And are well positioned to expand further in the region. As a result, operating EBITDA declined by 16.8% on a constant currency basis. Now let me come to the outlook for the full year. The 1st 9 months of 2014 have been characterized by a moderate growth in GP in a mixed macroeconomic environment, the trend improved in the Q3 and confirmed the full year guidance range of EBITDA of €700,000,000 €720,000,000 In Europe, we expect to see continued growth in a somewhat mixed macroeconomic environment. In North America, we expect to see ongoing improvements in our oil and gas business as well as growth in our caustic soda business and expansion in our focus industries, In particular, Specialty Chemicals. For Latin America, for the full year, we expect a moderate decline of our operating EBITDA Due to the downturn in Venezuela and ongoing economic environment in Brazil, at the same time, we will keep our expenses tightly controlled Asset Management is already implemented. The business is similar in Asia Pacific, where we envisage a decline in earnings on a full year basis, It is mainly driven by the expectation of no forward economic momentum in economies of plan and Australia. That's the working capital. This is the large to a large extent a function of sales and chemical pricing, and we expect it to be higher at the end of 20 14, we compare it to with the year end 2013. As mentioned previously, we plan to see some CapEx increases this year by about €10,000,000 To appropriately support the development of our group. Science to free cash flow is expected to roughly match the high level achieved in 2013. Now let me come to address current trading. Now I see that we've got Andy Chu in the audience. So I'm going to answer Andy's question before we get to chance to ask it. And I'll try and give you our gross Profit per working day improvements including organic growth. So I'll try and do it slowly. The gross profit per working day grew by 4.5% in July, Of which 3.3% was organic. Gross profit group per day grew by 6% in August, of which 4.3 was organic, grew by 3.9% in September, of which 2.5% was organic. And our first indications for October is that our gross profit working day has grown by just over 7% Of which 5.5 percent is organic. In closing, we remain fully convinced on the business model and the structural growth opportunities for Brenntag. On top, we see a modestly improving momentum in the macroeconomic environment, which is clearly reflecting the gross profit developments. We are therefore confident that the group will grow all its relevant earnings parameters in 2014 on an FX adjusted basis. Blendtec remains very well positioned to capture new growth in both established and emerging markets. Ladies and gentlemen, we will now begin our question and answer session. Please note that the questions from the live audience will be answered first. Andy, go ahead. Good afternoon. Dan Tiu from Deutsche Bank. Three questions to start, please. And could you just confirm just the guidance range, what exchange rates you were using And when you first set the guidance, please, in terms of euro dollar at the first half results in August. And secondly, on Asia Pacific, in the outlook statement, I think Steve you mentioned about An improvement in Asia Pacific in terms of year on year operating EBITDA growth in Q4. Could you just flush that out a little bit more? Is it because the cost base actually begins to So it's easier comps in Q4. And then on Asia Pacific in terms of Thailand, I think, Stephen mentioned, I heard it correctly that Thailand had improved in Q3, yet the outlook statement sort of calls out Thailand and Australia It's been particularly difficult. And then on the final question is on Europe. Could you just maybe just run through By country, by region, there's sort of moving dynamics as to why the conversion ratio improved year on year? Thank you. Let me take the question on the FX used for the guidance range. First, When we initially issued the €700,000,000 to €720,000,000 guidance range in August, we basically used U. S. Dollar, euro FX rates for the first half of the year, which were around €1.37 Obviously, the U. S. Dollar has strengthened somewhat since then. We would now expect Full year eurodollar somewhere between €1.33 1.34 That obviously has a positive impact some tailwind on the reported results. We didn't Update the guidance range for that particular effect. Did you specifically? I just asked why not? Is it because it wasn't material enough? Or why? I would say it's not material enough. I'll just come to your other questions, Anthony. And in terms of Asia Pacific, I think we do highlight Thailand, Australia. In Thailand, most of you will remember that Thailand relatively recently had a coup. Prior to that, it was in turmoil. And Talendin is very much our biggest market in Asia Pacific. And we see what we see in Talendin now is the stability And effectively, a return to order. I think it's fair to say that the Thai economy is flat It's a little bit the best due to some lack of confidence in companies to reinvest in Thailand for Various reasons, above obvious reasons. So we are still guiding somewhat cautiously on Thailand. Australia is, I think, at a tough time, And we see no real significant upside in Australia, mainly due to, I think, maybe impacts of weaker positions in China and what have you in terms of our exports. So that's really why we have them both. It's also fair to say that in terms of investment in people and infrastructure For the Asia Pacific region, we're now pretty much now approaching the end of that process, which we've been involved in for well over 12 months To prepare the region to go forward with some confidence into those acquisitions and what have you. And I now believe we really have the organization in place to All that forward strategy, which we will look forward to developing in 2015. I think in terms of North America, I'd say North America in terms of Europe, I'll probably characterize the European region as not probably too dissimilar to previous quarters in Sapporo's Northern Europe remains very solid, U. K, Nordics, Benelux. Germany, still positive for us. France relatively weak and Italy and Spain. Under some stress, although I would say that Spain has actually shown some positive developments, and we see Spain as the more positive light. And indeed, Eastern Europe Still solid performance as far as European organization is concerned. Just to clarify on Asia Pacific, the sort of the sort of comment on improvement year on year in Q4, I mean, I think you've shown improvement in Asia Pacific year on year for over a year. So Why the confidence plays for Q4 to show growth in that region? It's basically a mix of Somewhat easier comparables, but also positive sequential trends the business is showing. So if you want to say so trend analysis. Yes. Hi, Liam Saum of Commerzbank. Three questions if I may. And then I want to start to pick up Amy's question on the guidance again. I mean, in order to achieve the upper end of your guidance range, you would require 5% to 6% EBITDA growth in the 4th quarter. Now 4 percentage points of this would already be contributed by FX translation effect. So would you at least agree that If you don't see any severe or larger distortions in the global economy that you would probably have a very high likelihood to come out at The upper end of the range. So that will be my first question. And the second one, could you give us an update on M and A because I still live under the impression that You have been very upbeat to complete some transactions until the end of the year, and you have seen some performance, but you want to conclude some projects there. And the last question on working capital. We have seen the increase in the 3rd quarter. Now is there something that you would So actually due to the normal seasonal and business development or would you rate the expense So high that you would say you would also love to introduce some council measures there? Thank you. Yes. I mean the guidance range that we published in August that we now This is 700 to 720 and we would if you forgive us take the liberty not to put probabilities 2 individual parts of the guidance range. I can confirm the calculation that it probably would take 5% a little bit more percent of of course profit increase to actually make the upper half if not the upper end of the guidance range. But don't overlook that expense wise Q4 last year was a relatively positive quarter. So if we can meet that positive expense development of last year's Q4 in this year's Q4 is the question. I would if I may also take the working capital question. The working capital The outflow in Q3, which we had this year did not have last year is from our perspective in the noise. And if you look on a year to date basis for example through the cash flow statement then last year year to date September we had an outflow of €100 €40,000,000 where year to date this year we have €120,000,000 So on a year to date basis the gap Seems much narrower than if you look into the individual quarter only. So it's in the noise. Yes. When it comes to acquisitions, it looks stubbornly low again. I can actually assure you that we actually have transactions under due diligence at the moment, which would well exceed and significantly exceed our Expected spend, if we were to land all these immediately, the 76 is the process of acquisition. And so it will be probably a case of companies all arriving at the same time, but I can assure you that we are very much involved in acquisitions and We expect to have a land shortly. Just a quick follow-up on this. When you talk about the budget and you talk about the difference between what you already spent this year so far, so let's say €100,000,000 or so And then an additional amount which will bring you to the into the range €200,000,000 to €250,000,000 is that correct? Yes. We actually I think we've been guiding for that this year 200,000,000 to 250,000,000 acquisitions for this year. And what I'm saying to you is that We have more than that value under negotiation at the moment and it's a case of whether the lease can get closed at the appropriate period. And we are we actually see an acceleration from our perspective in terms of actually the types of targets that are becoming available to us. And we would expect to see consolidation more in the future. Good afternoon. It's Roland McKenzie from UBS. Firstly, on North America. You struggled with cost inflation there through H1. That looks a bit better this quarter. Is that just because you've annualized those cost inflation impacts? All you mentioned in your remarks that maybe you've been passing through a bit more on the sales price is my first question. Secondly, in LatAm, the trend there again looks a bit better. Can you talk about if you now feel more comfortable in your kind of cost control side, whether it's just kind of volatility quarter And then lastly, I just want to ask about the fall in oil prices, how that deals with chemical prices and how that impacts your business. I understand how you insulated through your absolute markup, Do you see any hesitancy in customer orders as they wait for maybe falling Chemical Devices as they place orders today? Thank you. Well, just coming to cost inflation in North America first. Yes, certainly, the first half of the year was characterized by Pretty important start to our year in terms of the weather effects as you all know in Q1, which really hit us hard. And then the particularly increase in transportation costs, which is a pan American issue for not just the chemical industry but oil industries. And you'll be aware that we invested quite significantly in new trucks and drivers. And also we invested quite significantly in new capacity for Oil and Gas segment in terms of capacity to acquire new business throughout in the later part of this year. And I can say that, that strategy is completely correct And the right thing to do, and you can sort of see it starts to come through in the numbers in terms of we're on top of our expenses, but we've got the right configuration of transport fleet Now compared to what was the situation earlier in this year, we also find the investment in our oil and gas capacity now starting to pay off New orders coming in from new business. So I think we're now in the position now where our North American business is starting to report their conversion ratios Very similar level to their normal operating conversion level, which of course wasn't the case in the first half of the year. I'll pass to Bill on the West America. Just in terms of pricing, what's very interesting at the moment in North America particularly It's a sway of price increases from chemical manufacturers. We see it well across the market, significant upward push On chemical manufacturing price increases. So if that's a result of lower oil prices, I'm not sure. So it seems it does seem a little strange in some respects, But that's what we're seeing. So there's a lot of volatility in pricing at the moment, which for us is actually no bad thing because we're a business which Handles that very effectively. And I don't see any situation developing where we will see our margins being affected by volatility in oil price. I think that's absolutely correct. And in terms of are we seeing customers holding off on orders, You have to remember that our business is really a day to day. We're satisfying demand on an immediate need. And so we don't see inventory build. We don't see inventory reduction because of an expected change in Pricing, certainly there's a lot of expectation in the marketplace that prices will come off of their highs. But as Steve said, What we're seeing right now is really just the opposite, quite a bit of inflationary price pressure across multiple segments of the chemical industry. In terms of Latin America, I think we do have our cost situation under control. We've made the necessary investments in personnel, particularly in Mexico, Some additional personnel investments in Brazil, which as Steve characterized earlier, It's a troubled economy, but we do feel well positioned to increase our market share In the largest economy that we're participating in right now, but it will remain trouble. So we're on the right track in terms of Latin America Returning to a growth phase and so we were quite pleased with the Q3 developments. Andrew, one follow-up. So what drove your fall in work capital terms then, if it's not delays in orders and that kind of thing, the inventory I would point out that the reduction in working capital turns is relatively marginal. It's 0.2 turns maybe 0.3 turns On a level of 9% close to 9%, so it's a 3% only reduction in turns. There's not the one overwhelming element which drives that marginal decline. It has to do with above proportional growth of Specialty business, which is a slower turning business and then some very individual movements in debtor and creditor days, Which are relatively margin. Very clear. Thank you. Yes. Gerd Aurnan from Exane BNP Paribas. I've got a question. You said you're still positive in Germany. And I guess this is despite falling industrial production over the last 2 years in Germany. So I'd like to know how why you see why yourself here positive and what is the reason for this? And in the same context as Germany, with still falling PMIs Industrial production incrementally becoming more difficult for you or is it more of a stable market? Well, it's fair to say that our German operations actually made some significant progress in the last Yes. If I were to our business 2 or 3 years ago, Germany was one of the first of the lowest conversion ratio So the big big RGP conversion ratio, and they've done a heck of a lot in the last 2 years to streamline that. So there's a lot of self help going into the profitability of German business. To the extent that we could cope with a far more robust business in Germany than perhaps you were, 2 or 3 years ago. Also thanks to saying, when you get a reduction in economic activity, there is the natural swap out to distribution. When people start buying small quantities of chemicals, they tend to drop their purchase from manufacturers and start buying from distributors. And therefore, there's a cushioning effect In a more difficult market, and that certainly would be the case seen in our German operation as well. And certainly as far as Brenntag in Germany is concerned, we are market leader and remain strong as a company there. While macroeconomically, clearly I recognize that Germany has got some challenges, but within the context of our business, which is Good afternoon. It's Alex Magni from HSBC. Can I pick you up on the conversion rates in LatAm And in Asia, if I were to strip out sort of the political effects of Venezuela or Thailand, Could you give us a flavor of what the conversion rates might look like? Where over time do we see those normalizing or getting back up And to what extent is the recovery in conversion rates of product of just more volume on the cost base or having to take cost out? In Latin America, it's difficult to say what a Exactly what we would expect other than continued improvement. Latin America is it's a lot of geography with some built in Opportunities for incremental improvement over the midterm, but I wouldn't want to put an absolute numbers that this is what we're shooting for. The continued improvement is certainly very, very possible. Just to follow-up on what I was saying on his side, if you look at the historical It was around about 33% to 34% conversion ratio. Things were relatively stable. And it's not unthinkable that there's actually A reasonable expectation for Latin America is going forward in sort of the short and mid term. I think much beyond that is actually it's really pushing it really because Again, as Phil said, it's a very, very large area, and you don't get sufficient rig density that will allow you to get the efficient gains up. I think as far as Asia Pacific is concerned, and this is a classic example in which you look at the nature of our Asia Pacific business, It's generally speaking a Specialty Chemicals business and not industrial chemicals business, not the mix of Brentac is up on a group wide basis. Under normal circumstances, without all the macroeconomic issues we have with the talent and particularly on Australia's slowdown, You would expect high 30s conversion ratios in Asia Pacific. What you should think about there in terms of going forward in Asia It's very much the case that we would continue to develop with this in Asia Pacific, which is not just specialties, but a full line chemical distribution offering, Bringing in industrial chemicals into that mix. So if you look at the Asia Pacific position in years ahead, I wouldn't get to I wouldn't be taking hostage on the conversion ratio because the nature of that business has become more mixed in terms of more industrial chemicals in there As well as Specialty Chemicals. And therefore, you'll have a merger, if you like, into the conversion ratios. And we're looking at EBITDA growth there as opposed to Yes, a special magic number on GP conversion. If I could possibly ask the question in a slightly different way. So if a lot of your Asia Pac Business is specialty. Would it be fair to assume that there is still an issue in passing through some of the ForEx related Issues of Q1. So your inventory will be would have been purchased in euros or dollars. Local Asian currencies Actually it's not necessarily the way we think about the business. The business is so Granular and doesn't really have a high price sensitivity on each individual orders. Typically the effects that's how I understand you mentioned them. So indirect FX effects On local price levels in Asia, it's nothing which we typically analyze or steer the business for. I'm sorry, last one for me. Just as a point of clarity, is the Venezuelan business running at essentially 0 EBITDA Or close to. Has that been 1? It's actually on a positive EBITDA, but lower than €1,000,000 Right. Okay. Thank you very much. Christian Kolb from MainFirst. I have two questions. The first one relates to Latin America again. I think you mentioned in your Q3 report that Going forward, you expect the low week performance in Brazil, if I remember correctly. So I assume that the performance in Q3 must have been quite all right. Would be interesting to see your thoughts on that where that's coming from, if that's market share gains, if it's more outsourcing towards Distributed and especially to you or where that comes from? And the second question relates to the, let's say, higher personnel that you have hired in Asia. Maybe you could shed some light on where that happened not only on a country base, but also I think you mentioned you invested into the organization. Is that more like back office functions? Is it overhead? So is it also like that you ramp up the sales force and people Working within your distribution centers. Thank you very much. In terms of Brazil, The 3rd quarter the Brazilian economy overall has been weak and the 3rd quarter was certainly less than what we had planned for, but we do see some improving trends and that we are going through a gradual Transformation of our business where we are less dependent on uncompetitive domestic producers In Brazil, and beginning to import more product from our global sourcing organization out of China, which is enabling us To compete in a broader cross section of the industrial market. So even in a no growth environment, we feel like we're gradually improving our position to The second point is the what Steve mentioned, the Gaffer acquisition, which has really performed to plan Because it also is in a different segment of the market, it's a specialty solvents distributor and we've been able to continue with the growth Path that the GasLog business was on when we acquired it. So going forward, we think we're making the necessary adjustments To our profile in Brazil, we continue to incrementally grow our market share in essentially a no growth environment. I'm just giving it to Asia Pacific. The increase in Cost base in terms of expenses, in terms of personal expenses, we've been very much directed at really the higher end of the organization. By this, I mean, we've effectively developed a merchant acquisition team. We have corporate development planning. We've introduced group wide personal Management will introduce a team to expand industrial chemicals and plan the expansion in industrial chemicals. Essentially, this is really quite a relatively expensive and high powered group of individuals that have been brought in To launch Brenntag's future growth in the region, and these the oldest cost of actually lands on top of the existing business. So I think that is the principal driver of cost. And we do see quite headcount in the Asia Pacific region. But To be fair, the average cost per person in Asia Pacific generally is relatively low. The principal drive Cost increases from those resources have been brought in to grow that region in the future. And I think I would refer to my notes We're now at the end point as far as that is concerned. And now the region is in a position to move forward. Armin Medanato from Berenberg. I just wanted to maybe have an update on your investment in Shale oil in Q2, is that business already contributing gross profit? And do you see a risk From the lower oil price in terms of the desirability of shale oil in the U. S? Yes. I think unfortunately, I think Mark, this is going to be a big presentation. I'm not going to ask after this call, but I'm happy to take this question. As far as the investment in we made earlier this year in terms of additional people and trucks and equipment GROW, our business on oil and gas have come to fruition in terms of we're now winning new business. And in fact, I think not much of the steel market is thunder, but we're now we've actually now achieved some contracts which are offshore as well as onshore Thanks. This is Varoil and Gas Business and Capabilities. As far as the market in general is concerned, we are a very broad based Service provider to the North American shale gas market. And you'll be aware there's different types of gas, there's wet gas, dry gas, So based on which are natural gas drivers and oil drivers in terms of the economics, we have a broad base there. So frankly, as we move One type of operation tends to become less interesting, the other one picks up. So we I think we have a relatively insulated And we don't see any issue about the volatility of oil prices on a global basis for us. Mattias Garakolev from Goldman Sachs. I have two questions. The first one was going back to say your M and A pipeline. And you talked about Asia. I mean Asia still seems to be sub Okay. Compared to the other regions where you operate, could you perhaps tell us just say your M and A is more skewed towards one region or others? And if the answer is no, would you consider also some larger positions for Asia to potentially scale up that business? And the second question just on personnel costs. So you talked about Asia, that's clear. Can you also give us a bit of say more color on Europe? How have the personnel costs been going up, which In terms of Asia Pacific and M and A, let me answer the subject to answer question by why have we increased our operating costs in Asia Pacific. We have we've done a full analysis of the Asia Pacific market and market opportunities on M and A. And we have identified quite a number of targets, which we think will be very appropriate As part of our future strategy, if we were able to acquire them. And this is actually a range of what I would regard as The medium size distributors are the 1st very large distributors. And we are looking at those markets where we have a relatively high confidence in terms of Corporate Governance and Compliance, the larger transactions. And I think we have a good opportunity Certainly going forward in 2015 to make acquisitions of that type, I'm trying careful to not to be Fortunately, there's an acquisition driving some of new MAD and certainly driving new MAD in terms of actually given the conversion of some of these targets on I'm actually closing them. But certainly as far as Asia Pac is concerned, we are now at the point in our development where we, a, are capable of making acquisitions We know where they are. And your second question I think was on operating expenses in Europe. I think the question was on personnel expense development in Europe. Actually on a 9 month basis, The personnel expenses in Europe exceeded previous year by 4.5%. And out of that roughly 2 point Percent is inflation and roughly 2% is headcount increase. A little share and I don't have the exact number, but a little share of the As you see that's Chris Gallagher and JPMorgan. As you see the chemical industry, you get North America becoming an exporter on importer of chemicals. How are you positioned that over the kind of coming years? We're pretty well positioned. And in fact, we already see The initial stages and perhaps of that type of transformation, we are already in a position where we take Welcome to our facility in Rotterdam from North America and we distribute those throughout Europe from obviously from manufacturers in North America. I think it's probably a little early just to shout down the demise of the European chemical industry, but I think it will be a little excessive. But nevertheless, if it becomes the case that more distribution required, then really We're in a pretty sweet spot relative to our service. We find major manufacturers Speaking of out in terms of being able to be that channel to market partner and deliver products into the European segment, the one stop Shop if you like as opposed to transferring multiple channels. So to a large extent, this plays very much into our favor in sort of future developments. It's Krista Loops from Baader Bank. Just two short questions. One is on debt. How much of your debt is currently in U. S. Dollar And for gross debt. And you mentioned that you are starting to And get some material from China to Brazil. Does that make currently sense when the D Real is Expanding further and further, has it really improved your situation there? Thank you. The easy answer on the gross debt, roughly 40% or 0% of the gross debt is in U. S. Dollars. In terms of movement of product from China to Brazil, it's not necessarily a currency Evaluation, what it is, is there are a lot of products that aren't manufactured in Brazil that we didn't participate in. And we are now expanding our product portfolio with imported products from not just China, but elsewhere in Asia To some extent from North America. But the currency valuation has little to do with that movement. It's really putting us in the products that we weren't currently involved in. And some of the domestic manufacturers in Brazil are not competitively well positioned Even with the currency situation that they're facing right now. Quick follow-up. It's Andy Cheah from Deutsche Bank. And one of the challenges you've had over the last couple of years, obviously, is the from an organic standpoint is that the weak macro and your gross profit Growth has been sort of low single digit. And with the 5.5%, albeit sort of one data point, I think is the highest Gross profit growth rate organically since March 2012. I think historically, you said that once you're sort of over sort of The mid single digit tipping point in gross profit, that's the point where you start to see sort of maybe a 1 to 2 Drop through in operating leverage or certainly conversion ratio begins to kick in. Could you confirm that, that has been the case, please, in October? All of the set is true. It's a pretty strong gross profit development in October, much stronger than For a longer period in time and it's 1 month only, so to be confirmed in the subsequent months. Given that this is November 5 only, I don't really have the full P and L information below gross profit. So to the question to what degree the gross profit dropped through EBITDA is unanswered for the time being. Just a Follow on for me as well. Very dull operating question, but within the organization, who carries responsibility for controlling Working cap inventory in particular, whose P and L does that hurt if that gets out of kilter? All the all the senior management team are actually incentivized To make sure that working capital is used as effectively as possible and that obviously includes inventory, debtors, even CapEx. So there's a very strong emphasis since the working capital turn and working capital management at the very top of the company. So in terms of those P and L does it hurt, it People's pay package actually. Those are right across the company. It's incentivized to make sure working capital terms and the efficient use of that cash It's very much in people's minds. No one gets any prizes for growing the EBITDA as a Okay. Can I hand back now to the Ladies and gentlemen, There are no questions at the moment? Okay. Well, I think the analysts have done a good job. I can actually confirm those people, Natalia from the analyst, are better looking in real life than we thought. It's very encouraging. Okay. Well, in that case, there are no questions on the line. Thank you very much, Steve. I would like to join the call. And thank you, everybody in the room, for their questions. And we'll close the call at that point. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.