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Welcome to the Brentagh SE 9M 2025 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, we ask that you please use the raised hand function at the bottom of your Zoom screen. Instructions will also follow at the time of Q&A. I would now like to turn the call over to Thomas Altman, Senior Vice President, Corporate Investor Relations. Please go ahead.

Thank you, Abigail. Good afternoon, ladies and gentlemen, and welcome to our earnings calls of the third quarter 2025. On the call with me today are our CEO, Jens Bergason, and our CFO, Thomas Reisten. I 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 in the investor relations section, where the replay of today's call will be available. Allow me also to point you to our safe harbor statement, which can be found at the end of the slide deck. With that, I will now hand over to our CEO. Jens, over to you.

Thank you, Thomas, and good morning to everyone out there. Just as a general remark of the experiences help us by giving a feedback to Thomas and just give us a rating on how the sound quality is, it would be good. Because in the morning's call we did with the press, there were some corners where we were very hard to hear. So if you could get a status check on that from you after this call, and then we'll see if we need to change tech or do something to improve that. It's a great pleasure to speak with you today for the first time as the CEO of VENTAG. The last two months I've been more or less travelling constantly around the group, spending time with between 100 and 200 customers and our teams out in the region, and also the supply partners. And I started during the summer, obviously, to read up on the market and look into the business model of the company and the way we operate. In the last two weeks I've been a little bit more in the headquarter, but a lot of time spent out there on the kind of building the understanding of the company, starting from the outside. I have still a lot to learn, but I'm very happy with what I've seen in the beginning and the potential. So I'm going to share that in mainly two dimensions, the short-term priorities, and we will not go too much into strategy now. And it is unknown whether you step into a company like this to how much it actually touches everything around us. So that's impressive. But maybe even more impressive in this company than I guess the skill and commitment of our commercial teams around in the world. and how they interact with our customers and supply partners. It is really great to see. And I think that perhaps that is the strongest, the biggest strength of the company, actually, that we have this very unique culture. out in the markets in the front end. And I'm very pleased with that. I'm very honored to join such a team. And it's great to see that we have that culture and that customer focus. All that said, my initial observations confirm the company's fundamental strength and you see a lot of potential. And if you look at the market, there isn't anything in the market helping. I think We are in the longest drop in terms of chemical from the downturn after COVID, and yet we haven't seen an upturn. And yet we are in some extent performing. It's not great, but compared to many other players in the chemical industry, the difficult times prove the ability of Brentog, but also our position in the value chain, with our market position and value proposition and the way we run the business that we can actually do relatively well even in difficult times like this. And one of the winning recipes is obviously that we stay very close to the customers and understand their needs and keep delivering every day, even in a difficult market. If we then look at the potential for operational improvements and efficiency gains, I kind of stage a little bit of work in the company. When you step into a new business, which I've done before, I've been in the sector a bit before, but stepping into a new company, you need to separate a little bit strategy, changes to the strategy, a company has a strategy, but changes to the strategy and what we do now, what are the immediate priorities to improve. And I put that on those slides, summed it up in those three bullets. And the first one is sales. With the market conditions we have, I haven't said growth, I said sales. We can't control the market turnaround, but we can control how much effort we make on sale. And in some of the changes that we have announced, we are anchoring the company to make it easier for us from the top to bottom to be even closer to the market and to empower our local sales teams and driving growth by being close to the customer. And there are two... the first one started already in the summer, was that up to now there was a track where we would split the company in two, or the disentanglement, and there was an awful amount of internal focus to do that, being done on systems, on moving assets, shifting businesses, and that had been going on, and we have stopped that work, I've stopped that work, have escaped, but we need to find it, we need to develop that, we need to get better of it. But shifting that internal focus to external is a sound step, among other efforts to really make clear to an organisation that the core process of this company is to buy a product and to sell it, and all the things we do between, and all the overheads and the support So that's the first priority. The second is, I lumped it under the words clarity and simplification. We have two strong divisions that each have their own distinct role and market strength, and also slightly different business model. You have discussed that before, so it's clear to you. having the company set up with an intermediate two executive committees then you have the local business units the regional business unit and a very big central team has also implied very long decision lines with lots of steps and i will say a bit too much bureaucracy and a loss of speed and what we're doing if you have read the And I'm now putting quite a bit of focus into reducing the number of steps in decision making. And finally, we have execution. The top line is down, it's still down, and the market is not good. And it's not a disaster at all, the market, but it hasn't come around. execution topic, but we haven't done so well until now, is to execute on cost reductions. There was a program announced one and a half year ago, maybe a bit more, and we need to execute on the cost out, because the mismatch between the cost structure and the increases we have had with this duplication of functions, management teams, and the extra layer that has been introduced has come at a high price, and I think it's time to reset that and start to work costs out and improve our competitiveness. So if we then go into those kind of headline focus areas on the short term, if we turn to the next slide, it does outline some of the action, starting from left to right. covered sales, and it doesn't mean I don't want to grow. It's just that immediate action is to get people out on the ground and get the organization to back up the sales effort and the customer proximity and the customer closeness. And the good thing with that is that we have a culture and a crew in this company that really want to do this. So this is more of a unleashing them and getting them back and stop focusing on splitting and allocating businesses and internal transfer costs and what have you. We still do that, but it's not the focus. So that's the left part. Second one is simplification. We want to simplify how we make decisions, shorter chains. I want smaller, more empowered teams, faster cycles, and agility is an overriding goal with very clear ownership of the business. We don't run a matrix. I don't want to run a matrix. I want very straight lines out into the business. So what we are doing here is that we are putting together an executive committee CEO, CFO, CO, HRO in there, so some functions that have consolidated. This might change over time, we will evolve this, it's nothing static. But it will mean that we have an executive team that has members in it that are really sitting in the market, interfacing with customers every day. The German managing board that traditionally is seen as the highest level of management in the company, we are detuning that a little bit. It will be only Thomas and I in that. Surely there will be decisions that have to be taken on that, but as I see it, the management team, the executive team is the executive committee, and that means that the distance from the front end to me is going to be very short, because I have a direct report on every market, and I will oversee that myself. And I'm convinced that we'll improve the hands-on operational management. And I think in the distribution business, at the core, it's a very simple business, and we mustn't overcomplicate it. of overheads, and I think this structure will serve us better. I made two additions, or announced two additions. The one is CHRO, a new HR director. We haven't really had that in Brent again. Distribution business is a people business. She, Frances, joined us 1st of November, so she's already here. And then on the A goal we have is to build a world-class distribution company or distribution supply chain, and therefore I've also recruited a CEO, and he will report to me, he will be part of the EC, and he will join us first of April, because I see the potential of the whole supply chain organization. With regards to the two divisions, we have one company, but we have two businesses. We have the essential division and the specialty division. No change to that. That was good. It was healthy. It's different drivers for success. So we maintain that and I value both of them. I want to grow in both of them. So there's no change to that. But I see the backbone and the scale of what we have. Brento has a lot of assets. We have a lot of I admit, the scale effects hasn't really come out, but that has grown. And some of you have pointed that out. I agree with that, and that's something we need to work on. But when you look at the potential of getting scale effects, they are there. We have some of it, but we can do more of that. So to sum up, I mean, we are not doing the split. And the reason is that the multiple differential between these two, the value of the cost of doing it and the disinerties, it doesn't make sense. I would also say on that note that from an M&A perspective, I see a whole lot. I mean, a key driver for topline, you have organic growth that we need to work on. of the industry, a lot of the targets, and I look just in these two months at 12 targets, very few targets are pure, pure, pure play. They have a little bit of both. And I think there is a risk with being too streamlined and too segmented that you lose a lot of M&A if you all the time have to divest one portion of the company you buy. And so I think that having both businesses also make it a little bit easier to find good targets. And we have a good pipeline of targets. So to sum up, we want to operate two market-leading divisions within one group, respecting the two-business model, commercial focus on both, and then going after growth, doing normal strategy and implementation from those. Within the strategic framework we already laid out, and we will review it of course, but we continue with that, but we do that with one back-folding in terms of supply chain. Doesn't mean that all assets will sit centrally, not at all. We keep the assets out in the businesses, and they're going to also be devoted assets assigned to each one of them. Some are shared, some are devoted. And then third, on the execution. Execution is super important, and when I reviewed the historic initiatives that have been going on, I felt maybe we have tried to do a little bit too much in Pered, so I want to move towards a more focused execution mode, and of course quicker and shorter decision-making chains. We're going to keep our eyes on the execution, and that has already started. And I think that's incredibly important for us in order to deliver cost savings. We are looking, as we brought in the stock exchange release, into short-term and medium-term cost out. And the philosophy here will be that we start close to me. We start at the top. I have headquarters staff. I have functions. I want to reset that into a much smaller team. So that's the first stage, and we're already starting that. Reducing headquarters and support function overheads. And then we will move out through... other functions and then as the CEO arrived we would get more and more close to the supply chain and all the action there. But basically that's the staging, that first remove overheads and duplication, and slim that down, and then after that we get on to supply chain operations. But I need to do a little bit more work on that before we start. The other aspect of it with overhead has already started, and it's starting to roll out and be quite detailed as we speak. So that's the short to medium term. Then if you look at the long term, yes, We need to review the strategy. It doesn't mean we change all of it, but Dentorg has run in a certain way for more or less 150 years, and we have the two businesses now. We are doing a strategic review. It has started, and I will come back to that in the second half of 2026. One of the goals will obviously be growth, not only because it's a market that grows, but make us more capable of growing. But I will come back to that now, the focus is on the immediate priorities of Alta. If we go to the numbers on slide nine, if I can. You have seen those numbers. have read them, and I think that there is nothing in the macro environment that has really changed. The tariffs are there, we have the Chinese overcapacity coming in in Europe, Latin America, South Asia, almost in 2024 it was 33 billion Chinese imports into Europe of chemicals, and probably increasing this year, I haven't seen the numbers. complication is here for the principles, maybe less of a problem for us, and then you still have the instability in the Middle East, we have the Ukrainian war, we have the trade tariffs, and we only have some countries that have put in tariffs to protect themselves, and Mexico and the We are relatively fortunate in the way we can handle that. It speaks to the business model of a distributor in this space. And if I were to look at the numbers, what numbers are you... Obviously, we are not overly happy with the numbers as such. We would like to get back to growth and have a better market. But I think some of the numbers worth emphasizing is... If we take the EBITDA margin with the 5% decline in the top line, that it only goes from 9.1% to 8.9% this year, and that we have managed to get a bit more cost reductions into that to protect the gross profit decline and gross profit margin and most of all the EBITDA margin. And when I compare that to the market, we have done maybe better than some of the players. So that's both of the positives, I would say, of those numbers. If you move to the slide of sales development, basically the same decline in both businesses. Maybe we can see a slightly better volume in material science, but still strong competitive pressures, but otherwise I would pretty much say that more or less the markets are subdued on both sides of the business, both businesses. Going on to the regional development, material science here volumized a little bit better than some of the other businesses, but quite strong price pressure. And in Latin America, the growth is primarily due to the acquisition in Mexico. And apart from that, I want to say anything is new on this but if you take an example of that in america to just give you a flavor brazil chile peru central america guatemala heavily heavily impacted by chinese imports mexico not because they put tariffs and then you have other countries like colombia for example that protect themselves a little bit more the market more safe from Chinese import, and we see a better business. Argentina also doing a little bit better, but it varies a lot, but generally you see all over in these regions the impact of that. That said, we are navigating it, and we are handling it, and it is not a huge problem for us compared to some of the other players in our industry. Over to you, Thomas.

Thank you, Jens. And as well from my side, I wish you a good afternoon. So I would like to now look at the development of our income statement. And this with a particular focus on our operating expenses and bottom line results. Our results are overall characterized by a persistently challenging market environment with muted customer sentiment and lower demand. We generated an operating gross profit of €947 million in the third quarter of 2025. Our operating expenses stood at €617 million in total. It is a net cost decline of 1% compared to last year on a constant currency basis. This includes additional costs from newly acquired entities of €10 million. Our cost containment program delivered 45 million euro of savings this quarter, which is visibly reducing our underlying OPEX base. And this is 30 million more than we delivered in the same period of last year. The positive savings effect demonstrates our strong commitment to cost control, Brentac's ability to maintain cost discipline. This is even in a challenging business environment. We generated an operating EBITDA of €330 million. That's down 6.7% year over year. And then the depreciation amounted to €87 million. That's leading to an operating EBITDA of €243 million, which is 9.2% below last year's figure. Compared to the third quarter, 2024, the following developments. First, FX effects reduced operating EBIT A by 14 million euros. Second, acquisitions added 5 million euros. And third, organically, the operating EBIT A declined by 29 million euros compared to the third quarter last year. The group EBIT A conversion ratios stood at 25.7%. looking at the EBITDA conversion ratio that reached 34.9%. I now briefly comment on the development of special items below operating EBITDA. In the third quarter, special items had a negative impact of €17 million. This includes costs for our strategic projects in the amount of €8 million, which are mainly related to severance and advisory expenses. that also help to achieve the desired cost reduction target. Furthermore, we incurred expenses for legal risks, which mainly are arising from the sale of TALF and similar products in North America in the amount of €16 million. Then lastly, other special items had a positive effect of around €7 million. insurance reimbursements in connection with a major fire at a warehouse site in Canada in 2023. Earnings per share were 78 cents in the quarter, which is slightly lower than previous years. Let us now have a look at the pre-cash flow development. The third quarter of 2025, we've That's compared to 247 million Euro in the same period of last time. The decline in earnings was offset by slightly lower index and cash inflow from working capital compared to the prior year period. In the prior year period, we saw a slight cash outflow for working capital. Lease payments were also slightly lower compared to the prior period. And then our free cash flow demonstrates the resilience of our business and our counter-cyclical cash flow profile. The working capital turnover stood at 7.3 times as compared to 7.7 in the third quarter of 2024. The leverage ratio net debt to operating EBITDA stood at 1.9 times. I would like to close now with the outlook for the remainder of the year. For the full year 2025, we specify our operating EBIT A guidance towards the lower end of the range provided in July of this year. We expect the unfavorable Euro-US dollar-IBEX trend to continue and we assume an average rate of €1.16 for the fourth quarter of 2025. As mentioned earlier, the overall market environment continues to be characterized by a high degree of economic uncertainty that's driven by ongoing geopolitical tensions and global tariff discussions. The notice of a slowdown in demand continued throughout the third quarter, and we expect a similar environment in the fourth quarter of 2025. business opportunities and to realize cost savings, despite the persisting macroeconomic challenges and the continued economic volatility. To further address the challenges ahead and to improve our performance, we have taken action to enhance agility and execution discipline, driving sales and efficiencies. This includes an acceleration of our existing cost containment program, as Jens has pointed out. A key element here is organizational complexity as well as simplifying and streamlining administrative processes. Our decision not to consider a full separation of brand tag any longer further enables us to eliminate build-up duplications and overlaps within the organization. So with this, I would like to close the presentation and I'm now very much looking forward to your questions.

Ladies and gentlemen, we will now begin our Q&A session. If you have a question, we ask that you please use the raised 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 raised hand function. If you experience technical difficulties while asking your question, our operator will contact you via a private chat. Thank you and a moment for the first question. Our first question will come from Annalise Vermeulen with Morgan Stanley. Please unmute your line and ask your question.

Hi, good afternoon. Can you hear me?

Yes.

Hi, great. Good afternoon, Jens and Thomas. I have two questions, please. So firstly, on the cost programme, you've announced today that you're accelerating the cost containment programme, including, I think, some additional headcount reduction. But overall, your cost containment target is unchanged for 2027. So could you quantify those headcount reductions and will there be any additional restructuring costs as a result? And should we expect an acceleration in Q4 from the 45 million of costs out that you did in Q3? And then second question, just on the divisional split, you know, the messaging has been a bit mixed here over the years. You've announced today that this is no longer under consideration. But in the past, you know, Brentag has said that there was limited overlap between the two divisions and a split would make sense over time following a targeted disentanglement. So in your first few months with the business, what have you seen so far that gives you the confidence that this is the right decision permanently for the group and that these synergies between the two divisions are material enough to take a split completely off the table? Thank you.

Thank you. So I take the second question and comment the first before I hand over to Thomas. So on the headcount numbers, we have We have nothing to announce now. I don't feel, you know, our top priority is, you know, selling, simplification, and then execute the cost-out program. And that program has been there for a while. we don't put a number on it, and we will probably try to avoid having a number. You will see how the cost is being reduced, and we have initiated discussions with Works Council and all the rest, and along the way we will update, but I want to avoid to say this is the big headcount number, and talk about that now. It's about getting cost out, but there's going to be reductions in many places. So maybe Thomas can comment The other aspects of that question, and then we'll come back to this plate.

Yeah, so as you will remember, the ITV announcing in the past was the 300 million cost reduction program. If you look at the first quarter, second quarter, third quarter delivery on that, we are actually now fairly well on track in order to divide the savings that we've announced for this year. So 30 million achievement in the first quarter, 30 in the second, 45 now as a run rate in the third quarter. Remember that was started already in the year before, so there was 15 in the same quarter of last year already. So firmly on track from that perspective, we had said as well that we will continue to incur restructuring. costs that are actually one-off costs in order to realize that. We had said about 300 million for the whole program to achieve the 300 million run rate savings by fiscal year 27. So that's what we will continue to use in that context as well with headcount restructuring. Now, obviously, Jens has already commented on that, and I've commented here in this quarter again on the fact that we are accelerating and broadening the overall program. So that's what we are really driving, and we will start to reduce complexity. We will start to deep dark layers in the context of the split, not continuing in terms of further splitting this, that will actually avoid that we have further duplication of resources and we'll roll back on some of those resources that are duplicated. So that is then in the end leading to us being able to accelerate this program.

I come back to the other one. I don't know if it has been said that the Vern any synergies between the businesses, because that must have been a misstatement in that case, because there are clearly synergies between the businesses. It goes from the operation, it goes from the infrastructure, warehouses, and even market access. Even if you are operating in sales forces, you are selling to the same. And then you have the whole multiple differential of the two businesses and the nature of the businesses with the relatively small specialty business and the difficulty and the cost of splitting them and the extreme effort that went into that. And then finally, so if you're on top of that, you would also get scale effects out of being a 15 billion company with the overheads, the infrastructure, the assets, and maybe having all these assets and utilizing them for both businesses, I at least couldn't see that it was a benefit to split. And it has been awfully difficult to try to make progress on it. And then finally, I would also, when I look at it, see that there is an M&A runway where you have a lot of targets, a lot of companies that do a bit of both businesses, and I think also it's more difficult to find, to pursue your role, the role we have as a consolidator of the industry, if you are split, because if you make acquisitions of these companies, you can either pretend that it's a pure play, or you have to split it all the time, so you become a permanent company to split. So if we were only an essential company and we were an acquired company, we'd keep finding specialty businesses in there, because most companies in the segment where we buy, they have naturally evolved into both businesses in the same as we did. So those would be my main arguments why it doesn't makes sense to split. Then the other aspect is to shift the focus from internal to out. We need to be outselling. And on top of that, in the strategic review, if we can do a better job of getting scale effects out of this business, and I don't want to go too deep in that today, then I think there's a very strong case to have two businesses and one backbone.

Thank you. That's clear. And just for clarity, my comment was referring to in the past, the company has said that there is limited overlap between the two divisions. I wasn't referring to synergies. I think you've said in the past that actually not many of your customers buy from both divisions and therefore the split would make sense. So that's what that was referring to. But thank you for the detail. It was clear.

Thank you. If you take... You know, we have this peculiar situation that we buy and sell, of course, to our customers. So almost every customer we both buy and sell to. So that's one dimension. But then we also have that, yes, the pure play specialty customers and pure play essential customers. But we have a lot of customers that buy from both also.

And then just to build on this point, as Jens has said as well, from a commercial focus point of view, obviously we like the two different divisions in that context. It is about, on the one hand, avoiding some more of the duplication and avoiding actually some of the disenergies that even actually some time ago had been announced. And for the split there actually will be some disenergies of about 90 to 120 million. And that's a point where we actually believe that we can leverage a joint backbone much better in order to serve both of the different business models from a commercial point of view.

Then there is another aspect, you know, the definition of a specialty business. There has been discussions about that, but within the essentials, we also have verticals. a business segment. If you take, for example, oil and gas, that's a big vertical for us. It's somewhere in between. It's regional in this case, but you have a lot of domain competence to serve that segment. So you have it like a sliding degree. That we have in essential. So you have pure essential. Then you have verticals, data centers, for example. It's a vertical. You have electronics manufacturing. where we have both businesses servicing and end market in the vertical, and then you have the pure specialty business, pharma or something like that. So it varies, but if you go into pharma, we are selling all the way out to commodity products into pharma too, but with different purities. So you have a lot of sliding definitions of specialty and vertical, and I think to be really successful, you need to learn to master several of those models if you want to keep growing. Of course, there are some excellent pure plays out there, but I would expect if you open up the hood that you will see a lot of extras from the wrong business coming in through the acquisitions, because that's what we found at least from the acquired companies.

Okay, very clear. Thank you both.

Our next question will come from Tristan Lamott with Deutsche Bank. Tristan, please unmute your audio and ask your question.

Hi, thanks. Two questions, please. First is, Jens, I'm curious, given you've just come in, EBITDA is likely to be down about 150 million this year or 14%. And that's despite a positive contribution from M&A. The negative FX impact there is large, but it's not the main driver. So in the organic decline portion, how would you kind of split that out and how would you rank drivers like lower volumes versus lower pricing or the indirect effect of lower pricing? And maybe kind of linked to that, what do you think is the risk that this is kind of the new run rate, the new structural norm? Is this a cyclical low or is it something that will improve? Thanks.

So on the specific numbers, I'm going to hand over to Thomas in a bit. I think we are on a – I don't dare to say structural low. It's kind of staying low. But I think if you start to get some growth in the end markets and a bit more volatility into it, we will do better. And as soon as we have volume growth – We actually haven't suffered so much on pricing yet, if you look at the average sales price. Relatively small changes in price, but it's still a high pressure due to the Chinese aspects. And we, of course, do business with that, too. We distribute those products, too. But then you have an average lower sales price when the mix goes over there, and that impacts us. But I think if the market comes back to a bit of growth, then I think you're going to see a lot of good things. I don't think it's permanent structure. Then, of course, you have some structural issues on top that we saw it overnight. Mexico put in tariffs. We have none of these issues. We have the massive difference of energy prices between Europe, maybe Germany, 40%, 43%, Euro cents per kilowatt hour. China runs at maybe 7 if you're a big principal, and US on 12, 13. You have these big competitive differences, but again, those differences technically doesn't impact us so much because we are not the producer. So we are not suffering with this massive structural problem in the industry where we sit in the value chain. Maybe I hand over to Thomas on some of those more

Yeah, so, I mean, you are alluding to obviously the specification of our guidance in that context. And I mean, we are now saying that we go, that we take the guidance towards the lower end of the 950 to the billion and 50 range. And I mean, what's behind that is that we continue to have volume pressure in the market. So 3.6% actually volume reduction that we have seen in the quarter. And overall, actually, when you look at that as well, there's some pricing pressures still affecting sales then as well. Having said that, our margin management, so focusing onto the topic of GP per ton, leads to us still being able to hold the margins. So overall, we have seen that pressure continuing and that was actually leading to the lower end, towards lower end of the 950 to 1 billion and 50. If you think about the FX topic, so far in the further quarter now in the towards what we have guided as well. So the 116 is, as you will remember, the exact same number that we actually have seen as the basis for our guidance in the past. So the main differences are here on the commercial side of the business.

Thanks, and maybe second question. I'm just wondering, I know it's early days, but I'm wondering how you think about the company's strategy in China, given I think around 80% of the growth in chemicals, according to some forecasts, is set to come from that region in the next 10 years. Is China likely to be a focus of the new strategy, and is it somewhere that you could focus on to drive growth, or are there limitations to that? Thanks.

I mean, if you look at what we have done in China, we have done quite some investments in essentials, and it's a topic of profitability and civil space we can have in the market. On the specialty side, China is a very interesting market, and the whole of Asia fundamentally is a majority specialty market for us now. And the strategy that one needs to figure out is what should be done on essentials in, for example, India and China going forward. In China you have an underlying challenge when you get into that game with profitability in essentials, and you need to decide whether you're going to play that or not. Challenging market. And then India is another one where you will of course have massive growth over the coming years. and you need to figure out what is the state you're going to have in India. In almost any business, you would have liked to start far into India. We are not so far yet, so definitely we need to look at that and decide what we do about it. But that said, we are in India, we are doing business in India, but we haven't done, you know, made your thrust into India yet, so that needs to be decided. Exactly. And they are totally essential. On the specialty, you know, we keep growing the business that we have done for several years.

Our next question comes from Gorof Jane with Barclays. Gorof, please unmute your audio and ask your question.

yeah hi uh hi james hi thomas this is actually anishina on behalf of gaurav jain um from barclays um just just one question from me please um i was just i was just wondering how are you thinking about the outsourcing trend of principles to uh distributors I think previously the previous management of course and even your competitors have mentioned that during a macro slowdown principles tend to increase their outsourcing to a distributor and are you seeing anything like that right now? Have you benefited from it by any chance and sort of like a follow up question to that. I saw that one of the companies, Tate and Lyle, which is an ingredients company, they acquired CP Calco and they mentioned that they are migrating some distributor, distribution relationships to a direct service customer model as a part of its integration strategy and apparently they are increasing their revenue by 10% because of changing that. how do we look at this I mean is this a trend that can continue and if so would that would that be negative for the distributor companies?

Yeah so I will start and obviously then I will invite Jens to add up on that but I mean the overall trend that you are describing of outsourcing distribution by a chemical producer or a principal towards distribution we see continuing to happen. So we have a number of sales agreements, distribution agreements where this continues as well and where we are actually winning those distribution deals overall and as a consequence That's actually where we do see the business continuing to grow as well. Now, obviously, this is overshadowed, if you like, at this point in time by the weakness of the demand overall. But nonetheless, this trend continues to happen, and we are successful in winning such agreements actually on a continuous basis. So the reverse trend of that, you sometimes see, but the general strategy that actually we will win these games will continue.

And here I can say, I've been on your question on outsourcing or insourcing, going direct or not. With our biggest accounts, I'm talking like the three or four biggest ones, and it's a downturn. And we're talking here accounts that are multi hundreds of millions, and I've been in those meetings, the team is growing together both ways. So that means we're selling more and they're putting more through us. And I think the philosophy we often see is taking the tail end, you know, big accounts they want to have, and then they move up the tail end limit I want to put more complete packages out to us. And we have a lot of work discussing these issues. So I would say you have both trends. And then, of course, if they have big accounts where they can go direct, they like to do that and then leave the tail end to us. So we see both. But on average, the discussions I've been in has been putting more over to us. And there, my position has been Let's do it in structured good steps so that we do it well. Because the biggest danger we have here is that when you take over a number of customers from one of these suppliers, if you make a bad job out of it, you don't manage to grow them. And so what we are sitting with now, what we have done some of these days, in spite of a declining market. We have almost made a point of trying to grow their volume so that they're happy with our performance. But it's super important that you take it in good structure, good team on it, and make it a success. And I think as long as you do those shifts with success, you will get more. And if you mess it up, it stops. So that's what I say. And then you have really, really big principles that are looking into very big moves, and then you never know, will it happen? And you also see quite a few principles that might not have had it before, but now they have a global responsible person, a regional responsible person, but I mean mostly global responsible people for distribution, where you have much more strategic discussions. That's certainly ongoing now, and it's due to the downturn, a lot more is on the table to lead with.

Thank you so much. That's very helpful.

Our next question comes from Chetan Udeshi with JP Morgan. Chetan, please unmute your audio and ask your question.

Yeah, hi. Thanks for... Can you hear me?

Yeah, cool.

My first question was just going back to the guidance. So, you know, you're saying lower end. Are you then happy with the consensus, 971, or would you rather have people at lower end, meaning 950? Just curious on that. The second question was just on these cost savings. You know, you've shown us this $45 million of cost out. Is there some temporary nature within that? So I'm just curious if you've actually taken out bonus provisions that were taken in H1 and that sort of amplifying, if you will, the cost takeout number in Q3 by any chance, because I saw your personal expenses, you know, we were sort of run rating at something like 365 to 370 million per quarter in H1. And now they are more like 350. So I'm just curious if there is a, bonus provision take out, which is one off in nature in Q3. And the last question was, can you remind us, you know, you talked about, you know, no longer doing the split. How much duplication of cost do you have in the system today that can go away in the next 12 months as you no longer, you know, continue on that path of splitting the businesses into two? Okay.

So, three questions. First question on that was actually towards the guidance. Where would we then see this? Overall, if you look at it, what we have been guiding now, what we've been clarifying or specifying, is that we see the range between 950 to a billion and 50 coming in towards the lower end. That word is quite important, so it is not at the lower end, it is towards the lower end. Having said that, we do expect it probably more in the lower side of it. So towards the lower end, I think, captures it quite well in terms of number. There's a couple of things that obviously still are variables. So how is the demand going to develop? We will continue to take costs out, and that will actually take us to exactly that expectation that I've just been mentioning. So that's on the first question. On the second question, do we incur temporary reductions in cost because of adjusting the bonus provision? That is correct. So we do have bonus provision releases, actually, in our overall accounts. However, we do not count them towards the program of cost reduction. So when I am quoting 30 million in the first quarter, 45 in the third quarter. This does not include one-off effects. That's in the element where I am talking about inflationary trends already in there as a counterbalance. So the inflation would be higher if we actually would not have such elements. So to summarize on that question, when we are looking at cost take out, we are counting only topics that give us persistent and continuous cost reductions and not one-offs. So that's on the second question. On the split costs overall, so as you will see that we have already across the business, actually we continue to take out costs there. What has been announced in 2024 was actually that there are disenergies to be expected between 90 and 120 million. So that's a guideline for you to think about what costs would occur if you would have done the entire script. Not all of that has been now created in terms of duplication of costs because we have obviously not done the complete separation. So I think that gives you some good numbers actually to think about in which direction this will evolve. Thank you.

Our next question comes from David Simmons with BNP Paribas. David, please unmute your audio and ask your question.

Thank you. So the first question that I have, so life sciences gross profit per unit was described as meaningfully up the first half, but only moderately up for the nine months. And material science moved from slightly up to slightly down. So could you talk about what changed quarter on quarter? Was it an intensification of Chinese competition? And are you seeing pricing pressure also in North America and EMEA, or is it limited more to Lausanne and APAC? Second question, Could you comment on the split of cost savings across the divisions? Because it looks like essentials did a pretty good job on cost. I'm just wondering if they took a more than proportional split by more than two thirds of the total. And then finally, one for Jens, could you comment on the split of the sales force that you have at the moment in the specialty division? Do you think it makes sense to, I think the sales force was reorganized to be vertically aligned rather than regionally aligned. Do you think that still makes sense? Or with the sort of reversal of the split of the company, could you look to merge things a little bit back towards salespeople covering both essentials and specialties by region? Thank you.

So, David, maybe I take the last one and then I hand over the first two ones. I have maybe something to add on material science. No, so on the sales force, I mean, I must admit I've almost been in a company where you don't have verticals and regionals and where you have different sales forces. So how we want to run it, I think we have a pretty good setup. We have domain competence vertical sales forces in the specialty businesses, but we also have that in some other verticals where we specialize essential people on the vertical. So that will remain No reason to do that, and most of all, we don't want to do cost savings in that piece. We want to really make sure we invest in the sales. It's not increases, but when we reduce these costs, as I said, we take overheads. We want to keep that intact, and it's a good setup. But of course, we want to make sure that they stay focused on their job, but never forget that they have a sister and a brother that very often actually sell to the same logo so that we don't close that. On top of that, what we are running is that we have a global team that we can regionalize, depending on the customer, what they want for key accounts selling and then also buying the principles. So when we have our vertical business, the specialty businesses, they take care of that. But there are some accounts where we have so big engagements that we need to set up global teams. And I would say those, the two specialized, you know, the central regional sales force and the specialty sales force, then we have the key account for the really big customers that we both buy and sell, and then the really big ones we buy from, They demand that we have global organizations. And whenever we step into that global organization, we end up having around the table both businesses with almost all of those logos. So you need to play all of those four, I would say, to sell. And we're going to keep that and refine it more at the same time as we get more team play between them. without losing focus on the individual business. And I think that domain competence and the specialty business is really one of the core things. You need to really nurture and build that, otherwise you won't sell anything. And, of course, you need the mandate, which requires a massive amount of competence to secure the mandate. So you just keep building on what has been built in the last years.

So in general, if you look at the North America situation, and this is actually impacting as well material science to a large extent, I mean, but in the BES side first, what we've seen is quite a bit of weakness in overall volumes. benefiting from slightly more stable prices in that context in the third quarter in North America. But overall, really, the volume decrease has been affecting the gross profit overall. What we've seen as well is, and I've been commenting earlier on that, that the margin management has continued to help us. So on the gross profit per ton, we actually see this slightly up across the North America region. If you think about material science as a whole, then as well there are, so gross profit per ton in the second quarter has been slightly up, and whereas in the third quarter it actually is slightly down. That's the directional changes actually that we are seeing in that context. Overall volumes remain the same. Talking about cost savings, overall the cost saving initiatives are benefiting both divisions. So we see in both divisions that cost savings are being realized. We do need to continue to accelerate this, and that's what we have obviously committed to and where we do see the potential to it. It's worthwhile mentioning, too, that from the VBS costs, so the central costs of the headquarter, we actually have seen quite a bit of progress and reductions on that already, and we will, as Jens has very much pointed out, continue to intensify that and actually create more savings in that space. So that's a rough direction of how the cost savings are actually affecting the different divisions.

Thank you very much. That's very clear. If I could just ask a quick follow up to the last one on cost saves in specialties or sort of margin progression in specialties. What's the reason for the sort of worst margin progression in specialties? Is there more pricing pressure on that side? Is it with the contract structures in that business, is it harder to pass through some of this margin management action? Or what can you say on that, please?

So when you look at the overall development in the third quarter for BSP, then the volumes in BSP have actually reduced harsher than they have actually reduced in BDS. That for sure is one of the drivers in that context. If you look at the overall... margin management, they're actually doing quite well on this. So from a gross profit per ton, we actually see a further improvement in that. But where we do see the main pressure in BSP is really on the volume side. Understood. Thank you.

Our last question comes from Nicole Mannion with UBS. Nicole, please unmute your line and ask your question.

Hello. Just checking you can hear me there.

Yes, we can hear you.

Great. Just one on the change to the CapEx guide, please, July versus now, the 100 million difference. Can you walk us through the moving parts there? Apologies if I've missed something, but just given your existing CapEx up to this point in the year and the magnitude of that change, just any extra detail there would be great. Thanks.

So what's important to understand there is that in our general capital allocation guideline that we wrote, we obviously say that this is about 300 million a year in terms of capex. So what we have done as well is we wanted to specify towards the end of the year where we will likely end up. And this is just a general trend for the end of the year. At this point in time, we are seeing reductions in the overall capex spend, and we are expecting as a consequence to come in around the 200. Now, important is the around, so it can go slightly above still at this point in time, but this is not a specific initiative that we are not executing. This is the... not having spent as much. Now we do obviously across the board ensure that we are spending the money on the right projects and that might have actually here and there as well slowed down some of the cap expense so that we are ensuring that we spend it on the right returning projects.

Okay. That's very helpful. Thanks.

This concludes the Q&A session. I will now hand back to Thomas Altmann for closing remarks.

Thank you very much, Abigail. So, if there have been any issues from the sound quality, please let us know also after the call. You can just send me an email or just send me a text message, then we will make sure that you take consideration for the next call. And with that, we are coming to the end of the conference call. If you have further questions, please do not hesitate to reach out to the IR team. Our next interaction with the market will be with the full year 25 results, which will be published on March 12th next year. And with that, ladies and gentlemen, thank you very much for joining us today. Have a good day and goodbye.

Thank you. This concludes today's call. Thank you, everyone, for joining. You may now disconnect.