Dear ladies and gentlemen, welcome to the Brenntag AG result call for the full year 2012. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. If any participant has difficulties hearing the conference, please press * key followed by 0 on your telephone or 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 for dialing, everybody, for our review of 2012 earnings. In this call, we will provide you with full details on our results. I am on the phone together with Georg Müller, our CFO, and we will be happy to take your questions after the presentation. We ended 2012 with an operating EBITDA of EUR 707 million. From the Q3 call, you will remember that we increased provisions in the European segment by EUR 11 million. Adjusting for this extraordinary expense, the operating EBITDA amounts to EUR 780 million, thus exceeding the middle of our guidance range of EUR 705 million-EUR 725 million. EUR 718 million marks another record year for our group, following an EBITDA of EUR 661 million in 2011. In addition to our existing business, we were particularly pleased with the growth and contribution from our acquisitions.
In the course of 2012, we were able to strengthen our market position in the U.S. with the acquisition of the TER Group and a significant amount of our share in Australia, New Zealand region with the acquisition of the ISM/Salkat Group. We also carried out an efficiency improvement program in Europe, which helped to improve our cost base. Once again, the group was able to demonstrate a significant increase in free cash flow in 2012 by 13%. Following the successful year, we are delighted to submit a proposal to the general shareholders meeting for approval of a dividend of EUR 2.4 per share, following a EUR 2 per share a year ago. The dividend represents a payout ratio of 36.8% of the profit after tax attributable to shareholders of Brenntag AG. Just coming on to page five.
On this slide, we show you how this translates into a full set of numbers. Gross profit totaled EUR 1.926 billion, 4.6% above previous year on an FX-adjusted basis. Gross profit growth in Q4 was 2.9% ahead of previous year. Operating EBITDA of EUR 707 million, 2.2% above previous year on an FX-adjusted basis. This corresponds to 3.7% growth when adjusting for the mentioned EUR 11 million. In Q4, the growth of operating EBITDA above previous year was stronger and exceeded prior year by 5%. Efficiency has remained high on the 2011 adjusted level. Gross profit for the year equates to 37.3%, which is in line with the record year of 37.4% one year ago. The return on net assets for 2012 totaled 32%, which is slightly below the 2011 value of 32.5% due to the increase in working capital. Once again, the company delivered a very strong cash flow in 2012.
Free cash flow totaled EUR 579 million, a new record after the EUR 512 million in 2011. On page six, we were delighted to have several successful acquisitions in 2012. We acquired businesses for a total enterprise value of EUR 207 million. We continue our successful acquisition path into 2012 with ISM/Salkat Group, the TER Corporation, the Delanta Group, and the ALTIVIA Corporation. Now I'll take you through these acquisitions in a little more detail. With ISM, we acquired them on the 16th of July 2012. We were very pleased to complete this acquisition. It is one of the leading specialty chemical distributors in Australia and New Zealand, with sales of EUR 85 million in 2012. This acquisition satisfies two of our key selection criteria, as it broadens our full line portfolio and increases our geographic coverage. The business has exceeded our expectations in terms of performance.
The purchase price for the enterprise was EUR 82 million. The ALTIVIA Corporation was acquired on 31st of December 2012. ALTIVIA is a water treatment chemical distributor headquartered in Longview, Texas. The company realized sales of EUR 63 million in 2012. This acquisition will considerably strengthen both our regional company and Brenntag Southwest and the water treatment business, which is one of our key focus industries worldwide. The provisional purchase price is EUR 95 million. We are continuing into 2013. We were delighted to be able to announce the acquisition of assets of Lubrication Services, LSi. The company is headquartered in Oklahoma City in the state of Oklahoma and generated sales of EUR 105 million in 2012. It sells to the oil and gas industry throughout a network of facilities in six states and covers many of the U.S. shale gas plays. The acquisition is an excellent addition to our product offering.
The investment amount was EUR 33 million. The acquisition is subject to contractually agreed closing conditions. I would now like to hand over to Georg for discussion on the full year 2012 financials.
Yeah. Steve, thank you. I would start the discussion on obviously financials on page 10 actually, which is the income statement for the group. Already mentioned several times, the world obviously faced a more challenging economic environment in course of the year. Nevertheless, as you have seen, we do report strong results. The financials for 2012 do reflect and underpin the robust nature of the business.
Gross profit totaled close to EUR 2 billion, actually totaled EUR 1.926 billion, 4.6% FX-adjusted increase over previous year. Equally relevant in this context, it is a pretty sound development of the group around the globe. All regions actually contributed to the growth of gross profit. Operating EBITDA was already mentioned, totaled EUR 707 million or EUR 717 million on an adjusted basis. This represents a 2.2% increase on the reported basis or 3.7% on the adjusted basis respectively. Maybe it's worth to mention the Q4 growth rate, which was actually somewhat stronger at 5% growth. EBITDA to GP conversion on an adjusted basis was stable on very high levels. We report 37.3% on an adjusted basis and this compares to the very strong, actually record 37.4%, which we show you in previous year.
In the context of conversion ratio, I would also mention that the conversion ratio for the quarter, for the fourth quarter of the year was 38.9%, and that was 100 basis points above the Q4 2011 level of 37.9%. Not only, but part of that increase actually came from the support of the efficiency improvement measures carried out in Europe during the first half of the year. I would move further through the income statement on page 11 and talk about the items that are recorded below EBITDA. Depreciation for the year amounted to EUR 96.2 million, and amortization amounted to EUR 36.9 million. As you know, most of the amortization, namely a share of EUR 29.1 million, is actually attributable to customer-based amortization for acquisitions, which we have undertaken. The financial result totaled EUR 94.7 million.
To be frank, the EUR 94.7 million financial results do include a EUR 10.5 million charge, a provision increase for exchange rate risks in Venezuela. We took this provision resulting from the more and more unfavorable political and economic circumstances in the country, including even stricter exchange regulations. We had a partly mitigating effect in financial results. We had a EUR 4.3 million beneficial effect from revaluating the liability for the 49% outstanding for [Sungjung]. Excuse me. Financial result shows a strong improvement over the previous year's figure, which was EUR 126.3 million. Significant part of the improvement is still attributable to our successful refinancing carried out middle of 2011. On an earnings before tax basis, on this we report EUR 478 million, 14.1% above previous year. For the full year, the tax rate is 29.4%, as you know, we benefited from some tax deductions, which we previously could not expect.
We do for the current year, for 2013, expect the tax rate to go back up a little, probably to the range of 33%. Profit after tax amounted to EUR 338.2 million, a strong 21.1% up from previous year. Let's move to the cash flow on page 12. Actually, you see details for the operating cash flow here. Overall reported cash flow, provided by operating activities, amounts to EUR 433 million. If you look through the cash flow statement line by line, you will on the one hand note that interest payments decreased significantly. If you take a look at the taxes, you will note that tax payments remained roughly unchanged despite clearly stronger earnings. Regarding working capital, we had a lower outflow for current assets and liabilities in 2012 compared to 2011. Moving on to the investment cash flow on page 13.
Spending for CapEx for the full year is EUR 86.3 million and the spending related to acquisitions, which you will find under purchases of consolidated subsidiaries and other business units, it's EUR 234.5 million. You will notice that earlier in the presentation, we mentioned enterprise values taken on board of EUR 207 million. The main difference between the EUR 207 enterprise values and the EUR 234.5 recorded here is a purchase price adjustment for the 51% of [Sungjung], which we acquired in 2011, but where we had a purchase price adjustment early 2012. The two main items in the financing cash flow are actually the dividend payment to our shareholders, as well as some repayments of borrowings in course of the year. Only very briefly on the balance sheet on page 14 and fully in line with what we discussed in earlier calls.
The only point I want to reiterate on the balance sheet structure is actually the intangibles. We do carry intangibles on our books of roughly EUR 2.2 billion. As you will remember, from the EUR 2.2 billion, a major share, actually EUR 1.2 billion, does not result from acquisitions we have undertaken but came with the acquisition of Brenntag by BC Partners back in 2006. On the indebtedness, net debt decreased slightly year-over-year by EUR 10 million to EUR 1.482 billion at the end of the year. In leverage terms, it means the leverage is down to 2.1 times, whereas it was 2.3 times a year ago. A brief word on equity, you see that we are now operating an equity position of close to EUR 2 billion, EUR 1.991 billion, up more than EUR 200 million against previous year, which is basically reflecting our increase in retained earnings.
I'll skip the time series for leverage on page 16. I'll also skip the maturities profile on page 17. I will talk on the working capital slide, page 18. Trade working capital at the end of the year, slightly exceeded EUR 1 billion, actually EUR 1.018 billion. In terms of working capital turns, this represents a working capital turn of 9.2 times, which is virtually in line with the 9.3 times we managed to achieve a year ago. I'm moving on to page 19, which deals with capital returns. We measure returns on capital in our group based on a return on net asset concept, RONA. We define RONA as EBITA divided by property, plant, equipment, and working capital. We continue to generate strong RONAs.
We deliver a RONA of 32% for 2012, which is in line or marginally lower than the figure a year ago, which was 32.5%. The very slight reduction is basically due to working capital increase, which slightly exceeded increase in EBITA. We are pretty proud on the strong free cash flow development, which you can see on page 20. You will remember that free cash flow is one of the most important KPIs we steer our operating management by. For 2012, the group delivered a strong free cash flow of EUR 578 million, following EUR 511 million in 2011. The strong increase of EUR 67 million or 13% is strongly driven by the EBITDA increase, and supported by the lower spend on working capital in comparison to a year ago.
That actually concludes the general overview on our financials, and I would hand back to Steven for a discussion of our segment results.
Thanks, Georg. Okay, now let me take you through the developments of the segments for the full year on page 21 and the Q4 on the following page. Our business in all segments demonstrated resilience in challenging market conditions throughout 2012. In Europe, its operating gross profit went up by 2.4% on an FX adjusted basis, and operating EBITDA by 2.9%, when adjusting for the previously mentioned extraordinary effect in Q3. As highlighted previously, we have started a program to increase efficiency and reduce the European headcount by about 4%. At the end of December, the program has been fully implemented. In Q1, we had booked EUR 10 million in expenses. No additional material one-time costs for this program have been booked since.
We confirm that the full-year expense savings amounted to roughly EUR 10 million in 2012, and we expect them to increase in 2013, when we will be able to benefit from the full year's savings effects. The European macroeconomic environment has been challenging throughout the year. However, we have seen recently a kind of stabilization in Southern European countries. In North America continued to be a solid performer in the year with a good FX adjusted gross profit growth of 4% and operating EBITDA growth of 5.5%. The business developed well across the continent. In Latin America, our business demonstrated further organic growth in 2012. The segment delivered a 7.3% FX adjusted gross profit growth and 5.6% EBITDA operating growth. Our cost base in Latin America was affected by costs associated with acquisitions in the region.
In Asia Pacific, we show a 26.7% gross profit growth and an EBITDA operating increase by 25.4%, aided by the contribution of our successful acquisitions in the region. Organic growth was significantly affected in the early part of the year by ongoing rains in Thailand and the slowdown in China. We are pleased to report a strong return to organic growth in the second half of 2012. Now may move to page 22 in terms of the Q4 segments. In Europe, for the quarter, Europe continued to demonstrate significant resilience with a 0.3% growth of gross profit and a 1.2% EBITDA growth. Regionally, Northern Europe still continued to perform better than Southern Europe. At this stage, we are not planning further significant reductions to our structure or cost base. However, we remain vigilant and will react to any deterioration in the overall macroeconomic situation.
North America had a satisfactory Q4 on an FX adjusted gross profit growth of 1.4% and an EBITDA growth of 7.8%. Overall business confidence was somewhat affected by the unclear outcome of the fiscal cliff discussions. Please note the acquisition of ALTIVIA Corporation has not been included in our 2012 figures and is only included from 2013 onwards. As far as Latin America is concerned, the segment Latin America delivered a 7.6% FX adjusted gross profit growth and a 5.2% EBITDA growth. Please note that Delanta has not been included in our 2012 figures and is only consolidated from January 2013 onwards. In Asia Pacific, it shows a 30.1% gross profit growth and an EBITDA growth by 40%, which reflects a strong return to organic growth in the latter part of 2012, driven by Thailand and China.
Overall, we were pleased with the operating performance in Q4 2012, where we saw operating gross profit grow by 2.7% and operating EBITDA grow by 5%. Can I now go on to page 23 on the dividend proposal? Based on strong earnings development, we are able to manage the existing payout ratio. We propose a dividend of EUR 2.4, which represents a 20% increase over previous year. Now I'd like to come to the outlook. We do have a positive outlook for 2013. We expect a macroeconomic growth at a moderate pace and with some differentiation within the major economies. In addition, we are seeing a continuing outsourcing trend to distribution and expect to benefit from Brenntag's strong competitive position, increasing global reach, and expanding products and services to the benefit of the whole group in the year.
The efficiency improvement measures implemented in 2012, particularly in Europe, will have a positive effect in 2013. We will continue to work on further improvements. As a result, our EBITDA GP conversion ratio will improve. In addition to the organic growth, the acquisitions undertaken in 2012, like ISM and ALTIVIA, will have a full-year impact in 2013. The profit before tax should develop broadly in line with the growth of operating EBITDA. We expect to give quantitative guidance later in the year as we have done in the last three years. Working capital is a large extent of function of sales and chemical pricing. 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 the group.
Balance sheet free cash flow is expected to grow based on the different elements mentioned above. I'd now like to address the current trading environment. We have continued to see growth in the first two months of 2013. Gross profit and EBITDA for the first two months of 2013 were ahead of the same period in 2012. Gross profit for working day grew by 3.4% year-over-year in November, 2.3% in December, 5% in January, and 6.9% in February. Just as a reminder for those looking for comparison purposes, Q1 2012 versus Q1 2013, Easter will be in this quarter, which has the effect of about three working days less. In closing, we are confident that we will grow all the relevant earnings parameters in 2013 with a mixture of both acquisitive and organic growth.
Despite ongoing difficult macroeconomic conditions, Brenntag remains very well positioned to capture new growth in both established and emerging markets. Now happy to answer your questions.
Okay, 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. If your name has been announced, you can ask a 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. Our first question comes from [Raul Plan] from JPMorgan. Please go ahead.
Morning. Good afternoon, Steve. Afternoon, Georg. In terms of organic revenue growth, you helpfully provided that on a monthly basis just now. I was just wondering, if we look at the quarter just reported, Brenntag gives the figure for Q4 of 2.7% growth in gross profit. How was that split between organic and acquisition? I think from Q3, where there was 4.1% growth, all of that was acquisitions. I'd like to get a sense, and it seems like on a monthly basis, things are improving, whether things are improving. Thanks.
Well, yeah, hi. It's Georg. Not sure I could, in the speed, follow all the detailed figures you were mentioning. I know you guys want to see clean organic growth for a variety of P&L items, which we don't deliver so far.
I couldn't give you an exact organic growth figure for any certain quarter on GP level. Generally speaking, I would confirm that in terms of organic growth rates, the picture somewhat improved towards the end of the year.
Okay. Helpful. Thank you. In terms of the exit, has it improved even more since the end of the year? It would seem so, given Steve's comments about the monthly rate.
I would agree to that, but I would also iterate Steve's point that if you don't look on a working day basis, but you will see quarter-over-quarter, March will have the Easter effect, meaning that Easter is in March this year but was in April last year.
Yes. Thank you.
Our next question comes from Andy Shaw from Deutsche Bank. Please go ahead.
Good afternoon, everyone. I have four, if I could sneak them in, please. Sorry, just to confirm, I think Steve, you gave us the gross profit per working day on an FX-adjusted basis. Could you give us the acquisition impact, please, across the four months that you gave? That's question one. Question two, just interested in comments around the North American conversion ratio. As far as I can see, that's a record quarter, but it may have been higher sometime in the past pre-IPO at 45.7%. Q2, Q3, that was down a little bit year-on-year, but you're up 250 basis points, quarter-on-quarter in Q4 to hit that 45.7%. On Asia Pacific, you mentioned that the growth was strong. Clearly, on an FX-adjusted basis, you're up 40%, so I just wondered what the organic growth was, please, in Q4 year-on-year.
Maybe some more granular details, please, as to what's happening in Thailand and China to have seen a good turnaround or rebound in growth. Just a small one in terms of environmental provisions. Seems as though there was a EUR 12.7 million reversal in environmental provisions year-on-year, please. Thank you.
Okay. It's Georg. Maybe I, if that's okay with you, Steve, I go ahead with some of the questions. First of all, yes, to confirm the figures Steve mentioned were FX-adjusted gross profit per working day growth rates. They were, and I'm focusing on 2013 now, they were 5% for January and 6.9% for February. That does include acquisitions. We don't provide clean organic growth rates. If you take our IR press releases, do the math, then it's fair to assume that roughly three percentage points, and that would be January as well as February, roughly three percentage points comes from acquisitions and the remainder is organic. Unfortunately, it's a little bit the same answer, Andy, on your second question about organic growth rates for Q4, and I assume that was referring to organic EBITDA growth.
We don't disclose clean organic rates for all the reasons mentioned earlier about integration, and it's arbitrary to split things out once they are integrated. If I've seen your release correctly this morning, Andy, then I think you estimate that the roughly 2% organic EBITDA growth for the quarter might be marginally on the high side, but it's a figure that does not make me nervous at all. Environmental provision, I have to go back to the files. We always have a little bit in and out of environmental provisions, but what is included in the release of EUR 12 million that you mentioned is the EUR 7 million Galicia, which we discussed as early as Q1.
You might remember that we had an environmental provision on the books related to an older environmental case in Spain, which was finally settled, beginning of the year and where we released the provision of EUR 7 million, that was not any longer needed, that was over-provided. I think we discussed that in Q1, and that would be the one and only major item within the EUR 12. I think Thailand and China is the only remaining question. China, I would say pretty strong toward the end of the year, basically on the back of a strengthening macroeconomic environment in China. Thailand now above previous year's level. Granted previous year still is a little bit low because the previous year's level was immediately after the flood. Being back on previous year's level is a success, but it also means there is more potential to come in Thailand.
Just maybe on North America. Sorry, I asked quite a few questions just on that conversion ratio. Looked a bit of a whopper at 45.7%.
I would say I know it sounds like a little bit of more significant gap than I'm placing it, but I would say it's in the noise. North America is on pretty strong conversion ratio growth. The figure which we have is a pretty strong figure. I wouldn't have any very specific reason why we are a little bit down versus the IPO figure.
Andy, I think just when it comes to Thailand and China as well, I think we're very pleased to see the performance in Asia Pacific in this particular respect. In 2012 was a little frustrating year for us. It seemed to take quite a long while to get the business rocking and rolling in the right direction. The recovery towards, I think we're stable Q3, growing in Q4. We're seeing a positive momentum at the start of the year. It's what we really have expected for a little while. We're delighted to see it, but we've been expecting it.
Andy, sorry, I don't want really to jump back to an earlier question, but maybe to make the group aware, the thought just crosses my mind. With respect to conversion ratio in North America, which you point out is a little bit reduced over the years. I would also say that the North American business has grown strongly in terms of gross profit as well as in terms of EBITDA. Even if the conversion ratio might be down a little bit, the absolute success of the business in terms of gross profit growth and EBITDA growth was a tremendous success.
Yeah. Okay. Brilliant. Thanks very much.
As a reminder, if you'd like to ask a question, please press zero one on your telephone keypad now. Our next question comes from Rory McKenzie from UBS. Please go ahead.
Good afternoon. It's Rory McKenzie from UBS. Just two questions, if I can. First question, given that this call included some restructuring benefits, can you talk about the movement in the underlying European conversion margin and some of the drivers behind that? Then secondly, on the U.S. kind of strong growth, what areas in particular have you seen growing well? Maybe for example, oil and gas, given you've been acquiring quite heavily in this area with TER and LSi. Thank you.
Take North America.
Yeah. Okay. In North America, we saw quite a good performance quite across the region actually. It wasn't just shale gas, but we saw strong performance in our specialty chemicals. There's water treatment, et cetera. The shale gas and the oil and gas business is important to North America, but we have a far more broad-based property improvement for North America. It is not just based on one particular segment. I think the question was on the conversion ratio in Europe.
Yeah, our view is that the underlying conversion ratio in Europe, meaning if I strip out the non-recurring effect, improved by 20 basis points 2012 over 2011. It's 20 basis points full year over full year against a weak macroeconomic environment. From our perspective, it proves, it underpins that the variability of the cost structure, our ability to manage the costs hold.
I think it's fair to say as well that we've been saying to investors for quite some time now that we're expecting an improvement in the European conversion ratio. Certainly, during the course of 2012, we have been taking actions and rolling out programs which will enhance that during the course of this year and in fact, the years after. We feel we're making good progress in the conversion ratio in Europe, and we'll expect to see some good results there.
Okay, that's great. Thank you. Just one follow-up, actually, just a quick one. What is your all-in exposure to oil and gas in the U.S. now after these acquisitions?
I would have to go back to the files for the details. I would say roughly 30% of the sales in North America are oil and gas related.
Great. Thank you very much.
We have no further questions at this time.
Okay, well in that case, well, thank you very much everybody for joining the call. We feel we've had a strong performance in 2012. The business has demonstrated underlying good growth in profitability and a high degree of resilience in really quite difficult macroeconomic conditions. I think we're.
Pardon the interruption. We do have a question that just popped up from Andy Shaw. Please go ahead.
Go on.
Actually, I'll take it later on. Sorry, Steve, I'll take that later on. I'll let you carry on with your remarks.
Yeah. I did my very polished ending there, and you interrupted me. What can I say?
Sorry about that, Steve. I'll disappear now.
I've got everybody laughing on the phone at me now. Okay, right. Well, thanks very much everybody for coming on the call. I think we've answered all the questions, and we'll close the call from there. Thank you very much. Bye now.
Thank you.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.