Earnings Call: Q2 2021

Aug 10, 2021

Dear ladies and gentlemen, welcome to the Q2 2021 results call of FinTech SE. At our customer's request, this conference will be recorded. On your telephone for operator assistance. May I now hand you over to Mr. Thomas Altmann, Head of Investor Relations. Please go ahead. Thank you, Lisa. Good afternoon, ladies and gentlemen. On behalf of Brenntag SE, I would like to welcome you to the earnings call for the Q2 of 2021. On the call with me today are Doctor. Christian Kolbeissner, our CEO and Georg Muller, our CFO, who will take you through today's presentation. After the presentation, we are open for your questions. All relevant documents have been published this morning on our website at brentak.com under the section Investor Relations. In the same area, you will find the playback of this conference call later today. In this context, I would like to highlight that with this quarter, we will be providing a quarterly Excel spreadsheet with key financial figures for better reference, which you will also find in the IR section of our website. Before we begin, allow me to point you to our Safe Harbor statement, which you will find at the end of the Having said this, I will now hand over to our CEO, Doctor. Christian Kollpainter. Christian, the floor is yours. Well, thank you, Thomas, and good afternoon to everybody. As usual, I would like to start with the highlights of the Q2, and Georg will provide further details on the financials later. Brenntag achieved Excellent results in the Q2 of this year. We also continued our successful transformation path with Project Brenntag contributing to our strong performance. The group generated an operating gross profit of around €839,000,000 which on a constant currency basis is an increase of around 21% compared to the Q2 of 2020. Operating EBITDA developed extremely well and amounted to €355,000,000 On a constant currency basis, this is an increase of around 34% compared to the already Strong Q2 of last year. Free cash flow came in at EUR 121,500,000 And our earnings per share stood at €0.87 in the second quarter. We would like to emphasize that we are still operating in an exceptional market environment, And the business dynamics of the 1st month of 2021 continued also into the Q2. Global supply chains remained under severe pressure, impacting production and transportation worldwide, creating an increased tension between supply and demand. In addition, the COVID-nineteen situation continues to create uncertainty around the globe. In this environment, Brenntag was able to perform exceptionally well. We are very satisfied with this excellent quarterly results as they underline the strengths Of our new operating model with our 2 divisions Brandtag Essentials and Brandtag Specialties and are a proof point of the important part Brantag plays in the global chemicals distribution market. We were particularly delighted about the development of Brantag Specialties. The division achieved strong growth rates in all regions and almost all customer industries. Our focus industries, Nutrition and Materials Science performed exceptionally well. Also, we benefited from our good margin management in an environment of increased demand. Let me also emphasize here, the presented excellent figures of Q2 include no Substantial contribution from M and A as our larger acquisitions, Zhongbai Xinye and James Bank, had not been closed at that time. Both have only been closed over the last weeks. For the rest of this year, Brenntag is well positioned to cope with current conditions and to continue on its successful path. In June, we have increased our operating EBITDA guidance for 2021. We expect an operating EBITDA in a range of €1,160,000,000 to €1,260,000,000 which we confirm today. Also in June this year, we held our general shareholders meeting and paid a dividend of €1.35 per share to our investors. In the Q2, we continued our execution of Project BENTAG and are fully on track with the implementation of the various measures. I will provide further details on the status of Project Bemtak later on. In addition to our strong organic earnings growth, in the 2nd quarter, Brintag also pushed ahead with substantial acquisitions, fostering our focus industries. In the 2nd quarter, Brantag signed an agreement to acquire James Bank in North America And meanwhile, closed this acquisition beginning of August. Acquisition of Samez Frank is a major step for strengthening our specialties portfolio in North America. James Frank is a renowned player in the North American market and the distribution of food ingredients. The company generated approximately USD 500,000,000 in sales in 2020. This deal underlines Brintag's increased strategic focus on attractive high growth Food and Nutrition market. We are convinced that this market has an enormous potential globally. The acquisition will enable Brenntag to further expand its infrastructure and strengthen its geographic presence in North America. The The acquisition will enable significant growth in interesting market segments and products. JAG strength strengthens our position in the fields of meat, Poultry, fish, bakery and convenience food. With this acquisition, We doubled our size in the nutrition business in the region and become the leading food ingredients and food processed chemical distributor in North America with approximately US1 $1,000,000,000 in revenue. In the Q1, we already talked about our acquisition Another food ingredients specialist, Songbaixingya in mainland China. We have now successfully closed the acquisition of the first tranche of a maturity stake of 67% of the company. Also, this target perfectly fits our strategy of expanding our specialties In Asia Pacific and finding targets delivering a sizable operating EBITDA contribution. So far, we have spent around €450,000,000 on acquisitions this year. In general, we want to €200,000,000 to €250,000,000 on average on M and A per year. However, if major opportunities arise, We are willing to take decisive action as it was the case in the recent months. As mentioned at the beginning of this call, we currently do see extraordinary market conditions around the globe. The dynamics we already had to deal with in the Q1 continued into the Q2 of this year. You all know there's still some level of uncertainty around the further development of the COVID-nineteen pandemic. Many parts of the world have been successful in fighting against the pandemic, but it is still difficult to predict how the situation will develop going forward. Supply chain and global distribution channels are still under severe pressure due to the cumulative incidents we saw beginning of this year. In this difficult environment, product availability and prompt and reliable delivery were key for our success in the 2nd quarter And we're again highly valued by our customers, particularly as demand has been sequentially increasing in course this year. I will now hand over to Gerard, who will walk you through our financial performance in the Q2. Thanks, Christian, and good afternoon to all of you. I will speak about the key financial figures for the Q2 2021, I would start, as usual, with development of operating EBITDA. On Slide 7, you see the bridge of operating EBITDA from the second The Q2 last year amounted to €276,000,000 The translational foreign exchange effect amounted to a negative €12,000,000 And our acquisitions contributed €3,000,000 to the operating EBITDA growth in the quarter. Both divisions, Brandtag Essentials and Brandtag Specialties, achieved excellent organic growth rates in the 2nd quarter. Bantag Essentials reported organic operating EBITDA growth of €51,000,000 which is a growth rate of almost 30%. Brantag Specialties performed even stronger. The division We achieved an organic growth rate of 46%, adding €45,000,000 of organic operating EBITDA growth to our quarterly results. We finished the quarter with around €355,000,000 operating EBITDA, which is a very strong organic growth of 33%. Overall, we continue to benefit from good margin management and were able January high gross profit per unit. In addition, we saw volumes sequentially improving throughout the quarter. In Q2, both of our global divisions, Blendtec Essentials and Blendtec Specialties, delivered strong results. Let's have a look at our Bentac Essentials division on Slide 8. When talking about growth rates, We generally talk about FX adjusted gross rates. Bantag Essentials operating gross profit increased by about 16% year over year And amounted to around €523,000,000 Operating EBITDA reached €230,000,000 Around 29% above previous year. Let us have a look at the segments within Essentials. All segments contributed to this very positive performance with North America, in particular, making a significant contribution to the division's growth. Barentag Essentials benefited from good margin management and effects from increased tension between supply and demand. In addition, in North America, we recognize The general increase in demand and the broad based economic recovery also within the oil and gas industry. Gross profit per unit developed above prior year's level and supported a strong conversion ratio of around 44%. I'm coming to Brintag Specialties on Page 9. We are particularly pleased with the performance of Brintag Specialties. The division delivered excellent results in the Q2 2021. Brantac Specialties reported Operating gross profit of €309,000,000 This is an increase of around 30% compared to Q2 2020. Operating EBITDA rose by almost 50% and amounted to €144,000,000 All segments and all industries contributed to this excellent performance. Particularly, our focused industries, Nutrition and Material Science performed strongly in Q2. Due to the very strong comparables, other industries Such as pharma and HI and I, decline was stagnated compared to Q2 last year. We are also very satisfied with the conversion ratio of almost 47%. In summary, we are highly satisfied with the performance of Brantac Essentials and particularly Brantac Specialties. Both divisions contributed to the excellent OPO results. On the following slides 1011, we provide the full set of Figures for Bantac Essentials and Bantac Specialties as well as the figures for the regional segments in each division. I will move to Slide 12 and in our income statement on that slide, I particularly focus on the lines below operating EBITDA. In Q2, we reported special items amounting to an expense of around €18,000,000 These expenses are related to the execution of Project Brenntag. Depreciation amounted to around €65,000,000 about the same level as in the Q2 last year. Already advised you on an upcoming write off of parts of our IT infrastructure in our call in Q1. You've noticed the impact in the increase in amortization of intangible assets. In the second quarter, we reported an Expense of around €52,000,000 related to this item. So financial results amounted to a net expense of around €14,000,000 Finally, profit after tax came in at around €137,000,000 in Q2. Earnings per share rose by almost 9% to €0.87 compared to €0.80 in Q2 2020. Our free cash flow has developed solidly in the quarter. We report a free cash flow of €121,000,000 Compared to the extremely strong free cash flow in Q2 last year, The cash flow is now driven by the meaningful outflow of working capital resulting from higher chemical prices. Our net financial liabilities amount to around €1,700,000,000 at the end of the second quarter compared to around €1,300,000,000 at the end of last year. Our leverage, that is net debt to operating EBITDA, amounts to 1.4x. After the end of the Q2, we closed the acquisitions of Songweiss Pingje and J. S. Huang. Therefore, we paid the purchase price for these acquisitions only in the Q3. You will notice the impact on net debt and leverage at the end of Q3. And coming to working capital. Working capital amounted to €1,700,000,000 at the end of the 2nd quarter compared to €1,300,000,000 at the end of 2020. This is an increase of around €360,000,000 And it is mainly driven by higher spend for working capital due to higher chemical prices. We turned the working capital 8.6 times last quarter, and we continued on the high level we hold since beginning of this year. In summary, We are very satisfied with these excellent financial results. I hand the presentation back to Christian. Well, thank you, Georg. Ladies and gentlemen, I will now provide more details on the progress we made with regards to Project Brantac. In July, we successfully entered the next phase of our transformation program, focusing now on the ramp up of EBITDA uplift. In the first half of twenty twenty one, Project Brantag generated more than €40,000,000 of operating EBITDA, which is expected to ramp up to €220,000,000 annually by the year 2023. We made very good progress in the implementation of the different measures of Project Brintag and are fully on track regarding the overall project plan. We continue to transform our operating model with an increased focus on our customers and our suppliers' needs. We also continued to optimize our site network and already made significant progress And increasing customer proximity by closing 58 sites so far. Also, we have cut around 180 jobs worldwide. Further measures have been implemented, and monitoring is up and running. As Georg just mentioned, we were able to keep our working capital turn on a high level. Overall, we are delighted about the results we can report on Project Brenntag to date, which are exactly in line with our original plan. I already mentioned that we have achieved an operating EBITDA contribution of more than €40,000,000 from Project Braintag measures. On Slide 18, we provide the split between top line levers and bottom line levers. The top line levers contributed around €8,000,000 The bottom line levers are our go to market approach And the site work network optimization as well as our measures with regards to indirect procurement summing up to around €33,000,000 Ladies and gentlemen, also for the Q2 this year, we want to provide A brief update on our digitalization activities. With Brantac Connect, our global digital sales solutions channel, We offer over 10,000 products globally, and we see a significant increase in the number of active customers. We are continuously expanding the functionalities and reach of Brantac Connect. We are now active in 21 countries with our platform. With Project Brantag, we have embarked on a significant transformation journey, which also includes digital and IT. We recognized the increased speed at which the market is moving and developing. In addition, our new operating model brings changed requirements for our future digital business architecture on a global scale. We have developed multiple digital solutions and omnichannel models. We are currently working on our digital strategy for the coming years to service our customers best. This includes detailing our digital value creation roadmap and digital operating model to implement our future digital business architecture. We will provide an update on our digital transformation The outlook for the full year 2021. I would like to mention once again that we are currently operating in an exceptional market environment globally. Currently, it is difficult to predict how the COVID-nineteen pandemic will develop further. While we saw some successes in tackling the COVID-nineteen pandemic, primarily as a result of the progresses in vaccination, New virus mutations are confronting us with new hurdles. Also, global supply chains continue to be under severe pressure, And maintaining global trade and distribution channels remains a major challenge. In this environment, Brandtag has performed Very well so far. In this context, we have raised our full year 2021 guidance in June. We expect operating EBITDA to be in the range of €1,160,000,000 to €1,260,000,000 The updated guidance includes the uplift from the Project Brantag initiatives as well as contribution to earnings from acquisitions that have already been closed at the time of publication of the guidance announcement. Furthermore, it is based on the assumption that exchange rates will remain stable at the level of the publication date of this announcement. While 2021 is a year of transformation for Brantag, we do feel well positioned to continue on our successful path. Currently, due to the excellent capabilities of our organization, our results benefited from the exceptional market environment. We expect to continue to benefit from these circumstances and look positively into the second half. However, a sequential normalization in course of the Turning quarters should be expected. Overall, we expect our business and our results to be impacted positively. We will not only be prepared to adapt to a challenging and changing market environment, but also continue to focus on the implementation of the various measures of Project Brenntag. And with this, I would like to conclude the presentation. And now Georg and I are more than happy to answer your questions. Thank you. We will now begin our question and answer And our first question comes from Simona Surly, Bank of America. Please go ahead. Your line is now open. Yes. Good afternoon, gentlemen, and thank you very much for the presentation. So a couple of questions from my side. First of all, a clarification on your guidance And what are the underlying assumptions? So you mentioned during the presentation that so far, we are still seeing Quite sizable supply chain constraints and inventories remain tight. However, if we look at your guidance And the results that you reported at H1 results, so that implies Quite a sizable decline in the second half of the year in terms of conversion ratio. So if you could please clarify What are your underlying assumptions for the second half of the year? And then secondly, my question is regarding Project Brenntag. So in H1, you mentioned that you have reported a contribution of roughly €41,000,000 Should we expect sequential acceleration in the second half of the year in terms of contribution? Thank you. Simona, thanks a lot. I will take the second question on Project Brantag, and the first is going to Georg. Yes, Simona, hi, good afternoon. On the guidance, indeed, as you say, we do expect Positive business development in the second half of the year. So you explained in the presentation, we are looking positive into the future. But we are also saying that the current supply and demand engine that the current Strong market opportunities. While they still existed towards the end of the second quarter, we cannot be sure by any means that they will Continue in an unchanged manner towards the end of the year. So we would expect a gradual We were to normalization, but we cannot say nobody can say in current markets how quickly this will happen and To what degree it will be at Valapa. Maybe one further clarification to the guidance, even though you haven't specifically asked for it. The guidance spend of $1,160,000,000 to $1,260,000,000 includes the acquisitions that were closed when we issued the guidance. Meanwhile, we closed the acquisitions of Matrix, Songbai Xinggai and JM Swank. So that would come their contribution would come on top of guidance range. The second question about Project Brantag, Simone, is it's exactly as we have Communicated frequently. So the program is a 3 year program with a full Impact EUR 220,000,000 EBITDA uplift in the full year 2023. It is somehow front loaded. So that means we have savings in earlier than later in the program. And also we have said that also in 2021, looking at that year, that this is also more end loaded, so in the second half versus the first half. So I think it's pretty much in line what we have communicated to you. So our expectation is that we see A bigger impact in the second half compared to the first half with project Brantag execution. Thank you. And if I may, just a follow-up question. It's just related to prices and the gross profit per unit. Could you please comment what you have seen towards the end of Q2 and what you are seeing currently if you're starting to see prices rolling over? Thank you. Simona, it's Georg. So far, it's an unchanged dynamic in pricing. The supply and demand tangents did exist. Yes. So far still seeing pretty healthy levels on gross profit per tonne, Not really lower than what we have seen a few months back. Thank you. Our next question comes from Isha Sharma, Stifel. Please go ahead. Your line is now open. Good afternoon, gentlemen. Thank you for taking my questions. I have 3 if that's okay. Could you help us with the CapEx breakdown and the phasing of Project Rentag and ERP related investment that you talked about at the CMD. Will there be a step up next year given your guidance of just $260,000,000 this year? The second one would be, you have booked special items expense related to Project Brenntag of around €75,000,000 so far. Is your one off cost guidance of €370,000,000 still valid? And how should we think of the phasing here as well, please? And the last one then on the free cash flow, you know that it was a bit weak in the first half due to a number of one off effects. How should we expect this to develop in the second half? Michel, thanks for the questions. I'll go ahead and if Christian wants to add anything, I'm sure he will jump in. So our Onetime cash out guidance related to project Brenntag for EUR 360,000,000,000, apologies, €320,000,000 through the life of the program holds. There is no change to that number, Which also implies that there is no change to the expense number, mostly severance and some consultancy, and there is no change To the CapEx number. Timing, really difficult. It depends on the workers' council negotiation where we have made Significant progress in some countries over the last quarter. So I would now expect the severance payments and severance Expenses to ramp up in either in probably in the second half of this year, but maybe to a degree First up next year. CapEx timing, I beg your pardon. It's really difficult because CapEx is mostly related To our site network optimization, we are heavily working on this. We have identified a number of new sites. We are in Development and planning stage, but the exact timing will also depend on regulatory requirements and approvals, And we can only partly influence that. See, the important point from our perspective is the €320,000,000 onetime cash out For the life of the project holds. Right. I thought it was 370,000,000. Apologies. I misspoke. You're right. Right. And just the breakup for this year then, is it $200,000,000 growth CapEx and then the rest related to Project Rentag or is it ERP just for the for 2021, if you could put some color on that, please? We apologies. We really don't know at this stage because it depends on the site network optimization progress. We have reduced this year's CapEx guidance from 320 to 260 Indicating those delays, but I can't really give any further split at this stage. Thank you very much. Sure. Our next question comes from ryesh Kumar at HSBC. Please go ahead. Your line is now open. Hi, good afternoon. The first question is on Project Brenntag. Can you give us some non financial update in this project Brenntag is affecting in the In terms of client engagement, portfolio optimization and positioning of the portfolio for future That's the first one. 2nd one is how inflation affects The business model and how does it differ between Essentials and Specialty? I would love to hear your thoughts On that, if you could also give us some context in terms of the order of magnitude of inflation you're seeing on Input price, freight, labor, while you answer that question might help us get it. It doesn't have to be the precise numbers, but just So that we understand how what are the type of numbers you're dealing with that would really help. And Kurt, how much of the project Brenntag cost savings are you thinking of reinvesting as we go through 2022 and As we go through 2022 and 2023. Yes. Thank you very much, Rajiv, for the questions, I will take the first and the third one concerning Project Brantag. I asked Gjoerg to talk a little bit about inflation, but also And later on what we see in the markets right now. On the non financial impacts, I mean, the core and the key of our Project Brenntag topic is, of course, The new operating model and showing clearly that our focus on specialties and our focus on industrial chemicals With a differentiated steering approach is actually creating more value for our customers and for Brantac. And I think when I'm talking to our key suppliers and key customers, which I do on a weekly basis, they really value that approach, Giving that transparency, showing the clear dedication in both directions, being it either specialties or essentials, Also splitting the sales organization into specialized sellers for specialties or for industrial chemicals It's of course creating a lot of more focus on particularly on the focus industries we have created and this is Actually creating a lot of credibility with our suppliers and once they have understood what is the model and in which direction we want to drive it towards. Also the site network optimization is reducing an immense amount of complexity out of the organization. And indeed, we have done all those simulations. We are coming actually closer to our customers with a reduced network and a more Efficient network, which again helps us in our agility in supplying to our customers and maintaining supply also in Difficult situation. So that has all been, I must say, quite well managed. Also, I would say for our people, many, many feedback or multiple feedback receiving that people like kind of specialization, in particular, on the seller side, where they can really focus on depending on the nature, more on the specialties or on the industrial chemical side. So unleashing A lot of power, engagement and motivation, I have to say. On the business services, which is also another important topic, We need to modernize the company in that sense, having global business services implemented, making sure that we draw on the most cost effective business Allowing the divisions to make a plug and play in those business services is for us of utmost the criticality, And we are currently in full swing to create those global organizations, being at the Global Finance Organization, being at the Global IT Organization, being at the Global Procurement or the Global HR organization. So I would say overall, a lot of upbeat in the organization towards Project Brenntag. Of course, also seeing the challenges we are having in getting the headcount reductions, getting the operating model stable and running forward. But overall, non financially, I must say, I'm quite pleased with the progress we are making. Cost savings, again, we are not the third question you had On the cost savings, how much of Project Brantag savings are we going to reinvest? I think it's absolutely clear this is for us the bottom line Impact majorly as we have outlined in the Capital Market Update, and we want to bring back the full EBITDA uplift of €220,000,000 which we promised To our owners and to the financial markets, so there is no change from that numbers and no change from the time horizon and no change from the magnitude and the dimension. And the second question about inflation, I refer to Georg. Richard, hi, it's Georg. Perspective on inflation. And we are talking obviously cost inflation, not chemical price inflation. Chemical price inflation, the organization is very experienced, Very educated in handling it, and we are handling chemical price inflation mostly through our top line through passing it on To the market. When it comes to cost inflation, you might remember from earlier conversations that roughly 50% of our cost base is personnel, roughly 40% of our cost base is other expenses. We do see Peer had inflation in personnel expenses, which is kind of significant, but it's actually driven by variable compensation through the excellent Gross profit results. So in that sense, it's well manageable, and it's a self correcting item Because it's basically the variable compensation is mostly tied to gross profit generation of the organization. The non personal expenses, so say 40% of our cost base, are a broad range of items. The most significant items being fuel and energy and external transportation. And Fuel and energy and external transportation, to give a perspective, make up close to 40% of the non personnel Expenses. And we do see inflation there of 10%, if not more than 10% per unit. Mind you, the actual expense increases in transportation and fuel are higher because we are also turning additional volumes. But you were specifically asking for what's the inflation element. How do we handle it? Professional negotiation with freight forwarders, indirect Procurement initiatives, utilizing our network to the best possible extent, But also rolling it over into the market. And currently, the market permits to roll over because it's an inflation item that not only hits Brantac, But it hits all of our competitors like us. I hope that helps with a little bit of a perspective. So that's reasonably comprehensive. Just a couple of clarifications, if I may. So does it Differ for specialty versus fall because the specialty chemicals there would say that The inflation in that space in the product side, you can hold on in the future. Do you see that Kind of effect in your business as well or the specialty business would move like the pulp business Depending on the input price. I would say But I'm also inviting Christian to comment. I would say there was generally in terms of cost inflation And how to handle it, no major difference between Essentials and Specialties. With the additional common set logistics cost, To a degree, more relevant in essentials than in specialties. In that sense, essentially more affected by the Current transportation and fuel and energy inflationary environment. And I would also say, in general, I mean, your assessment is right. So I think the industrial chemicals side, so the essential side is much more Exposed to volatility on the pricing side, in particular when it comes to magnitude and frequency of the swings, which is Less expressed in specialties, that's pretty clear. So overall, I think there's a differentiation. But on the other hand, we have examples like in specialty chemicals where Also price inflationary or increases in costs have been substantial because lack of material was driving the prices up to some extent. So it's a mixed bag of things, not a clear cut, black and white answer. Understood. That's very clear. On your first answer, if I may, my apologies, it's going on and on. I just want to clarify one point you made about Supplier relationship, you said that the suppliers are feeling they are seeing clarity of your strategy. And if you look at the Specialty Chemical Industry, you see quite a lot of growth comes from expanding with existing supplier. Do you think You are throwing the seed for such growth in the future now? Or has it always been there and it has just become Clearer going forward. First of all, we expect it. I mean, that's The reason why we are actually doing project Brantag and have created those 2 divisions, when I draw on my experience on the manufacturing side Before I joined Chemical Distribution, I think it was always important for me when I work with distributors that basically their Set up their strategy and their organization followed what I needed to have as a supplier so that this distributor can really replicate my strategies. I believe with Project Brantag and with the new operating model, we built a lot of credibility for that topic. And we see numerous discussions Specialty suppliers who want to strengthen that relationship, in particular, after they have seen that also in very, very difficult situations, Brenntag was able to supply. So I think what you described in receiving that for Brenntag is correct. Has it been always been there? Yes, of course, it has been there. But now we're prepared To really harvest and draw on that. Thank you very much. And our next question comes from Christian Ulz, Baader Bank. I have 3. One is just a question concerning the others line. So you reported EUR 11,000,000 In the first two quarters last year, this year it's 14% then going to 20%. Can you give us some kind of the main drivers here and Your expected run rate, average run rate going forward for the next 2 years maybe? The second one is a very speculative one in the end. Going forward, is there any possibility to separate these 2 items, essential and specialties, as independent companies more to say? Or is the interconnections Within these companies, when it comes to IT, financing and shared service centers, this is so much that you cannot really separate these Two things. And the third and last one is a little bit about Brenntag Connect, your digital strategy. I heard that you were talking about that you will say or talk about more details in 2022. Nevertheless, can you give us some kind of an update what is the total Sales numbers through your IT network, can you give us a range of conversion rates you are really achieving there? And last but not least on this item, who develops this strategy going forward? Is this Mainly internally or is it mainly within external partners? Thank you very much. I think Georg should answer the question on the other lines, and I will talk about the 2 other Topics. And so maybe Georg wants to start, so I can start. It doesn't really matter. Christian, welcome back. I know you covered Bantag before. Now we have you back. Yes, that's right. Other line, It's mostly headquarter and partly digitalization cost. What is the increase there? The increase is mostly there. Some variable compensation effects from the currently excellent result. Some Consultancy projects, outside project Brantag, some digitalization costs and also Staffing of some departments where Brantag was kind of underdeveloped before, like for example, A much more professional HR function than we had it before. So that's the mix of explanations for the increase in the others line. One rate, maybe Q2 this year is a little high because of the consultancy, but I would think about a number not Too far, not much lower than this year's Q2. Coming to the question 23. So again, talking about essentials and specialties, We have just implemented the new operating model beginning of this year. So we have now created the transparency. We're actually steering The business is in a differentiated way. Basically, we have very positive feedback from our suppliers and customers So in the market, nevertheless, it is very clear that there's a lot of shared services, if you want to call it that way, Used by both division. 1 is, for instance, the customer service desk, which is uniform because this is where the customer is actually Interacting with, and we want to keep it as simple as possible for the customers receiving one invoice and receiving one Order confirmation and these kind of things. We also have the Global Business Services, which are serving both divisions highly Efficient, at least according to our plans, once we have established them and brought them in. And also, we want to draw on the broader talent We have in project Brenntag across the 2 divisions. So it is, for us, the right moment to have that operating model Established and showing those 2 divisions and also steering them in a differentiated way. And we believe And keeping them together is an advantage for Brantag. As far as Brantag Connect is concerned, Still the sales levels are on a low number. So I think you see the trajectory. We're still talking Of numbers which are in the 3 digit million size, but not in a huge number, which is quite normal, I must say, because You see the ramp up quarter by quarter as this is developing. In our investor calls, I always explain to them it always takes 2 to tango. So you We also need to have customers who are willing to enter on to the platform and doing business there. And the chemical industry overall is a very traditional industry where it's sometimes Not moving as quickly, and you know that pretty well, is not moving as quickly as possible as one once in a while, but at least we have the platforms there. We are developing now the digital strategy going forward. We brought the competence into the board with Ivar van Jarl, our Chief Transformation Officer, It brings an in-depth knowledge about how to develop digital sales platforms. And here, of course, we will develop strongly with internal Resources, we had and have the Brenntag DGB organization focusing on our digital side. And based on some input we receive, of course, also from outside views, we will drive and develop that strategy over the next 6 months. And once it is clear, as I said, beginning of 2022, we will come back to you and give you a granular view of how we intend to tackle that NMO. Okay. Thank you very much. You're welcome. Our next question comes from Dominik Everage at Deutsche Bank. Please go ahead. Your line is now open. Hi, there. Thanks so much for taking the question. Just 4 and hopefully that will be fairly Quick. The first one is just on your fill rates at the moment. Are you basically around about 100% in terms Fulfilling customer orders. And could you just sort of maybe talk about how that's moved over the last few quarters, if you could? The second one was on your gross margin. I think it's up about 2.4% since the first half of twenty nineteen. I think about so about 2% if you adjust for the project Brantag savings that you've disclosed today. Could you just say, would you regard all of that as due to the current market conditions and can therefore reverse if market conditions Sort of maybe go back more towards normal again? Or are there any other structural changes that you would highlight that's happened over the last couple of years? The third one was a comment I saw in the quarterly reports on Project Brenntag, where you talk about needing to upgrade some of your Technology and Infrastructure. Could you just maybe discuss what needs to be upgraded for you to go on to the next steps? And then the last question was just on staff. I'm just wondering if you've seen much change in terms of staff turnover. I know you've had Some redundancies, but maybe on the voluntary side. And also, I did notice in the report, there's been quite a big shift of employee numbers from essentials to specialty. Is that just a presentational change? Or is that a sort of a functional change? Thanks so much. Thanks a lot for the question. The first one I didn't get fully. Maybe you can ask it at the end again. I need I fully understand what the question was exactly. Now on the gross margin, I think Georg is well positioned to say a few words about this one. But nevertheless, what is the normalization? And we debate See internally also quite heavily in saying, okay, what does normalization mean? And That comes back to me to the question of, 1st of all, with which speed and how quickly that will happen and then what is the level Of, let's say, a new normal or a never normal. So this is currently, I must say, very difficult to predict. As long as the Supply demand side is so far out of balance as it is right now. I do not expect that that normalization will kick in very, very quickly. But again, nobody knows how the world will look like in 2, 3, 4 months down the road. Typically also in the industrial chemical side, volatility It can be quite dramatic in a short period of time. And we need to recognize that this normalization will take place, But to which degree of our gross margin expansion this will normalize, it's hard or almost impossible to read Clearly predict. On the technology or infrastructure, this is more referring to what we have said in the past. We are willing To invest also in our IT architecture and our IT infrastructure, again, we are running now the company in global divisions. That requires, of course, a very concise setup when it comes to your IT systems, going away from a more regional View on the IT systems, stronger global view in running this global company. So this is more or less related to that infrastructure When it comes to technology, also on the data side and putting data at the center of our Considerations will be part of our digital strategy going forward. On the staff turnover and on the redundancies, Brenntag should not be underestimated. Typically, we have about 17,000 employees globally. We have an annual turnover It's around 2,000. So 2,000 people come and go within 12 months in Brenntag. This is a very normal number, which we have seen since years. And this is not changing at all substantially from that numbers we have seen also in previous years. So that Shows you of how big fluctuations there are anyhow. When it comes to key people, which we monitor very, very closely, I must say the people we have lost on key decisions making levels is actually less than 2%. So it's a very small number of people, which are changing places and work for somewhere else. So this is the questions I had here. I think you had 2 more, Dominique. Could you repeat them again? And then I will Sure. No. Apologies for not being very clear. It was just a question about your fill rates in terms of filling your client orders or customer orders. What sort of level is that running at? Are you able to do everything at the moment? Or are you suffering from some product shortages? Otherwise, If I ordered some products from you, would there be any products in certain locations which are unable to fulfill at the moment? And how has that sort of moved through the course of the quarter and maybe since the start of the year? Let me take that question. In chemical distribution, From your preferred chemical distributor, you would, in principle, expect every order to be filled. So the norm in our industry, in our business is we fill all the orders. We are not too far away from that. There are supply and demand tension temporarily in certain products. And sometimes we cannot fill orders Completely. But for existing customers, it's very rare, almost unheard of that we completely turn a customer down. Occasionally, if you are as a distributor on allocation yourself, you put customers on allocation, so you part fill orders. So that's not unusual. The dynamic of the thing hasn't changed much. So there is still supply and demand tension, And it will take a while in our expectation until this is sorted out. I think you had a further question on, If I got it correctly on gross profit margin, you observed an increase in gross profit margin over time. And I assume by that you mean gross Profit divided by sales. It's frankly a KPI we don't focus much on because it commingles 2 things, The underlying chemical price inflation and our pricing power, actually, I would say, if you observe an increased Gross profit margin currently, keep in mind, it's a higher percentage on a higher base. So the actual gross profit per unit develops even stronger And what you see in the gross profit margin. You were asking why is that, and it's a mix of items That delivers a very strong gross profit per unit. It's general market, supply demand tension. So if you have products available, if you have From supplier network, if you have transportation capabilities, the market gives us the opportunity currently to price up. If Cost inflation rolled over. That's the market commits. But it's also a constant improvement of business mix. And it is through project Brantag initiatives to optimize pricing, particularly to weed out Pricing inefficiencies we had in past. I hope that gives some flavor. That's all very clear. And thank you very much and both of you for your time. Our next question comes from Chetan Udeshi at JPMorgan. Please go ahead. Your line is now open. Yes, hi. So first question is, it's great to see some further progress on Project Brintac, but What I'm struggling with is to see the benefit on actual P and L. Where do I see the benefit? Because On one hand, you guys are talking about 450 job cuts. But on the other hand, when I look at your P and L and Personnel expenses in 2Q, they are up almost 9% year on year. I mean, of course, there is some FX benefit there, so maybe on a constant currency basis, it's even higher. So can you explain why the personnel expenses don't reflect The job reductions that you guys are talking about, that's 1. And second is, I'm Curious why is the organic growth in specialty chemicals higher or specialty or whatever Specialties business higher than essentials because I would have thought the GP per unit uplift in theory should be higher Part of your business then specialty. So can you maybe comment a bit on why the growth in specialties is so much higher in 2nd quarters and commodity part? Thank you. Chetan, hi, Georg, with respect to the P and L question. So indeed, as one can follow from the The numbers, we do have the reduction in FTEs. We do see it to a degree in the P and L Already, but it's compensated, if not overcompensated through strong variable compensation. So the per head cost Currently goes up. But that's as explained in a different context earlier, we don't see that as an issue because it's directly linked to gross profit, and gross profit It's very, very strong currently. And the second part of the answer is it's a timing issue. It will be clearly more visible in the second half of When it comes to the organic growth in specialties, it's higher than in Essentials. I think it has been, as I said before, the operating model and our focus on the specialty side It's, of course, indeed fostering and stimulating a lot of interest from key suppliers and key customers. So I think we have made good progress there. Overall, The growth, as you have seen it in Q1 and in Q2 also, when you look overall on the margin, other players in that field has been higher also in specialties. So there is a sequential increase in growth rates from Q1 into Q2. Also sometimes in specialties, You see also a sort of a lag, a time lag until pricing, gross profit, margin management is fully kicking in. So I think you have always that kind of different out of sync behavior between essentials And specialties. And overall, I mean, this is what we have said. From an underlying standpoint of view, We expect medium to long term anyhow specialty is growing faster than essential. So I think for us, it's I must say this quarter It's not really a surprise that we see is maybe the magnitude as specialties has outgrown Essentials is a little bit unusual, But nothing where we are overly concerned. Thank you. And maybe if I follow-up on the recent acquisition of J. M. Swank. Can you give us some because it's a bit sizable than what in terms of the size of the acquisition bigger than what you guys normally do. Can you give us some color on what margins are they making? Is there a scope for synergies for you guys in terms of cost or Top line, it seems from the EV that maybe the multiple is higher than what you guys normally pay. So I'm just wondering if you can give us some color on How should we think about the earnings and potential? Yes. I think I have frequently talked about How I see the M and A pipeline and our focus on the M and A pipeline being Skewed more towards 3 dimensions. 1 is choosing the right focus industry, and that was, of course, fully nutrition, a perfect match. Then talking about geography. I mean, North America is, of course, not Asia Pacific or an emerging market, but nevertheless, North America, a key market for us. And certainly about looking for targets which are adding or sizable, let's say, so that They have a meaningful EBITDA contribution compared to, I would say, the many, many small and small list acquisitions Brenntag has done in the past. So James Swank and also Tom Baixinha, they basically fulfill these criteria very well. And again, for us, Strategically, creating basically one of the largest or even the largest distributor in that field in North America It is a key strategic movement. And based on what we have paid for that asset, I must say it has been an excellent Precision and quite interesting also from a multiple standpoint of view even if this is slightly higher than we typically would have done in the past. Thank you. Our next question comes from Suhasini Barnardhi of Goldman Sachs. Please go ahead. Your line is now open. Hi, good afternoon. Thanks for taking my questions. Just a couple, please, on the M and A side of things. It's very helpful to see that You've mentioned the guidance on EBITDA does not include the M and A that was announced after you did the guidance raise in June. But can you help us understand, maybe give us some color on what the annualized EBITDA contribution would be from the 3 days that you did after the guidance raise in June, what would that contribute on an annualized basis? And secondly, just on the M and A pipeline, How should we be thinking about future M and A? Is the M and A pipeline looking solid still? Should we expect further M and A in second half of the year? Or given the activity levels which have been elevated so far this year, maybe it's we should now look at it only from 2022 onwards? Thank you. Thanks a lot for the question. I think Georg will answer the question on the M and A annualized EBITDA impact, and I will talk about the pipeline afterwards. Yes, so Arseny, good afternoon. It's Georg. And the contribution, the EBITDA contribution from these 3 acquisitions this year. So from the closing end of July, beginning of August until end of this year, Should be around €20,000,000 give or take a few, depending on how fast we are in integrating and generating synergies. If you think about next year's full year number, you can basically annualize those 20 and add An expectation on synergies and growth? Yes. And on the pipeline on the future M and A, I think our pattern is still quite nicely filled. I think I've said it also previously, we are actively working on always having a constant and interesting pipeline because some things materialize, some don't. So I think it will not go down to 0 in the second half. This is not my expectation. Will it have the same magnitude as in the first half? I probably would doubt it. But I think we're constantly looking for good targets. And if they're good and affordable and they make sense With our disciplined approach, we certainly will look into them. Thank you. And our next question comes from Matteo Cataldi, Exane BNP. Please go ahead. Your line is now open. Good afternoon and congratulations on the nice quarter. Most of my questions have already been answered. I have just one left on the guidance. I was wondering to what extent our recovery in oil and gas is part of the reason. I think you were assuming no recovery in your previous guidance, but it's locked out Good development in Q2 in your presentation. Thank you very much. Mathieu, hi, it's Kjerg. I'm not sure I really got The core of the question, we do not expect a further recovery or strengthening of some market circumstances in the guidance. We do expect Some gradual return to normalization, but maybe I misunderstood the question. Okay. No, that was the question in line and yes. Thank you. Our next question comes from Isha Sharma, Stifel. Please go ahead. Your line is now open. Thank you for the opportunity again. I just wanted to ask you on the On the specialties, the 50 bps improvement quarter over quarter, is it purely driven by the increase in gross profit or Are there other underlying factors and how should we think about it going forward? Secondly, if the market conditions do not ease into the second half as you expect, how should we think of the seasonality? Would you which should we still assume certain So the H2 to be a little bit lower than H1? Or is it possible that the seasonality goes out of the window just because the supply chains remain as tight through the year? Yes. I think, again, I'll take maybe the second question, Isha. And thanks for asking that. No, it could well be that those favorable market conditions, as I said before, can be maintained or stay longer with us Than we thought. And that, of course, is something which Braintag can play quite well and Obviously, would be positive for us. Talking to some of our key suppliers and maybe answering your question about Seasonality, we have, for instance, one big supplier in the Materials Science business where they are clearly saying, we are still not out of Our force majeure topics we had in the beginning of the year in North America, I'm still not able to supply fully to the market. This will last well into Q4 for me and again speaking about this key supplier. And then my seasonality Starts because typically I'm in a business which is picking up in Q1. So the lack of capability of building inventories is huge. And so from that perspective, there could be pockets, there could be industry segments, there could be product groups, where let's say that out of balance Client demand scenario will maintain longer, and there could be places where this is normalizing much faster. So I think again, no black and white answer here. Again, we are navigating carefully through that, and it's hard to predict really How quickly and how far that will normalize? Georg, maybe you talk about There's a question on H1, H2 seasonality. So if there were no change in market circumstances, if there were no underlying business trends, if I try to isolate So pure seasonality of the business, then you would typically expect the second half of the year to be marginally weaker, 1, 2 percentage points weaker Then the first half of the year, and that's mostly summer holidays and Christmas. There is no inherent seasonality in the business really. Right. And the question on specialties improvement in conversion ratio? What you see in the numbers currently is mostly gross profit driven in specialties, which is in turn Volume driven, business mix driven, gross profit per tonne driven. But specialties Does benefit already and will benefit even further from the efficiency measures in project Brenntag. So to a degree, you will see improvement in the specialties results also on the cost side. That's very helpful. Thank you for the generous time. Thank you so much. Thank you, And we have not received further questions. I will hand back to the speakers. Well, I think with that, I close the Q2 call. Thanks for your attention and for the interesting questions you asked, and Looking forward to further interactions when you report on Q3 and where we stand with our transformation program and overall in our performance. So thank you very much, and All the best to you. Bye bye. Ladies and gentlemen, thank you for your attendance. This conference has been concluded. You may disconnect.