Earnings Call: Q2 2014

Aug 7, 2014

Dear, ladies and gentlemen, welcome to the Brenntag AG Q2 2014 Results Conference Call. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask I now hand you over to Mr. Stephen 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 dialing in. I'll review the Q2 2014 earnings. I'm on the phone together with Georg Muller, our CFO. And as always, we'll be happy to answer your questions after the presentation. Let me begin with some words on how the macroeconomic situation looks to us. Overall, the global economy remains on course for moderate Right. However, the picture is a mixed one. We observe ongoing recovery on a modest level in Europe. We perceive the North American economy as a lot more flattish than the general perception. And perhaps a sign of this as an example is GDP growth in And perhaps a sign of this as an example is GDP growth in Q2 of only 1.6% year over year. In Latin America, economic developments is now even more muted, especially in Brazil and Venezuela, which remains volatile because of the well known problems. In Asia Pacific, we see clear growth of the economy with the exception of Thailand, which is still under some pressure on the political unrest. In this mixed environment, Brenntag Group was able to grow gross profit by 3.2% on a constant FX basis. The operating EBITDA in Q2 2014 amounts to €176,700,000 and this represents an increase of 8.3% On a constant FX basis, adjusted for last year's €16,800,000 provision increase in France, operating EBITDA could not fully reach prior year's Q2 level. I will walk you through the reasons for this development later on in this presentation. Summing to the Q1, the relatively strong euro led to a meaningful headwind in translating our results from non euro In translating our results from non euro countries, as one can see, the gross profit of our growth rates are negatively affected by this by around about 3 percentage We were pleased to announce the signing of and closing of the FILCHEM acquisition in the United States. This acquisition strengthens our capabilities in supply Share management utilizes long term relationships with key suppliers and excellent logistics expertise. And finally, after our General's shareholders meeting, There was approval to of the 1 to 3 stock split in June and trading on the new basis started on the 1st August. Coming on to Page 5, in terms of operating highlights. On this page, we are showing you how this translates into a full set of numbers. Gross profit total was €502,200,000, 3.2 percent above previous year's Q2 on an FX adjusted basis. The operating EBITDA totaled €176,700,000, growing by 8.3%. Adjusted for the aforementioned provision, Increase was slightly below the Q2 twenty thirteen level by negative 1.8%. The EBITDA to gross The conversion ratio of 35.2% is somewhat below the 37% conversion rate of the Q2 2013. We are, however, convinced that the low conversion ratio is not of a structural but of a temporary nature. To a large extent, this effect is attributable to initiatives We've started to grow future gross profit, whereas we must face the cost estimates already today. This is primarily the case in North America and Asia Pacific, where we are upgrading our internal capabilities in certain areas to increase market penetration. Our free cash flow for Q2 2014 was €110,800,000 which is a good 10% up over last year's Q2. On to Page 6, looking back to our acquisition of Philchem. So we are very pleased that we signed an agreement to acquire the U. S. Distributor, Phil Chem, placed in Houston in the Q2 of 2014. The transaction was closed in June 2014, so the 2nd quarter only added a minor contribution from FILCAM itself. In 2013, FILCAM realized sales of around about US162 $1,000,000 a gross profit of US7.7 million dollars and EBITDA of more than US6 $100,000 Philchem is a specialist in supply chain management and utilizes extremely well developed logistics expertise. Now I'll pass you over to Kjell. Thank you very much, Steve. I'll briefly talk about our stock split on Page 7. We have implemented a 1 to 3 stock split on August 1, and consequently, our share price was arithmetically divided by 3. We have done this in order to make the share more attractive to an even broader range of investors and in order to increase trading liquidity of the share. After our general shareholders meeting approved the split in June, the number of shares has now Increased from 51,500,000 to 154,500,000 shares. The following is a more technical remark, nevertheless an important one. Obviously, the stock split affects key figures, Key figures per share like earnings per share, dividend per share or the analyst's target prices per share. Moving beyond the stock split to our income statement. As Steve already mentioned, Gross profit totaled €502,200,000 and this translates into a 3.2% EPIC's adjusted increase against previous year. All regions except for Latin America contributed to this growth. So operating EBITDA for the 2nd quarter amounted to €176,700,000 And that represents an FX adjusted increase of 8.3%. Adjusted for the provision increase in the second Quarter of last year, so in the Q2 of 2013, this corresponds to a slight reduction of EBITDA by minus 1.8%. The EBITDA to gross profit conversion ratio came in at 35.2%, somewhat below the 37% Conversion ratio that we realized in the Q2 of 2013. With respect to the further elements of the income statement, the depreciation for the quarter amounted to €24,400,000 And amortization for €8,700,000 The financial result is at a net expense of €20,200,000 which has improved against last year's level of €23,200,000 Overall, Earnings before taxes amounted to €123,600,000 which is 13% ahead of last year. We record a tax rate of 34.6% in the Q2 of 2014, and this is In line with the level of 34% to 35% we typically indicate. The earnings per share, considering the share split, We said €0.52 or €0.56 excluding the amortization and the movements with Hong Kong I would dive into the cash flow, but go directly to the investment and financing cash flow on Page 12. The investment cash The investment cash flow contains the payments for FILCHEM and GAAPOR. The finance cash flow as usual for the Q2 does contain our dividend payment to shareholders, which is approximately €10,000,000 above prior year's dividend payment. I would move beyond the balance sheet directly to the leverage on Page 14. Net debt increased during the quarter by €187,000,000 to €1,509,000,000 at the end of the quarter. The increase of net debt is mainly driven by the cash out for the acquisitions and the dividend payment. As a consequence to the group's leverage increased slightly to 2.1 times, Which is a typical seasonal development we see each June after the dividend payment. However, The leverage is below the level of 2.3 times that we recorded a year ago. I will Skip the leverage history and the maturity profile and move on to the working capital information on Page 17. Trade working capital amounted to EUR 1,176,000,000 at the end of the quarter. Our year to date working capital turnover remained about unchanged at 8.9 times. And on a last 12 months basis, the turnover came slightly down to 8.7 times. This quarter delivered once again a strong free cash flow of €110,000,000 Despite some headwind from translational FX effects, this is up against €100,000,000 for the Q2 of 2013. The increase in free cash flow was mainly driven by a higher EBITDA and a lower outflow for working capital compared to prior year's period. And this hands the presentation back to Steve for a discussion of the segments. Thank you, Georg. Now let me walk you through the developments concerning these segments for the Q2 2014. Firstly, Europe. Europe's operating gross profit increased By 4% on an FX adjusted basis, we are very satisfied with the ongoing solid operating gross profit developments in Europe As it demonstrates, the business is very much on the right way for future growth. The operating EBITDA increased by 26.5 Considering the provision increase in Q2 2013, this corresponds to an increase of 1.3% on an adjusted basis. It should be noted that the efficiency you have has improved sequentially from the Q1 on our GP conversion ratio of 34.1% in Q1 to 34.7% in Q2. In North America, GRENTAC North America's development in the 2nd quarter was positive in terms of continued growth in operating GP, I'd say 3.4% on an FX adjusted basis. We do now, however, incur higher costs in this quarter due to mix of various effects. For example, we have hired additional personnel in relation to the envisaged expansion of our oil and gas business. We expect to generate additional gross profit out of that in the course of this year. Furthermore, we have faced some cost inflation for third party transport rates And we have implemented county measures by increasing our internal transport capacity. As a result of these developments, operating EBITDA in Brintech North America It held back to a minus 1.6 percent development on an FX adjusted basis. In Latin America results in Latin America were again heavily influenced by the situation in Venezuela, and we agree with other indicators that the economy in Brazil is somewhat weakening. We are reporting a negative 2.7% decline on FX adjusted gross profit. Latin America without Venezuela The operating EBITDA declined by 27.6% on a constant currency basis, which was mainly driven by Venezuela and the slow economy in Brazil. Whilst most issues within the region faced in 2013 have been resolved, the unstable situation in Venezuela The economic developments in Brazil are challenging. In terms of Asia Pacific, it shows a positive 4.9% growth in operating gross profit On an FX adjusted basis, while the situation in Thailand is slowly stabilizing after military takeover, we We've seen some improvements in our performance of our Chinese business at Zhongjiang. As in the past months, we continue to invest the upgrade of our care resources in the region in order to Increased market penetration in Asia Pacific, which is reflecting in higher personnel expenses. As a result, our Operating EBITDA declined by 8.1% on a constant currency basis. Just coming to the outlook. The first half in twenty fourteen has been characterized by a moderate growth in GP in a mixed macroeconomic environment. Operating EBITDA remained about flat on an adjusted basis. For the full year 2014, we expect to see ongoing macroeconomic growth At a moderate pace, but with clear differentiation within major economies. We confirm our view that we expect gross profit to grow meaningfully and consequentially EBITDA to grow. Our EBITDA guidance for 2014 is that operating EBITDA between EUR 700,000,000 and EUR 720,000,000 For the group, this range reflects our positive view for the second half of twenty fourteen. The midpoint of the guidance implies an organic growth of more than 5 The guidance also takes into account that we still face significant headwind For translational FX, given the euro remains very strong compared to many countries around the world, foremost the U. S. Dollar. Based on the results of the first half of the most recent trends, we expect that 2 most important regions, Europe and North America, will show growth on a full year basis. The development of the smaller regions, Latin America and Asia Pacific, is more difficult to predict as they will be impacted by the various The The range of operating EBITDA in 2014 is based on the following assumptions: U. S. Dollar euro exchange rates stay in line with levels observed in the first half of the year No deterioration of the world economic climate compared to the situation as we see it today and no expected one time effects. As to working capital, this is to a large extent of function of sales and chemical pricing, and we expect it to be higher at the end of 2014 when comparing it with the year end 2013. As mentioned previously, we've anticipated some CapEx increases this year by around about EUR 10,000,000 to appropriately support the business and the development of the group. Now let me address the current trading environment. Gross profit per working day grew by 5.5% in April, 2.5% in May, 5.2% in June and 4.5% in July. In closing, we remain fully convinced of the business model and the structural growth opportunities. On top, we've seen improving momentum in the macroeconomic environment, which is clearly reflecting the gross profit development. We are therefore confident that the group will grow all relevant earning parameters in 20.40 on an FX adjusted basis. Brenntag remains very well positioned to capture new growth in both established and emerging markets. And now we're happy to take your questions. Once your name has been announced, you can ask your question. The first question comes from Mr. Rob Plante from JPMorgan. Please go ahead. Good afternoon, Steve. Good afternoon, Georg. Steve, in your letter in the results statement, you talk about growth initiatives impacting EBITDA, and you've mentioned a few of these During the call, can you just summarize them again, please? And did these growth initiatives all kick off in Q2? And will there be ongoing cost in future quarters, please? Sure. Yes, what we've this is particularly relevant to North America. Now there's 2 elements which we've been particularly looking at in North America. We've invested in both people and equipment within the oil and gas onto that business, which has been principally investments were made towards the back end of the Q1 and delivered into the second quarter. We don't expect to see the significant income to be derived from those investments until the second half of this year. And that's so this is an important opportunity for us because we see that we as a company could increase our market penetration And the area of oil and gas seems further than we are today. In addition to that, some people may recall that we increased Our sales of caustic soda during 2013, and this is primarily supported by 3rd party logistics in North America. And what we've seen during the course of the last 2 quarters has been an increase in the scarcity of third party producers logistics providers And increasing some inflationary costs as far as those services are concerned. And therefore, we've taken the decision to support The new business that we achieved in 2013 2014 by increasing the numbers of owned drivers that we have in our own fleet Increases in the units that we use to service that business. So this is all, I believe, perfectly correct business decisions, which are there to support future growth, So they've been made during the 1st towards the end of the Q1 and in the second quarter. Thanks, Stephen. There's also a mention in the statement of higher Personnel costs in Europe, is that just inflation? Or is that also investments in that region? What's the issue? Yes. Well, it's partly inflation. It's a few additional heads from the generally Business Development in Europe, but I would not necessarily call the staffing up in Europe, which is very moderate initiative. Okay. Thanks, Kirk. Thanks, Steve. The next question comes from Mr. Andy Chu from Deutsche Bank. Please go ahead. Good afternoon. A few questions for me. Could I just ask the organic GP per working day numbers, please, as a first question. Yes. It's Georg, Andy happy to answer where we gave Nominal growth rate for GP per working day is below 5.5%. So again, the major the majority of it is organic. The organic That would be 4.3%. The respective payout figures for May is 2.5% All in at 1.3% organically for June, 5.2% and thereof 3.9% organically And for July, 4.5 percent and thereof organics, 3.3%. Okay. Thank you. And just in terms of If I heard correctly just in terms of my second question was on guidance. And if I heard correctly, the midpoint that you mentioned, Steve, the midpoint Point of your guidance, I think you said sort of implied 5% organic growth. And I was sort of Some were struggling to reconcile that with a, the fact that probably in the first half of the year Ex FX, ex M and A you were likely probably close to around about 3% growth. And obviously your EBITDA was pretty much flat. So just in terms of that 5% growth, what exactly were you alluding to in terms of Operating is it operating gross profit? Is it EBITDA? And do you maybe build the bridge from, I guess, Your midpoint sort of implies €374,000,000 of EBITDA For the second half versus I think last half second half of EUR 360,000,000 Andy, it's Georg. The what we probably have to point out again here is that 5% or higher Organic growth that the midpoint of the guidance implies is actually second half over first half growth figure. And we thought it relevant to point out a second half over first half growth figure to indicate That sequentially the business is clearly improving and building higher earnings. It's not necessarily meaning that the midpoint of the guidance It's an equally high growth rate second half over second half of last year, keeping in mind that the business already ramped up and was relatively strong 2nd half of last year. But if you then exclude the sort of impact from the weather Which I believe was €9,000,000 then clearly the sort of growth when you make that is close to flat. Is that fair? Not second half over first half. 2nd half over first half would be midpoint of the guidance 5%, 6%, 7% growth. Okay. But if you were to adjust the that's unadjusted for weather, is that correct? That's Unadjusted for weather, the weather effect on a half year basis out of that is about 2.5% to 3%. Okay, Okay. And then in terms of trying to understand, I guess, the sort of the cost came in obviously faster And the gross profit growth. So as you sort of start, for example, Steve you mentioned in the U. S, Costing up ahead of sort of growth in oil and shale gas. Should we expect for Q3 that we get a similar trend In terms of top line or gross profit growth on an FX adjusted basis of the group, but actually we see that the EBITDA It's actually going in reverse. Is that something we're likely to see for Q3 please? No. We wouldn't expect to see that in Q3. We clearly, it's a little frustrating in terms of particularly North America Well, we see what we consider to be a good performance in terms of new business development and what have you. They have to take The cost to invest in the business to grow, but we would expect to see conversion rates returning to more normal levels During the course of this year. Okay. And then just going back to Europe. Just in terms of the cost base, I think on an Underlying basis, your cost base was up 6%. And your employees that I think you alluded to, I think we're up sort of about 1.5%. So I'm just sort of struggling a little bit to sort of bridge the sort of the gap in terms of the Total cost base going up by 6%. Obviously, wages and salaries is a big proportion of that. But is there anything else within the European cost base In terms of over and above wage inflation that can be called out? So you are just to make sure, you are On Europe with respect to your Just the year at year. So your cost base on an underlying basis, per the report, I think is up 6%. As you as I think you mentioned that you've added a few people. So I think sort of FTEs were up sort of 1.5%. So it feels as though The cost base up 6%. I know wage and salary is obviously a big part of your cost base, but it would imply that there is A lot more cost inflation within the group over and above sort of what I would say normal wage inflation or extra bonuses being paid out. It goes first of all, the figures you mentioned, Nynae, about right, it goes across the cost structure. The salary increases no, sorry, personnel expense increases in Europe are about 5%, and I'll explain in a minute. Transportation is about 5%, repair and maintenance somewhat stronger at 8% or 9%, rent at about 8%. If you think about going back to the personnel expenses in Europe, which increased about 5% and 1.5% or 2%, I would have to cross check the exact figure, is headcount. The other 3% or 3.5% is wage cost inflation, Which does not seem unreasonable to us. Also keeping in mind that Europe this year is Much more on track in growing its earnings than the years before. So there is some more variable compensation to be paid out in Europe for this year most likely. And why were the other sort of cost lines just sort of maintenance and rent? Why are they so much higher than inflation overall? It just seems Sort of a big jump in the cost base for warehousing spaces is there? First of all, I wouldn't necessarily say it's A big jump if you're talking about 8%, 9%, but also we are talking volume increases. Yes. I think it's fair to say that we have we are also consolidating some of our assets as well. And so in terms of Looking to bring efficiencies and investing in that area. So I would say that, say, 2014 We expect the conversion ratios in Europe to be improving and relative to the gross profit generation. And we're expecting A solid performance for Europe for the rest of the year. So we clearly would not allow them to get their costs ahead of the game. So I think you'll see certainly on a full year basis that the increases that you've detected will be certainly well within expected parameters. Thanks very much. The next question comes from Mr. Roy Mackenzie from UBS. Please go ahead, sir. Hi, afternoon guys. It's Rory from UBS here. First question, I guess, following up from Andy's on the cost base. Just looking at a group level, The OpEx of about €337,000,000 in Q2 was quite a big step up on Q1. Now I know there's lots of kind of ups and unders in the margin and lots So maybe can you just say, if there's anything going into Q3 that could make that step down or step up or that 3.37% is kind of The current run rate, firstly. And then secondly, just to build on the cost inflation point in North America around third party logistics. Can you say how much of your logistics there are outsourced in North America? And then compare that to your group overall? Thank you. Ori, it's Georg. Taking the cost base question first. I'm not sure I'm Quick enough following your line of thinking about cost in Q2 and Q1. You always have some complexity around Working days and what help you if you compare quarter to previous quarter. I would generally say give us a general answer that the cost level we reached in Q2 is about what I would expect Going forward, I would not expect a further cost ramp up in course of the year. Okay. Yes. As far as the utilization of 3rd party haulage is concerned, I would say it's around about between 20% 25 Thanks, in North America particularly. And that has really been a slightly larger proportion than historically Due to the increase in volume that we've won new business, say, in 2013, the quarter of 2014, Well, as you may recall, we have grown our caustic soda business quite significantly over the last 6 to 9 months. And this is an area which has probably seen the highest cost inflation. I'm not sure if you're covered transport companies in North America, Certainly, we're very much aware with the chemical industry contacts that we have, there's quite a severe shortage of Appropriately trained contractors in North America is why we've taken the steps to invest in our own transport fleet. We already have nearly 800 drivers, which are Brentak drivers in North America. And that's a fact. Although it looks as Yes. We're increasing our cost base relative to drivers, investing more in our logistics. We actually believe in not is it the right thing Due to support the existing business, but also it will actually create a competitive advantage for us as we go forward as a company. And just further on that, given that there's a current scarcity of, I guess, appropriately qualified drivers In the U. S, how expensive will it be if you add these further heads given that that's what everyone is lacking at the moment? Well, we've actually done it. In terms of I think we took on about 50 drivers during the course of the Q2. And I think I can't remember the exact number, but it's like 26 or 27 additional Operating units in addition to the fleet. So we've actually done this already. I don't really see that we'll do anymore or need to do anymore at this stage, but we've You corrected the slight imbalance you had in our operating cost base and external haulage. Okay. That's fair. Thank you. And just one more if I can on LatAm. Can you just run through what you're saying about the LatAm growth rate excluding Venezuela and how big Venezuela still is in your business, please? I missed that in the main call. Yes. The 3% was moved. Okay. I need to look See the exact figures, they're probably not big enough. The just give me a sec, Rory, I just want to make sure I On the right figures. What we said on Latin America was that If you exclude and I'm on gross profit level, yes, overall, the FX adjusted gross profit fell in the quarter 2.7%. If you exclude Venezuela, then the gross profit shows a growth of 3%. Can you say how big Venezuela is today? I can. If you give me another second To draw the figure out. In terms of I only have the half year's figures at hand. Okay. But on a half year basis and now I'm on EBITDA, Venezuela still is about $2,000,000 of EBITDA Where it was close to €8,000,000 a year ago. Okay. That's fine. For the half year. Great. Thank you. The next question comes from Mr. Simon Misonotti from Berenberg. Please go ahead. Good afternoon. I I was wondering if you could quantify the 2 initiatives that you took in North America in terms of costs. So what was their impact In terms of, I guess, EBITDA. And also just to clarify, should we expect 3rd quarter Is conversion margins to start improving already? Or should we expect further deceleration compared to last year? And on Asia Pacific, I think last time you said you were expecting EBITDA growth on a constant currency basis To be close to flat by the full year. I just was wondering if you if that's still the case. And then finally on M and A, I think you spent Close to €60,000,000 in H1 against your target of between €200,000,000 €250,000,000 And I was just wondering How is the pipeline looking? And whether you think you will hit the your target by the end of this year? Right. I mean just coming to the cost, I mean it's extremely difficult to nail this down actually in terms of the there's got a lot of moving Items within that in terms of bringing drivers on new equipments and changing out from higher expensed third party lawyers. So I'm not sure I can actually give you a detailed breakdown. Yes. And for it's difficult to give a detailed breakdown. For the quarter, The North American initiative, it's probably a lowtomidsingledigit number. But we would like to leave it at that. In terms of acquisitions, clearly, we are still very much engaged in developing our acquisition pipeline. We have a number of acquisitions which are in due diligence as we speak. And we're still guiding the market 200,000,000 to 250,000,000 in the year. The one question which we haven't answered is outlook Latin America full year. Asia Pacific, wasn't Sorry, was it Asia Pacific or It's Asia Pacific. Yes, we would still say on a full year basis flattish to slightly growing. EBITDA? Right. And then sorry, in terms of North America, can you say whether in terms of the how should we think of the conversion margin in Q3 3 year on year. Yes. We're expecting we are expecting an improvement in the conversion ratio in North America. Thank you. The next question comes from Mr. Christian Cort from MainFirst. Please go ahead, sir. Thank you very much. Hello, gentlemen. I hope you have a nice day. Just two small questions from my side. The first one is, can you quantify the effects you hope to see from organic growth or let's say organic gross profit growth Going forward in North America from the investments you just did, maybe just to get a feeling here. And then the second question is, There is something in the other line in the operating cash flow. Can you maybe quickly explain where the swing comes from? Thank you very much. Let me take the cash flow question first. The swing in the other not solely, but mainly Comes from the effect that we had the provision built up for the French antitrust last year's Q2. And because that's a non cash item that was burdening EBITDA, in the other line it is corrected. So it Led to a 16.8% improvement of the other line in the cash flow a year ago And that's basically what's not there this year. It's a main factor. Yes. As far as the growth initiative is concerned, So we've indicated the second half of the first half EBITDA performance improvement and you can That to be principally driven by North America and by Europe. And that's clear mix of both existing business and the initiatives. And we therefore are expecting initiatives to contribute solidly to the second half. It's actually nearly down to an individual number for you in terms of the total mix. Thank you very much. Still very helpful. The next question comes from Mr. Jan Anders Groh from Goldman Sachs. Please go ahead. Hey, this is Jaap Alevis from Goldman Sachs. Good afternoon. I just have a quick question. Could you talk about the Specialty chemical distribution markets and how it sort of developed in the first half of the year compared to your other businesses? Sorry, we couldn't get to the first part of your question. Could you just repeat? Yes. So my question is on the Specialty Chemicals side of your business And how that has developed in the first half compared to your other businesses? I would just ask you I know why you are asking. It's Probably because of the universe you are covering. Please understand we don't have a separate disclosure by business line. Okay. Excellent. Thank you. The next question comes from Mr. Andy Chu from Deutsche Bank. Please go ahead, sir. Just a follow-up question. Just in terms of the balance sheet and I think just looking at the numbers, I think you'll probably end up Somewhere in the order, if your gross debt doesn't change at €1,700,000,000 at the year end and you'll probably end up with somewhere Potentially over €500,000,000 of cash. And I think obviously that you don't need a lot of cash to sort of run the business going forward. And After I guess a couple of years of underspend on M and A, could I have your thoughts please just in terms of your willingness to give And cash back to shareholders. I think you're sort of even on the ordinary dividend, I think you're sort of at around about 40% Payout versus a target of 35% to 45%. And just is there any sort of willingness To hand cash back to shareholders if the M and A targets can't be found, let's say, by the end of the year? And maybe just a follow-up in terms of the M and A. I mean, as you continue to generate more cash flow, I guess, when you look at The structure of the industry, there aren't actually that many sort of large targets. And I know there are a lot of 3rd party chemical distributors. But I think if you look at something like Multisol, it came up on one of my lists as sort of a number 30 On the sort of the largest spike by revenues, to be fair that was 2011 data. So it doesn't feel to me and maybe I'm wrong, but there are actually That many large acquisitions that can actually move the dial for you in terms of hitting €200,000,000 to 2.50 €1,000,000 of M and A spend that over time will clearly just be a larger number. Andy, I'll just ask on the M and A spend and I'll let Georg, that's a very different answer, but it's a very difficult question on what to do with money. On the M and A spend, clearly, it's still a very highly fragmented market. And we are heavily involved in due diligence in 3 or 4 targets As we speak, we are, generally speaking, looking at this on the medium sized companies and small consolidation opportunities. That's Clear. And that's where we get the EUR 200,000,000 to EUR 250,000,000. It's fair to say that if you look at Asia Pacific, the So derived size of the chemical distribution market in Asia Pacific is circa $30,000,000,000 in terms of global market Size. And you can see, you know the size of Brenntag in that region. And therefore, it's fair to say there are actually quite a significant number Of reasonably large regional players in Asia Pacific, and we remain in a very good position to Develop our strategy by further acquisition Asia Pac. I wouldn't rule out and this is not me saying that there is one about to happen, so I don't want to give you a wrong impression. In terms of the future development of our company and particularly regionally, we would expect to see significant growth in Asia Pacific over the years ahead To acquisition. With respect to the balance sheet question, it's from our from my perspective a question, Which internally we don't necessarily need to answer short term. And we do fully expect To spend some money on the acquisitions. So I don't really see the situation upcoming that end of year or throughout next year. We continue piling up cash and have a decision to take what to do with it. On the other hand, granted, we always said that our Acquisition program basically is funded out of generated cash flow. And so as we do not See a need to drive the absolute net debt levels of the firm down further and that statement stands. So should we ultimately came to the conclusion should we ultimately come to the conclusion that we won't spend the money on acquisitions, What you mentioned, Andy, giving money back to shareholders is something we have to think about. But it's from my perspective a theoretical scenario as we do expect So spend some money on acquisitions. Can I just sort of add to that? Because obviously you spent I think around About €60 odd,000,000 but obviously the acquisitions announced and you have some deferred consideration. So you probably even if you were I guess to Spend another €150,000,000 to take you or even €200,000,000 I mean that would still leave you with a cash pile at the year end of €350,000,000 to €400,000,000 And that's Yes. All the thoughts seem still to be quite an inefficient balance sheet. Would that be fair or unfair? I would say you have a point from our perspective, but there's no urgency in taking that decision. So we would Wait how the year goes. We will see how the acquisition program develops, and we'll take a decision after the year, I would say. Thanks very much. The next question comes from Christian Oost from Baader Bank. Please go ahead. Yes, hello. I have a question despite all the positive All the positive cash flow developments. When I look at the balance sheet and what you reported in June comparable to June And 13, there was an increase in inventories of approximately EUR 50,000,000 and trade accounts receivables of approximately EUR 2 €50,000,000 despite the fact that the underlying sales was more or less flat Payables only increased by EUR 160,000,000. So there is an increase of net working capital on a year on year basis and you have some kind of a record net working Currently, do you see some kind of structural underlying trends that you have to carry higher net working capital going forward because Some changes of payment terms or delivery times or whatever is the first question. Thank you. No. We feel that the working capital management in the group is well under control. As Briefly touched on in the presentation, we do see moderately, very moderate Declining working capital terms. So if I look onto a last 12 months basis and the working capital term This year June was about 8.7 times. Last year's June was about 8.9 times. So generally speaking, we feel the working capital management is well under control. We don't see any structural changes. I would nevertheless Point out 2 elements. The 2 elements are working capital turns in emerging markets is somewhat lower than in mature markets And working capital turn in specialties is somewhat lower than working capital turn in industrials. So to the degree we have a mix shift Towards specialties and towards emerging markets, you will see some drain but a very moderate drain on working capital trends. Okay. Thank you. And concerning Asia Pacific, you talked about all the investments because of future growth. Will sales also in the second half of this year work against this cost? Or do we have to wait until the next Here or even further? Well, I think it's fair to say that we would see the current investment in Asia Pacific as being probably for this year in terms of providing enough capability to grow. And so I would not expect to see cost base in Asia Pacific accelerating away from where we are today. Obviously, year over year, there will be a change. But nevertheless, I don't see further expansion from where we are today to increase our Market penetration, we have sufficient capability now to grow from where we are. We also have sufficient capability now to make acquisitions in the region In a competent and efficient way. So I'm sure, hopefully, that answers your question. Okay. Thank you. And Maybe you have answered the question concerning Europe and again the cost development in Europe as new management, As far as I understand, it's working on the integration of the European network and reducing net networking capital there and reducing costs Going forward, but after 2 or 3 years, I think most of the Easy things are done. Can we expect really to a lower cost base going forward on a structural basis That kind of integration or do you have really to work on other parts of the structure of the European network? The European network is by no means an end of the road in terms of Increased levels of efficiency. We still have a significant number of sites, which we believe To be more efficiently integrated from a supply chain perspective, and that is an unrelenting focus for our business. And therefore, I think we talk about quite often a convergence of the conversion ratio in Europe towards that of North America. And we are certainly our resolve in that respect has not diminished. And we are seeking again further Again, it's for our European business. I think there is a positive development in Europe insofar as the European business now is very much managed As European business, not as individual countries, and certainly, our position as a sales organization has strengthened considerably in the last 12 months, which I think will be demonstrated to some extent in the years ahead. As Brenntac is a preferred platform for many manufacturers, but by no means that we have finished as far as our efficiency gain is concerned. Okay. And the last one. You talked about so building up your own At least part of your own fleet in the North America. And do you have some intention to do that also in other regions? I think in North America, there's a particular need because I would say a particular need, I think we've addressed the need. But I think there's particular pressure Due to the effects of the oil and gas businesses, it's affected soaped up quite a lot of capacity when the external So I think quite a lot of that external haul is at nice time to get better returns by working in the oil and gas sector as opposed to general chemicals or general chemical distribution. We think that's Thomas, we've done what we need to do to address that issue. And I think as I said earlier on, I actually really believe that The size of our current logistics capability as Brenntag itself will provide a competitive advantage for our company in the future. I don't see the same pressure in other parts of the world and particularly in Europe. I think we're pretty much balanced where we are. And there wasn't the same drive And in terms of inflation increases in 3rd party providers. Okay. Very good. Thank you very much. We have a further question from Mr. Roy Mackenzie from UBS. Please go ahead. Hi, guys. Yes, one more for me, please, if that's all right. Just looking back to last Again, can you talk a bit about Brazil and how you've seen what sounds like quite a worsening of the macro conditions and whether that's Manifesting itself in any form of pricing pressure? Thank you. Well, I think as far as Brazil is concerned, I think we've all been looking at Brazil For the last couple of quarters now and saying what is the underlying strength of the economy. I think the with the combination of Exchange rates and business confidence, Brazil is proving a bit of a challenge. We do see the Brazilian government has taken some steps to ease import controls in certain areas and improve the Access to certain markets for chemicals in particular, but we are keeping a close eye on Brazil. We see it as being very flat at the moment or Slightly negative development in a number of business areas. And I think that's also articulated by other industry groups and other Segments, Brazil has shown a weaker performance. At this stage, it's by no means a catastrophic situation. It's nothing like Venezuela. I want to give you the impression that we have a big issue here. But so we are keeping an eye because we regard Brazil as being a long term growth opportunity. And any comments on pricing pressure or gross profit per ton trends, that kind of thing? I think there's pricing pressure On the domestic producer of chemicals in Brazil for sure. Okay. Thank you. The next question comes from Simon Murosote from Berenberg. Please go ahead. Yes. If I can Go back to Europe. You've obviously flagged a 60 basis points improvement in the conversion margin quarter on quarter. But obviously last year the margin was quite volatile. So what would you expect for the second half? Should we still Quarter on quarter improvement, I think. Is that realistic? Well, I think it's realistic. I think we have an that the European business should end this year at a higher conversion ratio compared to 2013. I think you get a little bit of volatility within quarter quarter to quarter to be fair. But I would say we will be disappointed As a management group, if we had a lower conversion ratio at the end of this year compared to 2013. Thank you. Thank you. There are no further questions. Okay. Well, thank you very much indeed everybody for joining