Brenntag Se

I would like to remind you that all participants will be in listen-only mode and the conference being recorded. The presentation will be followed by a question and answer session. If you would like to ask a question from the webinar, you may click the Q&A button on the left side of your screen and then click raise your hand button. If you are connected via phone, please press star followed by one on your telephone keypad. For operator assistance, please press operator assistance button on the bottom left side on your screen or star zero on the telephone. At this time, it's my pleasure to hand over to Thomas Altmann, Senior Vice President, Corporate Investor Relations. Please go ahead.

Thank you, Sergen. Good afternoon, ladies and gentlemen, and welcome to the earnings call for the full year 2024. On the call with me today are our CEO, Dr. Christian Kohlfein, and our CFO, Dr. Christine Neumann. They will walk you through today's presentation, which is followed by a Q&A session. We are also joined today by Thomas Heysen, who will assume the CFO role as of April 1st and who will shortly introduce himself. Our relevant documents have been published this morning on our website and can be found at brandhack.com in the investor relations section. In that same area, you will also find a replay of today's call. Before we begin, allow me to point you to the safe harbor statement, which you will find at the end of the slide deck. With that, I will hand over to our CEO, Christian, over to you.

Yes, sir. Thank you, Thomas, and good afternoon, ladies and gentlemen. Before we start talking about current affairs and the details of our business performance last year, I also warmly welcome Thomas Wright, who is joining us in this call today. Thomas is a well-respected interculturally executive, and with his experience in corporate transformation, he is an excellent addition to our management team. Thomas, thanks a lot for being here.

Thank you, Christian, for this kind introduction. I truly appreciate the opportunity to join this call today, even ahead of officially stepping into my new role next month. Ladies and gentlemen, I'm excited to briefly introduce myself to you. My name is Thomas Reisman. I will take over the position as CFO of Brenntag SE as of April 1st this year. Currently, we are in the transition phase, and I have already started to make myself familiar with topics I'm going to be responsible for soon. I've had extensive experience in financial leadership, most recently as Chief Financial Officer and member of the Management Board of Vantage Towers. There, I was deeply involved in the company's carve-out from the Vodafone organization, its successful IPO, and later its transition through private equity ownership and elisting. Prior to that, I spent many years with the Vodafone Group, holding senior financial leadership positions across multiple markets, including the UK, Germany, Ireland, Romania, India, and Japan. I would like to express my sincere gratitude to the supervisory board of RENTAG SE and also to Christian Kohlheimer, as CEO of RENTAG, for the trust they have placed into me. RENTAG is a company with very strong financial formation of the company and create long-term value. My experience in high-performing finance, supply chain, corporate development, M&A, and strategy organizations will be key in supporting BrandTag's continued success. I'm eager to officially take over the role as CFO of BrandTag and engage with many of you in more detail. Thank you again for the warm welcome. Christian, back to you.

Yes, thank you, Thomas, and I will now start with the highlights of 2024, followed by a strategy update, and Christine will then walk you through the details of our financial performance. Multiple geopolitical challenges, general uncertainties, and the lack of consumer confidence impacted the economic development and community markets we are serving experienced an extended bottoming out of the industry cycle. As a consequence, industrial chemical selling prices remained strongly under pressure. Sales for the full year amounted to 16.2 billion euros on group level, which is 3% below the prior year. Despite these challenges, we kept our operating gross profit stable at 4.03 billion euros. On group level, volumes continued to show sequential improvements since the beginning of the year as predicted. However, gross profit per unit declines substantially compared to 2023 on group level with distinct developments in both divisions. At the same time, our gross profit as percentage of sales increased slightly compared to last year, which indicates that we managed gross profit to our advantage despite the strong pressure from industrial chemical selling prices. This again proves the resilience of our business model. As indicated by our stable absolute operating gross profit on a year-on-year comparison, higher volumes compensated the lower gross profit per unit margins. Due to higher volume-driven costs and inflationary impacts, we achieved an overall lower bottom line result. Our operating EBIT A amounted to 1.1 billion euros, meeting the guidance provided in August at the lower end. This is a decline of around 13% year over year. We generated a strong free cash flow of 893 million euros. Nevertheless, this compares to the exceptionally high free cash flow of 1.7 billion euros in 2023 which was characterized by substantial release of working capital due to declining chemical prices during the destocking cycle. Earnings per share stood at €3.71 compared to €4.73 last year. Our earnings per share were also impacted by the sale of Rajpetro specialties in India to improve our business portfolio and other special items which Christine will elaborate on in detail in the financial section. As we always strive to create shareholder value and to let our shareholders participate in the successful performance of Brandtag, we have decided to propose a stable dividend of €2.10 to the annual general meeting in May. Subject to approval of the AGM, Brandtag has maintained or increased the dividend payout now for the 14th time in a row. We are doing this based on our resilient cash generation, our strong balance sheet, and our confidence in the future performance of our company. Let me say a few words on the outlook for 2025. Last year was characterized by sequential volume improvements, predominantly driven by Brandtag essentials. However, the highly competitive business environment in which industrial chemical selling prices remained under pressure impacted our gross profit per unit and eventually our bottom line results. For 2025, we expect continued moderate improvements in volumes throughout the year and a slightly better sequential pricing environment in 2025, which should result in an improved gross profit per unit compared to 2024. At the same time, the economic and political uncertainty remains very high and global economic growth is expected to remain subdued. Therefore, we expect an operating EBIT A for the full year 2025 in the range of 1.1 to 1.3 billion euros. Before we have a more detailed look at our full year results, I would like to talk about our strategic achievements in 2024. We have been working intensively on the execution of our divisional strategies, which we presented to you at our Capital Markets Day in 2023, and we made good progress. We continue to execute the targeted disentanglement of our two divisions in areas with the highest value creation and differentiation potential. At the same time, we are prudently managing our cost base and are executing our cost containment measures while focusing on running our business. We have reiterated frequently that Brandtac Specialties is focusing on improving its performance through a combination of short-term and long-term levers. We initiated several short-term margin management initiatives in 2024, which already led to optimized pricing and purchasing structures. We saw meaningful improvements in gross profit per unit in the second half of 2024 compared to the first half. And you also see this momentum continuing into 2025. This is encouraging. At the same time, we also continued our longer-term measures like optimizing our business portfolio and specialties in multiple dimensions. This includes business mix refinements, the review of our geographical setup, as well as further leveraging our global industry segment and upgrading our strategic supplier management. Here we were able to score important additions to our supplier portfolio. In total, we have gained more than 25 new authorizations in the last year, some of which are top of the pyramid additions. We are confident that we are moving in the right direction here And this is also confirmed by very positive feedback from our supply partners. In Brandeis Essentials, we are executing our triple strategy, focusing especially on our last-mile service operations. We created around 100 LMSOs globally and are currently implementing the new steering structure through the standardized KPIs. We also continue to optimize our global site network and close 33 locations in 2024. Further shutdown measures are in progress or in the preparation phase. In our essential business, we also focus on optimizing our business portfolio. We sold Rajpetro Specialties in India, a non-core asset of Branta. We decided to sell the business since we do not intend to run a highly volatile business with fluctuating margins and substantial manufacturing assets, which require a different focus compared to a distribution business. The sale leads to an overall loss of around 63 million euros, which has already been accrued in 2024 by the vast majority, and which is recognized as special items below operating EBITDA and amortization. We also made good progress in terms of M&A, On the one hand, strengthening our industry segments in specialties, and on the other hand, driving our triple strategy in essentials. In total, we have closed eight acquisitions with an enterprise value of around 550 million euros in 2024. Two of those acquisitions were already signed in 2023. Orientech Specialties closed three acquisitions. We acquired Chemgrid in South Africa, and Lawrence industry in the UK, improving our footprint and technology portfolio material science. We also acquired PIC and Pharma Special in Brazil, expanding Brandac's life science business in one of the largest global markets for personal care and pharma products. Within Brandac Essentials, we closed five acquisitions in 2024. These include the two major transactions of Solventis in Belgium and Química Delta in Mexico, which both added to our strategy by providing access to toll gates through marine terminals. M&A remains a key strategic pillar for us and an enabler of future growth. Let me also briefly talk about our sustainability achievements. We are proud that our innovative CO2 Explorer won the ICES Best Digital Innovation Award 2024. The tool allows companies to assess and manage their carbon footprint more effectively and to calculate CO2 emissions across the entire supply chain. Our CO2 Explorer is well accepted by the user community, already supporting several thousand business partners' engagements. Furthermore, in 2024, BRATAC fully reviewed and adapted its climate change mitigation targets, which now cover Scope 1, Scope 2, and Scope 3 emissions. This change was necessary to meet the requirements of the Science-Based Target Initiative, SPTI. All targets were successfully validated by the SPTI at the beginning of 2025. This target confirmation cements our commitment and market leadership in sustainability. Last but not least, we also increased our score in the comprehensive EcoValues Sustainability Assessment and have been again awarded with the highest possible platinum rating. These are just some of our many sustainability achievements which clearly demonstrate Brandtac's leading role in our industry. Let me now hand over to Christine. who will elaborate on our cost containment program and our DIDEX initiatives before talking about our financial results in more detail. Christine.

Thank you, Christian. Let us take a closer look at our cost containment program, which we introduced in the context of our Capital Markets Day 2023, and which includes the expected benefits from our DIDEX initiatives. With our cost containment program, we aim to achieve a cost reduction of 300 million euros per year by 2027 compared to the base year 2023. To achieve these benefits, we also outlined the amount of one-off costs we expect to incur over the planning period. Initially, this was a range of 450 to 650 million euros to achieve the disentanglement of our two divisions and our cost takeout program. In the course of 2024, we reduced this number to 300 million euros of one-off costs related to the targeted disentanglement and to achieve our cost of program. Around two-thirds of the 300 million euros, so around 200 million euros, will be related to our cost containment measures. Overall, these costs will be shown as special items below operating EBIT-A. In addition, we announced 250 million euros of one-off costs to implement our DIDEX initiative and for our ERP harmonization. The majority of these costs are included in our general OPEX line and therefore included in operating EBIT A. A smaller amount is associated to CAPEX. The cost of program is in full execution and is already contributing positively to our underlying cost development, reducing our cost base by slightly more than 50 million euros in 2024. The executed measures include, among others, the organic reduction of around 230 headcounts in 2024, which was largely carried out towards the end of the year and helped to mitigate inflation-related increases in personal expenses. Also, as part of our site network optimization measures, we successfully closed 33 locations last year. Looking at 2025, The targeted cost out impact is roughly double the amount of 2024. And we have a clear plan to achieve the communicated 300 million annual cost out effect by 2027. The actual one-off costs incurred to achieve our cost containment measures and the targeted disentanglement amount to around 50 million euros in 2024. And for 2025, we intend to spend around 100 million euros where of the vast majority is linked to our cost-out program. Our direct initiatives are well on track and will contribute to achieve the intended cost take-out and efficiency measures as part of our €300 million savings program. In the course of last year, we incurred one-off costs to implement our direct initiatives of around €60 million, and for 2025, we aim to spend around €40 to €50 million. Alongside these one-time DIDEX investments, we have been incurring some running costs like licensing costs, which will of course continue in the future, which have not been part of our 250 million euros one-time cost protection. For 2025, we expect these running costs to be more or less on the same level as for 2024. The one-time costs to achieve our cost IOT and DIDEX measures are generally more front-end loaded, until gradually reduced over time. The benefits of our initiatives are gradually increasing over time with a stronger impact towards the end of the project phase as soon as all measures are implemented. Naturally, in the starting years, the costs outweigh the benefits. With this, I would like to switch to our financial performance in the full year 2024. I will start with the development of our operating EBIT A on group level. As a reminder, when talking about growth rates, we generally talk about FX-adjusted rates. In 2023, we reported an operating EBIT A of 1.265 billion euros. The translational foreign exchange effect in 2024 had a negative impact of 5 million euros. Acquisitions contributed 31 million euros to the operating EBIT A development. 2024, we reported an operating EBIT A of 1.1 billion euros for the whole group, which is 13% below the prior year figure. Organically operating EBIT A declined by 189 million euros compared to 2023. The EBIT-A conversion ratio for the group came in at 27% compared to a conversion ratio of 31% in the prior year. Our results were overall characterized by a continuously challenging market environment and intense competition, which put pressure on industrial chemical selling prices. As expected, volumes were higher compared to 2023. These higher volumes were in fact able to compensate for a lower gross profit per unit, which emphasizes the resilience of our business model. However, in combination with higher volume and inflation-driven costs, this led to a lower overall bottom line inside year over year. Let me briefly talk about our Q4 development. By looking at our operating gross profit, the trends we observed in Q3 broadly continued into the fourth quarter. We saw a positive volume development compared to the prior year period. At the same time, our gross profit per unit declined year over year. However, we were able to stabilize gross profit per unit on group level compared to Q3 on a sequential basis. From a cost perspective, we saw a meaningful cost increase compared to Q4 2023. This is mainly driven by higher volumes, additional costs from acquisitions, as well as general inflation, which were partly counterbalanced by our cost-out measures and lower variable personal expenses. Additionally, the fourth quarter of 2023 benefited from one-time income effects, residing in a more challenging year-over-year comparison. This resulted in an operating EBIT A of 264 million euros in the fourth quarter 2024, which is 9% below the prior year quarter. For further details on the Q4 financials, please refer to the appendix of this presentation. Let us now have a look at our two divisions, starting with vendor specialties. Fintech specialties reported an operating gross profit of 1.2 billion euros, which is around 1% lower compared to 2023. The gross profit margin in relation to sales stood at 22.4%, which is slightly higher compared to the prior year. The results were affected by stable volumes in combination with a slightly lower gross profit per unit compared to the prior year. Operating expenses for planter specialties increased year over year. Around one-third of the increase is related to exhibitions. On an organic basis, the increase was mainly driven by inflation-related increases in certain and other operating expenses, as well as the internal allocation of further costs in connection with our DIDEX initiatives. These are costs from prior years, which had previously remained in group and regional services, or formerly known as all other segments. and were charged on this year when various digital products went into operation. As a result, operating EBIT A declined by 12% and reached 447 million euros. The segment life science reported a year-on-year operating EBIT A decline of 9%, whereas the operating EBIT A in material science declined by 8%. Our life science segment showed a positive trajectory within 2024, and operating EBITDA increased by 3% in the fourth quarter compared to Q4 2023, which is encouraging. Material science remained challenging throughout the year. The EBITDA conversion ratio for Brentac specialties was 38% and below the prior year level of 43%. Let us have a look at the gross profit performance of our business units within the segment. In our life science segment, the business unit nutrition almost reached the prior year results, whereas pharma failed in 2024. Beauty and care showed growth throughout the year. Nutrition experienced ongoing price pressure of non-branded ingredients, leading to operating gross profit slightly below the prior year level, mainly driven by our North American business. However, you also saw strong gross profit per unit momentum toward the end of the year, with double-digit gross profit per unit growth in Q4 compared to the prior year period. UT&K was the strongest business unit throughout the year, with operating gross profit growth mainly coming from EMEA and APEC, and driven by both, organic and MOA contribution. Similar to our BU nutrition, we saw double-digit gross profit per unit growth in Q4 compared to the prior year period, which is encouraging going into 2025. In pharma, our operating gross profit was made under pressure in 2024. The operating gross profit in material science was slightly lower compared to 2023. Although we saw slight improvements in case of construction in the course of 2024, our overall results are still impacted by the high interest rate environment, which keeps housing construction and public investment at lower levels. When looking at the performance of Brettach Specialties in the fourth quarter, we saw meaningful improvements in our gross profit per unit compared to the prior year period, and also compared to the first half of the year, reflecting our various margin initiatives, which Christian highlighted in the strategy section and which we focused on last year. Coming to the performance of RENDAG Essentials. RENDAG Essentials reported an operating gross profit of 2.9 billion euros, which is stable compared to 2023. The gross profit margin in relation to sales stood at 25.9%, which is slightly higher compared to the prior year, reflecting our ability to manage margins in a challenging business environment. In 2024, we saw the strongest market normalization in industrial chemical selling prices in a long time, but we were able to partly mitigate the impact on gross profit per unit level, which also shows the resilience of our business model and our strong market position. All our segments in Brandeis Essentials achieved a positive volume development. APEX even achieved double-digit volume growth compared to last year. This volume development was able to offset the lower gross profit per unit, leading to a stable absolute gross profit for the division. Operating expenses for Brandeis Essentials increased year over year, but more than half is related to our acquisitions. On an organic basis, the increase was mainly driven by inflationary effects, volume-related increases in transportation costs, and the internal allocation of further costs in connection with our direct initiatives. These are costs from prior years, which had previously remained in group and regional services, or formerly known as all other segments, and were charged on this year when various strategic products went into operation. Operating EBIT A of Grendak Essentials stood at 781 million euros. This is 14% below last year. The EBIT A conversion ratio for the division came in at around 27% compared to 32% in 2023. Let me briefly comment on the performance of Grendak Essentials in the fourth quarter of 2024 compared to the prior year period. On the one hand, we saw a continuation of volume improvements in all our segments. On the other hand, the sustained pressure on industrial chemical selling prices led to a lower gross profit per unit. Moving to slide 11, where we look at the income statement in more detail, we generated sales of 16.2 billion euros, a decline of 3%. Our operating gross profit stood at 4.03 billion euros and was more or less stable compared to last year. We were able to expand our gross profit over sales margin, which indicates that we are managing our gross profit per unit to our advantage, despite the heavy pressure from selling prices in the market. Operating expenses, excluding special items, increased moderately and stood at 2.6 billion euros in 2024, up 4.7% compared to the prior year. I will talk about our cost development in more detail in a minute, but let us first continue with the income statement. We reported an operating EBIT A of 1.1 billion euros. Special items below operating EBIT A had a negative impact of 111 million euros. This includes a negative effect of 42 million euros from the initiated sale of Rajpetro specialties in India, which is related to valuation allowances on property, plant and equipment, and networking capital. It also includes costs for our strategic projects in the amount of 50 million euros, which are mainly related to severance and advisory expenses, and which will help to achieve the desired cost reduction targets and drive our disentanglement efforts. Furthermore, The incurred expenses for legal risk mainly arising from the sale of TARG and similar products in North America in the amount of 43 million euros. Positive one-time income in the amount of 11 million euros resulted from lower than expected tax liabilities for excise tax risk in Sweden. We also booked an income of 15 million euros for insurance payments in the connection with fires at their houses in Canada and Turkey, which occurred in 2023. Depreciation and amortization amounted to 430 million euros and were significantly higher compared to last year. The increase in depreciation is partly related to our acquisitions. The increase in amortization is mainly driven by our large divestment. Net finance costs stood at 173 million euros compared to 120 million euros last year. The increase is to a larger degree driven by higher net financial liabilities and changes in purchase price obligations relating to acquisitions. Our performance translated into a profit after tax of 544 million euros and earnings per share of 3 euros and 71 cents. This compares to the prior year profit after tax of 721 million euros and earnings per share of 4 euros and 73 cents last year. To provide more clarity on the development of our operating expenses, we show an OPEX bridge on slide 12. In 2023, we reported operating expenses of 2.46 billion euros. The translational foreign exchange effect in 2024 had a positive impact of around 5 million euros. Operating expenses related to additional costs from acquired companies and our strategic investments in direct and IT increased by around 90 million euros, with the majority of the increase coming from acquisitions. Our underlying costs only increased by around 50 million euros. The increase is mainly related to higher personnel expenses, which are driven by wage inflation, partly counterbalanced by reduction of variable personnel expenses. Furthermore, both personnel expenses and other operating expenses increased due to higher volumes compared to the prior year. In addition, the 2023 cost base was, amongst others, positively impacted by one-off effects, which did not occur in 2024. Overall, these effects led to a cost increase of around 50 million euros compared to last year. Our cost out measures, which had a positive impact of slightly more than 50 million euros, could partly offset this development. As a result, Operating expenses for the group stood at 2.57 billion euros in 2024. We will continue to focus on our cost development with strict discipline. Switching to page 13. In 2024, we generated a free cash flow of 893 million euros. This is below the exceptionally high number of 1.7 billion euros last year. The decline in free cash flow generation is next to the decline in operating average VA driven by movements in all working capital. But we generated a cash inflow from working capital in 2023 driven by significant price effects. Rentak recorded a slight outflow of working capital in 2024. Our working capital turnover was higher compared to last year and stood at 7.6 times. The increase reflects our initiatives to manage our wealth capital more effectively compared to the prior year. Let me briefly touch upon our value creation metric, ROCI. For 2024, the ROCI stood at 14%, which compares to a ROCI of 17.7% in 2023. Our ROCI before special items came in at 15.6% and was below the prior year figure of 18.9%. Looking at our balance sheet, our net financial liabilities amounted to 2.8 billion euros in 2024. The increase compared to the end of 2023 is primarily driven by lower cash from operations, as well as the cash outflow for acquisitions, in particular, Cervantes and Kinecta Delta. In addition, these liabilities were higher compared to the end of last year, also partly driven by these two acquisitions. Our leverage ratio net debt to operating EBITDA stood at 1.9 times. Before Christian will talk about the outlook, I'd like to take a moment to say goodbye. You know that I decided not to prolong my contract with Brentac, and at the end of the month, I will be leaving Brentac and handing over to Thomas Weissmann. I want to thank you for the valuable exchanges over the past three years and for your continued interest in the development of our company. It has been a pleasure engaging with you and I truly appreciate your support. Thank you and all the best for you. And with this, I would like to head back to Christian to talk about the outlook for 2025.

Yes, thank you, Christine. Ladies and gentlemen, Last year was characterized by sequential volume improvements across the business. However, the highly competitive business environment in which industrial chemical selling prices remained under pressure impacted our gross profit per unit and lastly our bottom line results. For 2025, we expect continued moderate improvements in volumes throughout the year and a slightly better sequential pricing environment in 2025 it should result in an improved gross profit per unit compared to 2024. At the same time, the economic and political uncertainty remains very high, and global economic growth is expected to remain subdued. Therefore, we expect an operating EBITDA for the full year 2025 in the range of 1.1 to 1.3 billion euro. Our forecast takes into account the contributions to earnings from acquisitions already closed, and assumes that exchange rates will remain stable on the level at the time of the results publication. We fully focus to execute our strategic plan. Our priorities are to further improve the company's operational performance and to execute our growth strategy along the clearly laid out strategy to win And to leverage our existing setup as one brand tag with two differentiated divisions, serving the distinct needs of our customers and suppliers, supported by a lean joint services background. With this, I would like to close the presentation now and thank all of you for participating in today's call. And we are now looking forward to your questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question from the webinar may click the button on the left side of the screen and then click the raise your hand button. If you are connected via phone, please press star followed by one on your telephone keypad. You will hear a tone to confirm that you have entered the queue. if you wish to move yourself from the question queue you may press the lower your hand button from the webinar or press star and two in your telephone anyone who has a question make you up now the first question comes from line of car lorraine's fault from berenberg please go ahead well hello everyone um thanks for taking my questions i've got three if i may um the first is just following on from your comments on outlook christian it seems volumes are strong through 2024

and price looks to stabilize to an extent in Q4. So how should we think about the price and volume mix through 2025? And it would also be useful to understand your thoughts on the phasing of that throughout the year. Because I know you said in the past that there may be a possibility of pricing as a lever for growth in the second half more than the first. The second question, would you be able to call out sort of the – I know you've done this to an extent, Kristen, but would you be able to call out the positive or negative dynamics you've seen at the start of this year specifically in your specific end markets? especially in the context of the political uncertainty both in the US and globally. And further, are there sort of end markets or geographies that you see as particularly depressed right now, which you think could or perhaps are recovering well throughout 2025? And then just lastly, on the cost doubt, how should we think about that this year versus the just over 50 million in 2024? And again, if possible, the phasing by quarter better be useful. Thank you.

Hey Carl, thanks a lot for the questions. The third questions I refer to Christine coming to your first question on the volumes and pricing development. I mean, as we have said and predicted, by the way, for 2024, we saw sequential improvement in the volume. This is our prediction as we go into 2025 as well, a slight sequential improvement in volumes, not to the extent we saw in 2024, but still a positive trend The same is true also for the pricing environment. Also, sequentially, we have made good progress over the year 2024, particularly in the second half versus first half. And that momentum sequentially appears to hold up. And so that is what brings us to the guidance we have shown and the framework around it. And it's not that this is end loaded in 2025 second half. I think it is a sequential improvement quarter by quarter as we go into the year. On the positive and negative dynamics, when we're looking into the start of the year, of course, we saw already encouraging signs in our life science business in Q4. We see continuing this also into the first quarter of 2025 in specialties or life sciences. Indeed, I would say the positive we see at this moment. On the negative side, we need to be clearly watch out, you know, what kind of impacts do we see by the tariff situation and the impact it will have, not only our direct business, but of course, the secondary and tertiary effects we can foresee. Regional split in our presence in the regions, however, is protecting our business to some extent against this because the vast majority we sell in a region like in the United States, we also source locally and regionally in the same region. But it could open up also some arbitrage opportunities which our setup can now play and can have a look at it. too early to tell how that plays out. Every day is a new thing. Every day there's a new announcement, so let's wait and see how that plays out. But this is how we see currently the situation. When you ask for, you know, where's the most potential for recovery, this is only a potential, hard to predict. Could be, of course, a truce or a peace treaty with Ukraine and Russia and at least temporarily moderated wars between Ukraine and Russia, plus, and you know, all the discussions around the German stimulus pact that they are working out, if that is materializing, that can also have some positive impacts on Europe as a recovering geography, but let's wait and see how that plays out politically and with the negotiations. Then I would hand over to Christine to give you more flavor on your question here.

Thank you, Christian, and good afternoon, Karl. So in 2024, we achieved slightly more than 15 million of benefits for our cost-out program. We plan and we target to double this amount in 2025. And if you ask about the phasing, so there will be a substantial increase across the year. of the additional savings, which would give you a good guidance.

Perfect. Thank you both very much. Just a follow-up quick question, if I may. Maybe this is a better way to ask it. The dynamics you're seeing regarding the relationship between order frequency and order size, is that any different at the start of this year versus Q4? I'm trying to get a gauge of customer confidence as got any better in the past two and a half months versus what you saw at the end of last year?

I think there's no pattern recognizable for us. I think customers are cautious. It's very clear that, you know, given how the market is currently developing and, as I said, the political uncertainty and also geopolitical uncertainty is adding to that. but it's not that there's a material either pre-buying or pre-loading or whatever observable. We didn't see that in Q4, contrary maybe to some industry comments you have. If that were not from distribution but from manufacturing, that's what we could not observe. But, of course, everybody is now cautious around how does it play out, what impact does it have on tariffs. And so I would consider this is neither very negative nor positive. I think it is just the normal course of business in times of uncertainty.

Perfect. Thank you very much.

You're welcome.

The next question comes from Zini Varanasi from Goldman Sachs. Please go ahead.

Hi, good morning. Good afternoon, brother. Thank you for taking my questions. Can you maybe discuss what are your underlying assumptions on essentials versus specialties growth within your EBITDA guidance for the full year? and what would get you to the lower end versus the upper end of your EBITDA range. The second question is on the 1Q commentary, I think you mentioned that life sciences has continued to do well in 1Q. Can you comment on essentials as well? And how should we think about GP and EBITDA in 1Q versus fourth quarter? Should it be sequentially up? Thank you.

Thank you so much for your questions. And coming back to our assumptions, particularly what we are seeing. So we do expect a progression in both divisions going forward into 2025. As you rightly mentioned, there is currently, at least what we observe in Q4, but also continuing into Q1, a positive development in our life science part of the specialties business. And that is, you know, continuing, I would say, for the moment. And Christine has commented on the performance of nutrition, of beauty and care. So I think these are pretty good segments which are performing quite well. When we look at, you know, what we – see at the lower end and what could happen at the lower end of the guidance, it is, of course, continued pressure on pricing and margin in essentials and a weaker than anticipated volume growth. And this is, at this moment, very opaque to us and very difficult to assess. When talking to our supply partners, we also hear cautionary notes on the business development and in particular on the demand side. So this could lead to a answering your question on the lower end, an impact on the essential side. On the upper end, you know, should be there, as I described before, clarity around the Ukraine-Russian war, should be clarity around stimulus packages in Europe, should be clarity around increased spending in defense in Europe. That could be indeed, you know, a stronger volume growth, including also pricing power plus arbitrage opportunities here and there out of the terrace, which we can see. So that would be the upper end of the guidance to give you a little bit of flavor, what needs to come together to define a little bit this range. So overall, I would say at this moment, we are positive on the specialty side, in particular in life science, and for essentials, we see currently a lot of undefined variables, depending on how the political environment and geopolitical situation really was.

I understand. Thank you very much.

Okay.

The next question comes from the line of Alex Stewart from Barclays.

Please go ahead. Good afternoon. Thank you. A couple of questions. In your statement, the document, you called out higher transport costs. as being one of the reasons why EBITDA was lower. I think you called it higher volume related transport costs. Can you just explain that? Because I was under the impression that transport costs were effectively passed through to the end customer. So I'm not quite sure why higher costs would have impacted your earnings. Secondly, You talked about having a lower bonus provision in 2024. Assuming you hit the midpoint of your guidance in 2025, what should we assume for a normal bonus provision in 2025? In other words, what's the impact year on year? And then finally, going back to your statement, the other thing I found curious is that you talk about CP per unit pressure and specialties for more competition. that you don't put that sentence in the essentials commentary. The competitive pressure increasing is only included in specialties. Why is it that you're seeing more competition on GP per unit in specialties than you are in essentials? Thank you so much.

Alex, I will take the last question and the first two I would refer to Christine. I think it would be a misunderstanding that cross-profit baton pressure on specialties is only coming from competition. I think what we try to describe or explain is that we saw declining gross profit per ton in specialties in the full year, 2024 versus 2023. But sequentially, we saw a step-by-step improvement, in particular in the lifestyle sector. So to clarify that topic, gross profit per ton pressure on essentials was less pronounced in the second half compared to the first half as well. And this is why we didn't mention it specifically. So I hope that clarifies that. On the other two questions, I would refer now to Christine to give you a response.

Hi, Alex. So for the full year, we said that we had higher transport costs in our OPEX lines. They are volume driven and come on top with higher volumes as a nature of the business. However, if you look at the combination with our GP, as Christine just described, and GP per tonne, we had tremendous pressure on our GP per tonne or GP per unit numbers. And therefore, that was more or less than the problem creating that together with higher OPEX costs that the overall result went down. If you look at the bonuses for 2025, it's fair to say that you have to add low to mid-size to digit million amount in terms of bonuses.

Sorry, a low two-digit million amount. Was that pretty terrifying?

A low to mid-size two-digit million amount.

Thank you. The next question comes from line of Dominic Edwidge from Deutsche Bank. Please go ahead.

Hi there, everyone. Christine, thanks so much for everything over the last few years, and good luck for whatever you're up to in the future. Just some questions for myself. Firstly, just after the weekly one we had last year, I'm just wondering if you could say, are you expecting a much more normal year in terms of the phasing of profitability, or should we expect some of the things, for instance, cost savings, to come through towards the end of the year versus the start of the year? Secondly, I didn't notice in the annual report it suggested that in Germany your revenue was down 18%. which I know revenues are very bad indicator for your business. It seems a lot worse in other countries. Could you maybe discuss that a little bit? Is there any particular issues in Germany or does it just imply there's much more of a cyclical business in Germany? And then lastly, Christian, maybe a question for you. What are the key goals this year for you before obviously you're retiring at the end of the year? What are your sort of key things that you would like to get done this year? Thank you very much.

Yeah, I will probably answer the first and the second, the first and the third question on the phasing. I would expect in 2025 not an unusual phasing of results. So typically we have a Q1 and then, you know, two strong quarters, Q2, Q3, and then Q4. So I would not expect that seasonality to change, as again, say, in the absence of any major geopolitical impact we might have. If, again, you know, some of those positive assumptions materialize, like peace in Ukraine, Russia, and a stimulus package in Europe, then, of course, you know, business development could be slightly different than usual. But I would not expect that this is, you know, changing in 2025 compared to previous patterns we have seen in those years. Overall, I would say from the savings standpoint of you, we have a running program which is lowering the run rate month by month as we go into the year. So I also would not see a massive back-end loaded saving. So as this is in full swing, we add month by month the savings into our run rate. So this is what I expect, that this is also end-loaded. So I'm refraining from saying everything will be great in second half. I'm just saying sequential improvement is what we expect with a normalized pattern for the year quarter by quarter. What do I want to accomplish is pretty clear. First of all, I want to make sure that we have a smooth transition from Christine to Thomas on the CFO domain. It's very, very important that we show continuity and that we also now have Thomas on board with the new management team. Then we need to make sure also, and I know that the supervisory board is very carefully looking into a succession plan, that this is also as smooth as possible and the handover for a new incoming CEO will be done very properly. And then, of course, making sure that the cost program is designed and set up in a way that the costs actually are really taken out according to our plan. So rhythm and rigor and drumbeat to get the cost position in line, what we need to have going forward. And at the end of the day is what I want to continue and want to deliver. It's nothing exciting. It's just continuation, stability, clarity for our organization and for the external world and our business partner. That is at this moment the most important.

And then Dominik, the last one outstanding, the decrease in revenues in Germany by 18%. So it's a mixture of different things. First of all, as in all other countries, also the decrease in chemical prices, which was quite substantial, as you also already described. Then we had a lack of demand in Germany. And on top, also in Germany, our trans-regional business is located. That is not included in the overall regional business. You could see here in EMEA, but that is disclosed in a separate bucket, and that is also located and reported in Germany, and that is also a major driver of that. I hope that's out.

Okay, great. Thank you very much.

You're welcome.

The next question comes from the line of Ceyhan Odishi from JP Morgan. Please go ahead.

Hi, thanks for taking my questions. The first question was maybe can you help us with any color on what you are expecting for Q1? Typically, if I look at the last five to six years, Q1 tends to be slightly higher than Q4 in terms of EBITDA, maybe 2%, 3%, 4%, 5%. Is that something you expect in Q1? Is it stronger? Is it lower than that? I think that would be The first question. The second question was, I'm a bit confused about what is the expectation around OPEX this year because, you know, on one hand, you are talking about savings, but then you also have bonus accruals, plus I guess you have wage inflation. So any color on how you see the organic and total OPEX development this year? And third question was, Can you remind us how much M&A contribution do you expect this year from the acquisitions you've already done last year? And fourthly, you know, I heard, Christian, you talk about double-digit GP per unit increase in your beauty, and I think it was in nutrition as well. And, of course, it's good to see that improvement. Again, going back to those discussions we've had in the past, I mean, this sort of moves in GP per unit in this product segment, one would usually associate these sort of moves with commodity businesses. I'm just curious what is driving these double-digit increases in the GP per unit for these segments. Thank you.

Jitendra, thank you so much for your questions. I will take the first one and most likely the fourth one, the last one. On, as I said previously to Dominic, you know, I don't expect any major difference on the phasing and the quarterly developments in the absence of any geopolitical shock or any, not a shock, but maybe a positive upset which could materialize. So I would expect we can rely on a similar quarterly pattern as we had it over the last five, six years. On the life science topic, you know, we talked about good improvement on the gross profit per ton in Q4. And that is, I think, the encouraging element we see. I would say there are a couple of reasons for it. One of it is the price and margin management we have put into place in 2024 and improving our pricing structures and also how we are supporting the pricing and margin by our supply and supply contracts. And also, we have gained 25 new authorizations, which are quite attractive. from the portfolio which we are marketing and selling, fully in line of what I described as long-term measure specialties needs to realize, that means upgrading the portfolio quality, which will also lead to improve in the gross profit per unit margins going forward. So those are the moving parts on that side. And with the expectations on cost and the M&A contribution, I will hand over to Christine.

Hi, Chetan. So first of all, MOA contribution, you can expect to have a low to mid two-digit million amount of additional contribution from our MOA activities already closed last year. In terms of OPEX, you are absolutely right, there are a lot of moving parts. However, if I summarize that, All in all, we will see a low single digit percentage increase in our overall OPEX. While the other OPEX go slightly down, or will be slightly down, our OPEX will increase. If you look at it organically, then our cost position should be flat across the full year. I hope that's clarified.

Thank you very much, and good luck, Christine, and thanks for all the help.

Thank you.

As a reminder, for questions from the webinar, please click the Q&A button on the left side of the screen, and then click the Raise Your Hand button. The next question comes from Nicole Mannion from UBS. Please go ahead.

Hi, good afternoon, everybody. Just one follow-up question, please, on the class space and the moving parts there into 2025. Just looking at the numbers, it seems other operating expenses has obviously been a big driver of the margin pressure you've seen in the last couple of years. I'm looking especially at the development in advisory and audit, which I know does include some other IT costs too. But in absolute terms, that's tracking in the mid-200s compared to 50, 60 million a few years back. I just wanted to ask specifically what is in there that you expect to be sticky for DIDEX and other initiatives, and then what costs if any, are in that line that I guess we should expect to be stopping, i.e. is there anything that's sort of cost off as well as sort of cost out? Thank you.

Nicole, thank you so much for your question. I think I'll hand it over to Christine to at least give a sample. Maybe because you were a little bit hard to understand, if you can repeat some of the question would be good, because I don't know, maybe I hope it's not on our end, but it was a little bit difficult to understand here in this room.

Sorry, I can try and ask again. Let me know if you can hear me a little bit better. Yeah. Okay, great. Sorry about that. It was specifically about the other operating line and within that the development and advisory and audit, which I know includes some other IT costs too. But I was just asking sort of what's kind of sticky in that line maybe for Didex and other initiatives. And then what costs are in there, if any, that we should expect to be sort of stopping, i.e. is there anything that's cost off as well as just the cost out?

Thanks. Okay. Nicole, thank you. That was much clearer. I think Christine will answer those questions on the other side.

Thank you. First of all, of course, in the advisory costs included in the year-end reporting, There are the part of the direct cost included, for sure. That is not advisory in the NSN. It's really help from external partners to implement everything what we want to achieve with our DIDEX program. So, for instance, if you want to implement Salesforce, then you need the help of an integrator who just helps us to implement the program. Also in the advisory expenses, and therefore we also see an increase, we have advisory expenses for our project for the disentanglement. This is reported on below the line, and that is something which we do not foresee to that large extent to continue next year. So if you look at the direct cost as already disclosed, we would see a slightly lower amount of costs for next year, while the running costs stay at the same level. And if we refer also to the costs which are associated with our cost-out program and the disentanglement which is reported below the line, then you can expect to see an amount of 100 million for us. I hope that .

Yeah, that's very clear. I'm sorry about the slight issue with the line. Thank you. All good. All good.

All good. I think it's on our end.

The next question comes from from Badabank. Please go ahead.

Thank you, and good afternoon. Just one question concerning the possible divestments. Do you have an asset paid for sale here? Can you give us some kind of an indication what that is? And going forward, so we have discussed over the last two years that you might divest a little bit more going forward. And so how is the portfolio evolving there? And what can we expect maybe in the next 12 to 24 months when it comes to divestment? And what is the framework for underlying earnings or profit expectations to lift a company or a part of a company into this kind of SSL for sale. Thank you.

Christian, thank you very much. I think what you can expect is not a wave of now huge divestments. I mean, this would be misleading. What we are doing is similar to what we acquire. We have smaller businesses which we are now looking at and saying, okay, do they really fit to what we want to do as a distribution company? Do they fit to our business model? What are the expectations going forward? So the organization is currently looking into that. It's a healthily filled pipeline with a lot of smaller divestitures, to be very explicit. which we are contemplating on. And also, you know, here and there are geographical corrections where we're saying, okay, this could be smaller countries where we are exiting. So don't expect now a massive wave of divestitures. This is not the intent, but it's in cleaning up the portfolio and step-by-step improving it and having it very focused on what the purpose of a distribution company is. So that's what it is.

Okay. Thank you for that. And maybe another question. It's concerning... possible impact of AI going forward. So your colleagues have put a lot of effort in improving the underlying IT for your entire business framework and network. Have you found out so far considered something which might increase the scalability of your business maybe in a timeframe also from 12 to 24 months with these new features maybe?

Yeah, I think, Christian, we have talked about DILEX and the artificial intelligence algorithms. We probably have not put so prominently in front of it as maybe others have been doing, but that's an essential part of DILEX. I'll just name one example, which is the customer growth engine. It's an important module where we are reducing our churn rate. I think we have a little bit talked in the past, but also optimization capabilities now in the customer service and how we are executing our order fulfillment and order delivery. So I think there are multiple dimensions where this is working and playing into that. So here we will benefit from the DX investments, which we've done in the past. We're making our data accessible and usable for the various applications. So this is part of our growth expectations going forward that these initiatives will, of course, deliver according to our plans.

Yes, I heard that we talked about that before. So going back, maybe another part of the question, so going back a little bit, Are you a little bit surprised of what can be done going forward, or are you a little bit disappointed that not so much can be done with these features?

I think I believe there's much more potential which we currently can harvest, and the reason is we are from an IT infrastructure position to really do that. I think we're making good progress in doing that. Still, I believe we know the impact can be much bigger going forward. It's too early to tell what additional we can expect. But as I said, we need to make sure that we are in a position and capable of really harvesting those artificial intelligence impacts on our business. And I think we are on a very good trajectory. This is part of the large investments we have been taking over the last years to prepare us for that. So in that sense, I feel ourselves quite well prepared. And despite the high cost we, of course, have created by that, but I think we are quite well positioned now.

Of course, because it could be interesting because over the last one, two years, we have seen this overproportional increase in personal costs. And if a rising scalability, it should go the other way around. So we still have to wait for that, more or less. So we have the high investment, but not the outcome from this.

Yeah, but when you refer to really headcount in the company, I mean, the headcount increase you see is exclusively driven by M&A. So this is the companies we have acquired organically. We have reduced over two consecutive years our headcount quite substantially. So there you see already efficiency improvements. which we continue to deploy and harvest on going forward. Okay.

Thank you very much and all the best.

Thank you, Christian.

There are no more questions at this time. I would now like to turn the conference back over to Thomas Altmann for any closing remarks.

Thank you, Sergen. Before we finish our conference call today, I would like to hand back to Christian for some final remarks.

Thank you, Thomas. And as we come now to the end of our full-year call, result call, again, also I want to take the opportunity to thank Christine full-heartedly for what she has been contributing over three years, playing a key role in really optimizing and shaping our transformation, especially in the finance area. So thank you very much for that. And I think everybody could observe her dedication and the contributions that of Christine, which have made a significant impact of our company. So, Christine, on behalf of the entire team, thank you for the exceptional commitment and your leadership. We wish you now all the best for your future. Ladies and gentlemen, thank you very much now for joining us today. In case of further questions, please do not hesitate to reach for our AR team. Have a great day and goodbye to you.

Ladies and gentlemen, the conference is now over. Thank you for choosing Coruscant and thank you for participating in the conference. You may now disconnect the lines. Goodbye.