Brenntag Se

Ladies and gentlemen, thank you for standing by. Welcome to the Brentag SE Q1 results call and live webcast. Please note that the call will be recorded. During today's call, webcast participants will be in a listen-only mode while we conduct the question and answer session. If you wish to ask a question, please ask that you use the raise hand function at the bottom of your Zoom screen. Instructions will also follow at the time of the Q&A. I would now like to turn the call over to Thomas Altmann, Senior Vice President, Corporate Investment Relations. Please go ahead.

Good afternoon, ladies and gentlemen, and welcome to the earnings call for the first quarter of 2025. On the call with me today are our CEO, Dr. Christian Kohlbein, and our CFO, Thomas Reisten. They will walk you through today's presentation, which is followed by a Q&A session. Our relevant documents have been published this morning on our website and can be found at brentak.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 also to point you to our 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, thank you, Thomas, and good afternoon, ladies and gentlemen. I will start with the highlights of the first quarter 2025, and Thomas Reisten will then walk you through the details of our financial performance. Our first quarter results were characterized by a persistently challenging business environment, a volatile geopolitical climate, and a high degree of economic uncertainty, which were amplified by global tariff negotiations. These negotiations and the anticipation of significant tariff changes already dampened business sentiment in the second half of March. Although our results are in line with the prior year period, The sequential performance in comparison to the fourth quarter 2024 did not meet fully our initial expectations. Sales for the first quarter amounted to 4.1 billion euros, which is stable compared to the prior year period. Operating gross profit increased by 2% and stood at 1.0 billion euros. Gross profit as percentage of sales also increased slightly compared to last year, which indicates that we managed gross profit to our advantage despite ongoing pressure from industrial chemical selling prices. Operating EBITDA stood at €355 million, an increase of 2.5% year-over-year, which demonstrates positive operating leverage as we translated our gross profit growth into higher operating EBITDA growth. Our operating EBITDA amounted to €264 million and remained stable. We generated a free cash flow of 163 million euros and earnings per share stood at 93 cents compared to 97 cents last year. I'm happy to confirm that our cost containment measures supported our underlying cost development in the first quarter and that we are well on track to deliver the targeted savings in 2025. Let me say a few words on the outlook for 2025. We maintain our operating EBITDA guidance for the full year 2025 in the range of 1.1 billion euros to 1.3 billion euros. Although potential secondary and tertiary tariff effects are hard to predict, we need to reflect the dampened business sentiment, which already impacted our performance towards the end of the first quarter. Considering the substantial unfavorable changes in the Euro-US dollar FX rate, the increased level of economic uncertainty, the unresolved tariff discussions, as well as the continuation of geopolitical conflicts, we currently expect earnings for 2025 to be in the lower range of our guidance. As already mentioned, The macroeconomic environment remains highly challenging, and we felt an increased level of economic uncertainty in the first quarter of 2025. The anticipation of significant global tariff changes already led to a dampened business sentiment in the second half of March, particularly in the US market. Since March is usually a defining month for the first quarter, this development is visible in our results and was not anticipated at the time of our full year results. Let me reiterate that the direct impact of tariffs on our business is rather limited since the vast majority of our products are sourced and sold within the same region. In the United States, less than 10% of the imports are coming from countries directly affected by tariffs. However, we must acknowledge that we are not immune to secondary or tertiary effects. These effects are significantly larger. Secondary sectorial effects on our customers in specific industries and value chains, like automotive, are difficult to assess at the moment. On top, tertiary effects reflected in inflation, interest rates, economic growth and general consumer sentiment are difficult to predict but will have significant impact on the demand pattern. The tariff environment remains highly dynamic and the overall risk for global demand and a potential economic slowdown has substantially increased. In this context, the US economy contracted 0.3% in the first quarter of 2025, which is the first negative development since 2022 and a situation that we need to monitor very closely. At the same time, our chemical distribution business model has proven its resilience many times. and our high degree of diversification across end markets, products, customers and suppliers helps mitigate negative impacts. With our broad geographical footprint and our unique distribution network, we are well positioned to manage through this highly challenging condition successfully and continue to be a reliable business partner for our stakeholders globally. Before we have a more detailed look at our financial results, I would like to talk about our strategic achievements in the first quarter. We have been working intensively on the execution of our divisional strategies, including the targeted disentanglement of our two divisions, which we have presented to you in detail during our full year 2024 results call in March. At the same time, we are prudently managing our cost base and are executing our cost containment measures while focusing on running our business. Brentac Specialties continues to focus on improving its performance through a combination of short-term and long-term levers. We achieved further gross profit per unit improvements in the first quarter due to ongoing price and margin management initiatives. Our cost containment measures are well on track including headcount reductions, counterbalancing, inflation. In terms of longer-term measures, we also continue to improve our global supplier portfolio with further so-called top-of-the-pyramid wins in Q1. In Brandtag Essentials, we are executing our triple strategy, focusing particularly on our last-mile service operations. Here, we successfully implemented a standard reporting on main KPIs, including targets. We also continue to optimize our global site network and for the full year 2025, we intend to close additionally more than 10 locations globally. And of course, also in Brandtag Essentials, we are diligently executing our cost containment program. Overall, our cost containment program contributed significantly to our group's cost development in the first quarter and is well on track to deliver the targeted cost out for the full year 2025. We currently develop further measures to accelerate our cost-out delivery against the background of the challenging business environment. Let me now hand over to Thomas, who will explain our financial results in more detail.

Thomas. Thank you, Christian. Good afternoon also from my side. Let us take a closer look at the EBIT-A development on page 7. As a reminder, when talking about growth rates, we generally talk about FX-adjusted rates. In the first quarter of 2024, we reported an operating EBIT A of €260 million. The translational foreign exchange effect in the first quarter of 2025 had a positive impact of €4 million. Acquisitions contributed €14 million to the operating EBIT A development. This quarter, we reported an operating EBITDA of €264 million for the Group, which is stable compared to the prior year figure. Organically, the operating EBITDA declined by €13 million compared to the first quarter 2024. The EBITDA conversion ratio for the Group came in at 25.9% compared to 26.4% last year. Our results were overall characterized by a continuously challenging market environment and increased economic uncertainty, which led to a dampened business sentiment towards the end of the year of the quarter. Whilst volumes were higher compared to last year's growth profit per unit was slightly lower. driven by industrial chemicals. Nevertheless, on a sequential basis, gross profit per unit growth momentum was sustained. This led to absolute operating gross profit growth. Let us now have a look at our two divisions, starting with Brentax Specialties. Brentax Specialties reported an operating gross profit of €295 million, which is stable compared to the first quarter 2024. The gross profit margin in relation to sales stood at 23.2%, an increase of 90 basis points. The results were affected by lower volumes in combination with a meaningfully higher gross profit per unit compared to the prior year. Operating expenses for Brentax specialties increased slightly year over year, which is driven by acquisitions. On an organic basis, general inflation-related cost increases, higher personnel costs, and the strategic investments were fully offset by our cost containment measures. Overall, operating EBITDA declined by 1% and reached €111 million. The segment Life Science reported a year-on-year operating EBITDA decline of 2.9%, Whereas the operating EBITDA in material science increased by 0.7% compared to last year. The EBITDA conversion ratio for brand back specialties was 38%. Let us have a look at the gross profit performance of our business units within the segments. In our life science segment, the business unit nutrition showed a stable performance compared to the prior year period, whereas pharma was slightly down. Duty and care was again the strongest performing business unit within life science and showed clear growth. In nutrition, we saw an encouraging strong performance in EMEA and APEC, with positive growth profit per unit development supported by our price and margin management initiatives. Americas was under pressure, mainly driven by lower demand for base ingredients in our North American business. In Pharma, our operating gross profit remained slightly under pressure. Beauty & Care was the strongest business unit in the first quarter with positive year-on-year growth in all regions. The positive performance is mainly related to successful price management and portfolio optimization. The operating gross profit in material science was slightly higher compared to the first quarter 2024 driven by acquisitions. The high interest rate environment continues to keep housing, construction and public investments at lower levels affecting the volume development in the segment. Let us now look at Brentac Essentials. Brentac Essentials reported an operating gross profit of €725 million, which is an increase of 3% compared to the first quarter 2024. All regions, except North America, contributed to this development. The gross profit margin in relation to sales stood at 25.9%, which is slightly higher compared to the prior year period, reflecting our ability to manage margins in a challenging business environment. Builder Essentials achieved a positive volume development in EMEA, Latin America, and APEC, whereas North America was challenging. APEC and Latin America achieved double-digit volume growth year over year. This volume development was able to offset a lower gross profit per unit, leading to an increase in absolute gross profit of 3% for the dividend. Operating expenses for Brentac Essentials increased year over year, mainly driven by our acquisitions. On an organic basis, expenses remained more or less stable. Inflationary costs increases were mitigated by our cost containment measures. Operating EBIT A of Brentac Essentials stood at €179 million. This is 3.7% below the first quarter last year. The EBIT A conversion ratio for the division came in at around 25%. Moving to slide 10, where we look at the income statement in more detail. We generated sales of 4.1 billion euro, which is in line with first quarter 2024. Our operating gross profit stood at 1.02 million euro and increased by around 2%. 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 challenging market environment. Operating expenses, excluding special items, stood at €664 million, up 2% compared to the prior year period. We reported an operating EBIT A of €264 million. Special items below operating EBIT A had a negative impact of €11 million. This includes costs for our strategic projects in the amount of €4 million, which are mainly related to severance and advisory expenses, and which help to achieve the desired cost reduction targets and drive the targeted disentanglement of our two divisions. Furthermore, we incurred expenses for legal risks, mainly arising from the sale of talc and similar products in North America in the amount of €5 million. Another €2 million of costs were booked in connection with a fire at a warehouse in Canada, which occurred in 2023. Depreciation and amortization amounted to €109 million and were significantly higher compared to last year. The increase is partly related to our acquisitions. Net finance costs stood at €42 million compared to €34 million last year. The increase is to a larger degree driven by higher net financial liabilities and the related increase in net interest expenses. Our performance translated into a profit after tax of 136 million euro and earnings per share of 93 cents. This compares to the prior year quarterly profit after tax of 144 million euro and earnings per share of 97 cents in Q1 last year. To provide more clarity on the development of our operating expenses, let us quickly look at our OPEX bridge on slide 11. In the first quarter of 2024, we reported operating expenses of €643 million. Additional costs from newly acquired entities led to an increase of around €20 million. The translational foreign exchange effect in 2024 drove up costs by around €10 million. Underlying OPEX increased by around €20 million, driven by general inflation, particularly relating to wage inflation. At the same time, we continue to reduce our absolute headcount number. The cost containment program contributed around €30 million of savings in the first quarter, more than compensating inflationary impacts. On an organic basis, we therefore reduced our operating expenses by slightly more than 1%. As a result, operating expenses for the group stood at €664 million in the first quarter of 2025. We will continue to focus on our cost development with strict discipline and are well on track to deliver the targeted savings for the full year 2025. Considering the challenging business environment and following a deeper analysis of potential measures, we will be accelerating our cost out initiative, both in scope and speed. Let us now look at the free cash flow development. In the first quarter, we generated a free cash flow of 163 million Euro. compared to 175 million Euro in the same period last year. The decline is mainly driven by a higher cash outflow for working capital in the first quarter of 2025. This is mainly related to an increase in inventories. Our working capital turnover stood at 7.6 times, which is stable compared to end of last year, but slightly lower compared to the first three months in 2024. Leverage ratio net debt to operating EBITDA stood at 1.9 times. And with this, I would like to hand back to Christian to talk about the outlook for 2025.

Thank you, Thomas. And ladies and gentlemen, the macroeconomic environment remains highly challenging. And we have started to see an increased level of economic uncertainty towards the end of the first quarter 2025. The anticipation of significant tariff changes on a global level already led to a dampened business sentiment in the second half of March, and the tariff environment continues to be highly dynamic and unresolved. Like other companies in our industry, we are closely monitoring the development regarding tariffs at the international level and are preparing various scenarios and mitigation measures. Due to the high volatility and speed at which decisions are made and then partly revised again, it is currently difficult to predict with certainty the impact on Brandtag, our industry and the markets we serve. We maintain our operating EBITDA guidance for the full year 2025 in the range of 1.1 billion euros to 1.3 billion euros. Although potential secondary and tertiary effects are hard to predict, we need to reflect the dampened business sentiment, which already impacted our performance towards the end of the first quarter. Considering the substantially unfavorable changes in Euro to US dollar FX rates, the increased level of economic uncertainty, the unresolved tariff discussions, as well as the continuation of geopolitical conflicts, we currently expect earnings for 2025 to be in the lower range of our guidance. And let me specify, because I could read it in some reports, this does not mean the lower end of our guidance range. Let me reiterate that our chemical distribution business model has proven its resilience many times and our high degree of diversification across end markets, products, customers and suppliers helps to mitigate negative impacts. With our broad geographical footprint and our unique distribution network, we are well positioned to manage through these highly challenging conditions successfully and continue to be a reliable business partner for our stakeholders globally. With this, I would like to close the presentation now and thank all of you for participating in today's call. We look forward to your questions.

Ladies and gentlemen, we will now move to the Q&A session. If you have a question, we ask that you please use the raise hand function at the bottom of your Zoom screen. Once your name has been announced, please unmute and ask your question. If you want to withdraw your question, please lower your hand using the raise hand function. If you experience technical difficulties while asking your question, our operator will contact you via the private chat. Thank you and a moment for the first question, please. Our first question comes from Suhasini Varanasi from Goldman Sachs. If you'd like to unmute your line and please ask your question.

Hi, good afternoon. Thank you for taking my questions. Just a couple from me, please. I think the new guidance, which is about the lower range of your 1.1 to 1.3 billion, I suppose it still implies some sequential improvement in EBITDA versus the 1Q results of 264 million. If the weakness that you've seen at the end of the first quarter continues into the next quarter, what are the risks that you see to this updated guidance, please? The second question is just a clarification on the guidance. What is the euro-US dollar FX rate that you have used while calculating the updated guidance? I mean, basically, we're trying to understand, you know, how much of the change in guidance is just reflecting FX? How much is the change due to weaker growth trends? Thank you.

Thank you very much. First question, the risk to the guidance is of course a worsening of the geopolitical situation and the economic environment, which both are out of our control. I think we need as quickly as possible clarity because the business sentiment, consumer sentiment is actually quite on a cautious note at this moment and nobody takes any additional risk on our customer side. We are clearly analyzing that environment and again, you know, are preparing for that. You also need to be clear, and that brings me to your second question already, the Euro-US dollar FX exchange rate, if that is substantially moving in the wrong direction. I mean, you have seen on the slide our sensitivity of our earnings based on the exchange rate. That could have, of course, also a significant risk, which is beyond our control in the guidance. Nevertheless, our cost containment program will be accelerated, as Thomas has said, and right in its scope and timing. So that means that the earnings we have guided you stays at the guidance range 1100 to 1300. Again, more to be expected actually at this moment at the lower range of it. Again, let's see how the next months and quarters will change, particularly when it comes to tariffs discussion and geopolitical topics. On FX, I think it is clear that We said, as we have not changed our guidance, all the parameters, what we have set out in our guidance range are the same. We had an FX rate of 105 for US dollar as part of that 1100 to 1300. And now we are currently at 112. So this has been built into saying that we are actually at the lower range of our guidance. because that is a significant headwind which we see on our earnings. The third question was, was no third question. Okay.

Thank you. I just had a quick follow-up, please. I mean, just on the sequential EBITDA trends, I mean, is there, does the trading that you've seen in April, early May, does that give you a bit of confidence that, you know, sequentially EBITDA into Q can be better than 1Q?

But typically we have seasonality in our business. You know, Q2 is typically better than Q1. And that's also what we typically would expect now in Q2. We also see, and this is, I would say, a positive sign. We have not seen now demand falling off the cliff in April. We had quite a shock, I must say, mid-March. That was what I call the mid-March freeze, in particular in North America. So that has not really now prolonged into April. So from a demand standpoint of view, I think we are okay-ish at this moment. Topic is, of course, pricing and what it does to the pricing environment at this moment. But we are confident that we see or continue to see a sequential improvement, at least going from Q1 into Q2.

Thank you, Suhasini. Our next question is from Carl Rainsford from Berenberg. Carl, if you'd like to unmute your line and please ask your question.

Yeah, good afternoon, everybody. Hope you can hear me. Just three from me, please. The first is, yeah, the sequential increase in gross profit per tonne is a positive, obviously, despite volumes being down. Just wondering if this is a mixed effect of smaller, more frequent orders due to the current uncertainty, or have you driven pricing in other ways? The second question is on the cost development front. And obviously, I see your bridge there, 30 million of cost out. The group cost line looks like it's down 9 million year on year. So can you just explain the reasoning for that? Is it purely just sort of part of the cost out measures or... Are there other reasons? And is that a good baseline to assume throughout quarters of this year? And then thirdly, again, on the cost out program, obviously still guiding for 100 million of cost savings. And, you know, the 30 million run rate gives you 120 million at the end of the year. So is that just purely caution or, you know, can we expect a bit of speed up there at all? Or, you know, is 30 million a quarter probably the right place to be? Thank you.

You know, question two and three will be answered by Thomas when it comes to the cost development and cost saving program. On the gross profit per unit discussion on specialties, clearly not mixed, clearly pricing and margin management. I think we have Frequently said that we are working on our margin management going forward. So, gross profit per unit sequentially on specialties is improving and slightly ahead of our expectations at this moment. And that trends, as we see now, April going into Q2 seems to be confirmed and even accelerating. So, that's not a mixed effect. That's just really pricing and margin management running well. On essentials, probably a different story. Industrial chemicals are still and continue to be even more under pressure on the pricing side. And here, you know, you have, of course, a strong mix effect. If you sell, let's say, caustic soda versus a solvent, of course, probably per unit can be 150 euros per ton difference in those two materials. So there are always also here also mix effects as well. But let's face it, contrary to specialties, we do see in the essentials business, in industrial chemical selling prices, some pressure as we go from Q1 into Q2. On the cost development, Thomas, please.

Sure. That's on the two questions actually with regards to costs. So the first question was related to the group costs development. On the group cost developments, this is indeed showing the success that we have achieved on our cost containment initiatives. So we'll see this actually coming through on the group costs. In terms of then full year guidance, what we have been discussing over the past is already the achievements for past fiscal year. We have been achieving about 50, 55 million euro of cost savings. And then we've said that going forward, we expect for this year to lay on top of that another incremental 50 to 60 million in terms of run rate. um on top of the previous one so ultimately what that means is that we are now as well on the basis of the further analysis that we've been performing accelerating and broadening the cost saving initiatives that we are very confident to achieve our full year savings of between 100 and 110 million for the year it was very helpful thank you both

Thank you, Carl. If anyone else would like to ask a question, please use the raise hand feature at the bottom of your screen. And then when your name is announced, please unmute yourself and ask your question. Our next question is from Chetan Udeshi from JP Morgan. Please unmute yourself and ask your question.

Hi, can you hear me?

Yes. Please go ahead.

Hi, hi all. I think my first question was just to, you know, just clarify the guidance. So, because I'm a bit confused. So is your guidance when you say lower half of the range, is that including the new FX or is that still based on 1.05? Because your slide still talks about 1.05, but then I think, Krishan, you said in your comments that, you know, the guidance that you're talking about now actually already reflects the, new effects so I'm just wanting to clarify that. The second question was I'm a bit surprised with your comments about 2Q because you said the second half of March was when you actually saw weakness and you know like you also alluded to March is your biggest month of Q1 so I mean with that sort of dynamic what will drive the sequential in second quarter versus first quarter. And the last question I had was just to confirm, you know, this TALC liabilities, et cetera, et cetera. Can you just help us understand how big is this risk for Brentag? You know, with TALC, do you have other such, you know, toxic stuff from the past which might result in more material cash outflow down the line? Thank you.

Thank you so much. You know, guidance, I will refer to Thomas and also on the talk liability. When we come to the dynamic of the business right now, I mean, we have seen clear and you see in the results, in particular in essentials in North America, we had quite an impact. around, I would say, March 18, 19, when everything that started here. And there was a lot of uncertainty. And then all of a sudden, you know, typically customers react very quickly. And then we see if, let's say, the dynamic of the market is changing, we see this very quickly and very early in both directions, ups and down, by the way. I've said before that April here has been a little bit more encouraging, that the slowdown we have seen at the mid to end March is not continuing into April for the time being. Now let's see how that plays out. The uncertainty is still very, very high. And it's actually across industries. It's not only chemicals. And you hear this also from, I would say, the colleagues probably out of the other businesses. So from that perspective, we believe that dynamic in the US is showing less volatility than we had, let's say, from beginning of the year towards mid-March and then from mid-March ongoing. So that's at least what we see as an encouraging sign. On the guidance, I mean, the FX has been baked in. So we stay, of course, in the framework as we have not really changed our guidance. The range is still 1.1 to 1.3 based on an FX of 105. But given the specific wording, and it's not lower half, it is lower range of that guidance range, is incorporating the 112, I think it is, FX rates, which we are currently seeing.

Yeah, that's absolutely correct. So we have on the assessment of taking us to the lower range of the guidance, we've reflected a number of points. We've reflected, obviously, the increased uncertainty, the unresolved tariff discussions that are at this point in time still existing. We have actually looked at the geopolitical conflicts and our performance as it actually was standing at the First quarter end, we have taken into account the significant unfavorable FX changes as well. So as they are presenting themselves to us at this point in time. So on the talk topic, then we have taken an incremental 5 million provision. This is actually overall in terms of a provision that we have taken is a low three digit number. And we have appropriately taken all of the risks onto our balance sheet that are related to this. So that's, I guess, all that we can say on this topic at this point in time.

So did you say low triple-digit million, something just over 100 million? This is for Talc?

It's a low triple-digit number, yes.

OK. Thank you.

Thank you, Chetan. If there is any more questions, please use the raise hand function at the bottom of your screen. And if not, this concludes the Q&A session and I will hand back to Thomas Altman for any closing remarks.

Thank you, Shell. This brings us to the end of the conference call. In case of further questions, please do not hesitate to reach out to the IR team. Our half-year results will be published on August 13th, 2025. Ladies and gentlemen, thank you very much for joining us today. Have a good day and goodbye.