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. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Mr. Steven Holland, who will lead you through this conference. Please go ahead, sir.
Thank you very much. Good afternoon, everybody. Thank you very much for dialing in for our review of the 2013 earnings and a discussion of our current trading. I'm on the phone together with Georg Müller, 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 to EUR 715.1 million. This is well within our guidance range of EUR 710 million-EUR 725 million. 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 U.S. with the acquisition of Lubrication Services, and also improved our positions in Australia and India with the acquisitions Blue Sky and Zytex. Once again, the group was able to generate strong free cash flow of EUR 543 million.
We are pleased to submit a proposal to the general shareholders meeting for the approval of a dividend of EUR 2.6 per share, which is an increase of 8.3% over the prior year. The dividend represents a payout ratio of 39.5% of the profit after tax attributable to shareholders of Brenntag AG. We will also propose a one-to-three stock split, where existing shareholders will receive two additional shares for each share they own. Let's go on to the acquisitions. We acquired businesses for a total enterprise value of just under EUR 45 million 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, Zytex 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.
Good afternoon, ladies and gentlemen. I will continue the presentation on page seven, which gives you details on our income statement. Keep in mind the world still faced 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 billion, and that does represent 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 a weaker U.S. dollar.
Operating EBITDA totaled EUR 698.3 million or EUR 715.1 million, adjusted for the EUR 16.8 million 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 fourth 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% in 2012. Let's move to the income statement below EBITDA. Depreciation for the year amounted to EUR 101.2 million. Amortization totaled EUR 39.7 million, that is mainly driven by customer-based amortization in the amount of EUR 32.8 million. If you take a look at the financial results, the financial results totaled an expense of EUR 60.7 million, which was significantly lower than the previous year at an expense of EUR 95.6 million.
We did benefit from lower interest rates, the effect was mainly driven by an income element, by a EUR 26.8 million income related to the revaluation of the payment obligation we have on our books for the remaining 49% of our Chinese company, Zhong Yung. Overall earnings before taxes remained high and amounted to EUR 495.2 million, 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%-35%, which we usually indicate. This is mainly driven by the effect I just mentioned, by the effect of the revaluation of the Zhong Yung liability. The income that comes with that revaluation is a not taxable income. Going forward, we would expect to go back up to the indicated rate of 34%-35%. Profit after tax amounted to EUR 338.9 million, which is in line with the previous year's figure.
To the cash flow statement on page nine. On page nine, you see the details for operating cash flow. Overall, the reported cash flow provided by operating activities amounts to EUR 357.8 million. If you walk through the cash flow statement line by line, you will note the cash flow is impacted by the payment of the fine for the French competition law case of 2006. The payment is in an amount of EUR 48 million, as a reminder, and the payment took place in the third quarter and is reflected in the line other of the cash flow statement. You will find further cash flow elements on page 10. With respect to the investment cash flow, spending for CapEx for the full year is EUR 98.2 million.
In the cash flow statement, we show a spend for purchases of consolidated subsidiaries and other business units of EUR 43.9 million for the acquisitions that Steve previously mentioned. The main element of our financing cash flow is the dividend payment to our shareholders. Actually, I would skip the balance sheet information and go straight to page 12, which is the balance sheet and the leverage. Net debt decreased in course of 2013 by EUR 141 million, and we closed the year with a net debt position of EUR 1,341 million. 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 skip the development of our leverage over time and move to page 14, to the maturities profile of our indebtedness. The group remains long-term finance.
There is one piece of indebtedness that becomes due in course of this year, and that's the AR securitization, which currently finances around EUR 180 million. 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 EUR 500 million. 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 EUR 1,044 million. In terms of working capital turns, we turned the working capital nine 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 EUR 543 million after EUR 579 million in 2012. The decrease of about EUR 35 million 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. 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 grew its operating gross profit by 1.3% on an FX-adjusted basis and operating EBITDA by 0.4%. Particularly 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 challenging throughout the year. However, we saw some stabilization starting in the second half of the year, which has also continued into start 2014. In North America, we continued to have a solid performance for the business in the year with an FX-adjusted operating gross profit growth of 6.7% and operating EBITDA growth of 4.9%.
This is thanks to a combination of solid organic business development and a successful integration of recent acquisitions. In Latin America, our business in Latin America delivered an FX-adjusted gross profit growth of 2.1%. However, this growth could not be turned into high EBITDA. Instead, operating EBITDA fell by 12.3% compared to prior year. In the second quarter 2013, we appointed a new Chief Operating Officer amid 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% operating gross profit growth and an operating EBIT increase of 4.2%, supported by the full first-year inclusion of our acquisition of the ISM Salkat 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. Let me reiterate, our operating gross profit for the year grew by 3.9% and the adjusted operating EBITDA grew by 2.4%. To stay with the segments on page 18, we 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 2013. Latin America, the segment delivered a decline of 7.2% FX-adjusted operating gross profit, which translates into a negative 33.6% FX-adjusted decline in operating EBITDA. As we incur 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 could not 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 EUR 2.60 per share, which represents an 8.3% increase over the prior year. Turn to page 20. Given the strong development and strong share price increase, we will propose a stock split to the general shareholders meeting in June of this year. Share price has more than doubled since the IPO, and on a normal basis, the share price is one of the highest in the MDAX. 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 in the future. In the stock split, every existing investor shall receive two additional shares for each share already held.
It will not be necessary for the shareholders to pay for the newly issued shares. We will increase the subscribed capital of the company by transferring respective amounts from the capital reserves. Now come to page 22 and 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 and consequently, EBITDAR to grow. The profit before and after tax should develop broadly in line with the growth of operating EBITDAR. We expect to benefit from a better macroeconomic environment, both in Europe and in North America.
After we carried out substantial changes 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 quantitative guidance later in the year as we have done in the past. Working capital is to a large extent a function of sales and chemical pricing, and we'd 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 increases in the year around about EUR 10 million to appropriately support the growth of our group. Finally, the free cash flow is expected to be meaningfully higher than in 2013 based on the different elements mentioned above. Now let me come and address the current trading environment.
We continue to see growth in the first two months of 2014. Gross profit for dates for the first two 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 and gross margin performance in the first two months by the heavy snow storms in January and February. Latin America continues to be difficult, while 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 mixture 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. If you have a question for our speakers, please dial 01 on your telephone keypad now to enter the queue. 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, you can dial 02 to cancel your question. If you are using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question comes from Mr. [Rob Shanct], JPMorgan. Please go ahead.
Morning. Afternoon, Steve. Afternoon, Georg. Steve, you helpfully just gave us the monthly figures for gross profit growth per working day. Could you give those figures, please, organically? I think the reference point is that in July, growth had been 2.5, August had been two, and September was flat. Just wondering how that proceeded across Q4 and into Q1, please. Have you, excuse us?
Yeah. Well, if I continue that, I'll give you for each of the months the nominal EPS-adjusted growth rates and the organic growth rates where we strip out acquisitions. That would be for October, 3.4 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. The 3.8 nominal in January would be maybe 1% lower, say close to 3% organically. So 2.5 for February would be 1.5 roughly organically.
Thank you, Georg. Those figures in January and 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. We have had meaningful impact from North America bad weather.
Great. Thank you, Georg.
The next question comes from Mr. Andy Chu. Please go ahead.
Good afternoon, Steve, Georg. A few questions from me. Just starting with January, February. Can you just tell us a little bit maybe around Europe and whether that growth rate of largely 4%, I guess, which is the organic growth rate in Q4. What's happened in January, February, please, in Europe then? That's my first question.
Andy, Europe clearly continued the positive path it has shown in Q4 into the new year, into January, February. We would say currently for the group, Europe is quite a success in growth terms. The hard work the European team spent over the last one, two years clearly pays off now.
You're seeing operational leverage through to EBITDA on the growth coming through?
Yeah, Andy, I think it's early days, but I think the answer is we would expect to see operational leverage on the EBITDA going forward. Clearly, we've had a couple of really difficult years macroeconomically in Europe, and I see a positive momentum now as far as Europe is concerned, and we would expect to see some benefit from that as the year develops for sure.
Okay. Thank you. In terms of, just switching to LatAm, Steve. If I look at your numbers, it looks as though the number of FTEs in LatAm as a whole have actually increased and I thought the aim here was to take out costs that you'd overcosted parts of LatAm. I was a bit surprised to see overall net headcount increase. 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? Thank you.
I think just on the headcount side, 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. That said, there's been no 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. As you might have seen or not have seen yet, that there is also a sensitivity analysis part of the annual accounts which we today published, and we are far off any impairment in any segment.
Great. Just my last question on the U.S. What was the impact or the year-on-year positive impact from caustic soda, i.e. either investments that are falling away or actual contribution coming through from that product line? Are you able to quantify that, please, for Q4?
I think what Georg was just looking at, I'm not entirely sure we able to quantify it 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 in our North American business initially, are now more than recovered, and we're in very much positive territory in terms of cost contribution.
To give you a sense, Andy, for the order of magnitude, the caustic soda initiative accounts for a good percentage point. One to one and a half percentage points of the North American earnings on a full year basis. I don't have the Q4 figure 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 guess on an FX-adjusted basis in Q4 in North America, you're up 10%. I guess you have to take into account Altivia and Lubrication Services from the M&A standpoint. That probably drops half of that coming through from M&A. If you're then adding the organic growth rate of 3%-4%, if you're taking a chunk of that, say 2% from caustic soda, is that the right way to think about the U.S. actually on an underlying basis, actually not really growing that strongly? Is that a fair observation?
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, directionally, you are for sure right.
Okay, thank you.
The next question comes from Mr. Rory McKenzie, UBS. Please go ahead.
Good afternoon, guys. Three from me, please. Firstly, can you comment on your outlook compared to your historic average EBITDA growth at that 6%-9% range? Where are you thinking for next year? 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 for Brenntag given your investments over the past few years? Maybe start with those two, please.
Well, I'll just come to the growth rates. We've indicated some 6%-9% organic growth rates historically. I think the way I would look at it, I would see us really getting into a transition phase now, where you look at the last two years, it's been a real struggle relative to the negative effects and to the recessions in Europe and what have you. I think we've been very successful in mitigating the recessionary elements of Europe and putting some strong numbers. I now feel rather more positive about Europe, We see the business picking up in an organic sense in a much broader-based recovery than perhaps we've seen before. I guess there will be a certain degree of transition from where we were to our more historic 6%-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. The whole combination of effects will actually create a positive outcome for the European business in 2014.
Okay. Maybe on the point of outsourcing penetration, how have you seen that trend through the recessionary period? Again, what's the outlook there for the distribution industry overall now you've got better growth in underlying markets?
Yeah, 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 certain elements of their operating costs into a service provider like Brenntag, which obviously was beneficial for us. 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 the acquisition of chemicals generally. 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're saying, "Look, we need to consider warehousing.
We need to consider the complexity of our storage, complexity of our administration, and can Brenntag reduce that complexity and the total cost of ownership?" This type of debate is increasing quite significantly in Europe particularly, and therefore I would very much like to confirm the trend for outsourcing is both healthy and improving.
Okay, great. Then just one on the M&A side. I saw you appointed a new global head of M&A late last year.
Does that maybe indicate that your capabilities weren't quite up to scratch last year? Might that have contributed to the low flow of deals, or was 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. I hope you'll forgive us if we act prudently and take our due diligence seriously. For some of the transactions, we took a view that we weren't happy. Others, they have just taken a little longer to deliver, we would expect acquisitions to start flowing again into the business quite soon. Certainly, the appointment of a senior person on M&A is really more a case of the business really looking at consolidating and accelerating the conversion of the targets that are available to us.
Okay. Then just one more if I can. I think it follows up on Andy's question on impairments. Given how the purchase obligation liability will be adjusted given the poor performance of the Chinese business, why didn't you have to impair your own 51% stake in the Zhong Yung JV?
We are testing impairment on a segment basis. We are testing North America, Europe, Latin America, and Asia. We are not testing sub-segment. Songjun as an individual entity is not tested. That doesn't mean that there weren't 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.
The next question comes from Mr. Gerhard Orgonas, Exane BNP Paribas. Please go ahead.
Good afternoon. Thanks for taking my question. I've got two questions, actually. The first one is about LatAm and Asia. 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 are they basically flat sequentially? 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?
This is Georg. It's on LatAm and Asia. One of the beauties of the group is that we are diversified along many axes, also diversified regionally. Currently, Europe seems to have a good one. Latin America and Asia, probably too early to announce a 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 Venezuela and Latin America play a role. Too early to expect growth very short term, notwithstanding that in further course of the year, we would expect to return back to positive growth territory.
Yes. In terms of North America, I think it's a fair comment. I think our gross profit is expected to grow. We're not expecting a reduction in efficiency within North America, and therefore, there should be appropriate improvement in EBITDA.
Okay. Thank you.
The next question comes from Mr. Markus Mayer, Kepler Cheuvreux. Please go ahead.
Yeah. 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? Secondly, on restocking, there are rumors among chemical companies that certain restocking will now start 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 larger 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? The last question is again on the revaluation of your Chinese acquisition. The merchant market currency or the Chinese currency weakens further.
Should we expect then a further revaluation in 2014? What is the kind of spot rate you used for this revaluation?
Maybe I take the last question first, the technical question on the Zhong Yung liability. Maybe for the broader group on the call, I am not sure if everybody is aware that currently we own 51% of Zhong Yung. We will acquire the outstanding 49% early 2016. We will acquire it under a fixed price formula, and we do have a liability for the 49% on the books already. 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 Chinese renminbi Euro spot rate that was used for that was the year-end rate 2013.
Okay.
To the degree the rate changes, we will see another revaluation upward or downward, but there are also other elements like business development in Zhong Yung.
Yeah. Okay.
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 related to restocking. I think 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 two years, are they likely to go back to manufacturing? On a direct basis, I actually find that very unlikely indeed. The reason for it is quite simply that we actually see more and more customers clearly looking to manage their own working capital more closely, and they 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.
Our experience is that once a customer moves away from manufacturing of the non-strategic items from a direct manufacturer, that it's very rare to go back. 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 specific guidance for Latin America.
Yeah. Exactly.
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. While they might see a significant movement this year for the segment level, on an overall group level, the impact won't be too material.
Yeah.
I think it's also fair to say that, I think the North American business is, I think if you look at 2014 as a full year, because it has gone through this reorganization, that there will be points within the year where reorganization charges will have taken place, Therefore, they give us a somewhat strange 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. Jesko Mayer- Wegelin, HSBC. Please go ahead.
Thanks. I have three questions. First of all, on the growth rate, sequentially also compared to Q3 and Q4. Was there any particular reason for a bit weaker volumes compared to Q3 beside the normal seasonality? You were talking about weaker business in Venezuela and Thailand, 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? Secondly, on Latin America, was there any restructuring charge booked in Q4 or nothing which could be seen as one-off cost? Finally on your EBITDA to gross profit margin conversion ratio in Q4 of 37.7%. Is this sustainable in your view as for next quarters or are there any impacts we should consider as for next quarter?
Jesco, 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 segment or group level. There was nothing particular in the sequential growth rates, which impacted the group towards the end of the year. 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. 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.
I think just coming 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. With every reason to expect both North America and Europe to benefit from improving business environment as we do not expect to have any 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. You might expect to see overall the conversion ratio to be positively developing throughout the course of 2014.
Okay. Finally on LatAm, was there any restructuring charge booked?
No. There was 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 of more cautious stance 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. Could you just update where you are on that, please? Secondly, on some more general wage inflation, which I guess is a theme given that wages and salaries have been fairly suppressed over the last few years of the downturn. 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 group wise, we've indicated no more than 3%, and that's really 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 made the appointments during the course of 2013 in terms of 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 and in terms of capacity to take on staff as we look at future growth.
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. As we said before, we are perhaps a little cautious insofar as we get ourselves in a good position first, and then we'll move. I would expect 2014 to see Asia Pacific make progress in its overall development as a result.
Just on M&A, maybe I missed this from your comments, Steve, in terms of sort of active deals that you're sitting on, is it still the same three to four that you've been sitting on a while, or has that expanded in terms of number of sort of active deals that are being worked on and you're trying to convert?
We actually have four or five active deals at the moment, which effectively are relatively new in terms of nondisclosure 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, therefore plenty pro forma numbers and what have you. Again, I hesitate, but we don't really apologize too much for making sure any pro forma numbers that we have are nailed down. That's really what's taking the time during 2013. However, we're pretty satisfied now. We are where we need to be. Therefore, I would expect a certain volume to increase, or will certainly increase in 2014. 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 Mezzanotte, Berenberg. Please go ahead.
Good afternoon, gentlemen. I was wondering if you can talk about the steps you've taken to drive your specialty chemical business, especially in Europe. I think last November you flagged this as a potential area for growth. Obviously, what are the most recent trends regarding that, if you started seeing some benefit from it?
Yes, I can talk to you about that. The European organization has made some significant progress during the course of the last six 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, 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 to adopt us as their preferred channel to market. We do actually have a number of successes for the European business, where new suppliers are adopting Brenntag on a pan-European basis, and effectively discontinuing with a number of local chemical distributors, which were their previous channel to market partners. I think we're very well positioned.
The European business will be fully operational by June of this year in terms of you see in the marketplace. We'll be flagging that up in terms of PR and development of that message more strongly in the few months ahead. We're in a good position, and we see ourselves taking advantage of our scale.
Thank you. 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 that we can't quantify them at this moment because they're literally at the rollout stage. Feedback we have from the suppliers and customers alike are very positive, and therefore, we would expect it to be very much a positive contribution to this year.
Thank you.
Thank you. As a reminder, if you wish to ask a question, please press 01. A further question comes from Mr. Charles Wilson, Goldman Sachs. Please go ahead.
Good afternoon, guys. Two questions on acquisitions. First, could we expect to see a year of double spend this year, i.e., to catch up for the monies not spent last year? 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. It will certainly be double on last year, that is for sure. No, I would expect, we sort of guide, we sort of EUR 200-250. If it's a little north of that, I wouldn't be completely surprised, because clearly we have some deals which have been cooking now for a little while. 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. 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, for joining us today on our year-end financial. Very much appreciate your time and attendance. 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.