IMCD N.V.

Ladies and gentlemen, thank you for holding, and welcome to the analyst call Q1 2020 IMCD results. At this moment, all participants are in listen-only mode. After the presentation, there will be an opportunity to ask questions. I would like to hand over the call transcript to Charlie Flicker. Go ahead, please, sir.

Yeah, thank you very much, and welcome, everybody. As usual, I'm here with Hans Klooymans, our CFO, and we will answer your questions in a few minutes. First some remarks from my side, and then Hans will take you through the key financial numbers. When we spoke with each other on February 27, as we released our annual report 2019, the corona crisis was already there, but not yet in the unprecedented form we now experience. As you know, we as management of IMCD were always quite reluctant to give guidance on future profit development and these events show again how fast and unpredictable things can happen. You will appreciate that under these circumstances we are even less inclined to give an outlook. We already informed the market on April 7 that we did not observe a negative impact of the corona crisis in our Q1 results. These results are strong with revenue and EBITDA growth in all regions. Overall, revenue grew with 6% and EBITDA with 11% to 17.9 million. Cash earnings per share increased with 13%. We cannot rule out that in particular in March, stock building took place by part of our customer base, which in that case had a positive effect on our numbers. However, we can't verify whether this actually has happened and to what effect. During March, largely in the second half, lockdowns and restrictions were implemented in almost all countries where IMCD is active. IMCD has been designated in most of these countries as essential and our company therefore remains open for business. Of course, the health and safety of our staff is an absolute priority and we have adopted everywhere safe working practices. This means in practice that most of our people work from home. It is gratifying to see that this is made possible because of our robust IT and digital infrastructure. This situation continues for the time being and only our colleagues in China are back in the office. We are very proud of our staff worldwide. They have reacted magnificently on this unprecedented crisis. IMCB has not applied for any financial assistance offered by government programs anywhere in the world, nor do we intend to do so. Although Q1 was strong, we expect to see impact of the crisis in the coming months. In some of our business segments, a certain number of customers have closed or are affected by the crisis leading to cancellation or postponement of orders. We monitor this closely day by day. We expect that this will affect our revenue. Other business segments do not experience this and even see increased demand. It is impossible to predict how these effects will develop as it is largely dependent on government policy regarding lockdowns. In this respect, we see also differences per country and in some countries, government measures have been disruptive to the supply chain. Assuming that this crisis will not go on forever, we expect that we will get through this period with not too much harm and we then hopefully can resume our growth path. IMCD is strong and resilient and its diversified activities prove this again. We at IMCD are committed to ensure the continuity of the business for the benefit of our employees, our commercial partners, our customers, and our shareholders. Now Hans will take you through the Q1 numbers and after that we will answer your questions. Hans? Take your peace. Good morning ladies and gentlemen and as usual a short summary of the first quarter results that I would like to start on page 9 of the presentation. As mentioned by Peter, we are happy to report a 6% revenue and a 12% gross profit increase in the first quarter of this year. The gross profit increase was a combination of 7% organic growth and 5% as a result of the first time inclusion of acquired companies. Close profit in percentage of revenue improved from 22.4 to 23.6%. And this increase in percentage was a combination of product mix effects, changes in local market circumstances, currency changes, and growth margin improvement initiatives. Operating EBITDA increased 11% to 70.9 million. This increase was a combination of organic growth and the first-time inclusion of acquisitions. The operating EBITDA margin increased from 9% in the first quarter of 2019 to 9.5% in the same period this year. The conversion margin, calculated as operating EBITDA in percentage of growth profit, was 40.2%, which is slightly lower than the same period last year. In EMEA, we had a conversion margin just below QWAP last year, but much better than all other quarters in 2019. In Asia Pacific and the Americas, we were able to further improve this ratio. Net results before amortization and non-recurring items increased 13% to 15.2 million. Free cash flow and cash conversion ratio both decreased compared to the same period of last year. Substantial operating EBITDA growth in 2020 could not fully compensate the increase in working capital in the first three months. This working capital investment of about 36 million was mainly the result of increased business activities. Net working capital, translated in days of revenues, were 54 days, similar to the first quarter of last year. Year-to-date cash earnings per share were 94 euro cents, an increase of 13% compared to the same period of last year. And on the last line of this page, you could see a 9% increase in our number of employees. Most of this increase is the result of the first-time inclusion of acquisitions. On the next page, slide 10, you will find growth profit, EBITDA and conversion margin per operating segment. EMEA reported 7% forex-adjusted growth profit growth and 6% operating EBITDA growth. Operating EBITDA in percentage of revenue improved from 10.2% to 10.5%. The growth is a combination of organic growth and the impact of the acquisition of BCS and Cifroni. Further, Q1 includes a bit of startup cost of our new venture in Dubai. In the second column, the results of Americas. In Q1, Americas increased growth profit and operating EBITDA both with 15%. Most of the growth is organic and amongst others driven by an increased GM percentage. Asia Pacific in the third column reported 26% growth profit growth and 27% operating EBITDA. This was a combination of organic growth and the first-time inclusion of acquisitions. And operating EBITDA and percentage of revenue was comparable with last year, whereby the conversion margin further improved. And in the last column you will find the cost of the holding companies. And as you know, this includes all non-operating companies, including the head office in Rotterdam and the regional support offices in Singapore and the US. On page 11, a short summary of IMCD's free cash flow. Free cash flow and cash conversion ratio were both lower than the same period last year as a result of the increased working capital investment, as indicated before. And as mentioned, this working capital investment is mainly the result of increased business activities. Working capital translated in days of revenue remained stable. On page 12, a short update on net debt and leverage. And for information purpose, we separated the IFRS 60 net debt. And as you can see, reported leverage ratios and leverage based on the definitions in the loan documentation stayed at 2.8 and 2.6 times. The 2.6 times leverage ratio is well below the lowest 3.5 times leverage threshold in IMCD's loan documentation. And last but not least, on page 14, you will find our outlook for 2020. So far, the short summary of our year-to-date financials, and Peter and myself are happy to answer your questions. So, operator, you can open up the lines again.

Thank you, sir. Ladies and gentlemen, we will start the question and answer session now. To be registered for the question and answer queue, please press star 1. Press star 1 for your questions or remarks. The first question is coming from Rajesh Kumar, HSBC Bank Collector.