Earnings Call: Q4 2013

Mar 19, 2014

Dear ladies and gentlemen, welcome to the Brenntag AG Full Year 2013 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. Stephen Holland, who will lead you through this conference. Please go ahead, sir. Thank you very much, and good afternoon, everybody. Thank you very much for dialing in for our review of the 20 Earnings and a discussion of our current trading. I'm on the phone together with Joerg Muller, our CFO, and we'll be pleased to take your questions after this presentation. 2013 was characterized by challenging macroeconomic conditions. Our adjusted operating EBITDA amounts €15,100,000 is well within our guidance range of €710,000,000 to €725,000,000 At constant FX rates, we were able to grow the business by 2.4%. In the course of 2013, we were able to strengthen our market position in the United Thanks with the acquisition of lubrication services and also improved acquisitions in Australia and India with the acquisitions of Blue Sky and Zytax. Once again, the group was able to generate strong free cash flow of €543,000,000 We are pleased to submit a proposal to the General Shareholders Meeting The approval of a dividend of €2,600,000 per share, which is an increase of 8.3% over the prior year. The dividend represents a payout ratio of 39.5 percent of the profit after tax attributable to shareholders of Brenntag AG. We will also propose a 1 to 3 stock split, where existing shareholders will receive 2 additional shares for each share they Let's go on to the acquisitions. We acquired businesses for a total Enterprise value of just under €45,000,000 in 2013, which is clearly below our historic run rate for acquisition spending. This should not be interpreted as a slowdown in acquisition activity. The pipeline remains full and we expect to see further acquisitions in the near future. All acquisitions helped us enhance our products and service portfolio and improve our geographical coverage in existing countries. As mentioned before, they were lubrication services, Zydex Group in India and Blue Sky Acquisition in Australia. I would now like to hand over to Georg for a discussion of our full year 2013 financials. Yes. Good afternoon, ladies and gentlemen. I will continue the presentation on Page 7, which gives you details on our income statement. Keep in mind, the world still face challenging economic conditions in the course of the year. In this challenging environment, we were able again to report strong results. Gross profit totaled EUR 1,945,000,000 And that as we present a 3.7% FX adjusted increase against previous year. Equally important, all of our segments, all of our regions contributed to the growth of gross profit. You will note that FX adjusted growth rates throughout this presentation are higher than the as reported growth rates. This is mainly due to the weakening of the U. S. Dollar and the negative translation effect that comes with the weaker wood U. S. Dollar. Operating EBITDA totaled €698,300,000 or €715,100,000 Adjusted for the EUR 16,800,000 provision increase, which is related, as you know, to the old French antitrust case. For the full year, this represents a 2.4% growth. In the 4th quarter, the growth rate amounted to 3.4%. Adjusted operating EBITDA divided by gross profit conversion ratio went slightly down to 36.8% From 37.3 percent in 2012. Let's move to the income statement Below EBITDA, depreciation for the year amounted to EUR 101,200,000. Amortization totaled EUR 39.7 €1,000,000 and that is mainly driven by customer base amortization in the amount of €32,800,000 If you take a look at the financial results, the financial results totaled an expense of €60,700,000 Which was significantly lower than the previous year at an expense of €95,600,000 While we did benefit from lower interest rates, the effect was mainly driven by an income element by a EUR 26,800,000 income related to the revaluation of the payment obligation we have on our books for the remaining 49% of our Chinese company, Songtong. Overall, earnings before This remained high and amounted to €495,200,000, 3.5% above previous year. For the full year, we do record a tax rate of 31.6%, which is below the level of 34% to 30 5% which we usually indicate. This is mainly driven due to this is mainly driven by the effect I just mentioned by the effect of the revaluation of the Sung Jiul liability, the income that comes with that revaluation is a non taxable income. Going forward, we would expect to go back up to the indicated rate of 34% to 35%. Profit After tax amounted to €338,900,000 which is in line with the previous year's figure. That takes us to the cash flow statement on Page 9. On Page 9, actually, you see the details for operating cash flow. Overall, the reported cash flow provided by operating activities amounts to €357,800,000 If you walk through the cash flow statement line by line, you'll note the cash flow is impacted by the payment of the fine for the French Competition Law case of 2006. And the payment is in an amount of €48,000,000 as a reminder. And the payment took place in the 3rd quarter and is reflected in the line other of the cash flow statement. You'll find further cash flow elements on Page With respect to the investment cash flow, spending for CapEx for the full year is €98,200,000 In the cash flow statement, we show a spend for purchases of consolidated subsidiaries and other business units of EUR 43,900,000 for the acquisitions that Steve previously mentioned. The main element of our financing cash flow is a dividend payment to our shareholders. Actually, I would skip the balance sheet information and go straight to Page 12 With this which is the balance sheet and the leverage, net debt decreased in course of 2013 €141,000,000 and we closed the year with a net debt position of €1,341,000,000 The decrease is partly driven by the lower spend for acquisitions in the year. The group's leverage is now 1.9 times, Which is below the leverage end of 2012, which was 2.1 times. I would Keep the development of our leverage over time and move to Page 14 to the maturities profile of our in-depth business. The group remains long term finance. There was one piece of indebtedness that becomes during course of this year And that's the AR securitization, which currently finances around €180,000,000 We are currently considering refinancing alternatives for that small piece of our indebtedness. Keep in mind, we do have a strong amount of liquidity on our balance sheet and we have a mainly unused revolving credit Facility of €500,000,000 So we have all the flexibility in funding at hand that we need. Page 15. Trade working capital at the end of the year amounted to 1,000,000,000 And €44,000,000 in terms of working capital turns, we turned the working capital 9 times in 2013 And that is slightly below the 9.2 times, which we achieved in 2012. With respect to the free cash flow calculation, in 2013, we delivered again a strong free cash flow Of €543,000,000 after €579,000,000 in 2012, The decrease of about €35,000,000 or about 6% is mainly driven by a higher spend for working capital. And that takes the discussion back to Steve for a discussion of the segment results. Thank you, Georg. Now let me take you through the developments of the segments for the full year. This is on Page 17 and the Q4 view on the following page. For Europe, Europe grew its operating gross profit by 1.3% on an FX adjusted basis and operating EBITDA by 0.4%. What's encouraging about Europe is that the performance steadily improved quarter by quarter throughout 2013. Europe has already delivered a strong cost management of the business. The European macroeconomic environment has been throughout the year. However, we saw some stabilization starting in the second half of the year, which has also continued into the start of 2014. In North America, we continue to have a solid performance for the business in the year with an FX adjusted operating gross profit growth 6.7 percent and operating EBITDA growth of 4.9%. This is thanks to a combination of solid organic In Latin America, our business in Latin America delivered an FX adjusted gross profit growth of 2.1 However, this growth could not return into higher EBITDA. Instead, operating EBITDA fell by 12.3% compared to prior year. In the Q2 2013, we appointed a new Chief Operating Officer and made a number of organizational changes in the region. We are confident that the long term corrective actions are in place. Overall, the 2013 results in Latin America are not satisfactory and below our expectations. In Asia Pacific, we showed an 11.3 percent operating gross profit growth and an operating EBIT increase of 4.2%. Supported by the full 1st year inclusion of our acquisition of ISM Cellcap Group in 2012. During the course of the year, we further expanded our management capacity and operating expenses to prepare the region for future growth. So let me reiterate. Our operating gross profit for the year grew by 3.9% and the adjusted operating EBITDA grew by 2.4%. Now staying with the segments on Page 18, we'll move to the outlook. Let's look at the developments of these segments in Q4. On an overall basis, our business showed some improvements in Q4 compared to the full year picture driven by Europe and North America. Europe for the quarter showed a remarkable improvement with a 4.2% growth of operating gross profit and a 7.3% of EBITDA growth. The growth came from many countries across the region and was not a result of individual countries only. In North America, in Q4, North America had a strong FX adjusted operating gross profit growth of 7%, translating to a double digit EBITDA growth of 10.4 The growth was driven by organic business development and the successful development of the recent acquisitions. In contrast to the more mature economies, our business development in Latin America and Asia Pacific was not as satisfying in Q4 of 2013. Latin America, the segment delivered a declining 7.2% FX adjusted operating gross profit, which translates into a negative 33.6% FX Just a decline in operating EBITDA as we incurred additional charges linked to the ongoing reorganization and as we make provisions for potential customer credit risk. In Asia Pacific, we noticed a slowdown of activity in Q4 mainly in Thailand as well as some softness in China. Asia Pacific cannot fully reach its Q4 2012 operating gross profit with a 1% shortfall. On an overall scale, we were pleased with the group's Operating performance in Q4. Based on the solid earnings development and an increase in the payout ratio, we will propose an increased dividend of euros 2.60 per share, which represents an 8.3% increase over prior year. Turning to Page 20. Given the strong development and strong share price increase, we'll propose a stock split to the General Shareholders Meeting in June of this year. Share prices more than doubled since the IPO. And on a normal basis, the share prices were the highest in the index. We want to remain an attractive share for a very broad shareholder base including retail investors. In addition, we clearly expect the business to positively develop for the company Welcome in the future. In the stop split, every existing investor shall receive 2 additional shares where each share already held. It will not be necessary for the shareholders to pay for the UV issued shares. We will increase the subscribed capital of the company by transferring Now come to Page 22 23. We do have a very positive view on 2014. We expect macroeconomic growth at a moderate pace with some differentiation between the major economies. In addition, we see ongoing outsourcing trends distribution and expect the benefit from Brenntag's strong competitive position, Increasing global reach and expanding our products and services to the benefit of the group in 2014. We expect gross profit to grow Consequently, EBITDA to grow. The profit before and after tax should develop broadly in line with the growth of operating EBITDA. We expect to benefit from a better macroeconomic environment both in Europe and in North America. After we cut out substantial Chasing in Latin America in 2013, we expect a clear recovery of earnings in the course of 2014. From Asia Pacific, we expect a positive contribution in 2014. We expect to give qualitative guidance late in the year as we have done in the past. Working capital is to a large extent a function of sales and chemical pricing, We would expect it to continue to grow in the course of 2014, while we should be able to maintain our high working capital turnover. We plan to see some CapEx increase in the year around about €10,000,000 to appropriately support the growth of our group. Finally, the free cash flow is expected to be meaningful higher than in 2013 based on the different elements mentioned above. Now let me come and address the current trending environment. We continue to see growth in the 1st 2 months of 2014. Gross profit per day for the 1st 2 months of 2014 were ahead of the same period in 2013. We clearly see the recovery in Europe continuing in 2014. North America has had a somewhat affected profit performance, EBIT and gross margin performance in the 1st 2 months By the heavy snowstorms in January February. Latin America continues to be difficult, while we especially see the following We're especially following the political situation in Venezuela closely. In Asia Pacific, we see a somewhat mixed picture so far with some weakness in Thailand. Gross profit per working day grew by 5.1% year over year in November, 2.2% in December, 3.8% in January and 2.5% in February. We expect the growth to pick up further in the course of the year. In closing, we are confident that we will grow all the relevant earning parameters in 2014 with a mix of both acquisitive and organic growth In line with the improving macroeconomic conditions, Brenntag remains very well positioned to capture new growth in both established and emerging markets. We're now happy to answer any of your questions. Thank you. We will now begin our question and answer session. Once your name has been announced, you can ask your question. If you find your question is answered before it is your turn to speak, One moment please for the first question. The first question comes from Mr. Rob Shand, JPMorgan. Please go ahead. Good morning. Good afternoon, Steve. Good afternoon, Georg. Steve, you helped you just gave us the monthly figures for gross profit growth per working day. Could you give those figures please organically? And I think the reference point is that in July growth have been 2.5%, August So BIN 2 in September was flat. Just wondering how that proceeded across Q4 and into Q1, please? Andrew, do you want to proceed? Yes. Well, if I continue that, I'll give you for each of the months the nominal FX adjusted growth rates and the organic growth rates where we strip About acquisitions, that would be for October, speed 0.4 nominal and 1.1 organically. For November, 5.1 nominal and 2.4 organically. For December, 2.2 nominal and around Flattish organically. If we move into 2014, the acquisition effects are pretty small acquisition effects Given the limited acquisition activity in course of 2013, so the SEK 3.8 billion nominal in January would be Maybe 1% lower, say close to 3% organically and the 2.5% for February Would be 1.5 roughly organically. Thank you, Georg. And Those figures in January February, do you know how much impact there was from North American bad weather? It gets to a level of detail which is difficult for us to strip out and which also might lead to a situation where people overemphasize A little bit, but we have had meaningful impact from North America bad weather. Great. Thank you, Gaol. The next question comes from Mr. Andy Chu. Please go ahead. Good afternoon, Steve, Gail. A few questions for me. Just starting with January, February. Can you just tell us a little bit maybe around Europe and whether that Growth rates of largely 4%, I guess, which is the organic growth rate in Q4. What's happened In January, February, please, in Europe? That's my first question. Europe clearly continued The positive path it has shown in Q4 into the New Year, into January, February. So we would say currently for the group, Europe is Quite a success in growth terms. So the hard work the European team spent over the last 1, 2 years clearly pays off now. And you're seeing operational leverage through to EBITDA on the growth coming through? Yes. And I think it's early days, but I think the answer So we would expect to see operational leverage on the EBITDA going forward. I mean clearly, we've had a couple of really difficult years in macro Good economic in Europe. And I see it's a positive momentum now as part of Eurovision is concerned and we would expect See some benefit from that as the year develops for sure. Okay. Thank you. And then in terms of switching to LatAm, Steve. If I look at your numbers, it looks as though the number of FTEs in LatAm as a whole That's actually increased. And I guess the I thought the aim was here was to take out costs that you'd sort of over costed So of LatAm, so I was a bit surprised to see overall net headcount increase. And So following on in terms of LatAm and Asia Pacific, how clear are you in terms of having to impair Either some of your LatAm or APAC businesses. Yes. I think just on the head It's a little misleading actually because there's a reasonably important seasonal business, which is actually in Ecuador, Which is a business which takes on temporary workers. And I think there might be a bit of a timing issue on those numbers as far as headcount is concerned. So as I said, there's been no expansion or significant expansion expected in Latin America. If I heard you correctly, Andy, the second question was given the weaker earnings development in Latin America, and I'm not sure if I also heard a reference to Asia, If we see an increased risk, at least that the way I understood the question, if we see an increased risk of goodwill impairment on the balance sheet, We have been through the usual impairment test as we do each and every year. And as you might have seen or not Seeing yet that there was also a sensitivity analysis, part of the annual accounts, which we today published, And we are far off any impairment in any segment. Great. And then just my last question on the U. S. What was the sort of impact or the year on year positive impact from caustic soda, I. E, The investments sort of falling away or actual contribution coming through from that product line, are you able to quantify that please for Q4? I think what you're always just looking at that, I'm not entirely sure we'll be able to quantify that directly. But what we can say is that the strategy In terms of developing caustic soda during 2013 proved to be successful, and we have increased sales of that product quite significantly During the course of the year, the investments that we made during the course of 2013, which were effectively a cost on in our North American business initially, And now more than we covered, we're in very much positive territory in terms of cost contribution. Okay. To give you a sense, Andy, for the order of magnitude, the caustic soda initiative accounts for A good percentage point, so 1 to 1.5 percentage points of the North American earnings on a full year basis. I don't have a Q4 figure as See at hand, as the business ramped up in course of the year, probably the Q4 share is a little bit higher than the 1% or 1.5% I mentioned for the full year. Sure. If that is the case, I mean, I guess, on an FX adjusted basis in Q4 in North America, you were up 10 And I guess you had to take into account Ultevia and Lubrication Services on the M and A standpoint. So that probably drops Half of that coming through from M and A and if you're then adding a sort of Of the organic growth rate was 3% to 4%, if you're then taking a chunk of that, say, 2% from Core6. Is that the right way to sort of think about the U. S. Actually on an underlying basis actually not really growing that strongly? Is that a fair observation? So you are pretty quick in your math now. I would say directionally I would agree to the figures you laid out. It seems to me you underestimated the organic growth a little bit, but directionally you are for sure right. Okay. Thank you. The next question comes from Mr. Roy Mackenzie, UBS. Please go ahead. Good afternoon, guys. 3 for me, please. Firstly, can you comment on your outlook compared to your historic average EBITDA growth of that 6% to 9% range? Where are you kind of thinking for next year? And then secondly, just on Europe. Can you talk about where that growth improvement has come from? Is that just markets? Is that gains in outsourcing penetration? Or is that just pure share gains with Brenntag given your, I guess, your investments over the past few years? And then maybe start with those 2, please. Well, I'll just come to the growth rates on targets. We've indicated some 6% to 9% organic growth rates historically. I think the way I would look at it, I would see you as we get into a transition phase now where you look at the last 2 years, it's been a little Relative to the negative effects into the recessions in Europe and what have you. And I think we've been very successful In mitigating the recessionary elements of Europe and putting some strong numbers, but I now I feel rather more positive about Europe. And we see With the business picking up in an organic sense in a much broader base to recovery Perhaps we've seen before, and I guess there will be a certain degree of transition from where we were To our more historic 6% to 9%. I think in terms of how we've achieved this, I think to be fair, we've increased Our take from the market in terms of number of customers purchasing from Europe, we are certainly looking at improving our margins. Clearly, as the business increases its overall volume, we are going to benefit from operational leverage. So the whole combination effects will actually create a positive outcome for the European business in 2014. Okay. And then maybe on the point of outsourcing penetration, I mean, how have you seen that trend through the recessionary period? And then again, what's the outlook there The distribution industry overall now you've got better growth in online markets. Yes. I think it's fair to say that during the more difficult periods, You had a situation where a number of customers were seeking outsourcing as a way of almost defending their position In terms of how could they unload some elements of their operating costs into a service provider like Brenntag, which obviously was beneficial for us. And we clearly are now seeing the benefits of that going forward. We also now have, we believe, A new momentum in outsourcing as companies take a more pragmatic approach to their acquisition of chemicals generally. And what we find today is that even some of the very larger companies are looking at the total cost of ownership of chemicals. When they look at what we provide to the market, they say, look, we need to consider warehousing, we need to consider the complexity of our storage, the complexity Steve, our storage complexity of our administration and can Brenntag reduce that complexity and the total cost of ownership. And this type of debate is increasing quite significantly in Europe particularly. And therefore, I would be very much like to confirm the trend for outsourcing is both Okay, great. And then just one on the M and A side. I saw you pointed a new global head of M and A late last year. Does that maybe indicate that you felt your capabilities weren't quite up to scratch last year? It might have contributed to the low flow of deals? Or is that just purely an organizational change? No, actually that was more a case of me gearing up for more really. At the end of the day, we actually As a matter of interest, I guess, it will be interesting for most people on the call. During the course of 2013, we had very Similar levels of negotiations underway during the course of the year. And I hope you'll forgive us if we act prudently and take our due diligence seriously. And so for some of the transactions, we took a view that we weren't happy. Others, they are just taking a little longer to deliver. And we would expect acquisitions to start flowing again into the business quite soon. But certainly, appointments of a senior person on M and A It's really more a case of the business, really looking at consolidating and accelerating the conversion of the targets that are available to us. Okay. And then just one more if I can. I think it follows up on Andy's question on impairments. But given how the purchase Obligation liability, we'll see adjusted given the performance of the Chinese business. Why didn't you have to impair your 51% stake in the ASEAN YUNG JV. Yes. We Rory, it's Georg. We are testing on a segment basis, so we are testing North America, Europe, Latin America and Asia. We are not testing sub segment. So Song Jong as an individual entity is not tested. That doesn't mean that there were an impairment. If it were to be tested on an individual basis, I don't even know. It's not the level we test upon. We test on segments only. Okay. That's great. Thank you, guys. The next question comes from Mr. Gerhard Ognus, Exane BNP Paribas. Please go ahead. Good afternoon. Thanks for taking my question. I've got 2 questions actually. The first one is about LatAm and Asia. How do we how do you have to think about Q1? Is any of the regions turning a corner given that you've Had some extra provisions taken in Q4 or is it are they basically flat sequentially? And the second question is About your guidance on North America, you're talking about significant gross profit growth in your annual report and moderate Operating EBITDA growth, my impression was that following the investments last year, the conversion margin should actually improve In the U. S, is that still the case? Is that what you're expecting? Yes, this is Georg. It's on LatAm and Asia, The beauty of the group is one of the beauties of the group is that we are diversified along many axis, also diversified regionally. Currently, Europe seems to have a good one. Latin America and Asia, probably too early To announce return to positive growth very short term. As you know, many companies are currently facing their challenges in the emerging markets, things like Thailand in Asia play a role, things like That's things like Thailand in Asia play a role, things like Venezuela and Latin America play a role. So Too early to expect growth very short term, notwithstanding that in further course of the year, we would expect to return back Positive growth territory. Yes. And in terms of North America, I think it's a fair comment. I think our gross profit is We're not expecting a reduction in efficiency within North America. And therefore, there should be an appropriate improvement in EBITDA. Okay. Thank you. The next question comes from Mr. Markus Mayer, Kepler Cheuvreux. Please go ahead. Yes, good afternoon. Three questions from me as well. First of all, again on the LatAm restructuring, can you give us some more flavor what we can expect for 2014 From the financial result or for the gross profit and EBITDA improvement? And then secondly, On restocking, there are rumors in the among chemical companies that certain restocking has now started in Q2 Or end of Q1. Do you see all of this already happening? I know that this is normally not a big thing for you, but If you would see a large restocking in the industry, can we expect that the volume impact you had last year where customers switched From production companies to distribution companies would then reverse. And then the last question Again, on the re relation of your Chinese acquisition. Then the merchant market currency or the Chinese currency, equals further. Should we expect further revaluation in 2014? Or what is the kind of spot rate you used for this regulation? Maybe I take the last question first, the technical question on the Sonjung liability. Maybe For the Board of Group on the call, I'm not sure everybody is aware that currently we own 51% of Songeung. We will acquire the outstanding 49 percent early 2016. We'll acquire it under a fixed price formula, and we do have a liability For the 49% on the books already, we do we evaluate the liability end of each financial year. We did so last year and reduced the liability, which gave us a positive income effect. The And this will NIMBY euro spot rate that was used for that was the year end rate 2013. So to the degree, the way it Changes, we'll see another revaluation upward or downward, but there are also other elements like business development in. Just coming to your question on restocking, I think it's very much too early to call it in terms of restocking. I don't think we see significant shifts in customer behavior relative to restocking. And I think the The point that you're trying to make in terms of those customers that may well have purchased from the distributor sector during the slower periods of the previous 2 years, Well, they are likely to go back to manufacturing. I don't know if I read this, but I actually find that very unlikely, very likely indeed. And the reason for this quite simply, we actually see more and more customers clearly looking to manage their own working capital more closely, And I see the distributor sector has been an important way of being able to reduce the amount of stockholding they have and turn their own stock over much faster. So our experience is that once a customer moves away from manufacturing of the non strategic items from a direct manufacturer, it's very rare Go back, so I'm not expecting any change in that respect. Okay. Markus, I think your first question was on, if I heard it correctly, on a more The guidance for Latin America? Yes, exactly. I beg your pardon that we don't give any quantitative guidance early in the year, particularly not on segment level. Also keep in mind the Latin American earnings account for 7% or 8% of the group. So while they might see a significant movement this year for the segment level, on an overall group I think it's also fair to say that I think the Latin American Businesses, I think if you look at 2014 as a full year, it has gone through this reorganization, that there will be points within the year Reorganization charge will have taken place and therefore they give us a somewhat straight looking result on a quarterly basis. I don't really think for the smaller regions, It's so easy to manage them on a quarterly basis. Okay. The next Question comes from Mr. Jaskom Majer Wignen, HSBC. Please go ahead. Thanks. I have three questions. First of all, On the growth rates sequentially also compared then to Q3 and Q4, was there any particular reason A bit weaker volumes compared to Q3 besides the normal seasonality. You were talking about weaker business in in Thailand, but was there any particular reason, anything which might be like delaying orders or something like this or any particular end industry which was a bit weaker? And then secondly on Latin America, was there any restructuring charge booked in Q4 or Nothing which could be seen as one off cost. And then finally on your EBITDA to So, EBITDA gross profit margin conversion ratio in Q4 of 37.7%. Is this sustainable in your view as for Any impact we should consider for next quarter? Yes, maybe it's Georg. Maybe I take these. I'm not sure if I really understood the question about the sequential growth rates. I'm not sure if it was a question on And our group level, there was nothing particular in the sequential growth rates, which impacted the growth Towards the end of the year, yes, Latin America and Asia have shown some weaker growth rates, Opposite to Europe and North America, which have shown stronger growth rates toward the end of the year. Within Asia, I Could to a degree point to Thailand, which is about a quarter of our Asian business and which obviously due to political difficulties is in Tough territory, but I wouldn't overemphasize the point. I would say it's normal up and downs for the business overall. Any particular end industry which was weaker? No. No. I think just getting back to your conversion ratio question, I think the important thing here is to look at the European and North American businesses as being obviously the substantive parts of our business overall And with every reason to expect both America and Europe to benefit from an improving business environment As we do not expect to have any operation significant operational cost increases to Support new growth and economic recovery other than the normal transactional stuff such as extra transport and what have you. So you might expect To see overall the conversion ratio to be positively developing throughout the course of 2014. And then finally on LatAm, was there any resulting charge booked? No, there were bits and pieces here and there, but there was no major amount. We have gone through all customer credit lines, customer credit limits and may have taken a little bit more cautious here and there and written off some amounts here and there. But there is no amount, which in the overall group context is relevant and which I would suggest For adjustment. Okay. Thanks a lot. A further question comes from Mr. Andy Chu. Please go ahead. Thank you. Steve, could I just ask you about Asia Pacific and the recruitment of some more senior heads into Asia Pacific? Has that So could you just update where you are on that please? And secondly on some more general wage inflation, which I guess It's a theme given that wages and salaries have been fairly suppressed over the last few years of the downturn. What do you expect what's your expectation please in terms of what you might have to do in terms of wage inflation for this year? Thank you. I think, well, group wise, we tend to we've indicated no more than 3%, and that's really sort of a North American and European view. I think to be fair, Asia Pacific might be a little higher because obviously there are higher rates of inflation and demands in Asia Pacific. Again, you've got to put that in the context of the size of that business in relation to the overall group. Yes, we have certainly I made the appointments during the course of 2013 in terms of strategic corporate development, Strategic developments, mergers and acquisitions and expanded the ability of our business in Asia Pacific to develop Industrial Chemical Distribution as well as Specialty Chemicals in addition to a whole range of new personnel functions in terms of capacity to take on staff as we look at future growth. So we do have a Very capable and well staffed headquarter in Singapore, and they are very much now positioned to Take advantage of the growth opportunities in the region. And as we said before, we do we are perhaps a little cautious insofar as we get ourselves in a good position first And then we'll move. And so I would expect 2014 to see Asia Pacific make progress in its overall development as a result. And then just on M and A, just and maybe I missed this from your comment, Steve, but in terms of sort of active deals that you're sitting on, is it still the same 3% to 4% that you've been sitting on in a while? Or is That expands in terms of number of sort of active deals that are being worked on and you're trying to convert. Yes. We actually have 4 or 5 active deals at the moment, which are relatively new in terms of Non disclosure agreements and initial negotiations with potential sellers, we do have a couple of transactions, Which we worked on during 2013, which were a little more complicated as they were carve outs from existing business groups, and there For plenty pro form a numbers and what have you. And again, I hesitate, but we don't really apologize too much For making sure our pending pro form a numbers that we have are nailed down, and that's really what's taking the time during 2013. However, we're Pretty satisfied now. We are where we need to be. And therefore, I would expect certain volume to increase, but I will certainly increase in 20 14. And we don't have any issues in terms of the number of deals in the pipeline for future developments. Thank you. The next question comes from Mr. Simon Metternate, Berenberg. Please go ahead. Good afternoon, gentlemen. I was wondering if you can talk about the steps you've taken to drive your Specialty Chemicals business, Especially in Europe, I think last November you flagged this as a potential area for growth. And obviously, if you What are the most recent trends regarding that if you start to see some benefit from it? Yes, I I can talk to you about that. The European organization has made some significant progress during the course of the last 6 months in terms of Organizing itself on an industry basis and on a pan European basis. We previously had a very much a country organization approach towards Specialty Chemicals, and we now are taking a pan European approach And using the leverage of our customer penetration across the whole of Europe to persuade specialty chemical manufacturers Adopt as their preferred channel to market. And we do actually have a number of successes for the European business where new suppliers Our adoption of Brenntag on a pan European basis and effectively discontinuing with a number Local chemical distributors, which were their previous channel to market partners. So I think we're very well positioned. The European business will be fully operational by June of this year in terms of what you see in the marketplace, And we'll be flagging that up on in terms of PR and development of that message more strongly in a few months ahead. But We're in a good position and we see ourselves taking advantage of our scale. Thank you. So would it be fair to say that you haven't seen any, let's say, material Impact from these steps you've taken? I think we can't quantify them at this moment because they're literally at the rollout stage. But we feedback we have from the suppliers and customers alike are very positive. And therefore, we would expect it to be Positive contribution to this year. Thank you. Thank you. 1. A further question comes from Mr. Charles Wilson, Goldman Saks, please go ahead. Good afternoon, guys. Two questions on acquisitions. First, could we expect to see A year of double spend this year, I'd catch up for the monies not spent last year. And secondly, is there any reason Why we should see a differential in the price paid for your acquisitions this year relative to your historic track record? Well, thank you, Charles, for that. I don't think we'll be seeing a double spend as I'm looking across at my CFO. But certainly, I mean, it was sort of double on last year, that's for sure. But no, I would expect we So Guy, it was up 200 to 250. If it's a little north of that, I wouldn't be completely surprised because clearly, we have some deals which should be Cooking now for a little while. And what I can tell you is that certainly, historic valuations would appear to be Holding as far as the deals that we have in the pipeline at the moment. So I don't envisage high priced Transactions relative to our current portfolio. Okay. Thank you very much. There are currently no further questions. I now hand back to Mr. Holland. Well, okay. Thank you very much, ladies and gentlemen, Thank you for joining us today on our year end financial. Very much appreciate your time and attendance. And at that point, we'll close the call. Thank you very much. Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded.