Dear ladies and gentlemen, welcome to the Q2 2022 results call of Brenntag SE. 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 via the telephone lines. If any participants with difficulties hearing the conference, please press star key followed by zero on your telephone for operator assistance. May I now hand you over to Thomas Altmann, Head of Investor Relations. Please go ahead.
Thank you, Lucas. Good afternoon, ladies and gentlemen. On behalf of Brenntag SE, I would like to welcome you to the earnings call for the second quarter of 2022. On the call with me today are Dr. Christian Kohlpaintner, our CEO, and Dr. Kristin Neumann, our CFO. As usual, after the presentation, we are open for your questions. All relevant documents for Q2 2022 have been published this morning on our website at brenntag.com under the section Investor Relations. In the same area, you will find the playback of this conference call later today. Before we begin, allow me to point you to our safe harbor statement, which you will find at the end of the slide deck. Having said this, I will now hand over to our CEO, Dr. Christian Kohlpaintner. Christian, the floor is yours.
Yes, thank you, Thomas, and good afternoon to everybody. I will start with the highlights of the quarter as usual, and Kristin will provide further details on our financial performance later on. Brenntag continues its successful growth path and achieved very strong results in the second quarter 2022 in a macroeconomic market environment that has been and remains highly challenging. The severe geopolitical uncertainties add to the continued pressure on global supply chains. In this environment, both divisions strongly contributed to the positive results in the second quarter. Brenntag Specialties exceeded Brenntag Essentials in terms of growth rates, which is again confirming our strategic decision to create our new operating model. Group sales were at EUR 5.1 billion, an increase of 37.4% compared to Q2 2021.
Brenntag's operating gross profit came in at EUR 1.145 billion, an increase of 28% on a constant currency basis. Operating EBITDA reached EUR 533.8 million. On a constant currency basis, this is an increase of 41% compared to the second quarter 2021. We continue to see chemical price increases driving the investments into working capital and thus impacting free cash flow. However, due to our strong operational performance, free cash flow generation of EUR 157.6 million was above prior year level. Earnings per share stood at EUR 1.86 in the second quarter, which represents more than a doubling of last year's EPS, mainly driven by strong earnings growth. Overall, we are very satisfied with our results.
At the same time, we need to put them into context and emphasize the challenging market environment in which we continue to operate. Not only are we facing geopolitical challenges, but also COVID-19 still has a significant impact on global logistics and supply chains. In addition, potential gas supply shortages in Europe and strong global inflationary trends are adding to the overall challenging macroeconomic environment. I will talk about this in more detail in a minute. Our transformation program, Project Brenntag, is well underway and continues to deliver above plan. The additional annualized contribution to operating EBITDA of Project Brenntag amounted to EUR 195 million since the inception of the program. Based on this great progress, we will achieve our full year 2023 target already by end of this year, one year earlier than planned.
In the second quarter, we also held our general shareholders meeting and subsequently paid a dividend of EUR 1.45 per share to our investors. This is an increase of 7.4% compared to 2021 and the eleventh consecutive dividend increase since our IPO. Last but not least, we have raised our guidance on operating EBITDA for the full year in June. The decision was based on the strong results in the first quarter of 2022 and the continuing positive earnings trends in the second quarter. Since June, Brenntag expects an operating EBITDA in the range of EUR 1.75 billion-EUR 1.85 billion for the financial year 2022. Based on the current business momentum, we not only confirm our guidance, but expect to deliver results at the upper range of our guidance.
Ladies and gentlemen, let me talk a bit more detail about the current macroeconomic and geopolitical environment we still find ourselves in. The war in Ukraine is the prevailing topic for all of us. Let me emphasize again that we strongly condemn the war. We are in regular contact with our employees in Ukraine, and their health and safety has the highest priority for us. Our Ukraine business is operational again and is currently operating at around 60% EBITDA contribution compared to the prior year quarter, a remarkable accomplishment. In addition to the geopolitical uncertainties, we are still experiencing pressure on global supply chains. Global market conditions were characterized by high price volatility and strongly increased costs for raw materials, energy, and transport. Another topic that is putting pressure on the chemical industry in Europe is the gas supply.
The discussion around further reduction of gas supply from Russia and potential gas supply shortages in Europe has intensified. Although gas supply is still sufficient at the moment, we need to monitor the future developments very closely. Brenntag is currently planning for various scenarios, depending on potential political and economic decisions of government bodies. The key determinant for the further development around gas supply in Europe is the rebalancing of energy sources to reduce Europe's reliance on Russia. The direct effects on Brenntag in the event of severe gas supply shortages would be minor, and we would be able to continue operating our sites to a full extent. However, as a distributor, we are indirectly affected if energy-intensive products like ammonia, urea, chlorine electrolysis products, and others become scarce due to a supply shortage of gas in the production of our suppliers.
We try to minimize this risk for Brenntag and for our customers by offering a wide range of supply alternatives. Our strong and diverse global supplier base of several thousand suppliers and our established supply chain network globally makes us a reliable partner and offer many supply options to choose from. Therefore, we are well-positioned to adjust supply chains if necessary. While the geopolitical developments are the predominant topic, we still need to consider the impacts of the COVID-19 pandemic. In the second quarter, 2022, the severe lockdowns in the Shanghai region led to further disruptions of supply chains. In this highly challenging environment of the first half 2022, product availability and prompt and reliable delivery were once again key for Brenntag's success and were highly valued by our customers.
We continue to benefit from our global market leadership, our excellent relationships to our suppliers, our in-depth product know-how, and our operating model. Let me talk about Project Brenntag now. Our transformation program is well underway and continues to deliver above plan. Since its inception, Project Brenntag has contributed EUR 195 million of additional annualized operating EBITDA as per the second quarter 2022. This is already around 90% of the total full year 2023 target of EUR 220 million. The additional operating EBITDA contribution coming from top-line measures amounted to EUR 67 million. Savings from bottom-line measures were EUR 128 million since project start. We structurally reduced around 1,060 jobs out of approximately 1,300 positions in total by 2023. We continued with the optimization of our global site network.
So far, we have closed 85 sites out of about 100 plant sites closures across all regions. In addition, we keep investing in upgrading and expansion of our existing network. Since inception, expenses for Project Brenntag amounted to EUR 77 million as per Q2 2022. This is well below our initial assumptions. Initially, we anticipated to incur one-off operating expenses of around EUR 250 million in the course of Project Brenntag. We are very confident to end up well below this number at the end of the project phase. We are very satisfied with the progress of Project Brenntag, and we expect to achieve our target of EUR 220 million additional EBITA contribution already by the end of 2022, one year ahead of plan.
As we continue to work with strong commitment and high execution rigor on the full implementation of the various Project Brenntag initiatives, we expect to see an additional operating EBITDA impact in the full year 2023, which we will quantify later this year. This is an excellent achievement for the whole organization, and I would like to thank all Brenntag colleagues globally for their engagement and the continuous execution of the remaining measures. With this, I would like to hand over now to Kristin.
Thank you, Christian, and good afternoon, everybody. I will talk about the financial performance of the group in Q2 2022 and start with the development of our operating EBITDA. Please have a look at the bridge on the left-hand side of slide seven. As a reminder, when talking about growth rates, we generally talk about FX-adjusted rates. In the second quarter 2021, operating EBITDA amounted to EUR 355 million. The translational foreign exchange effect was a tailwind of EUR 25 million. Our acquisitions also contributed EUR 25 million to the operating EBITDA increase. Our FX-adjusted EBITDA growth rate for the whole group came in at 41%, and we reported an operating EBITDA of EUR 534 million for Q2 2022. On the right-hand side, you find a more detailed view by divisions and all other segments.
Brenntag's two global divisions, Brenntag Specialties and Brenntag Essentials, have recorded a very strong second quarter in 2022. The underlying growth trends of Q1 continued. Both divisions contributed to the results with operating EBITDA growth of 56% for Brenntag Specialties, exceeding Brenntag Essentials growth rate of 30%. The financial results of both divisions demonstrate our ability to translate the differentiated steering of our new operating model into strong earnings. Brenntag Specialties reported an operating EBITDA growth of EUR 90 million and Brenntag Essentials grew by EUR 91 million. The divisions saw a tailwind in FX translation. Within Brenntag Specialties, it amounted to EUR 7 million and within Brenntag Essentials, the tailwind was EUR 18 million. Acquisitions contributed EUR 22 million in Brenntag Specialties and EUR 3 million in Brenntag Essentials.
We again managed to translate our gross profit growth into an overproportional operating EBITDA growth, which is reflected in a very strong conversion ratio for the group of 47%. In Q2 last year, the conversion ratio stood at 42%, so this is an increase of around 500 basis points. For the full set of figures in this regard, please refer to pages 19 and 20 in the appendix of this presentation. On page eight, we provide some details on Brenntag Specialties. Brenntag Specialties showed another very strong quarterly performance. The division accomplished an operating gross profit increase of 42% to EUR 461 million. Operating EBITDA amounted to EUR 234 million, an increase of 56%, where more than 70% is from organic growth.
The conversion ratio for Brenntag Specialties improved further and rose to 51% compared to 47% in Q2 2021. Operating EBITA within Brenntag Specialties grew by 67% to EUR 224 million. This growth was broad-based across all segments. All focus industries showed double-digit growth rates. Life science industries such as nutrition, pharma, and personal care, HI&I, continue to perform very well. Also, lubricants showed a very high year-over-year growth. Despite these strong results, the overall macroeconomic environment was impacted by an inflationary cost development as well as supply shortages and increased transport costs. Brenntag Essentials also showed substantial growth in the second quarter. The division's operating gross profit amounted to EUR 673 million, an increase of 20%. Operating EBITA increased by 30% and reached EUR 321 million. This development was almost entirely driven by organic growth.
This resulted in an operating EBITDA conversion ratio of around 48%, even stronger than in Q2 2021. Operating EBITA within Brenntag Essentials grew by 41% to EUR 264 million. With the exception of APAC, all segments contributed to the growth in the second quarter. North America, EMEA, and Latin America showed a very strong performance compared to an already very good prior year quarter. The severe lockdowns in the second quarter 2022 in course of the pandemic in China negatively impacted Brenntag Essentials EBITDA in APAC. Our worldwide Essentials business continued to face various challenges, such as high energy prices and inflationary cost development, particularly for transportation, fuel, and energy. In this environment, nevertheless, we managed to maintain deliveries to our customers and utilize business opportunities. In summary, we are very satisfied with the performance of the group.
I would also like to emphasize again what Christian already mentioned at the beginning of this call. These results have to be seen in the context of the current macroeconomic and geopolitical conditions. While we feel very well-positioned and confident about the business development of the group. We are evaluating various scenarios depending on potential political and economic developments. Coming to our income statement on slide 10. We generated sales of EUR 5.1 billion, an increase of 37% compared to Q2 2021. Our operating gross profit increased by 28% year-over-year, and came in at EUR 1.1 billion in Q2 2022. Around 80% of the growth was organic. In the current inflationary environment, we continue to see increase in chemical prices, but also rises in other cost items. This development is reflected in our operating expenses.
Operating expenses increased by 19% in the second quarter this year. Besides higher transportation, fuel and energy costs, we also saw an increase in personnel expenses. This increase is related to both fixed and variable compensation. Variable compensation was again high due to our strong business development. Please keep in mind that last year we provisioned for higher personnel expenses, mainly in Q3 and Q4. Special items in the past quarter amounted to EUR 3 million, and are mainly related to Project Brenntag and further efficiency measures. Amortization decreased significantly to EUR 18 million compared to EUR 65 million in Q2 2021. The higher figure in the prior year quarter was impacted by an extraordinary write-off in our IT infrastructure. Both profit after tax and earnings per share were particularly strong in the reporting period. This is mainly due to our strong business performance.
Also, last year's results were negatively impacted by the already mentioned extraordinary amortization. Profit after tax amounted to EUR 294 million, an increase of more than 113%-114%, and EPS came in at EUR 1.86. Coming to page eleven and the free cash flow. Free cash flow generation of EUR 158 million was above prior year level. We continue to see strong chemical price increases driving the working capital outflow and thus impacting free cash flow. However, the stronger operating EBITDA performance could overcompensate the higher working capital outflow compared to prior year. On page twelve, you can see more details on our working capital development. Working capital amounted to EUR 2.9 billion at the end of the last quarter.
This is an increase of more than EUR 1 billion compared to Q2 2021, and it is mainly driven by higher chemical prices caused by pressure on global supply chains as well as product shortages. Additionally, we have invested into our inventory to make sure we are able to maintain supply to our customers despite supply chain disruptions and product shortages in the market. Mainly due to the increase in inventory volumes, our working capital turn was lower compared to last year, and stood at 7.7x . Our net financial liabilities amounted to EUR 2.6 billion at the end of the second quarter. The increase compared to the end of last year is driven by higher drawn credit lines as well as lower cash and cash equivalents.
The major drivers were our dividend payment of EUR 224 million, payments for the purchase of minority shares, and FX effects. Our leverage of 1.5x remained stable compared to the end of last year. With this, I would like to hand back to Christian.
Thank you, Kristin. Ladies and gentlemen, let's talk about now the outlook for the full year 2022. As already mentioned, we raised our guidance for operating EBITDA in June, and expect an operating EBITDA for the full year 2022 in the range of EUR 1.75 billion-EUR 1.85 billion. The previous guidance, which we published in March, assumed an operating EBITDA in the range of EUR 1.45 billion-EUR 1.55 billion. After very strong results in the first half of 2022, and in light of current feedback from customers and suppliers, we are confident to maintain solid earnings throughout the third quarter of 2022 with some level of normalization in Q4. On the other hand, we expect the overall geopolitical, macroeconomic, and operational conditions to remain highly challenging.
Supply chains continue to be under severe pressure, impacting production and supply. Major influencing factors on the further development of the second half are coming, firstly, from rising energy costs and energy supply in Europe. Secondly, from the inflationary trends in the United States and Europe. Thirdly, from potential further lockdowns due to the pandemic situation in Asia-Pacific, and particularly in China. Such lockdowns would impact global supply and demand balance as well as logistics. On the other hand, we navigated the different challenges of the past two years prudently, and we feel very well positioned to manage particularly difficult conditions proactively and with foresight. Our high diversification and the resilience of our business model, as well as our excellent relationships to our suppliers and customers and our product know-how, will support the positive performance of our company.
Even though the further developments around gas supply shortages in Europe are unpredictable, we are evaluating options to minimize potential risks for Brenntag. Brenntag's strong and diverse global supplier base of several thousand suppliers and our established global supply chain network make us a reliable partner and offers many supply alternatives. We can utilize our global supplier base and are confident to adjust supply chains if and when it will be necessary. Given the current business environment and our strong global position, we not only confirm our operating EBITDA guidance of EUR 1.75 billion-EUR 1.85 billion, but expect to deliver results at the upper range of the guidance. Ladies and gentlemen, let me now summarize our overall performance and our achievements once again.
Strategically, it was the right decision to set up our new operating model with the two global divisions, with dedicated commercial teams and a differentiated steering approach. This is confirmed by the strong results in the second quarter, with Brenntag Specialties growing faster than Brenntag Essentials. Our transformation program, Project Brenntag, is well ahead of plan, and we will achieve our financial targets already by the end of 2022, one year ahead of plan. We have raised our guidance for the full year 2022 significantly and are confident to deliver results at the upper range of our guidance and to maneuver the ongoing challenging environment prudently. With this, I would like to finish the presentation and open the Q&A session now. Thank you.
Thank you. We will now begin our question and answer session. If you have a question for our speakers, please dial zero one on your telephone keypad now to enter the queue. Once 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 zero two to cancel your question. If you're using speaker equipment today, please lift the handset before making your selection. One moment please for the first question. The first question is coming from Simona Sarli at Bank of America. Your line is now open.
Yes. Good afternoon, everybody, and thanks a lot for taking my questions. Going back to the current geopolitical situation and gas crisis, first of all, could you please give us a little bit more color on how much you source from Germany and then also to Italy? And secondly, if we should get into production curtailments from chemical producers in Europe, how much flexibility you have to source from other regions? And if you could please quantify high level, what could be the potential percentage of total stock that could be redirected? And in particular, if you could split this between essentials, where you clearly have more products, as you have indicated, that are more energy-intensive and then for specialties. R elated to specialties, how much your formulation expertise could help finding alternatives for clients? Thank you. I will follow up with other questions. Thank you.
I think, the exact and detailed numbers, you know, Thomas will convey to you then, around exactly what we see here. I could not really fully grasp all aspects of the question, so we might need to come back to it. Geopolitically, you know, what we see right now, the gas supply situation in Europe is evolving and dynamically evolving. Today, gas supply is not yet an issue, so there is enough gas available and so we have no shortages from any producer here in Germany or in other parts of the European chemical industry. We do see some impact, of course, on the Lower Rhine River, to some extent.
Because we mentioned it, this is not in the call, so we also need to observe how that comes along. It allows us still, and this is the strength of Brenntag, to have flexibility to source from other regions in the world. This is our operating model since a long, long time. We can source from Far East, we can source from United States and bring material also on a favorable cost basis into Europe. We see already in Asia more material available actually and that will also help us should the situation's emergence of this situation arise. We also see a lot of preparation and preparatory work on chemical manufacturers to prepare for eventual gas shortage. Let's see how that plays out.
We hear almost every day from large suppliers in Germany also that they are now getting more and more independent from the Russian gas. You are right, Suhasini, that, you know, the essentials part is more relevant here than the specialties part. Here in essentials, we talk about the large volume chemicals, in particular solvents, in particular caustic alkali, electrolysis products, which are the larger volume products. Again, here also alternative supply scenarios possible, and we have practiced those also in the past. Currently we are developing those plans very carefully to minimize any risks. Our assessment today is, first of all, for Brenntag it will have no impact as a company. We can and will maintain operating our sites.
We are not dependent on gas to an extent where, you know, operations or our blending or mixing facilities will be strongly negatively impacted. We need to watch carefully the more energy-intensive value chains and make sure that we have enough material available to supply to our customers going forward. That's in a nutshell how I would try to address the question then. Also, Kristin will make some remarks.
Yeah. Simona , thank you for your question. Maybe to just chip in with the numbers for Germany. The mid-single digit number of sourcing we have got in our company, and same is also true for the impact on the Brenntag numbers. As Christian just said, we are able due to our diverse supplier portfolio to also replace those sourcing sources, so to say, with other sources from other countries. I hope this answers your questions.
Thank you very much. Then I had a couple of other questions. One is related to inventory. Clearly they continue to sequentially increase and are up in terms of inventory days above quarter-over-quarter and substantially year-over-year. How much of that is related to high chemical prices not being fully reflected in LCM revenues? And how much of that I should see it as an indication of a very strong order book in Q3?
I would take that. The major part of that is really due to high chemical prices. We constantly see an increase in prices still, as we also said in our announcement. A smaller part is then dedicated to higher volumes, and that has two angles. First of all, it is true that the order book for Q3 is still very well filled. That's one point. The other point is also that we see those disruptions in the supply chain and in order to make sure that we are at any time capable to deliver our customers, that has got also an impact that the inventory turn is lower. I think that is more or less the three points which contribute to the higher working capital currently.
Thank you. My last question on guidance. Clearly you have revised up your full year guidance for EBITDA just in mid-June, and now you are indicating that you expect to be at the top end. What has changed since then? How much is related to more favorable prices or how much is company-specific? The fact that you're proceeding, for example, faster on Project Brenntag. Thank you.
Yeah, Simona, I think what has led to that assessment is that we see the momentum we have seen in the first half, well continuing into Q3, in line what we said around June and when we talked about the Q1 results in May. That we see still a good momentum into Q3. The order books, as Kristin has already mentioned, are well filled, in particular for Q3. That makes us confident that we are now on a good trajectory to meet the upper end of the guidance. Of course we have Project Brenntag delivering faster and more than we thought for the rest of the year. As I said, you know, EUR 20 million will be accomplished by the end. From that perspective, we are quite optimistic that we have enough indicators to give you that refined guidance to meet the upper end of that range.
Thank you. Should I read that like prices are pretty much similar to what you have seen in Q2? Is there also any pickup in volumes? Was the growth, if we should split it, the organic growth in Q2, was that still mostly driven by prices or you have seen also a little bit of volumes?
I think it's a mixed bag. You know, on pricing, we see some areas of the chemical value chain, prices are still strongly going up, particularly in the energy-intensive value chains. That's still momentum where others we see other areas where this is starting to flatten on the pricing side. We see volume gains here and there, in particular in North America. Essentials is performing quite well and gaining quite nice volumes here. I think it's a very mixed bag of the overall assessment of what we can expect. Taking all those various elements, momentum, pricing, volume developments, Project Brenntag savings, if I just take those four, five elements together, gives us enough confidence to guide you towards the upper end, upper range of our guidance.
Thank you, and thanks for taking all my questions.
Thank you.
The next question has come from Rory McKenzie at UBS. Your line is now open.
Hi, good afternoon. It's Rory here. Firstly, just to follow up on that last point, just to be a bit more explicit. Is it fair to say that your volumes are maybe up about 8%-9% year-over-year, with M&A contributing the most of that? Secondly, even the very top end of your current guidance range would require a 14% reduction in H2 EBITDA versus H1. Since 2007, your H2 EBITDA has on average been about 2.5% above H1 and the greatest ever sequential drop is 3%-4%. Clearly you're worried about something really, really unusual happening this year to keep the range where it is.
Could you just help us understand if your biggest fear is how quickly that gross profit per unit could be squeezed, whether it's the risk to volumes or whether it's the risk to your own cost base? Cause, clearly you're worried about something very unusual happening this year. Thank you.
Yeah, Rory, thank you very much. I think your assessment is on the volume side pretty good. I think we have including M&A volume increases which are, you know, supporting our performance. That's well analyzed. On the second half, you know, I think we tried to describe it. I think currently the situation is still very fragile. It is still very foggy, I must say, and hard to predict what's going to happen. We still believe that, you know, a lot of the impacts can be managed and will be managed also particularly in Europe. We also see already some demand in some market segments getting a little bit more sluggish.
I mentioned this already in the Q1 call when we talked about construction materials. When we talk about automotive, we see indeed, you know, here some demand patterns, which are not so much favorable. We need to see how that is developing. You know, all the inflationary cost developments and what kind of impact you will see on demand is currently one of our bigger concerns, what we have besides availability of product, which is, you know, getting better and better. I think this is, you know, the scenario we are looking. We are of course constantly looking at the development. Q3 momentum, as I said, has started in a positive way.
Now we need to see when we have, you know, one more month under our belt, how we assess the performance towards the end. I think it is fair to give you now the upper range of that guidance we have been giving to you, so that you can at least consider what we see for the second half.
That's helpful background. Thank you. Just to follow up, a last one from me. You mentioned just there that availability of product is clearly getting better. I guess that's visible with the working capital turnover coming back down again towards a more normal 7x . As availability of product gets a bit easier, would you typically expect your markup to customers to start to reduce as well? Thank you.
I think we have availability of product out of Far East. This is what we see. I think you clearly can already recognize that you know China gradually comes back not so much on the domestic demand. We see this also. Particularly when Q3 started, we saw a positive volume development in China domestically. We also see you know larger chemicals being more readily available in principle to be exported out of Far East into Europe, still hampered to some extent by logistic constraints and also escalating or still high logistic costs. We see that availability of product actually becoming better. Of course, it's a discussion about how prices will react.
Again, you know, for us it's important that we first of all maintain supply to our customers, and secondly that we manage our margins very well in both, you know, prices going up, but also prices going down. I think we have shown in the past that we can do this quite well. I'm on that end less concerned as you might be.
Okay. That's very helpful. Thank you very much.
Thanks, Rory.
The next question is coming from Markus Mayer at Baader Bank. Your line is open.
Good afternoon, Christian and Kristin, and welcome, Kristin. I have three questions if I may. The first one maybe it is for Christian has more to do with now the potential change in the trade flows in Europe, given the now high cost curve for European chemicals. Do you expect that there is additional business for chemical distribution companies in Europe, and particularly for Brenntag as chemical players out of Middle East, Asia or North America might import chemicals to Europe? That would be my first question. Second question is basically what comes after Project Brenntag? Is it now project digitalization? And could this also achieve significant earnings contributions? That would be my second question. The last question would be for Kristin. Kristin, what do you think can you add to the financial organization from your previous experience of other companies?
Okay, Markus, thank you very much. I'll take the first two questions, and then Kristin, the third one. The change in trade flows is, you know, something which we of course have, you know, in our strategic planning. Because I foresee that, at least for some period of time, the competitiveness of the European chemical industry will be hampered by, you know, higher input costs, in particular when it comes to energy. That doesn't have to be forever because, you know, I strongly believe in the innovation capabilities of the chemical industry to compensate for those cost disadvantages over time. Nevertheless, we will see periods where indeed the trade flows will be different from where they have been and currently are.
That, of course, is playing into our book, when, you know, we look at our global setup, that indeed our capability to import material and bring it at cost competitive positions into Europe is benefiting Brenntag and should be, you know, positive impact for us. Overall, I think, Brenntag is, as I repeatedly say, excellently positioned as the only truly global chemical distributor. The second question, what about Project Brenntag? I'll ask you to be patient until November.
What I can say to you that, and you know me by now, that it will contain various elements of, you know, medium-term targets, renewed and also, you know, also clear elements of, what kind of, self-help programs and other things to improve our cost position will be included there. I ask you here for your patience until November tenth, we'll then disclose the next, what we call Horizon 2 of our strategy and strategic transformation. Kristin, you wanna take your question? Thank you.
Yes, of course. Thank you, Markus, for that question. When I look back, and if I look at the organization in Brenntag, I think there is a lot of things I can bring in for the finance organization here. You know that, from a history point of view, Brenntag used to be a very decentralized organization, and it was also marked by a lot of M&A activities, which had led to the fact that there is not that much standardization around.
I think I've got a lot of expertise here in terms of leading a more centralized finance organization, how to set that up, and how to make sure that we are set up in a more functional organizational set up. To set up shared service centers also in order to get more efficient in the future. That is also something I did in the past. If I look at our system landscape, that is also something I can contribute due to the fact that also here the lack of harmonized systems is something which is quite obvious. In the past, I used to work with one system, and that is also something I want to see within Brenntag in the future.
Okay, perfect. Thank you so much.
The next question is coming from Isha Sharma at Stifel. Your line is now open.
Hi. Good afternoon. I have just one left, please. What changed sequentially from Q1 to Q2 that we saw an acceleration of 15% EBITDA? I understand that the supply chain issues were intense, but if you could please explain what happened sequentially and how should we think then for Q3? Thank you.
Hey, Isha. Thank you very much. I think, you know, from what has changed from Q1 to Q2, we still saw a strong pricing dynamic in the market. As I said, you know, we still in various parts of the chemical industry see increasing prices even now, particularly in the energy-intensive value chains. Still shortages driving that. Of course, we have a lot of inflationary pressure also, because suppliers and manufacturers are faced with increased prices, they pass it on. We have to also pass it on what we receive from their side. I would say predominantly it has been, you know, Q1 to Q2, still a very positive pricing moment.
Of course, the seasonality we typically have from Q1 into Q2, which you also need to take into account that second quarter typically is one of our strongest, if not the strongest, in the year. I think that would be what we see. I repeat, you know, the momentum we see in Q3 is intact. We still see a good momentum in the third quarter, but again, being very careful about the developments going forward.
On that note, maybe just a follow-up. If we assume a similar trend, then that means that you're expecting a lot of pressure in Q4. Would it be then fair to extrapolate it to 2023, or what should we see or assume sequentially that might offset, assuming, let's say, a EUR 300 million-EUR 350 million run rate for 2023?
Well, I mean, this is speculation. There's such a run rate, so I would not, I will not take this one. I think, you know, we see still a good momentum in Q3. Again, I think we should not repeat all the uncertainties we currently see. I mean, there are some clouds on the horizon when it comes to demand, when it comes to overall the pricing and how pricing will develop. We will be able to manage, of course, our margins quite well. N evertheless, you know, we want to be very careful about what the development will be in Q4. Winter is coming and winter is hitting.
And what does it mean for the European chemical industry and for the overall demand, particularly also for the consumer demand, if people are faced now with massive increases of their energy bills and other things and cut back on their discretionary spending and how that overall will impact the demand pattern. I think, opaque for me, very much opaque is 2023. The circumstances we are talking of could prolong, could extend into 2023, again, also to the benefit of Brenntag. Let's see how we are navigating now month by month through this situation.
Thank you very much.
You're welcome. Thank you.
Next question is coming from Dominic Edridge at Deutsche Bank. Your line is now open.
Hi there. Just a couple from myself, and apologies if I missed this. Just on Project Brenntag, I've noticed obviously the breakdown of the gross profit and the OpEx savings are slightly different. Could you maybe discuss sort of maybe what's happened over that process and where you found some more savings and where maybe it's proven a bit more difficult to take savings out? Maybe, as a preview, perhaps to Horizon 2, could you maybe discuss where, you know, those opportunities still are, perhaps? Then just the second question is just on the margins and maybe going back to rephrasing what Rory was asking earlier. If we see both supply pick up, obviously, that's one thing. Do you think we also need to see prices actually coming down to see your margins start to come down as well? Thank you very much.
On the Project Brenntag savings, I think, you know, you see the breakdown between bottom line measures and top line measures. We continue to execute that, you know, the 1,300 structural headcount reductions. That's our target, and we will execute it consequently. We'll create, you know, the bottom line impact as anticipated. We have been blessed a little bit on the top line with the developments. You know, one important part, for instance, was in Project Brenntag to manage the profitability level of, so to speak, dilutive business or negative margin business which we had, so we could much better eliminate this under this kind of circumstances.
We have moved, I must say also our portfolio in total for more, higher profitability quality than we had it, before by taking deliberate choices. Why we are spending less on Project Brenntag, because we have, and that's what I said, right from the beginning of the process, use the natural fluctuations as much as we can, to reduce headcount on structural headcount. We have done so quite successfully. That means that the overall spend for Project Brenntag is substantially below what we had originally planned. That's also good news because, you know, the performance or the profitability of that project is indeed substantial and has helped us massively.
On the margin, you know, I think, Brenntag has shown in the past that we can deal with volatility very well. Volatility and volatile circumstances typically are positive for Brenntag, in both directions when prices go up and prices go down. That means that we are confident that the margin levels which we have accomplished is something which we are able to maintain as much as possible, and taking special items aside. Nevertheless, you know, I'm less concerned about should prices coming down that automatically our margins would suffer tremendously. I think this is deliverable. Still supply is key and availability of product is key and on-time delivery is key.
Okay. Thank you very much.
You're welcome.
Next question is coming from Rikin Patel at BNP Paribas Exane. The line is now open.
Hi. Thanks for taking my questions. I've got two left. Firstly, just following up on the conversation around outlook and the macro. You mentioned the Q3 order book looks strong. I just wanted to check if there are any sort of nuances between different end markets, especially in essentials, i.e., if some markets are looking stronger than others or if you're seeing some signs of softness there. Secondly, just on capital allocation, I guess, again, taking into account your comments on Q4, but then also factoring in leverage being quite low, how do you stack up the scope for further M&A versus potential buybacks or special dividends maybe later in the year or next year? Thanks.
Okay. I will let Kristin answer the second question. On the outlook, yes, I mean, very, very mixed bag. I mean, this is the interesting part of Brenntag. I mean, we have insights in so many industry segments and what's happening. What we clearly see is life science is very strong still. T here is no shortage in demand or there is no reduction in demand. I think it is, you know, our nutrition business, our personal care business, our HI&I business actually have strongly performed in the second quarter and continue to do so. I mentioned some softness in construction chemicals as just one example. Some softness in automotive, I mean, we saw the numbers of the automotive industry.
No wonder why there is probably less demand. Nevertheless, you know, it's not catastrophic. We see China, you know, still having issues, of course, but again, in particular, I think Q3 spotted some positive signs on the domestic demand. Slowly recovering, I must say. Then of course, export out of China or out of Far East into Europe is also positive. That means, you know, if you would talk about a slowdown, it probably would be more in the essentials side than on the specialty side, as you would expect. This is why we have designed the specialties division as they are, but to show a more resilient profile, even if demand is getting weaker, and that's what we can expect.
It's not, you know, broad across all industry. It's also different region by region. Overall, the picture we see is that, you know, Q3 macro is positive for Brenntag, and we expect a good trajectory in the third quarter as well into the fourth quarter.
Okay, I will take the second one. You are quite right. Our leverage is in the low range of where we want to be in usual times. First of all, let me say that we have got a very uncertain environment also on the financing market right now. I think for the time being, it's quite good for us that we are at a low leverage level which makes our life also easier, especially also against the background that we need to invest a lot of money in our working capital in order to finance our growth. That's the first point and the first remark. Second, our M&A pipeline is quite well filled for the time being. We have got various options we pursue.
Of course that is not generally also only thought from our side. That is something we will look at very carefully. A share buyback, for the time being, we would not think about that actively as long as the future is that uncertain in terms of how much working capital do we need, what do the finance markets do to us. That is something we will pursue later on if the situation is a bit more stable and a bit more clear. That is independent of the situation with our bond with warrant, which is mature beginning of December. If we have got a huge cash inflow from the warrant, then we would definitely think about that differently again. I would leave that a little bit aside because that is depending on our share price.
Thanks. Very helpful.
As a reminder, if you have a question for our speakers, please press zero one to enter the queue. The next question is coming from Chetan Udeshi at JPMorgan. Your line is now open.
Yeah. Hi. Thanks for letting me on. I had two questions. First one is, if I look at your receivables, you know, they've gone from about EUR 2 billion last year to now EUR 3 billion. I understand, you know, it's driven by chemical pricing. You know, given the price inflation we've seen, I was just wondering if you've done any analysis around the health of your customers in terms of ability to pay these higher prices. I think this is more a broader question. You know, in the context of current high inflation, you know, possibly gas rationing, which may also put pressure on pricing further, how do you see the I mean, in terms of the ability of your customers, which tend to be small and medium-sized, to survive this sort of an environment?
Are you seeing any signs of maybe any, you know, challenges within your customer base? That's the first question. The second question was, you know, when I look at the chemical price dynamics, we clearly have seen some sort of a deflation softening, whatever you might call it, in China. I'm curious, you know, has that resulted in your gross profit per unit coming down in Asia just because the chemical prices have started to go down?
Okay. Chetan, thank you very much. The receivables question, I think Kristin should take, and then I talk a little bit about the China and the pricing momentum we see there.
I will start. Okay.
Yes.
Of course that is a very valid question, Chetan, and that is also something which is of course of our concern, that we make sure that our customers are able to pay. For the time being, we do not see any change here, even if we really look at this very carefully and even if we chase our customers very rigorously. Also on top of that we do not see it right now, the good thing is that our customer portfolio is also very, very diverse. That there is a huge single impact is from my perspective not the case. On top, we also work with insurances, which also helps us to keep that risk low. Of course, in times of uncertainty, in times of rising prices, that is a very valid question, and we are definitely after it.
I only would add one topic. I mean, today, day-to-day discussions are around payment terms. I mean, customers are very strong, pushing, of course, back on price increases on payment terms. I think it's a daily battle on our commercial front to get this through. Again, you know, as Kristin said, 190,000 customers, you know, we balance that risk quite well. On the China topic, you know, I can confirm we see prices in China starting to decline. Actually, two reasons, or one predominant reason is the rather lower domestic demand in China. We see some impacts on real estate, on construction, chemicals and other things.
Also availability of more, how should I say, logistics capacity going out of Far East into Europe. Still prices are high, don't get me wrong, for logistics costs, but availability is step by step improving. That's what we are currently seeing, but we have not seen yet, and that's too early for that momentum to see a gross profit per ton impact on that business. That's what we don't see at this point of time. Again, you know, our Specialties part in China is getting bigger and bigger. Here we see a zero impact on any margin, on the margin side out of lower chemical prices.
Maybe a follow-up question, like why do you say that it's too early to see the impact from lower chemical prices on your gross profit per unit? Because I don't think you have very long order book, right? You know, to some extent, you guys are churning out the product very quickly from your stock. Let's say if the prices were coming down two weeks back, you probably have sold that material already. If the GP per unit for those lower-priced products is not coming down, like, is it more a timing issue, or are you more trying to say, okay, because you've not seen it to be more like a broad-based trend, you don't want to maybe take a?
No, Chetan, I think it is more timing, a timing topic. It's you know, the developments we see with declining prices in China is a quite recent one. As you know, lockdowns have been lifted, and the business dynamics are restored. T hat's what we say. Then again, you know, with our China business is about 3% of our business, so still a very small entity. We have now more and more after all the acquisitions we did, a strong Specialties portfolio in China where we also don't see that impact yet. I'm not excluding that we will see this going forward. The overall impact, what I meant for Brenntag in total is rather small or ignorable.
Understood. Thank you.
You're welcome.
Ladies and gentlemen, we have no more questions waiting in the queue. I would like to hand over to Thomas Altmann to conclude this conference call.
Thank you, Lucas. This brings us to the end of the conference call. Thank you very much for joining us today and your interest in Brenntag. If you have any further questions, please don't hesitate to contact us. We will publish our Q3 2022 results on November 9, 2022. One day after our results presentation, we will host our capital markets day on November 10. We will keep you updated and provide further details on the CMD in due course. Until then, we're looking forward to further discussions with you. I wish you all a good day and a great week. Goodbye.
Ladies and gentlemen, thank you for your attendance. This conference has been concluded.