Earnings Call: Q3 2012

Nov 7, 2012

Welcome to the Brenntarc AG Results Call Q3 2012. At our customers' request, this conference will be recorded. As a reminder, all participants on the telephone lines will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. May now hand over to Mr. Muller, who will lead you through this conference. Please go ahead. Good afternoon, everybody. Ladies and gentlemen, thank you very much for joining us Welcome to the Q3 2012 Financials. I'd like to welcome all analysts present here. All I'm with me, Jurgen Brookshan, a member of the Board responsible for Asia Pacific and Merchant Acquisitions and Bill Fiddler, a member of the Board and our management responsible for the Americas. We'll be happy to answer your questions after presentation. Unfortunately, Georg Melaszio cannot be with us today. He's Paul, unfortunately, and he's really pleased because he's done most of the work and preparation here. So For one day only, Jurgen will be repeating his role as CFO, which he's delighted and he'd be delighted to take most of the questions later. So that's why Kjell is not here. Nevertheless, moving on. In the Q3 of 2012, growth for the global Economy continued to slow in all regions. Nevertheless, sales and gross profit of the Printem Group clearly continued to grow compared to prior year period. Our Our gross profit grew by 4% on a constant FX basis or 10.7% as reported. Before running through the details, I would like highlights our Q3 results was impacted by a nonrecurring expense of EUR 11,000,000 in our European segment, and we'll provide details of this a little later in the presentation. Adjusting for this nonrecurring expense, EBITDA operating would have been on previous year's level on an FX adjusted basis, while growing by 7.3% at respective FX rates. We continue to be pleased with the acquisitions executed in 2011 and their positive contribution. And the acquisitions conducted in 20 of our results are meeting our expectations. Regardless of the current environment, we continue to report strong free cash flow By EBITDA as well as lower working capital. Okay. Just moving on to the operating highlights. I'll see how this translates into full set of numbers. Gross costs were totaled €493,200,000 4% above previous year on an FX adjusted basis or 10.7% above previous year as reported. Operating EBITDA reached EUR 167,800,000. Adjusted to the EUR 11,000,000 non recurring expense, operating EBITDA is at EUR 178.8 euros up 7.3 percent as reported on previous level FX adjusted. Free cash flow continued to be strong in Q3 twenty 12 total €168,100,000 driven by strong EBITDA generation and some reduction in working capital. The acquisition spend for this year currently stands at enterprise values of €107,200,000 including the acquisition of Delanta, which is expected to close In terms of our free flows, Braskem Acquisitions SCA placed the total remaining portion of their 6,900,000 On the 6th July 2012 with institutional investors, the free float increased from 86.3% to 100%. The transaction was led by Goldman Sachs and Deutsche Bank. If I may now come on to acquisitions. On the 16th July, we were delighted to complete the acquisition of ISM Salcock Group. The company is one of the leading specialty chemicals distributors in Australia and New Zealand. Thanks to the strategic acquisition, Brintech has expanded its market share in Australia quite significantly and in addition provides a new entry into the New Zealand market. This acquisition satisfies 2 of our key selection criteria and it broadens our full line portfolio and increases our geographical coverage. On the same day, we were delighted to be able to announce the closing of the acquisition of the Texas based TER Corporation, a chemical distributor specializing in the oil gas industry. The company is based in one of the fastest growing shale gas regions, the Eagle Ford Shale in North America And help us broaden our products and service portfolio into this important industry. As with ISM's Alkad Group, it's fair to say TER has had an excellent start and both of these are fully in line with our expectations. On On the 15th October 2012, we were able to announce the signing of an agreement to for another acquisition, this time the Southern Cone of Latin America, The Delanta Group, which helps us improve our position in Specialty Chemicals in several countries in Latin America, closing this transaction is expected this month. As with ISM, Delenta meets 2 of our selection criteria of acquisitions, I. E. Broadens our portfolio and increases our geographic coverage. We now pass across to Jurgen. Thank you, Steve. Please refer to Page 10, so the income statement and the detailed financials for Q3 2012 reflect the resilience of our business model also under the currently less favorable business conditions. Gross profit totaled €493,200,000 which represents a 4.0 percent FX adjusted increase against previous year and a strong 10.7% As reported, growth. Once again, all regions contributed to the growth of gross profit. The non recurring expense of €11,000,000 that was already mentioned actually relates to a change in provisions For the antitrust investigation in France, which relates to business issues before 2,007. So the operating EBITDA totaled €167,700,000 as reported or 100 and €78,700,000 when adjusting for this expense. This represents a 7.3 percent growth at respective FX rates or on previous year's level on an FX adjusted basis. Please refer to the next page where we provide additional information to the income statement, starting with the depreciation, which for the quarter was at €24,300,000 The amortization amounted euros 8,000,000 for customer base amortization for acquisition, which we at Brantec have undertaken €1,100,000 for software and €800,000 for other issues. The increase of amortization over previous year is mainly because of scheduled customer base amortization for the Multisol and ISM Acquisitions. The financial results totaled €23,900,000 We previously mentioned Our financial results was partly impacted by a technical effect related to the outstanding payment obligation for the remaining 49% of Sonaeong, our Chinese joint venture. In this quarter, the effect has been minor at a negative €800,000 Compared to previous year, Our financial results improved by 16%. Earnings before tax were strong and amounted to 109 EUR 6,000,000 while the reported increase over previous year is only 2.5%. This represents a 13% increase over previous year when adjusting for the non recurring effect in the European segment. Profit after tax amounted to €79,600,000 19.3% above previous year. We show EPS information at the bottom of the slide and the earnings per share for the quarter totaled EUR 1.53, 17.7% increase over previous year's quarter. As you know, our earnings per share Together with many analysts, we think these effects are not relevant for valuation purposes. Therefore, many analysts adjust The EPS for these effects to support this analysis, we also state the EPS excluding amortization and the Song Jong Liability effect for Q3 2012, the adjusted EPS amounts to €1.68 It is €0.15 higher than the as reported figure. On the next slide, some information as to our cash flow statement. Here on page 12, you find the details for the operating cash flow. The reported cash flow provided Amount by operating activities amounted to €158,100,000 Interest As well as income tax payments decreased compared to previous year. Changes in current assets and liabilities Mainly relate to trade working capital. On the next page, some information as to our investment cash flow. Spending for CapEx in In Q3, 2012 was at €20,400,000 Here in the cash flow statement we show is spend for purchases of consolidated subsidiaries and other business units of 100 EUR 22,700,000 which is mainly related to the acquisitions of ISM, Salkat And the TER Group. For your information, Delanda will be cashed out will be paid in Q4 20 The financing cash flow shows the repayment of local borrowings Of €21,700,000 important in this context is to note that we continue to have the major part of the €500,000,000 revolver for general corporate funding purposes available. On the next chart, the structure of our balance sheet here, just as a footnote information, Some of you have heard this already by now and several times in previous meetings, but important for analysis, a Significant portion of the intangibles is related to the acquisition of the Brandtach Group by IBC Partners in 2006 and does not related to acquisitions we as Brandtach have undertaken ourselves. Out of the €2,100,000,000 intangibles an amount of €1,200,000,000 is related to the Brenntag Partners acquisition of Brenntag. On Page 15, some information to our balance sheet and the leverage. You can see that the net debt decreased during Q3 by €57,000,000 to €1,530,000,000 and this in comparison to Q2 2012 more important the group's leverage for the quarter is at 2.2 times, which is slightly below the leverage end of Q2 twenty twelve Of 2.3 times and we are now back on or at the level of Q1 twenty twelve. Page 16, just as backup information, you see the development of our net debt to operating EBITDA leverage over time as you can see Q4, Q3 at the end of September is showing a 2.2 times multiple. Page 17 just completes the information on our funding structure and capabilities show that patient maturity working capital, I would just highlight that trade working capital amounted to €1,110,000,000 at the end of The quarter and as in the previous quarter, our working capital churn was at 9.2 times on an LTM Briefly to Page 19, the cash flow. Free cash flow in Q3, We delivered free cash flow of €168,100,000 So Q3 was our strongest cash flow generating quarter This year so far. With this, I would like to hand over to Steve, who will provide information on the performance at segments Great. Thank you, Yigal. I came back to the segments and business in all segments proved their resilience in even more challenging conditions throughout Q3 2012. In Europe, the gross profit grew by 3.3% on an FX adjusted basis and the operating EBITDA by 3.4% when adjusted non recurring expense. As previously announced, we have started a program to increase efficiency and reduce the European headcount by about 4%. By the end of September, we have completed about 95% of the planned reductions. In Q1, we have booked to €10,000,000 expense. No additional one time costs have been incurred in Q3 in this respect. We confirm that the expense savings amounted to roughly EUR 3,000,000 in Q3 and we expect them to slightly increase The European macroeconomic environment continues to be quite challenging. We will continue to monitor the overall macroeconomic situation and remains ready Take further steps should prove necessary. In terms of North America, it is now facing a rather softening environment. Nevertheless, segment was able to increase operating gross profit on an FX adjusted basis by just over 0.7% and maintaining its operating EBITDA in line with last year's performance. The business continues to develop solidly across the continent, although we clearly noted a lower momentum on the demand side compared to the first half of profit growth and 1.6 percent EBITDA growth. The cost base in Latin America was affected by costs related to closed acquisitions. In Asia Pacific, it shows a 36.4% gross profit growth and 35.4% operating EBITDA growth. Our Chinese acquisitions on Yonge showed an improving contribution within the quarter despite ongoing cooling in the Chinese economy, particularly in the construction industry. Our business performance in Thailand is still not back to normal activity levels. For the business performance in the rest of Asia Pacific, we see continued improvements. The ISM Salcar Group has been consolidated since the mid of July 2012, and so far results are fully in line with expectations in terms of operating performance and integration costs. To summarize, our group's operating gross profit for Q3 2012 amounted to plus 4.1% and the operating EBITDA was in line with previous year when adjusting for the one time effects in Europe. Packing on to the outlook. It's clear that we will not see the hopeful positive economic lift in demand of the remainder of the year. We We remain confident in our group's underlying performance and considering the challenging macroeconomic climate, the resilient nature of Brenntag's business model Under development of its results for the 1st 9 months of 2012, we have narrowed the range of the expected operating EBITDA for 2012 to be between €705,000,000 and €725,000,000 excluding the extraordinary effect in the segment Europe. This guidance range represents a strong Growth over performance of prior year of €661,000,000 EBITDA. The range is based on the following assumptions that basically there will be no further deterioration in the world's economic climate compared to the situation we currently see. Perhaps I could address the current trading environment, our acquisitions undertaken in the course of 20112012, 2012 continue to meet our expectations. A positive indication comes from the inner quarter trend of GP per working day. In the quarter, it grew by 1.7% in July, 7.4% in August and 6% in September. So despite the double dip recession seen in many countries, our resilient business model delivered clear growth in each month, we fully expect 2012 to be a further record year for Brenntac. I think we're now ready to take questions from Those here, perhaps we could start with those in the room to start with and then take questions on the telephone if that's possible. Good afternoon. It's Andy Chu from Deutsche Bank. A few questions, but maybe I could just start please With the gross profit per working day numbers you gave us on, I guess, the FX adjusted, but what are those numbers please on an organic basis stripping out acquisitions? The question was as to the GP per All right. Provided we provided including acquisition, the question is where are we stripping acquisitions out? Well, we normally say about 3% or 4% I think 4% is actually if you take all the acquisitions into account, 4% is represented by the acquisitions of the rest of the organic. And do you have a number for October, please, just in terms of the sort of trends there, please? All We have a number in the year ago period. Yes. I think our tour was all in, so also including acquisitions at slightly positive. This would mean if we strip out the 4% on organic level, we would be at a negative 4% until October. I see some people thinking, but I would like to provide some additional information first. This is just the October. This is one number. We have seen, as Steve mentioned, some improvement within Q3, Starting with relatively weak July, seeing some nice improvements. There are some technical issues We have at the group level roughly 1.5 to 2 additional working days. You might know that some of our customers just place monthly orders. So it doesn't mean that with additional working days, we would have a higher GP Generation, in addition to this and we do not provide this information, but we can say that the October GP in absolute terms per working day Was at a high level, higher than in July and higher than in August. So we are quite pleased there. Also if you look at the average of the gross profit per working day increase in Q3, we overall see an increase of more than 5%, meaning that we would have seen 1% to 2% organic growth in Q3. And if you extend these statistics including October, you would see a similar number. So taking the last 3 months, August, September, for October, on average, we would see some slight growth on an organic basis, just to put it into perspective. We We should not forget that overall, we mentioned this, we are somewhat in a softer environment as of right now, We still see that our business is performing on an organic basis at the level of last year actually slightly, Slightly growing. So all of this, I think you please consider when we provide this one snapshot of October, Where we show somewhat slower development in our GP per working day. Obviously, we're not too many words, Andy. That's good Very helpful. And then on your cost base in terms of your selling costs, which were about EUR 325,000,000 in Q3, They were broadly around about $300,000,000 in each of Q1, Q2. Now I guess in Q3, you put that $10,000,000 $11,000,000 provision. All But in terms of the what should we expect, I guess, going forward? I mean, I guess, what is happening to the underlying cost base, Excluding acquisition, is that still slightly rising? Or should it be flat? And maybe you could help us in terms of the outlook for selling costs, please. All Do you want to go ahead? Well, I think it's fair to say that there's a couple of nonrecurring elements within the quarter. And therefore, I would expect underlying hand and beam cost not to be increasing. So if anything, Yes, we probably see we would see the reverse of that, excluding acquisitions because clearly, we are looking to overall improve our EBITDA, GP conversion ratio, when you look at these Q3 numbers, they look that looks different to what you might expect. But we haven't And maybe I'll just ask one more for time. All Just in terms of North America, maybe a question for Bill. We've seen another quarter of year on year decline in conversion ratio. And I guess even at the group level, apart from a number of moving factors, I guess the market isn't used to seeing A year on year decline in EBITDA to gross profit conversion ratio. And I guess the bigger Your question is we, I guess, have come to expect that the spread between North America over 40% EBITDA to gross profit and Europe at 33%. I guess the talk has always been sort of Europe moderate, so closing the gap versus North America. Should the market be at all concerned that The North American conversion ratio is actually has peaked and actually is going to move down Towards Europe, and there'll be a meeting somewhere in the middle, please. Yes. Andy, the conversion rate, as you mentioned, is very, very high. And while it hasn't peaked, the growth of that conversion rate will be probably slower than the rest of the Brenntag world. And actually, even though we were, I think, just a few percentage points below the conversion rate of the Q3 of 2011, That was a very high performing quarter. And what we've seen in 2012 is actually improvement in the conversion rate from the Q2 over the Q1 and the Q3 over the Q2. So it has come up during the course of the year. And we expect going forward that while there may be periodic slight dips in that conversion rate, It will continue to improve. And one of the reasons that it fluctuates is we've had some very high growth rates In our specialties business in North America, some very high growth rates in our diesel exhaust fluid business in North America, Both currently operating at conversion rates that are a little bit less than the rest of the business. So it's not a straight line, But long term, it will continue to improve. [SPEAKER JACQUES VAN DEN BROEK:] So if I may add, Bill, my understanding is that The reason for the somewhat lower conversion ratio of these businesses, the DEF business as well as the specialties business is that we are still in a ramp up phase. So we have implemented and provided for an infra and cost structure, Which we are now starting to more and more utilize, which gives us the comfort to say that we would expect some positive development over time from further utilization of utilization of infra and cost structure in these areas. Absolutely. That's a good clarification. Thank you. Hi, there. It's Toby Riggs from Bank of America. Can I ask a couple? The first is, is there any reason why you didn't initiate any more restructuring in the Q4? I think growth is slowing, so giving a fairly conservative Good outlook about GDP and where that's heading, should we expect more restructuring to come through? Or are you just more confident than you Give the impression of the We're probably a relatively cautious. I guess probably It would be fair to say, what we're looking at the moment really is our capability to deliver growth. And we have Very significant capacity within the group to perform in terms of creating new growth opportunities. And what I don't want to do is have a situation where we end up Eating into the ability of business to grow for a short term gain, quite often it takes a long time to actually train people in terms of For Chatecumicals and certain elements of what we do, so I'm really quite reluctant to sacrifice our capability on short for short term gain. We believe that structurally the business itself is very, very well positioned to take advantage and take new opportunities even in more difficult environments. And I think if you look at the macroeconomics as it stands today, I would see that chemical distribution actually has an even greater role to play going forward A smaller role and in many respects, we would expect to see some of the manufacturers looking to outsource even more and That's not a time when you start reducing your capabilities. So we have to be a little bit patient that we don't throw the baby out with the bathwater. Just to follow-up on that, the manufacturer is looking to outsource more. Is that are they conversations you're having? Or is it just such an internal feeling because of Well, it's a conversation we have all the time. There's a constant dialogue with manufacturers. I think not wishing to name any particular manufacturer, but if you go if you look at more recent announcements, public announcements of financial results, you will see probably A number of companies in the chemical sector particularly are restructuring very quite heavily and announcing not necessarily such positive results. And this is an environment where clearly, we will be looking to help them be more efficient at delivering their products into the marketplace and Therefore it becomes more of an opportunity for us to do that. Okay. Thanks. And just one on numbers. Could you quantify the acquisition related costs that were in the Q3 numbers please? I think we normally don't do it, but We normally and also in this case, we'll not disclose Acquisition related effects, we treat them as extraordinary effects. And yes, they come in a quarter and in some quarters are more impacted by Others, but as a matter of corporate policy, we are not prepared to disclose this information. Okay. Thanks. Participants are ready to go. Hi, there. Charles Wilson from Goldman Sachs. Just a couple of questions. First on acquisitions. Can you talk about what you expected to spend this year relative to historic guidance you've given? Also Did that influence your decision to reduce the top end of your EBITDA guidance for this year? And then also, Could you comment on the bigger Brazilian opportunity, which is in the press at the moment, whether it's something you could be interested in? Thank you. It's for the CEO. Yes, Larry. Thanks very much. Thank you for all the delegating. Thank you very much. Well, I think in terms of that we've guided we always generally guide between €200,000,000 to €250,000,000 in terms of the acquisition spend for this year. And at this stage, we believe that Will actually occur. And de facto, as we are in November, you can imagine this is going to be relatively late in the day, but We're quite confident that we can get this done. It's not had an effect on the year end guidance. Our view about the year end guidance It's much more of a macroeconomic view. We were perhaps a little bit more optimistic there might be an upturn. But what we see particularly, for example, in the European segment, there's a much flatter situation we hope for as far as demand is concerned. And as far as the Brazilian opportunity, which you referred to in the press, we really don't make a policy to talk about that sort of acquisition opportunity sort of particularly if we were involved in that discussion. Okay. And finally, maybe one for Juergen. I guess the original or some of the China might not have been quite what you thought at the beginning or didn't quite go as well as maybe some people might have thought. Maybe you can give an update as to what you've been doing in China and how you see that bit of the business progressing. Just to clarify, the In 2011, sorry, in 2011, the joint venture, which we have there in China, Sohneung, really performed clearly our expectations. We saw then a drop in performance in Q1 partly related to a drop in demand in the Construction Industry, as you might know, our joint venture provides solvents as a distributor. Is focused on the coatings industry, which serves to a high degree The construction industry, we saw a significant slowdown there, ultimately a slowdown in our demand and the pressure on our GP per tonne, we have recovered. First, it's we can say we do not really see a significant increase in demand, we went through some internal adjustments. We focused the company on higher sales efficiency, A certain higher level of aggressiveness in the market and a proper price management, meaning effective Over the last 3 to 4 months, we see a significant improvement. And currently, including October, the joint venture is exceeding Significantly our expectations again. So we are as we now are still very happy with the acquisition. And then final question. Do you have do you see In China, are you still in sort of betting down mode with what you've got? Of course, we are looking at acquisition opportunities, but I think it's fair to say that when it comes to China as well as to the whole region of Asia, Probably we need to digest the most recent acquisitions. We just talked about the acquisition in Australia and New Zealand. We are preparing As a consolidation phase, I would not surprised if we see some smaller 2 or 3 bolt on acquisitions, But we I would be surprised if we see a significant larger move in China. Thank you very much. Yes, Maji Wigelin from HSBC. I have two questions. 1st of all, regarding the growth in LatAm America, and is there a particular reason that the growth of EBITDA was so much lower than the growth in Growth in Latin America in the 3rd quarter. And I think the what you're seeing in the absence of growth in the FTEs is really Taking advantage of the growth that we put in place over the past couple of years. And it's in spite of a very weak Brazilian economy and a very weak Mexican economy. So we're really keeping our cost positions under control even though we're able to increase those gross profits. So I think we're our position in Latin America remains very, very positive in spite of The 2 largest economies weakening considerably. So did you plan actually for bigger growth in Latin America and therefore increase the cost base Stronger than you would in this current growth environment? Well, I think that the cost base that you saw go It was really what referred to really acquisition related costs. Our overall cost base in Latin America is very much under control. And then the second question, you gave us the organic growth of the gross profit per working day. Could you also give us It's a bit easier to compare for the full quarter, for the 3rd quarter, also the organic gross profit growth year on year. It was 4%, including external growth. Was it organic? Was it Slacy Danna? Thomas, are we providing this information or? That we also do not disclose these numbers. I mean, I think we are giving you sufficient information in our Investor Relations news, so that you have at least a good understanding of what the operating organic gross profit development would be. So I would therefore refer to this information. Can I try a last thing? The gross profit development per ton, did this change in Q3 in year? To be fair, it wouldn't it's gross profit per ton doesn't really matter that much in our context because volumes vary Significantly and we take the view it's actually EBITDA and actual gross margin that matters to us. We're not a volume driven organization. Especially on a quarter on quarter basis, you can have fluctuations. We have large volumes of indent business where we trade a lot of And deal with a lot of volumes with and with low GP contributions. So looking on a quarter by non quarter basis, Doesn't really give you too much of a good feeling as to the indication or as to the underlying business. I mean, as an analyst, it would drive you crazy try Yes. Gerd Organas from Exane BNP Paribas. Of course, I'd just like to come back to the restructuring in Europe. I think previously you said that if organically you were down 3% to 4 You would look into more restructuring. So I would my question is, is for you is October at the moment noise? When do you expect Organic recovery also in 2013 or is it that you're not announcing more restructuring at the moment? Is it more related to a possible Outsourcing partnership from a in anticipation of an outsourcing contract by a chemicals customer. Well, it's not in anticipation of any one particular contract. That wouldn't really wouldn't be the case. It wouldn't work in our business model. We operate in obviously country by country to a large extent. And so not many contracts would cover the entire the whole of Europe. Now as far as we are genuinely looking at the And What we need to do as a company is present the best channel to market to our customers and I see our customers as our suppliers and the end users. And Just at the moment, we are actually really well positioned to give a very, very good service. And I'm really reluctant To reduce the ability of Brenntag to take advantage of the macroeconomic opportunities By a major slowdown or recessionary elements. And this is part of the resilient story that you hear about Brintag. We are a business that operates well in really quite challenging conditions as well. So I say I wouldn't want to compromise that at this stage. All What we might do is take out volume related costs. So for example, we may look at our logistics and for some Those that know a little bit better, we have a probably 10% to 20% of our truck fleet, which can be almost like a flywheel and we turn down, we can take cost In that respect, I would prefer to look at operational costs rather than particularly sales and marketing costs at the moment. So would you say that you would be happy even if conversion margins in Europe would be flat next year? No, I would not be happy, no. In fact, And they asked a question earlier on, which I was desperate to answer as well because I think it was the conversion the idea that the North American conversion ratio and the European conversion Come together from different directions would probably be my worst nightmare. No, I see the Europeans chasing the Americans, not coming together. Thank you. Yes. It's Andy Chew from Deutsche Bank. Three numbers questions, if I may. Firstly, on provisioning and the French antitrust provisions can you just confirm that's booked within miscellaneous provisions? I think they've gone up by about €7,000,000 in the quarter to about €70,000,000 Maybe just give us a flavor what's actually within that miscellaneous provisions. Secondly, maybe you could give us a flavor of what you expect the Cost cutting and the benefits of cost cutting to be in Q4. And then my last question is on guidance. Are you still Assuming a flat currency assumption for second half versus first half, I. E. At 1.30 in terms of the euro U. S. Dollar exchange rate please. And does that feel realistic given that Half year so far is at 126,000,000 which would imply, I guess 140,000,000 for the remainder of the year on average. Thank you. Okay. So starting with the second question as to the Q4 2012 Benefits of the cost reduction program in Europe in the where which we said it's around EUR 3,000,000 Of benefits in Q4, we had, I think, a little less than EUR 3,000,000 in Q3. We would The sum increase to slightly over EUR 3,000,000 in Q4. The other question was as to the provisions. I have to admit, I Couldn't take a note, but I think the answer is yes. So this is in the miscellaneous provision. As far I'm looking here at our support team. In addition, we have their environmental reserves. Are they in the miscellaneous category? Yes. So which is a larger portion. We have then, I don't know, personnel related. Why don't you provide the information what type of I think the question was what type of accruals do we have in this position? So it's environmental, which is I recall is the larger portion. Yes. We are not the field, but what type Miscellaneous. Yes. The larger portion is environmental, The largest portion by far. As far as I recall, we talked about 40, 50 different provisions, and there are smaller amounts In there. So this provision would be probably a larger one. For U. S. Dollar rate? U. S. Dollar rate, I didn't really understand the question. I think we assume that This is a base for our guidance that the current U. S. Dollar Rate would continue. So in the what is the range, 128 to 130? Yes, I think that's what it is. What do we have? We assume that for the first the average FX rate for the 1st 9 months would hold for Q4. Now I have to guess where it is, but I think it's EUR 129,000,000 EUR 128,000,000 EUR 129,000,000. Does it answer your question? You look at Yes. Simon Mizzanato from Berenberg Bank. Can I ask the role that chemical prices played In Q3, the working capital inflow in this quarter compared to the last one is significantly lower? I'm guessing prices We're quite stable back to quarter. Yes. I think there's a slightly slight confusing numbers We should affect our cash flow because in terms of chemical pricing, reduction in people's inventory levels, people becoming more cautious Taking stock. And so we actually see an unwinding of sales. We see an unwinding of certain chemical pricing, Reduced stock levels and what have you said. It's actually a very, very typical recessionary effect to be fair. Now It's also best that we've seen some chemical prices going up recently. So it's quite unusual market at the moment. Although having said that, looking at Some of the announcements of release of chemical manufacturers, I suspect that we won't see long term High prices. So I guess you might have seen some more unwinding of working capital in that respect. Well, I think it's still fair to say that the prices which we have seen right now are still significantly above last year That we on a quarter on quarter basis, I think in Q2, need to help me here, Thomas, we have seen if you compare Q2 ASP Our portfolio to Q2 last year, we have seen an increase of roughly 7%. In Q4, it was 4% increase. So we are still at least with regard to our portfolio, we are seeing price increases. Yes. And Also, there's a slight news on this. As we do more Specialty Chemicals, you will see a difference in the basic balance of our selling prices. Thank you. So we probably take some questions from the telephone. The first question comes from Mr. Rob Plante from JPMorgan. Please go ahead, sir. Good afternoon, everyone. Two questions, please. The first one on the provision charge, was that cash or non cash? And secondly, you mentioned that you don't like to split out the acquisition related costs. But in this quarter, they seem to be quite a fast So you've mentioned them in Latin America. And also in the other segments, there was a 6,000,000 Swing down in the EBITDA, which was I think the most interesting move in the EBITDA today. There's a comment in the text that talks about Acquisition related costs, how much of that $6,000,000 relates to acquisitions? Thanks. On the million about 2 thirds Related to acquisition costs. No, no, no. Personnel related costs. Right. I can say a big one here is a try. So It's just acquisition cost. No, that's not there. So we're talking about the roughly EUR 6,000,000 cost increase Over Q3 2012 over 2011 in the other segments, so I would call it Rest of World. [SPEAKER JEAN FRANCOIS VAN BOXMEER:] And so what we are saying out of the EUR 6,000,000 increase roughly any 2 thirds are related to non recurring personnel related expenses. [SPEAKER JEAN FRANCOIS VAN BOXMEER:] And then in the other regions, it sounds like Latin America also had The acquisition related costs? Yes. We have some acquisition related costs. As we said, we don't provide The exact information there, but it's in the low single digit amount in absolute terms for Q3 And also a significant increase compared to Q3 2011. Thank you. And then on the cash provision, could you repeat your question? All We had some difficulties with the line. The provision of EUR 11,000,000 in Europe, Was that non cash or cash? It's a provision. So it's I would say it's non cash related. I don't know what this answers your question. So there was no Funding cash outflow for this is just provisioning. We have further questions from Mr. Chuan Zhen. Please go ahead, sir. Hi. It's Charles Evans from Can you hear me? Yes. Sorry, just to understand what you said about acquisition related costs, you said there was a low single digit and absolute millions in Q3. I don't want actually the exact number, but was that with reference to Latin America because you also said there was a significant increase compared year on year. And if we're just talking a couple of million, it's not Big issue. Yes. And it not only relates to Latin America. I think what we are talking about in terms of Latin America is a startup Of our acquisition there, we have a certain cost element, and we do not see the GP necessarily in Clearly in Latin America and partly also outside the country. I guess this explains why we see a relatively A high increase in the cost base in Latin America in addition to certain Acquisition related costs, but it's your observation is absolutely right. The acquisition related costs do not fully explain the different development in Latin America when it comes to GP growth versus EBITDA growth. Sorry. When you said there was a low single digit absolute million cost that was a reference to Latin America not the group? No, it was a reference to the group. Okay. So there can't have been much of an increase year on year at the group level if it's just a few millions? That's the increase compared to Q3. And in absolute terms, the acquisition related costs for integration diligence were higher in Q3. I'm just talking about the EUR 2,000,000 is a change in quarter over quarter last year and but the absolute The amount of acquisition related costs like integration, like diligence is of course higher because we also had Some significant costs in Q3 of last year. The number is significant, but the year on year is 2. Yes. Fine. Okay. Then going on to your guidance. If we just strip out the implied Q4 using the midpoint of your operating EBITDA guidance, it does imply Kind of acceleration compared to the Q3 trends in local currency. Can you just run through what, if anything, might be driving that. So the question is what's Driving the Q4 performance in terms of our expectation. I'm just repeating your question. Your other line was also If you look at your implied Q4, It implies a 10% or 11% growth year on year if you use the midpoint. And there's less of a currency tailwind. So can you maybe comment on that? Because obviously, in local currency, in Q3, you were flat. I think there, I'll start and you guys Bill, do you want to go ahead? I can talk a little bit about North America and Latin America. If you look 2012, the 2nd quarter and the 3rd quarter were very challenging economically. We had A lot of headwinds from a lot of different industries, but what we're seeing today is A slight change in the environment and we're quite optimistic about the Q4 and going forward. We believe that we have positioned ourselves very competitively to take advantage of any type of an up swing in the economy, which we are expecting in spite of the election results yesterday. I intend to take out my frustration on the competition, not on my employees. But seriously, we're quite bullish on the long term and actually the immediate future in North America, partly because of Our energy situation, we're a low cost energy country again. We see some return of manufacturing To North America, in spite of some challenging circumstances in the coatings industry, the EASIF's industry, housing is starting to return, automobile production is going up And we're quite bullish on the rest of the year. In terms of Latin America, I think again, we are so well positioned To take advantage of some of the long term trends that Steve talked about, the outsourcing, we've taken an approach and America's approach to our specialties business And what we see are far greater opportunities for product line authorizations, some turnover business And we're very bullish again in spite of the 2 largest economies being very flat in Brazil and actually very soft in Mexico. [SPEAKER JEAN FRANCOIS VAN BOXMEER:] Yes. I think I can only add, but it doesn't really move the needle too much. We are quite optimistic As to the development in Asia Pacific, I mentioned earlier that we feel quite comfortable there with what we are seeing, Some improvement during the course of the year and indications are that this improvement will hold and Perhaps even slightly further show further improvements. I think it's also fair to say as far as Europe is concerned, we see the cost savings Coming through in the final quarter. And we are as I mentioned previously, we've not cut into this business In terms of reducing its capacity to grow. So we are equally optimistic about getting the business moving in the last quarter. Questions. We have further questions. One moment please. The next question comes from Mr. Markus Mayer from Capital Markets, please go ahead, sir. Yes. Thanks for taking my question. 3, if I may. First of all, only the small one, but you mentioned the last conference That your Thailand business had only a slow recovery from the flood. So just a question here, what is the current Situation there. Then secondly, have you seen the effects from the second Sandy and which will this And then lastly, in this low growth environment for Asian companies, do you already see a higher outsourced momentum there as well? I'm sorry, I don't think I've got any of that. Sorry, we have really a bad line. I don't know how we So first of all, can you give us an update on your talent business, which had only a slow recovery after the flood. Then secondly, can you give us indication what kind of effect you have all we'll have in the Q4 from the Eric and Sandy? And lastly, then, do you already see the higher Outsourcing momentum for Asian market. Well, that's right. Okay, I've got one. Okay. As far as Asia Pacific is concerned, yes, the outsourcing is not as well developed in Asia As I say, is in North America or indeed Europe or Latin America as it's a relatively it's a market still developing as far as chemical distribution is concerned. But what we are Seeing and we're delighted to see is that a number of major manufacturers who use Brenntag Globally, are now appointing Brenntag as their preferred channel to market in China and their preferred channel to market in other parts of Asia Pacific. So we are really gearing up our capabilities and our organization to take advantage of those opportunities. I think that's going to be part of our global proposition, which we're very positive about. Okay. It seems that one of the questions was related to The effects of the flood in Thailand. Yes. I think we see some weakness in performance in Thailand, we talked about this. It's partly related to the weak macroeconomic condition in Thailand. Thailand has not, at least based on our information, found its way back to production and levels before Which we have seen and enjoyed before the flood, we see some structural changes. Actually some of the industries, if you think in terms, For example, hard drive business businesses are leaving the country for whatever reasons. Thailand is also hit Very hard by weakness in export to China, but also Europe. And in addition to this, we see some negative effects also for our business from an increased supply Excess chemicals coming from China, which are being, I don't want to say dumped into the market, But flooding the market in this sense, so there is a flooding effect. But as to the original 2011, not the aftermath As I think they've been taken care of and but we still have to face a very weak Thai economy. Probably too many words here. So and the third question, we didn't understand. Could you The first question, if you have Andy delivered a crushing blow really to our Northeast business and a portion of our specialties business. So there was a We lost several shipping days in the Northeast. Long term, I think the effects Are probably except for the human suffering, of course, economically, the effects are probably positive as a lot of rebuilding and It will stimulate certain industries. Currently, it is causing some product line disruptions and availability because of the impact of terminals along the Northeast Coast, but because of our scope and breadth of operations, we're Really in very, very good shape to make sure that our customers are taken care of. But there is a short term negative impact there. It's also fair to say we weren't In our first way, Brent, which is above principal locations. Brent, so we know Our facilities are no damage. Our facilities are fine. Have your questions been answered? Yes, yes. Thank you. There are no further questions. Well, in that case, ladies and gentlemen, thank you very much for those who attended in person. Thank you very much for those on the line. And we'll bring the call to a close. Thank you. Thank you. Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may now disconnect.