Ladies and gentlemen, welcome to the Brenntag AG results call Q2 2013. 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 difficulty hearing the conference, please press the 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. Good morning and good afternoon, everybody, thank you very much for dialing in for our review of the Q2 2013 earnings. In this call, we will provide you with all relevant details on our Q2 results. I'm on the phone together with Georg Müller, our CFO, actually in New York today. As always, we'll be glad to take your questions after the presentation. In the second quarter of 2013, growth of the global economies continued to slow in all regions. Europe remains in recession. Nevertheless, we were able to grow gross profit of the Brenntag Group compared to prior year period. Gross profit grew by 4.6% on a constant FX basis or 3.1% as reported. In Q2, we absorbed a EUR 16.8 million non-recurring expense relating to an old French competition law case. I'll provide the full picture a little later.
The operating EBITDA adjusted for this provision amounts to EUR 185.9 million, a growth of 2.4% on an FX adjusted basis, or 0.8% on an as reported basis. Particularly in view of the challenging global economy, the business continued to prove its resilience in the second quarter of 2013. On page five, we can see on this slide, we show you how this translates into full set of numbers. Gross profit totaled EUR 502.2 million, 4.6% above previous year's Q2 on an FX adjusted basis, and this corresponds to 3.1% on an as reported basis. The adjusted EBITDA totaled EUR 185.9 million, a 2.4% growth above previous year on FX adjusted. If you include the mentioned provision increase, operating EBITDA was EUR 169.1 million, a negative 6.9% against previous year. The adjusted EBITDA gross profit conversion ratio was 37%, compared to 37.9% in Q2 2012.
Our cash flow for Q2 2013 was EUR 102 million, almost in last year, which was EUR 101.3 million. On page six, I'll just take you to the French Competition Authority ruling. Investigations by the French Competition Authority took place, and the authority has been investigating for several years compliance with competition law in the chemical distribution industry. Brenntag joined a leniency program in 2006 and fully cooperated with the authorities. The investigation resulted in a ruling at the end of May, where the authority imposed fines against several chemical distributors for infringements in the period of 1998 to 2005. The fine of EUR 47.8 million was imposed jointly on Brenntag and a further party. We have increased the existing provision by EUR 16.8 million in Q2 and are now fully provisioned for this ruling. However, we do not agree with the determination of the fine, and we appealed against the ruling.
For the sake of completeness, I would like to mention the authority kept one part of their investigations open, and this refers to a case which was first heard in 2002, but had already been dismissed by the authority years ago, but one market participant appealed and that is still outstanding. I'd now like to hand you over to Georg.
Good morning, good afternoon, everybody. Steve, thank you. As usually, I'll walk you through the details of our financials and I'll start on page eight with the income statement. Our key top-line measure gross profit totaled, as Steve already mentioned, EUR 502.2 million, and that actually represents a 4.6% FX-adjusted increase over previous year. Important to point out that all regions contributed to the growth of gross profit. Walking down the P&L to EBITDA, the adjusted operating EBITDA totaled EUR 185.9 million and that represents in increased terms an FX-adjusted increase of 2.4% or 0.8% at respective FX rates. The adjustments we actually made here is the already discussed provision increase. For the sake of completeness, including the provision increase into EBITDA actually declined through the provision increase by 6.9% on a constant currency basis or a decline of 8.3% at respective FX rates.
The adjusted EBITDA to gross profit conversion ratio came in at 37% flat to be compared to 37.9% that we realized in the quarter a year ago. If I walk further down the income statement on page nine, you'll see that depreciation for the quarter amounted to EUR 26.9 million. Focusing on amortization, mainly due to an increase in acquired customer bases, our amortization increased to EUR 9.6 million for the quarter. The financial result totaled a net expense of EUR 23.2 million, and that's an expense that is below last year's level, where we recorded EUR 27.4 million. This quarter includes a EUR 1.2 million negative effect, an expense for the revaluation of the Zhong Yung-related liability for all the mechanics we already discussed on earlier calls. Adjusting the provision increase, overall earnings before taxes amounted to EUR 126.2 million, and that's slightly ahead of last year by 1.5%.
Including the provision increase, pre-tax income remained 12% below previous year's quarter. We report a higher tax rate for this quarter. We report tax rate of 37%, and that is above the level of 34%-35% that we usually indicate. That's mainly because the French antitrust provision increase is not tax-deductible. Earnings per share is at EUR 1.33 for the quarter, or EUR 1.48 with our usual adjustments, excluding amortization and excluding changes in the Zhong Yung liability. Please note that both figures I mentioned for earnings per share are not adjusted for the French antitrust case. Moving to the cash flow statement on page 10, we show you the details for our operating cash flow. In total, the reported cash flow provided by operating activities amounts to EUR 79 million.
Changes in working capital as part of the cash flow, we had a lower outflow for current assets and liabilities in the second quarter 2013 compared to 2012. The French antitrust fine has been provisioned for. It has not been paid yet, so it has not impacted cash flow so far. Further down the cash flow statement on the next page, with respect to the investment cash flow, spending for CapEx in the quarter amounted to EUR 18.2 million. We show a EUR 33 million spend for purchases of consolidates subsidiaries and other business units, and this relates mainly to the acquisition of Lubrication Services, LLC, LSI, the acquisition we undertook earlier this year. To a smaller degree, the acquisition spend relates to Blue Sky, which is the Australian DEF distributor. In the financing cash flow, the largest element is the dividend payment, which we affected in Q2.
We paid a EUR 123.6 million dividend in course of the quarter. I would actually skip the balance sheet slide, page 12, and move directly to 13, which is leverage. In the quarter, net debt increased by EUR 83 million to EUR 1,578 million at the end of the second quarter. The increase is mainly driven by the dividend payment in Q2, and it's a very typical seasonal movement that we see in any second quarter. The group's leverage stands at 2.3 times net debt to EBITDA, and that equals the level we had as a company a year ago. I would skip the leverage timeline on page 14, would also skip the maturities profile of our indebtedness, which is unchanged, and talk about the working capital slide, page 16. Trade working capital at the end of the quarter amounted to EUR 1,151 million.
On a year-to-date basis, working capital turnover remained constant at 9.1 times, and on a last 12 months basis, working capital turn amounted to 8.9 times. Our usual free cash flow calculation, you can see on page 17. The quarter delivered a free cash flow of EUR 100 million, almost exactly on the level of previous year's second quarter. A somewhat lower EBITDA for the purpose of cash flow was compensated by less outflow into working capital. I would hand back to Steve for a discussion of the segments.
Thank you, Georg. Now let me walk you through the development of the segments for the second quarter of 2013. Business in all segments continued to demonstrate resilience under challenging market conditions during the quarter. In our largest regions of North America and Europe, organic cost development is almost flat as the business adapts to more modest business environments. In Europe, operating gross profit increased by 0.9% on an FX-adjusted basis, and the adjusted operating EBITDA likewise increased by 0.2%. When taking into account the one-time cost related to the provision increase in France, EBITDA decreased by 18.7%. Please note the European development is fully organic. In North America, operating gross profit in Brenntag North America grew by an FX-adjusted amount of 7.9%, and operating EBITDA increased by 6%.
Both operating gross profit as well as an increase of operating expenses include a strong contribution from our acquisitions carried out in 2012 and 2013. In Latin America, we delivered an FX-adjusted of a growth of 4.6% of gross profit. As in Q1, EBITDA actually fell by 6.4% on a constant FX basis due to higher costs hitting the EBITDA performance. You may have seen recently, we've announced the appointment of a new Chief Operating Officer for the region, who has a strong track record of operational success in the region. We are confident that the appropriate corrective action is now being put in place to correct this position. In Asia Pacific, we show 21.4% gross profit growth, and the operating EBITDA increased by 17.3%.
This was driven by a mix of strong organic growth in most of the regions and the contribution of our acquisition of the ISM/Salkat Group. Probably not surprising for those who follow economic developments in China, we saw some drop in demand in our Chinese business. As you know, we're not a full line distributor in the country, and therefore more dependent on the development of individual industries than we are in other countries. Let me reiterate our group's operating gross profit growth for the second quarter of 2013 amounted to 4.9%, and operating EBITDA grew by 2.4% when adjusting for the provision increase in Europe. Let me take you to the outlook. After a somewhat difficult first quarter and stabilization observed in the second quarter, we remain fully convinced of the business model and the structural growth opportunities for our business.
We currently do not expect an improvement of the macroeconomic environment for the remainder of the year. We continue to see the biggest macroeconomic headwind in Europe, with the expectation of a continued recession, although it appears the situation eased slightly during the second quarter. Assuming a continuation of this trend and strict cost control, we expect it to be able to achieve EBITDA on or above last year's level. In North America, with its more positive environment, we expect that with a mix of tight cost controls and consequent capturing of growth opportunities from outsourcing, as well as our market position, we shall be able to grow the business. In Latin America, we've carried out a change in regional management and are currently reorganizing certain parts of our business in the region.
While this is likely to result in additional expenses in the coming quarters, we are confident these measures will bring Latin America back onto its earnings growth track soon. For Asia Pacific, we continue to be generally positive, and we remain cautious regarding the development of China at this stage, where we have seen a clear softening in the demand of the industries that we are covering. Our EBITDA guidance for 2013 is an EBITDA operating between EUR 710 and EUR 735 million. This range is based on the following assumptions. It is adjusted for the effect of the EUR 16.8 million provision increase in Europe or any other extraordinary effects. This means that as a reported figure, you will find in our statements will be EUR 16.8 million euro lower. We assume the US dollar/euro exchange rates stay in line with the levels observed in the first half of the year.
No further deterioration of the world's economic climate compared to the situation we currently see today. As to working capital, this is to a large extent, a function of sales and chemical pricing, and we expect it will continue to grow in the course of 2013. CapEx should be slightly above depreciation and will be sufficient to support the organic growth of our group. Finally, the free cash flow is expected to remain strong based on the different elements mentioned above. The acquisition pipeline is progressing as always. We are working on a number of transactions, and I am confident that we will see further deals later this year. Now let me address the current trading environment. Gross profit per working day grew by 0.7% in April, 4.3% in May, 6.2% in June, and 4.9% in July.
For those that would like an organic view of this growth, I can give you May was negative 0.1%, June positive 1.8%, July positive 2.4%. In closing, we continue to be confident the group will grow all relevant earnings parameters in 2013 on a full-year basis. Despite ongoing difficult macroeconomic conditions, Brenntag remains very well positioned to capture new growth in both established and emerging markets. This is why we feel confident to provide an outlook of further growth, leading to a range between EUR 710 million-EUR 735 million of EBITDA. We are now happy to answer any of your questions.
Ladies and gentlemen, 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 selections. One moment please for the first question. Thank you. The first question comes from Mr. Rob Plant from J.P. Morgan. Please go ahead, sir.
Good afternoon, everyone. Steve, you helpfully just gave the organic growth per working day. Just to compare to what you said on the call at Q1, I think you said April in Q1 had seen a 2% decline. It looks as though we have seen a steady improvement across the quarter. Can you just confirm that? Related to that as well, Q1 had a hit of about 3.6% from working days within the 4.9% gross profit growth. Was there an equal swing back in working days benefit? Thanks.
Well, I can confirm that obviously the organic growth rates we have just mentioned are clearly correct, and we do see fundamentally an improving organic growth situation. As far as working days is concerned, in this quarter, we would see the benefit of one extra working day as opposed to the three negative working days we had in the first quarter.
It probably helped by about 1%?
About Georg, about right, I would say, generally speaking, for the individual quarters, we wouldn't overemphasize working days. We did so in Q1 because the effect was extreme.
Great. Thank you both.
Thank you. The next question comes from Mr. Andy Chu from Deutsche Bank. Please go ahead, sir.
Good afternoon, guys. A few questions, if I may. Steve, if I understood you correctly in terms of your comments on Europe, did I understand correctly that you said that Europe would be on or above last year's level in EBITDA? If so, I guess that means that you will have, given that you were down, I think EUR 4 million in terms of EBITDA in the first half, and that assumes even if you can be flat, some improvement in the second half. Secondly, in terms of the U.S., the EBITDA to gross profit conversion ratio was down 80 basis points in Q2 year-on-year, if I'm correctly calculating that conversion ratio. I wondered what the impact of Altivia was on that conversion ratio, and how quickly you think you can move the Altivia conversion ratio to the above 40% U.S. conversion ratio.
If I could just clarify your comment in terms of French antitrust, I think you made some comment that some investigation in 2002 was still open. I wasn't sure whether that was a positive or negative comment. Maybe you could clarify that for us, please. Thank you.
Sure. As far as Europe is concerned, you're quite correct that the implication is that Europe will, to achieve year-on-year the same level of EBITDA or slightly or higher, will require extra growth in the second half, we do expect to see that. That is what we do expect to see. As far as Altivia is concerned, it's a difficult question to answer specifically, but I think I would point out that Altivia is a business that's very much focused on water treatment. To so large extent, that also is a business that would be more active during the summer periods than the winter periods. There may well be a different contribution from that business during the third quarter. I think as far as the antitrust is concerned, I think for completeness, it's all out.
At the end of the day, we have fully provisioned for the fine that's been levied regarding the 1998, 2005 antitrust event, which we are clearly still appealing for because we don't believe that that's been dealt with in a way which we consider fair. There was another case concurrent in 2002, which actually was judged on by the authorities and dismissed. The person involved in that particular dispute appealed, and as of this stage, we're not clear what the success or otherwise of such appeal would be. Clearly we've already had one judgment in our favor, and we would defend ourselves appropriately in such circumstances.
Thank you. Could I just ask one more? Just in terms of your view, please, if you could give us a view on conversion ratio. Clearly because the organic growth rates have been low single digit or slightly the wrong side of zero over the last few quarters, you've kind of struggled to improve or hold your conversion ratios. I just wondered what would be your view in terms of, I guess, tipping points in terms of level of organic growth that is required at the gross profit level to see meaningful improvements in the conversion ratios. Is it above 3%, 4%, or is it more or less than a sort of in terms of a flavor? I wonder if you could just help us on that, please.
Well, clearly, you've seen that certainly in Europe and North America, we've held very strongly our cost base and will continue to look at our cost base in a relatively low growth market. 2%-3% organic growth is really the sort of place where we need to be to see that conversion ratio improving. We are clearly not resting on our laurels here. We are actually taking some actions within the businesses to improve efficiency and accelerate those where necessary. It's also worth saying that particularly in North America, we have taken some additional costs on during the course of this year to expand our caustic soda distribution market, which has included some additional bulk storage facilities, which are to position this business for future growth.
We now actually see the benefit of that coming through in terms of additional gross margin in North America, which I'd expect to see develop further in the course of the year.
Thanks very much.
The next question comes from Mr. Simon Mezzanotte from Berenberg. Please go ahead, sir.
Yes, good afternoon. Simon Mezzanotte from Berenberg. You say, I think, in your presentation that CapEx spending should be ahead of depreciation due to an increase in business activities. I wonder if you can elaborate on that. Do you actually expect growth to pick up in the second half? Secondly, I was wondering if the calendar issues that you were talking about in Q2 also had an impact on your conversion ratio. Finally, am I right to think that on an organic basis, volumes in Q2 have picked up while prices have fallen? Chemical prices as opposed to your tariffs.
Sure. Yeah, we have seen volumes improve in Q2. Chemical prices have fallen, but not particularly relevant to our business model. We do see volumes increasing. I think as far as CapEx is concerned, we are generally just investing slightly above depreciation at the moment.
Which means in quantitative terms, Simon, should be EUR 95 million or EUR 100 million for the year in terms of CapEx. Yes, CapEx is a seasonal thing that typically picks up in the second half of the year. Not sure we got your question on the Q2 impact on conversion ratio.
Yes. I think, in Q1, you were talking about the fewer calendar days having an impact
Yeah
on the conversion ratio.
Yeah.
I was wondering if you had a similar impact in Q2, a beneficial impact.
Okay. I would say, not really. Coming back to the question Rob had a little bit earlier. We had one business day more this quarter compared to previous year's quarter. That's a relatively small difference, which I could not quantify a conversion ratio impact.
Okay. Thank you.
Thank you. The next question comes from Mr. Markus Meyer from Kepler Cheuvreux. Please go ahead, sir.
Yeah. Good afternoon, gentlemen. Three questions from me. First of all, your selling expense, but also your administration cost, but in particular, the selling expenses, they rose over proportionally year-over-year and quarter-over-quarter. Can you give us reasons for this and what is a good run rate going into the second half? Secondly, what I see a growth assumption for Asia going forward. Is this kind of growth we saw in Q2 a good run rate looking forward? Or do you think that from this base, sequentially, the growth could come down further in Q3? Lastly, sorry for this, but I think I was too slow to write it up. Could you again repeat the organic growth per month for April, May, and June? That would be very helpful.
Yeah. It's Georg. The answer on the selling expenses, it's mainly driven by the provision increase, the EUR 16.8, roughly EUR 17 million provision increase antitrust are in selling expenses. That's a major driver for the increase in selling expenses. Growth in Asia, you will see an acquisition impact. We acquired ISM, our business in Australia, towards the middle of last year, and that impacted nominal growth rates Q1 and Q2 this year. From here forward, growth in Asia this year, in the absence of further acquisitions, will be pure organic growth, and therefore, you should see a decline in growth rates relative to what we have seen earlier. For this technical effect, we haven't put out a guidance on organic growth in Asia.
Okay.
Just as far as the, I think the organic growth rates you were wanting, is that correct?
Yeah.
Yeah. For May, it was negative 0.1%. June, plus 1.8%, and July, plus 2.4%.
Okay, perfect.
Thank you. The next question comes from Rory Mackenzie from UBS. Please go ahead, sir.
Good afternoon. It's Rory Mackenzie from UBS. Firstly, just following up on the North American margin. You mentioned some ramp-up costs affecting OpEx. What's the outlook there for H2 on the cost side? Will the extra start-up costs drop away in H2 on your current plans?
Yes, I think it's fair to say that we certainly invested in the first half of this year. We are actually working quite hard on cost control within North America to make sure that we get conversion ratio to levels that we expect to see. I would expect to see a reduction of pro rata costs relative to business volumes during the course of the second half of 2013, and the conversion ratio to be positively effective accordingly.
Okay, great. LatAm, that also seems to be struggling a bit with its cost base. Does that reflect the high-cost inflation in that region, or are you confident that with these management changes, you can now start to take costs out once that all becomes stabilized?
Generally speaking, Rory, it's Georg. I would say the region does not have an undue inflationary cost pressure. It probably has a little bit more than the mature markets, that's something which historically we were always able to manage. We are confident that we can get the cost development well under control in Latin America post the management changes. It might take a couple of quarters, be a little bit patient with us, it's about the setup of the business organization across the region. It's something we can manage.
Okay. Just on detail, when were the management changes actually completed?
The new Chief Operating Officer was appointed in course of June.
Okay.
Steve is hesitating.
No.
May, maybe.
May, yeah.
I would not say that all reorganization in the region actually has been affected by now.
Okay. Just one more about it, if I may. I think the acquisition pipeline conversion has been slightly slower in H1 than maybe we saw last year. Is this your choice on focusing on existing acquisitions or just reflecting the lumpiness of getting deals over the line?
No, I think it's the lumpiness, I'm afraid. We have a number of transactions which we're looking at at the moment. As always, we're very diligent, and it's never over until it's over.
Yeah.
We are confident that we expect to spend the sort of indicated amounts for the full year.
Okay, great. Thank you.
Thank you. The next question comes from Mr. Alexander Daniel from Berenberg. Please go ahead, sir.
Good afternoon, gentlemen. Just a short question on the maturity slide Georg skipped earlier.
Sure.
I think nearly EUR 180 million of the EUR 220 million securitization facility maturing in 2014 is currently drawn. Did you already manage this upcoming maturity? Are there any thought if it's going to be a syndicated loan, new bond or given the current stock price convertible?
Maybe for the larger group, the question refers to the maturity schedule of our indebtedness. Out of our net indebtedness of EUR 1.5 billion, a piece of EUR 180 million matures next year, a relatively small piece of EUR 180 million in form of an AR securitization. We haven't decided yet if to roll the AR securitization or not. There is plenty of time to decide that. If we were to decide not to roll the AR securitization, but to repay it, there is plenty of sources. We have cash on the balance sheet sufficiently. We have cash flow generation. We have significant borrowing capacity under an undrawn revolver. That's from our perspective, a technicality, an important technicality, but nothing which has overwhelming importance for our liquidity management.
Okay. Thank you for that.
The next question comes from Mr. Andy Chu from Deutsche Bank. Please go ahead, sir.
Steve, Georg, it's Andy Chu again. Sorry to ask a few more. Another three, if I could, on a regional basis. Steve, could you actually just do a quick walk through, please, as to what's happening on some of the country trends within Europe as the sort of first follow-up question, please.
Yeah, I can do that for you. I think it's not changed significantly from the first quarter, in the sense that we see the U.K., Nordic regions, solid performance and indeed growing. Germany growing, France relatively stabilizing. We had a weak position in France, and I think my view there is not quite as bearish as it was. The changes which we put into place of 2012 and this year are starting to bear fruit. We're more positive about our French business. It would also be fair to say that we still see growth in the Central and East European region, particularly Poland, actually continues to be a strong performer. As far as the southern part of Europe is concerned, Italy remains relatively weak. Perhaps surprisingly, Spain continues to improve and has quarter-over-quarter become stronger.
Okay, thank you very much. Then maybe just moving to China. You mentioned a couple of times that China seems to be weak. Was the profitability down year-on-year in China? Was the weakness across, I guess, both the Rhodia and Zhong Yung businesses, or was it more in one than the other? I guess, does that then just push out your acquisition expectations for China to sort of more medium-to-long-term?
Andy, maybe I go ahead, and Steven certainly will support me. Maybe for the broader group, China is only part of our Asian business, and the Asian business is about 10% of the group. If we talk about the relevance of China today for the Brenntag Group, you are talking, I would have to look up the exact figure, but 1.5%, maybe 2% of our overall earnings generation. Not overall relevant today. Yes, China is an area of significant development for us, and China is an area where distribution markets are not well developed yet. The business that we have in China is not a full-line distribution business yet. The business that we have is mainly a solvent distribution business, where we work together with a partner, and solvents are very much geared towards more macroeconomically volatile industries.
In that sense, we do see more volatility in our Chinese business upward as well as downward. Whatever you read in the press about macroeconomic Chinese development actually does mirror in our business. It's too early from my perspective, from our perspective, to make any statement on being up year-on-year or potentially being down year-on-year.
Andy, we still are fundamentally positive about our Chinese business because as Georg has mentioned, we don't have a full-line chemical distribution offering there at the moment. Clearly there's significant opportunities for us to broaden the product base and the services that have been offered by our Chinese joint venture. This does take some time. We believe it's absolutely still the correct place to be, and we're optimistic for the future in China, but it is relatively small in the context of the group overall.
Okay. My last follow-up was just in terms of North America and maybe some comments over oil and gas as to how that's developing, please.
I think certainly, the first quarter was relatively slow in oil and gas. We saw an improvement in the second quarter over the first quarter. We've no reason to believe that that is going to falter. At this stage, oil and gas is more or less at levels where we were last year.
Great. Thanks very much.
The next question comes from Mr. Markus Meyer from Kepler Cheuvreux. Please go ahead, sir.
Yeah. Again, question on Asia. You said it's only 1%-2%. Anyway, do you still see that this kind of outsourcing trend in Asia is now accelerating as efficiency should come more in focus of the chemical companies?
Yeah, absolutely. One of the things that we're doing now, particularly in the global account elements of our business, where these are accounts which customers buy from us on several different continents. We're focusing even more and more on this area because we see global accounts participating even more in Asia Pacific. They want Brenntag to support them in their growth and the development of their businesses. They want to consolidate their purchases across the world. What we see very much as being the outsourcing to larger chemical distributors like Brenntag to be a key feature for future growth in Asia Pacific.
Has your question been answered, sir?
Yes. Sorry. Yeah. Thanks.
We have a further question from Mr. Rory Mackenzie from UBS. Please go ahead, sir.
Hi, yes. I had a follow-up as well. With weak or mid markets for some time now, have you seen any, I guess, notable changes in customer order patterns or customer mix for that matter?
If I just take that one, I think what we've seen, and I think we saw this in the first quarter, that there was quite an increase in volume from customers who perhaps may normally have purchased directly from manufacturer but have switched into distribution. It would be also fair to say that during the course of the quarter, we have seen increased volumes within the Group. This would suggest that if you take macroeconomic data, which would suggest that volumes shouldn't particularly increase in that regard, it would seem there's been a shift in customer buying behavior to move some of their volumes through the distribution channel as opposed to through directly with chemical manufacturers. This trend is continuing.
Has that been maybe the slightly large customers or still your kind of average size is unchanged really?
Yeah. We don't really differentiate between large and small customers because their buying behavior can be very different. For example, if it was a large company like Exxon or Shell, they still may well choose to purchase their products through distribution for a certain product line. Clearly, not all of their product lines would be appropriate for distribution. It can be large and small or medium-sized customers that made this choice.
Okay. Thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press 01 on your telephone keypad now. We have a further question from Mr. Christian Koch from MainFirst Bank. Please go ahead, sir.
Yes. Thank you very much. Good afternoon, gentlemen. I have three questions. The first of all is, I understood during your Q1 conference call that you said you expect a conversion ratio for the full year 2013 to be close to the one that you presented in the full year 2012. I just wanted to ask if that is still valid.
Yeah. Generally speaking, Christian, yes. That would be adjusted for the French antitrust provision increase.
Yeah, of course. Okay, thanks. The second thing is, did I understand from your reporting that you recorded some cost-saving effects in the first half of the year? My question would be, can you quantify this effect, and is there a number that you expect to come in the second half of the year?
I'm sorry. I didn't get the beginning of the question. Was that referring to a specific region?
No, just to the cost savings. Yeah. Basically, I would expect those to happen in Europe.
On an organic basis, the European and basically also the North American cost base are organically flat, which is, we think, a testimony of the strict cost management we are undertaking in our business.
Okay. Thank you. The question we just dealt with, is it possible to quantify the effect you are perceiving from the large new customers that are coming to you? I don't know, on the gross profit or EBITDA or conversion rate, any of these?
I think it's not difficult to do that, really. I mean, you've got to bear in mind this is a business mix. It's highly diversified across all regions. I think it's a general trend is that as Brenntag, we are seeing increased volumes, which are volumes which are increasing at probably a higher rate than macroeconomically would be suggested for straightforward growth. The trend is that we are taking more volume into our business. This is not a price-driven initiative. This is a buying behavior change. It's very difficult to sub-analyze that to the level that you're wanting.
Okay. If you talk about regions, it's possibly the developed markets.
Absolutely. The developed markets are the principal drivers for that.
Okay. Thank you very much.
Thank you.
The next question comes from Mr. Markus Meyer from Kepler Cheuvreux. Please go ahead, sir.
Yeah. Only one last question remaining. Can you give us M&A effect you had for growth in Q2?
Yeah. I need a moment to pull that out, but we can give that. For the quarter you were looking-
Half year, whatever you want, or both.
Yeah. In the quarter Let me get off the hook with the quarter. The EBITDA from acquisitions in Q2 was about EUR 8 million.
Okay, cool.
The next question comes from Mr. Jörg Behrenhardt from Commerzbank. Please go ahead, sir.
Yes, hi. Thanks for taking my questions. Three, actually. The first is, Georg, the deterioration in working capital turnover we have seen, I just want to get a better grip. Is this temporary due to acquisitions, or is this a more structural development? That's number one. I know the number is small, but if I read it correct, you had a EUR 1 million impairment in depreciation. Could you just enlighten me on what that was for? The last one regarding the still open antitrust case in France. At this point in time, would you be in a position to share with us a potential impact on earnings? Just also rough guidance would be appreciated. Would it be more in the region of, I don't know, EUR 5 million or more in the region of EUR 20 million? Whatever you could share with us. Thank you.
Yeah. Maybe I take the depreciation question first. I take it, Jörg, you have noticed from the financial statement that there has been an unscheduled depreciation of EUR 1.2 million. That's for the closure of a smaller site in CE. We closed a smaller site, which we don't need any longer for operational reasons, and we basically have written off the technical equipment, which was still on the site and which we don't use any longer.
Okay, got it. Mm-hmm.
The antitrust investigation, the piece of the antitrust investigation that's not closed yet, I would like to reiterate what Steve explained in the general context. It's a case that is investigated since 2002. It was dismissed by the authorities once. It's now still open because one market participant complained. It's so uncertain at this stage, and we feel so remote that it would be inappropriate from our perspective to quantify.
Okay, understood.
Working capital? Yeah, the working capital turn of what you see in our business as we discussed on different occasions, working capital turns in emerging markets are somewhat lower than in mature markets. In specialties, working capital turns are a little bit lower than in industrials. With above-average growth in emerging markets and with above-average growth in specialties, you will see some pressure on working capital turns. On the other hand, we have a number of initiatives ongoing to wipe out inefficiencies in working capital in inventory management that counteract these structural burdening effects I just mentioned. By and large, I would say working capital turns should be stable going forward, actually below the surface, there are different movements.
Understood. Thank you.
Thank you. The final question comes from Mr. Andy Chu from Deutsche Bank. Please go ahead, sir.
Could I just ask a couple of numbers questions? Maybe, Georg, could you just confirm that in terms of you've given the M&A effect of EUR 8 million, I guess we can calculate that the FX effect was minus EUR 3 million. Just building the year-on-year bridge, could you just confirm that the organic movement was about minus EUR 4 million for Q2 year-on-year at the EBITDA level? Secondly, could I just confirm, or are you able to confirm the July number that you gave in terms of +4.9% on a total basis and 2.4% on an organic basis? Has ISM Salkat fallen out from the June number? July, in effect, is just Altivia, Lubrication Services, and Delanta Group as a sort of main acquisition effect in July. Thank you.
Yeah. Andy, before I take a little, I would confirm your figure for organic EBITDA development Q2 over Q2. Organic Q2 over Q2 is about minus 2% or close to minus EUR 4 million, which is what you mentioned. With respect to the second question, yes, ISM Salkat has fallen out of being an acquisition because we acquired beginning of July last year. It's organic from today's perspective. The main acquisition effects that remain in July are Altivia and LSI, and to a smaller degree, Delanta.
Georg, that effect carries on for the second half. Is that correct? You've got a 2.5%
Altivia carries on until the end of the year, LSI until February or March next year, Delanta also until the end of this year.
Okay. Fine. At least for the next six months, you've got that 2.5% uplift from
Yes.
Okay. Thank you very much.
We do have a further question from Mr. Christian Faitz from MainFirst Bank. Please go ahead, sir.
Yes. Thank you very much. Sorry, I forgot to ask one thing. I just want to ask if you took any write-downs on inventories during the quarter.
No. Nothing that I'm aware of. There might be tiny ones in individual subsidiaries, but generally speaking, no.
Okay. Thank you very much.
Thank you. There are no further questions.
Okay, in that case, thank you very much, everybody, for joining us on our Q2 call, and very much appreciate your questions. We'll close the call at that point. Thank you.
Thank you.
Bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.