Ladies and gentlemen, thank you for standing by. Welcome to the Brenntag SE Q1 2026 results call and live webcast. Please note that this call will be recorded. During today's call, webcast participants are in a listen and only mode until we conduct the question-and-answer session. If you wish to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Instructions will also follow at the time of the Q&A. I would now like to turn the call over to André Simon, Senior Vice President, Corporate Investor Relations. Please go ahead.
Yeah. Thank you, Danny. Good afternoon, ladies and gentlemen, and welcome to our earnings call for the first quarter 2026 from my end as well. On the call with me are our CEO, Jens Birgersson, and our CFO, Thomas Reisten. They will walk you through the presentation, which is followed by the Q&A session. All relevant documents have been published this morning on our website in the Investor Relations section, where the replay of the today's call will be also available. Allow me also to point out our Safe Harbor statements, which can be found at the end of the slide deck. With that, I now hand over to our COO, Jens. Please go ahead.
Hello, everyone. Let's go to the first slide. To sum up, I will start with summing up the whole quarter, basically, and then I have a little bit more detail on Brenntag. Overall, I'm satisfied with this quarter. If you look at November, December, we had quite low market activity. We anticipated that we would step into 2026 against difficult comparables. Last year, Q1 was very strong or as strong as quarter. The year started in that spirit. We had volumes down some 5% January, February. Very slow moving. Some winter effects in the U.S. in construction. A little bit of uptick due to our antifreeze business on airports, but generally a slow start.
28 February, crisis in Iran or the war started. We observed that for about 1 week. Towards the end of the 2nd week, we concluded this will impact the market. I will come back to all the things going through the Strait of Hormuz a little bit later. With our now new flatter structure where all the business units and the regions report directly to me without the divisions in between, from the mid-mark of the month, we started actions to say, "Okay, we need to secure supplies to our customers. We need to price up. We need to pass through surcharges.
We need to do a whole lot of things. Top priority, basically, not get caught between a rock and a hard place, and also to keep our customers whole. It took us about 3 days to ramp that up. The result you see reflect maybe one and a half week of Iran crisis in terms of market activity, maximum 2 weeks. We're very quickly up and running. Also had due to that on the customer side, many customers are used to falling prices and that means you go minimum on your inventory as a customer and you saw a certain shift also there that people. There wasn't a huge pre-buying, but a little bit of pre-buying to just have a bit of safety stock. We entered into growth territory.
March landed on a growth, and we increased prices immediately, and we managed to secure deliveries to everyone. That was well done and it's a good proof point to the new flatter organization. You know, here we are, we are using really quick communication tools and exchanging between the regions and shipments and it just worked really, really nice. I should say though that you can discuss how quickly we will be able to do this. Agility is key in today's world and here we were extremely quick to get going. The inherent capability of our business model to deal with this are size, often due our supply of material, connections everywhere in the industry. We proved again that kind of we thrive in times of volatility. We knew that already.
I think some of that was seen during the COVID happening. It has been shown time after time, but this was the first time I could see it. And I'm very happy how we dealt with it in Essentials, in Specialties, and also in the ingredients and additives and what have you. The big happening was of course in, on the Essentials side. We knew that already. While we were doing that. We also kept reminding ourselves, and we still keep reminding ourselves that this is a good windfall, and we see a good progression of this going forward into Q2. Our real job remains, and that is to get organic growth and the commercial machine going in Brenntag, leveraging the whole portfolio to get structural costs down, productivity up, and demonstrate leverage of scale and generally improve competitiveness.
In the front end of the company to be able to use all the products we have now where we are not at all going for a split, but we want to offer the full portfolio with a full, with different margin profiles without losing focus on the vertical business, the Specialties business that requires the main competence to play both of those models. We kept working on that, and Thomas will come to some of the cost reduction progress we made. But, you know, we have more than EUR 200 million goal for next year. When we look at our internal plan to get to some EUR 150 million savings this year, we are tracking on that plan.
I'm happy with that because if we look at previous years, there's been plan made, constructed, but we haven't executed to him. Here I see that we are actually tracking to the plan we have put in place. We have a good structure to follow it up. I tell you, in the whole company, we are below 3 management consultants, 2, 3 consultants in the company. We don't use consultants. We do it ourselves. It's progressing. I think that's a very important skill because if we structurally gonna correct some of these cost developments and underutilization developments, we need to know this. It needs to be a core competence of the company. So I'm happy that we could keep our eyes on that.
If I look at the outlook, I think we feel comfortable that we can confirm the outlook with a higher degree of certainty. Thomas will talk more about that. I should also say that what we see now at the beginning of this crisis, or if this is the beginning, we don't know, into Q2, that is the volatility, and we thrive in that type of environment. We still or we are not able to foresee what happens to end user demand in H2 of the year. I'm sure there gonna be someone that got the forecast right, we don't know who that person is. We have taken some height for that in our forecast and feel comfortable. Okay.
We don't know what the impact will be, and we don't know how long the crisis in the Middle East would go on. On the negative, maybe it doesn't belong in an analyst call, until the end of April, we have sadly had two fatalities in the business. Both of them happened on customer sides. For me as a COO, that's a very important one because this is not an Amazon business. This is a business that have inherent dangers, we need to deal with that. I feel we have made good progress of safety. We have good statistics. These two incidents that have happened are something we look at really closely and see if there are actions we need to take to improve.
We have improved, here two independent incidents happened in the quarter running into April. I'm not at all happy with that. I'm taking it very serious. Our new COO is gonna look into it. At the same time, it serves as a reminder to, you know, this is not just any ordinary business we are running. It's serious chemicals, some of it, that we are shipping and working with. Okay. We move on to the three priorities.
You know, we set 3 priorities now. We have now agreed, or we have set a date for the Capital Markets Day on the 12th of November, where we will go into more detail, share with you a bit more about how we work and also, demonstrate, you know, by that time, have more proof points that we can move things in the company. Until then, we have put some very simple focus areas and we have had these in the 2 previous calls. Sales. What are we doing on sales? Are we making some progress? Yes. We are having feet on the ground a lot more at the moment. We have shifted from internal to external focus.
I'm happy with the step up in terms of time spent in front of the customer, and we have a fantastic culture at the front end of the company. We have done now several drives of getting dormant customers back, placing orders, so stale customers that have stopped ordering, and that has been quite successful. We are also launching a couple of experiments on Cross-selling. To best illustrate the strength of the one Brenntag model is that we have the domain competence business with, say, pharma. We count the people in pharma a number of hundreds, but you have customers for pharma that are thousands.
It says itself that if you can't leverage the wider Brenntag for account management and maybe the tail end, 4,000 or 5,000 customers, it's very hard to cover in depth thousands of customers beside 300, 400 people. Our domain competence business is our Specialties. They need to be really, really good at spending time in front of the customers that are the big accounts. We are now starting to leverage that Specialties customers we can move in with Essentials products, Specialties customers of 1 type of Specialties, we move in with another Specialties business product portfolio and helping each other. We're starting to work on some incentives, pricing. We are starting to work with pricing, and that came at a very good time.
We just kicked off a project on how we price and how pricing is done in this company. For example, Latin America grew 8% to 9% in Q1. There we have, compared to last year, we had made quite good progress on how we address the market, and it was very nice to see. On the clarity and simplification, we have done an experience with the supply chain. It was split, and to bring it together and serve all the businesses out of one supply chain. In APAC, that's going really well.
The Executive Committee is operational now, getting comfortable with each other and tremendously helpful now in the time where we need it to be really agile on price and shipments and working between regions to have the Executive Committee around the table communicating very fast and working together. Happy with that. New COO is on board, starting to look into the whole productivity and the network of our supply chain. In terms of, starting at the top, the COO functions, relations with the Works Council also. It's not only Germany, but starting to reduce headcount, job reductions. I start to feel we are taking a little bit longer time than maybe I expected, but we are coming through of that, and we start to work towards the same goal.
I feel that for our COO, piece of it is done. We are working out in the region. Thomas is addressing his part of the organization. That's also moving forward. I think that's good. I mean, we haven't had any industrial action or anything of that. On the execution, Thomas will come back to that. We acquired close to Airdale. That integration goes fine. A nice addition in the U.K. Proven again in terms of execution when it's getting really turbulent, that we can manage that. Cost reduction program, well structured, well followed up, accountability, very clear for the different pieces. I feel pretty confident that we now have learned how to deliver on our actions. I think around EUR 150 million this year should be doable.
Thomas, again, can go more into that. If we move to Iran, I guess this is the novelty of the quarter. I mean, there will always be something nowadays, but this situation is new to us. It has not been so problematic, full of action. Just to give you a feeling, we have only about 150 people in the Middle East. It's not a big impact on sales and gross profit, even though we are doing well there. The sourcing into the chemical industry is of course very substantial.
Some of you might not know, but if you look at, you know, we all know that the oil, seaborne oil passing through the Hormuz is maybe 25% or 30% of the world, and 20% of the LNG is passing through. Everyone knows that. If you look into some of our core essential chemicals, so I give some example. You know, the monoethylene glycol, 56% of the global trade is going through Hormuz. Sulfur, which is, you know, in one or the other way, going a lot into fertilizers and agro, almost 50%. Methanol, more than 40%. Urea, more than 30%. Ammonia, more than 23%. Phosphate rock, more than 20%. Then again, that goes into fertilizer and other things. Different phosphates, more than 20%.
It's, it's a very, very critical region in our field. How did this really impact us? This slide sums it up. What happens and you could read what it says there. If we, if we instead think through the regions, what's happening in the different regions from a energy price shock perspective, supply constraints, supply shock price of the product and the demand. Starting in the U.S., the energy price shock, yes, gas prices are up and the supply constraints, there the impact is quite low. With the way the U.S. market works, where U.S. have started to export oil, export chemicals, Exxon, Dow, the big companies doing really, really well with windfall.
It's not that it protects the U.S. from seeing a lot of price increases on the chemicals, which where we have participated in that, of course. I would also say from a market activity level in our segments, we don't see a market slowdown. If you then move over to Asia, there the energy price shock element and the supply shock element with constraints, lot of Chinese suppliers, they didn't call force majeure. They just double or triple the price or said they won't supply. Very high impact. Prices went very high and you also had some drop in demand. We somehow managed to navigate the I think we reached almost ceiling prices in APAC on chemicals and our customers are a bit cautious, I would say. Should they build stock? Should they not?
It's quite dynamic and it's calming down a bit, the question is how we go forward. Again, not our biggest region and we got through with, you know, we are getting through that and we are managing delivering and passing on prices. We get to Latin America. There we had pretty low effect in every respect. The big difference, Latin America get products from Asia, they get it from also in some respect Europe, and also from the U.S. What we have seen is very hawkish buying behaviors and pricing up. Some of it helped that Chinese imports have disappeared or been reduced in some places. We have done really, really well so far in Latin America. In EMEA we have the energy price impacts medium to high.
Some constraints because some of the Chinese imports didn't arrive or they got delayed. Middle Eastern imports got delayed. We saw very quick movement on solvents and there the pricing went up very quickly. Customers not pre-buying, just taking up a bit of safety stock, driving some growth, but again, cautious. You know, the big question out there, what will happen to demand in Europe? That, that's a little bit of an overview on the Middle Eastern. If we look at our businesses Essentials starting on the solvent side, that has been obviously the middle of the action immediately. That's where you see that our deliveries are, in that business, are essential for our customers. They are not commodities. They are super needed and therefore there is a pricing element in that and also worth.
Some customers have run out. They haven't been our customers and we are helping them and it's almost at any cost to get the product if it's not an ongoing relation. We step in on all of that if we can. On the Specialties side you see that their contracts are in place, smaller volumes, not a quick impact. You see a slight uptick and I think more will happen but not that drama, not that action to the same extent but it will come. Transport cost, all the materials will come up but it's more gradual. I think on nutrition, our nutrition business, if you look at that business, fertilizers et cetera, for example for Europe, they are already in place before the Iran crisis in most of the agricultural areas.
Our prediction is that we will see food price inflation and that thing picking up. The first, you know, planting now already had the fertilizers and the rest in place. I think the impact can be quite substantial but it's just later in the cycle and when it happens we are ready for it. Okay. Go to the next slide on the numbers. If you look at the top line, sales minus 5% and that was supported. This is against a very good quarter last year. I'm happy with this number and it was helped of the two weeks of March. In that business we have some businesses growing. Most businesses are not growing at the beginning of the quarter. Latin America we had high single-digit growth.
Also our Material Science business. You know, 6%, 7% growth. Slightly different dynamics, and that we saw already in Q4. Very happy about that. Clearly the top line, and also the gross profit helped by the last 1.5, 2 weeks of the quarter. Gross profit -1.3% or -5% top line. Happy about that. Also quite happy with that on sales -5%, that we only lost operating EBITDA 8%. That's a smaller gap there than we've seen, say, 2 quarters back. That's not only because of cost reduction, obviously, 'cause some transport costs and other things went up very quickly. But to some extent we it's pricing elements and some volume elements that help on that.
Mathematics will improve the gross profit margin. I think another aspect about the gross profit, I'm happy about this, that we are moving away. We like to have price quality on the business, but we are moving away. We kind of accept that we have different businesses with different gross margin criteria. I think again, some corners of the business have been way too minimum gross profit per ton of shed business. We have capacity. As long as taking a low-margin product and it doesn't reduce the price or the profitability of the mid and the high-margin product, we have no problem with it, looking at our total offering to customers with our whole portfolio and accepting a margin profile. We are at the beginning of that.
We will get better at that when we move on. As I said on the forecast, Q2, it's progressing. We know how to deal with it, we are not worried about Q2. What we look for is now what happens in second half of the year on the demand side. Finally, the Capital Markets Day, 12th November. We will mix that up. The people that will attend, obviously medium long-term, what we're gonna work on the levers, to meet several of the team members because we start to have a seriously good team here. I think they're very much part of this executive committee to deliver on our strategy that we are working. We are not done on every piece, obviously.
We're gonna use the time here, but we have the core, all the elements and we are working on them, and we are also making some real full or real pilot testing in the business. That's one of the reasons why I like to do this in the second half of the year so that we have tested, can we cope with this? Can we do this? Obviously, not every strategic initiative will be that way. Some of the core elements, I'd like to know what we have the capability to move things in the area we wanna use as a lever. Over to Thomas.
Yeah. Thanks a lot, Jens, and good afternoon from my side as well. We now look at slide number 7 and review there the financial performance of the first quarter in 2026 a little bit more in detail. As outlined earlier, first quarter results have proved the resilience of our business model. This after an expected muted start to the year. March showed improved performance, especially when benchmarked against the high comparable base in the first quarter of 2025. Operating gross profit amounted to EUR 950 million, which is down 1.3% year-on-year. At the same time, we achieved a gross margin of 25.9%. That's increased by 0.9 percentage points, which is reflecting strong pricing discipline and supply reliability.
This demonstrates our ability to protect and expand margins despite slightly weaker volumes in the first quarter. operating EBITDA came in at EUR 306 million, which was down 8.3% year-on-year, while operating EBITA reached EUR 217 million, which is down 12.6%. Decline in earnings is primarily volume driven with positive pricing trends in March, as Jens has outlined already, and strongly contributing, yet these positive pricing trends, but not fully offsetting the weak demand earlier in the quarter in January, February and up until mid-March. operating expenses remained a very much key focus area for us. On the first quarter, higher bonus provisions weighed on this cost base. Higher energy and transportation costs due to the crisis in the Middle East had an impact.
Keep in mind, we are able to pass on these cost increases driven by higher oil prices within the Gross Profit. Via, as Jens mentioned, actually fuel surcharges or other means actually as well. We've successfully executed on our cost out program, offsetting the before-mentioned increases, and I'll talk a little bit more about that in a moment as well. Profit after tax amounted to EUR 98 million. That's broadly in line with the overall development and operating performance. Free cash flow came in at EUR 91 million, and is impacted by higher working capital requirements, and that's obviously particularly driven by rising oil prices and increased inventory needs, and in that context as well. In summary, quarter highlights Brenntag's margin resilience and the commercial agility, while also underlining the continued need for strict cost discipline in the current environment.
On the next page, we're now going to talk about the divisional performance a bit more. Operating gross profit, in Essentials, amounted to EUR 666 million. It's down 1.1% year-on-year. This development continues to reflect a subdued demand environment across most regions, particularly North America and APAC in the first quarter. Regional performance was a bit mixed, with EMEA showing modest growth and Latin America supported by underlying momentum, whilst APAC remained under pressure. Since mid-March, we've seen solid improving trends driven by oil-linked pricing dynamics and increased market volatility. That's also reflected in gross margin expansion of 1.2 percentage points to 27%, supported by our pricing discipline and ability to supply in these environments. In addition, we're seeing some signs of customers rebuilding slightly higher stocks alongside selected product allocations in tighter markets.
Turning to Specialties, operating gross profit amounted to EUR 284 million, which is down 1.9% year-on-year. Performance continues to reflect weaker demand in Life Science, partly offset by positive momentum in Material Science. Despite these muted volumes, we deliver a gross margin expansion of 0.4 percentage points to 23.7%. That's again underlining our continued pricing discipline and some mixed effects in this context. In Material Science, we have seen improving volume and gross profit trends, whilst Life Science remained more subdued overall. We also see some demand pull forward effects in response to heightened geopolitical uncertainty. If I summarize, both divisions demonstrate margin resilience, with Essentials showing earlier signs of recovery, and Specialties saw a softer demand environment during the early months of the quarter, with signs of healthy improvement towards quarter end.
Now I'll turn to page 9 and provide there an update on our cost out program. Just as a reminder, the program builds on the progress that we have achieved since its launch in 2023. Against the 2023 baseline, we had delivered EUR 165 million of gross savings in fiscal year 2025, which was demonstrating consistent execution and tangible results. Nevertheless, following the reset of the baseline to fiscal year 2025, we are now targeting additional savings of EUR 200 million-EUR 250 million by 2027. These savings will be driven by further efficiency improvements across the organization, including the simplification of structures and the reduction of organizational layers, the optimization of personnel cost base, and the continued discipline on non-personnel expenses actually as well.
In the first quarter 2026, we delivered EUR 27 million in cost out savings, which is reflecting a strong start into the year, obviously accelerating to the 150-ish million that we actually are planning to see this year. The program is designed to offset inflationary pressures on the one hand and to deliver structural cost improvements. That's quite important. Looking a bit deeper on the next page into the operating expense development in the first quarter, the reported OpEx decreased by around EUR 20 million year-on-year. On the one hand, that was supported by FX tailwinds of EUR 34 million, which has been partially offset by M&A effects and higher one-time effects such as bonus accruals and other cost categories. We delivered EUR 27 million in cost out savings in the quarter.
These were partly offset by higher transportation, logistics, and energy costs linked to recent market disruptions in the Middle East. I think that's quite important to reflect on. Overall, the savings would have been higher without that. Substantial wage inflation and prior year run rate effects, particularly in North America, play a role as well, alongside with some other inflationary effects. Now, we were able to pass on the higher energy costs, for example, by our fuel surcharges being reflected in gross profit. On an underlying basis, OpEx declined by approximately EUR 6 million, reflecting continued cost discipline and consistent execution of our cost program. That does not include the costs that we are incurring for energy. That would come on top. Remember, this is after, indeed actually absorbing those.
Overall, the development confirms that our cost out program is delivering, while we continue to actively manage inflationary pressures across the whole of the cost base. Reducing structural costs remains for us the key priority in this, and we continue to drive efficiency and simplify the organization. In summary, OpEx trends in the first quarter underline both improving business momentum and sustained cost discipline. Let me turn now to the development of operating EBITDA year-on-year. As we've expected, operating EBITDA reflects a softer start into the year from January to mid-March, with a clear improvement towards quarter end. Note that high prior year comparables prevail in the first quarter 2026 still, as prior year figures do not reflect the impacts following Liberation Day and the effects from U.S. tariff and trade policy.
Compared to the 1st quarter, 2025, FX translation had a negative impact of around EUR 21 million, while M&A contributions were broadly neutral. Within the M&A contributions, acquisitions contributed around EUR 2 million to operating EBITDA in the quarter, of which Erdel and MC Varma had the largest impact. Effects from divestitures decreased operating EBITDA by around EUR 2 million in the 1st quarter, largely reflecting the sale of the Raj business and some other country exits. On the organic development, reduced EBITDA by approximately EUR 28 million. That primarily reflected weaker volume trends in January and February, as I said earlier. The underlying demand environment remained slightly subdued in early Q1, with limited customer activity and continued pressures on volumes. However, we saw a noticeable improvement in March, driven by pricing momentum and stronger commercial execution.
From a divisional perspective, Specialties delivered a more resilient organic EBITDA trend, while Essentials benefited from improving pricing dynamics towards the quarter end already. As highlighted earlier, Cost out measures continue to mitigate part of the volume impact, while we remain very disciplined on the cost base. In summary, first quarter reflects a mixed picture with expected weak underlying demand early in the quarter, but encouraging signs of improvement towards the end, supported by pricing and execution. With this, let me close with our guidance slide. We confirm our guidance for fiscal year 2026, expecting operating EBITDA in the range of EUR 1.15 billion-EUR 1.35 billion.
As we move forward, our trajectory for the remainder of the year will depend on the, at this stage, difficult to predict impact of the crisis in the Middle East on demand across our key global markets. Disruptions in supply chains may create further selective opportunities, while its duration and magnitude remain unsolved. We focus on managing volatility for our customers and for sure securing supply. Even in a scenario of de-sustained de-escalation in the Middle East, the time frame needed to normalize supply chains is expected to be more than six months. It's important to notice that the current economic situation with high inflation could weigh on demand over time. Our full year outlook is based on the solid performance year to date, supported by most recent positive pricing dynamics, while we continue to monitor macroeconomic and demand developments.
Irrespective of these, we believe in the resilience of our business model, and we remain fully focused on the areas within our control. These are further advancing our cost out program, continuing to simplify and streamline the organization, maintaining cash discipline, and strengthening customer and supplier proximity. At the same time, as Jens already said, we are working on our strategic review, which we will present at our Capital Markets Day on 12th November. With this, I would like to close the presentation, and we are now very much looking forward to your questions.
Ladies and gentlemen, we will now begin our Q&A session. If you would like to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. You will receive a prompt to unmute. Once your name has been announced, please unmute and ask your question. If you want to withdraw your question, please lower your hand using the raise hand function. Thank you. Our first question today comes from Annelies Vermeulen at Morgan Stanley. You may now unmute your line and ask your question. Thank you.
Thank you. Good afternoon, Jens and Thomas. I have two questions, please. Firstly, you mentioned emerging product shortages. How significant was that in March? Do you expect to see more supply issues and product shortages through the second quarter? If you could talk a little bit about the differences between Essentials and Specialties in that regard, sort of where you're seeing the most significant impact in terms of shortages. Secondly, just on Asia. Putting together everything that you've said, you know, you mentioned significant price increases from some of the Asia suppliers. Given that and given the geopolitical developments, how has the level of competitive intensity with regards to Asia evolved since we last spoke in March?
Have you seen an improvement of that, or how would you characterize the market in terms of that competition today? Thank you.
Okay. I take that. Shortages, I think the initial shock is over. We have stock. We have built a suitable amount of stock in our business, and we feel confident that we can deliver. There could be other distributors or top shortages, but we have a solution to everything actually, plus that we have our own stocks. I think we don't see any problems with deliveries. There are some shortages on some product still in APAC and selected areas getting feedstock, expensive feedstock. There are some things around, but the worst of it is behind us. Between Specialties and Essentials, I would say we have all of it under control. On the price increases, we are moved on that.
There are some markets where we see further price increase. I know some places where they're kind of seeding out, and you might see it trickle down a little bit. It's a mixed picture. I think the ramp up has been done. We need to see what progresses because everything change every week in Iran, and there's also some expectations in on the whole thing. I think prices has come up. The question is, it's not steep up anymore. Who knows what happens. You're talking maybe. We don't have specific data, there are some 20 operations by that have been hit by something in Middle East. That picture can of course change as we move forward.
Then in Asia, I think the initial stage of the crisis was very much with the competitive pressure that the Chinese really stopped the exports, and we felt that into several regions. That has started up again. It's not perfectly normalized. Another would say the competitive pressures. It has been a shorter situation in Asia, and now I think it's getting a little bit better and people are starting to find a way of covering the holes. Again, we have been successful at delivering at all times. I would say our view on Asia is that maybe we are at the ceiling of the pricing and then in some products now it's dropping off a bit. Again, it will depend on end user demand.
It will depend on how the crisis continues to unfold in Middle East.
Okay. Very clear. Thank you.
Thanks.
Thank you. Our next question comes from David Simmons at BNP Paribas. David, you may now unmute your line and ask your question. David, if you're struggling there, try star six.
David Simmons.
Is that better?
Yes, we can hear you. Thank you, David.
Cool. Thank you for that. Yeah, 2 questions from me, please. The 1st one, you talked about Q2 starting well and gave the detail that January and February were down 5% and then March was up aided by the last 2 weeks of the quarter. Are you able to give similar detail on April, or is there anything else you can say to help us size you expect in the 2nd quarter versus the 1st quarter? 2ndly, I just wanted to come back on comment that the worst of the scarcity might be behind us. Is that a comment because demand has dropped away, or are you seeing more flow of products from SPR releases and other sort of alternative sources of molecules?
Okay. I don't want to comment the details of Q2, and we have different comparables because Q1 was strong last year and Q2 less strong and Q through Q3 even less. It's a little bit hard to compare quarter-on-quarter. What I'm saying is that from the very low level of January, February, the business came up and some of it was created demand because people want a little bit more safety stock, not extreme stock buildup, but you rather want a bit more if your prices come up. I would say at the moment we see activity that is better than the very low year-end, beginning of the year. That's as far as I can go at this stage because we want to, you know, comment Q2 on the whole quarter.
You know, end of March and onwards, no massive changes. Little bit up and down maybe in the order volume, but the comparable is slightly different. The percentages is nothing I'm gonna go up on. On the scarcity, the initial 2, 3 weeks very dynamic. People worrying. You know, people quoting to customers they don't normally have, which means you also take up. I wouldn't say that we see anything on demand at this stage, and it varies a bit with the regions. With Latin America and the U.S., we don't see a problem with demand. I would say it's moving sideways on demand. The market is finding their channels, so to say now.
We have the network in place, but I think it's settling and people understand that there won't be many ships of this type coming through, so we better look for something else. That starts to be priced in in the market. The people that have the product, they know that, "Okay, I'm the one with the product and the price is up," and it balances out. I think customer stock slight build up has probably flattened out now also.
David.
Understood. Thank you.
Thanks.
Our next question comes from Chetan Udeshi at JP Morgan. You may now unmute your line and ask your question. Thank you. Chetan, try star nine, star six for me to unmute. Perfect. Thank you.
Hello. Can you hear me?
Yes, we can hear you. Thank you.
Okay, cool. I just wanted to go back to your comment previously that you're not worried about your second quarter, but much more about second half. I mean, that would suggest that you have a very good visibility on second quarter if you're saying you're not so worried about second quarter. Yet I see a bit of hesitation on your side to guide to second quarter.
Yeah
Can you give us some color on how do you think we should be modeling second quarter? You did EUR 305 with EUR 350, EUR 370 in the right ballpark thinking about the second quarter EBITDA?
Yeah. You know, this is back to the tradition of the company and how we guide. I very hesitant to guide second quarter. I give an indication, you know, that the crisis is still there. We are handling it. We have pricing in control and deliveries in control. I try to give a qualitative flavor to you, but I don't wanna guide on the quarter level. I'm saying that between now and going forward, if this continues, if it stops today. If I discuss the topic with the big chemical companies, the big oil majors, the people that really understand the production footprint. Everyone I meet, they say that, you know, 100-200 days, 6-12 months, whatever. We work with the assumption that oil pricing would stay pretty high the rest of the year.
If it's a bit below EUR 100 or up at EUR 122, to rise up to EUR 120 during the summer. Depends who you speak with. We work with the assumption the whole year we'd have high oil prices. We don't expect at this moment that pricing on the energy side that would collapse and go south because as you know well, the U.S. Oil Reserve has been tapped into, et cetera. There might be more damage to upstream assets also in the Middle East. We work on the assumption that, you know, pricing might come down a bit, but that's not what I'm worried about. What I worry about is the end demand effect.
There I'm simply saying that I cannot assess if this will throw Europe into a different demand pattern or recession. We haven't seen anything of that in the U.S. I'm simply not the right person to forecast it. Since I have no order book or anything for second half year, we are very short order delivery business. I don't know. I just point out normal macroeconomics would indicate that there could be a demand destruction effect of that. Thomas and my approach with the forecast has been to say, "Okay, let's be a little bit careful on the run rates in the second half." We could be right, we could be wrong, but we have taken some depth, some height for it. Okay?
Got it. The second question I had was you mentioned that prices or some of the prices in China are starting to fall. You know, from your perspective in the past, you know, I would typically see China as a sort of a leading indicator of what happens in the rest of the world in terms of direction of price changes. Do you sort of agree with that view or do you think this is more isolated, sort of declines in China? Maybe this time is different, that you don't see the Chinese pressure spreading on to the rest of the world for whatever reason.
It's hard to say. You know, I'm only, like, seven, 8 months into this particular industry, even though I've been in adjacencies of it. I think China definitely has the, they understand their own supply chain. If they need whatever product for their own supply chain and production, they're gonna make sure it stays. That's what they have done. I definitely see China as maintaining the same export ambition. I think we will see that happening. We also need to remember that China needs the feedstock. The ambition is there, and there is a varying degree. Feedstock has probably improved a bit.
Without the feedstock, and also with feedstock that is massively more expensive at the moment, I see China at this stage not out full blast on export and going everywhere. It has an impact on competition in Latin America and Europe and other places at this stage, and it still has.
Understood. Thank you.
Thanks. Next question.
Ladies and gentlemen, if you would like to ask a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. You will receive a prompt to unmute, and once your name has been announced, please unmute your line and ask your question. Our next question comes from Suhasini Varanasi at Goldman Sachs. You may now unmute your line and ask your question. Thank you.
Hi. Good afternoon. Thank you for taking my questions. Two from me as well, please. Just on the quarter itself, I think it was interesting to see the operating EBITDA down actually a lot more in Essentials versus Specialties. Given that you actually saw more price increases in Essentials, it was perhaps a little bit surprising. Could you help us understand what happened there, and how should we think about the evolution in the next quarter? Secondly, I think you did have a slightly higher bonus accruals in the quarter in 1Q. Do you anticipate further step up in that bonus accruals number in second quarter as well? Thank you.
I will hand that over to Thomas. Just general. When this happening, more pricing actions happening on Essentials, on the Essentials side, and that's normal for this stage in turbulent times. The Specialties business, much slower, much more contracted, and also smaller volumes that are impacted. It will percolate through because at the end, they're impacted by roughly the same factors. Over to Thomas. Maybe Thomas you could take that question.
Yeah. I mean, obviously, when we talk about the EBITDA effects, actually, what we have seen is in January and February still the muted demand coming through, and that has actually as well been on the pricing environment. It's not only actually on the overall volume. You see an effect of that. Whilst this obviously has changed then in March in the Essentials space relatively quickly, and that trend, as Jens has pointed out, continues into the future. That's actually what you have seen in that space very much coming through, albeit, and that's what we have been talking about, some of the cost increases on the Essentials side happened as well already because of transport and energy costs actually going up in the first quarter, in the in basically March.
On that note, though, please remember that we are able to pass on these costs via fuel surcharges or actually on the pricing itself. Nevertheless, that has a technical effect onto our cost base in the Essentials space. On the Specialties side, as Jens pointed out, the effect on prices always takes a little bit longer to come through. There are some industry areas in which it does actually come through earlier, and some others where, like the nutrition space, where this actually takes even longer actually to come through. Nevertheless, we are seeing those effects coming through, albeit they are slower and not to the same extent that on the Essentials side, pricing increases actually came through already within March.
On the bonus accrual side, we're not giving explicit guidance what we're gonna do in the second quarter on that one. Obviously here, I think what is important to note is that compared to a scenario of the previous year, where the likelihood of fulfilling actually the targets was reduced because of the trends that we have been very much discussing over the whole course of the last year, we are now facing a situation in which the achievement of targets, and you see that obviously with us confirming the guidance as well, is much more likely. That's the consequence we have to then take into the cost base as well. We have to obviously earn those accrual spend as well on this, on the bonus accrual.
Thank you.
Thank you. Our final question today comes from Eric Wilmer at Kempen. Eric, you may now unmute your line and ask your question. Thank you.
Good afternoon. Can you hear me?
Yes, we can hear you.
Thank you. Thanks for taking my questions. I've got two as well. I was wondering, are you seeing a meaningful amount of your customers seeing the Middle East conflict as temporary, and as such, not ordering at current elevated prices? If so, could this support volumes in the next couple of months or weeks, when they just simply have to go back when they've depleted stock or maybe went past temporary shutdowns? Also a question on Latin America. I believe one of your bigger customer competitors has recently been under investigation due to a potential business with criminal organizations. To what extent could this be a doing for Brenntag, perhaps also beyond methanol, which I believe is in scope?
Actually, finally, if I may actually squeeze this one in as well, I believe you alluded to it briefly, but to what extent are you seeing arbitrage opportunity for polyethylene and polypropylene with global demand moving into your European and U.S. strongholds, perhaps away from Asia and Middle East, where you are under-indexed in the latter? Moving over to your over-indexed regions. Thank you.
Okay. We have seen a cautious attitude. I mean, we don't see any signs that this is stopping tomorrow. If it does stop tomorrow, we believe that the effects are, you know, it's not over the month after. We see a certain caution, and it varies. For example, in APAC, customers are cautious and they buy minimum amounts. In other places, we see people buy a little bit extra because it's simply not worth the risk. You have some betting going on where the prices will go up and down and some caution, and it's scattered and it differs. In Latin America, we've seen people buy. In APAC, we've seen people cautious.
In Europe, you're seeing mixed pictures depending on how much is dependent on the product and what they are buying. Then in the U.S., kind of more of a, yeah, normal behavior the demand is there. That's what I see. On the arbitrage, there are certainly. I'm not talking about those two particular product you mentioned because I don't have the insight into the interregional flows like that because we haven't done any arbitrage, new arbitrage business. We are focused on making sure we have supplies.
There might be opportunities on doing some of that, but it's not the big thing, the way we are set up at the moment because we have a couple of, say 2, 3 suppliers for some of these big commodities and we pick the best one, but availability has steered. But I'm sure there are some arbitrage opportunities, but I don't have specifics on that.
I mean, your last question on compliance, actually, which in terms of actually other players appearing to get actually into investigations.
All that-
We have none. That's the first thing. We obviously continue to focus on actually, compliance in general as well. We do have the right methodology in place. We'll do our utmost best actually not to get in such issues.
Yeah. You know, I'm really not a friend. There has been a lot of work in Brenntag to clean that up, and I haven't found any tendency since I came. If we find it, we are brutal on it, but we haven't found anything. I don't have any red flags or yellow flags in that area anywhere in the business. I read, I saw the article, the press clipping, and I don't see any tendencies in our company, and that's not how we work.
That's very helpful. Thanks, Jens and Thomas.
Sure.
Thank you. This concludes the Q&A session. I will now hand back to management for closing remarks. Thank you.
Thank you, Danny. This brings us at the end of the conference call. In case of further questions, please do not hesitate to contact us in the IR department. Our results for the second quarter of 2026 will be published on August the 12th. Now, ladies and gentlemen, thank you very much for joining us today. Have a good day, and goodbye.