IMCD N.V.

Good morning, ladies and gentlemen. Thank you for holding, and welcome to this analyst call on the first half-year results 2020 of IMCD-MD. During this call, all participants are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. I would now like to hand the call over to Mr. Piet van der Sleeken. Please go ahead, sir.

Yes, thank you very much. Welcome, everybody. I'm here, as usual, with Hans-Corey Mons, and we will answer your questions in a few minutes. A few remarks from my side and then Hans will take you through the key financial numbers. I'm happy to report that IMCD performed well, given the very difficult circumstances because of the COVID crisis. We were able to grow in the first six months with 7% and even in the difficult second quarter. As you know, we were confronted with lockdowns of various nature, but almost everywhere we were considered as essential business and we could continue our activities. In many offices of IMCD, our people worked from home, but where possible, we also returned to the office. Our performance in the Americas and the APEC, Asia Pacific, was in particular strong. In EMEA, the picture was missed. Some countries were affected by the COVID crisis, seriously some less, often dependent on how government handles the lockdowns. Overall, I'm optimistic about our ability to grow. We are resilient and we have sufficient interesting projects to drive future growth. Of course, timing of that will be dependent on how fast we will get past this COVID crisis. And now I would like to hand over to Hans who will lead us through the numbers. Thanks for the introduction. Good morning, ladies and gentlemen. I would like to take you through a short summary of the results of EINCD in the first half of 2020 as reported earlier today. And as usual, I would like to start on page 9 of the presentation, where you will find a summary of the first half-year income statement. As you can see, Forex suggested revenue increased 2% and gross profit increased 8% compared to the same period of last year. This gross profit growth was a combination of 5% as a result of acquisitions and 3% organic growth. Gross profit in percentage of revenue increased 1.3% from 22.3% last year to 23.6% year-to-date. This increase is amongst others the result of various internal initiatives to improve the growth margin and the small accounting chains as a result of one of the business integrations. Further, we saw the usual fluctuation and quarterly differences in margin percentages between regions caused by changes in local market circumstances, product mix differences and currency fluctuations. Forex suggested operating EBITDA and EBITDA both increased with 8%. This increase was a combination of organic growth and a first-time inclusion of acquisitions. Operating EBITDA in percentage of revenue increased to 10.2% and operating EBITDA in percentage of revenue increased with 0.5% from 8.8% to 9.3%. The conversion margin, calculated as operating EBITDA in percentage of growth profit, remained stable at 39.5%. On the next page, page 10, you will find a summary of financial details per operating segment. In EMEA we report 3% Forex adjusted growth profit growth and an operating EBITDA of 70 versus 71 million last year. The EBITDA margin of 10.2% remained stable compared to the same period of last year. In the Americas, we saw double-digit growth profit and operating EBITDA growth, respectively by 11 and 14%. Operating EBITDA in percentage of revenue improved 1.5% to 9.7%. In Asia-Pacific, we realized 24% growth profit and 29% EBITDA growth on a constant currency basis. This growth was a combination of organic growth and the first-time inclusions of acquisitions like Wawon, a pharma business in South Korea that we acquired end of last year. Operating EBITDA margin and conversion margin both increased compared to the same period of last year. And in the last column, all non-operating companies, including the head office in Rotterdam and regional support offices in Singapore and New Jersey, where we reported slightly higher costs, mainly as a result of further strengthening of support functions in the course of the last year in these offices. Then on page 11, a summary of the P&L lines between operating EBITDA and net results for the period. A few general remarks. Net finance costs include, amongst others, interest expenses, currency exchange results, and changes in deferred considerations. Further, it includes part of the IFRS 16 lease expenses. Income tax expenses relate to the countries where we generate taxable income, and the tax cash out in the first six months, as you can see in the cash flow statement, was about 20 million. Amortizations of intangible assets are mainly non-cash costs related to the amortization of supplier relations, distribution rights and other intangibles. And last but not least, on the bottom of this page you could see a Forex-adjusted 6% increase in cash earnings per share to €1.69. For your info on page 12, a specification of the net finance cost where we reported an increase of 2.4 million compared to the first half of last year. And as you can see, main driver of this increase were changes in deferred consideration and currency exchange results adding 4.3 million to the finance cost. Interest costs of our loan structure were close to 2 million lower than in the same period of last year. Then on page 13, a summary of IMCD's balance sheet. Property, plant and equipment of 91 million is a combination of a limited amount of fixed assets that we really own ourselves and more than 70 million right of use assets. In other words, capitalized operational leases as a result of the application of IFRS 16. Intangible assets and related deferred tax liabilities are a result of M&A and our history as a private equity owned company. And there is a substantial equity position which covers about 52% of our capital employed. In June the AGM approved our proposal to pay a dividend of 90 cents per share. This dividend was paid in Q3 in July. resulting in a total cash out of 47 million. We would like to make you aware that although we paid this dividend in July, we deducted this dividend from equity and included this payment in July as a debt item in these half year figures. The leverage ratio end of June based on our loan documentation was 2.5 times EBITDA, which was well below the required maximum as set in the loan documentation. Reported leverage was 2.9 times EBITDA. The difference is the result of differences in definitions between IFRS and the loan documentation. Further reported leverage includes additional lease related debt as a result of the application of IFRS 16. Working capital is summarized on the next page. where you will find a summary of the absolute amount of the various working capital components, and these amounts are translated in days of revenues. As you can see, the absolute amount of working capital end of June increased by 34 million compared to year-end 2019. Compared to last year, June, the overall working capital days increased two days from 58 to 60. We did reasonably well on the depth of days. There was a strong focus on cash collection, which helped to avoid the material impact of COVID on our receivables. Compared to June last year, we could even reduce the number of debt-to-day slightly from 60 to 59. It's fair to say that we could have done better on stock days. Inventories moved from 45 days last year to June to 49 days this year. In certain countries, the impact of COVID was underestimated, and in some cases, purchase orders were not or too late adjusted to an unexpected COVID-related delay. Further, we felt the impact of relatively long lead times of certain specialty chemicals, making it difficult to adapt stock levels quickly to the COVID situation. And we consider this relatively high stock position as a temporary issue, and we took actions to reduce stock levels where needed and possible. I would like to finish this short financial summary with a cash flow overview on page 15. As you might remember, at the end of Q1 we reported the difference in cash conversion ratio between Q1 this year and Q1 last year of minus 23%, whereby Q1 last year was 12 million better than Q1 this year. At the end of Q2, we closed part of this gap, but by the year-to-date, 57% cash conversion ratio is still below last year. As indicated before, the year-to-date working capital investment, mainly stocks, is the main driver of this difference. I assume you all read the outlook on page 17 already in our press release and suggest that we move to Q&A, and therefore I would like to hand over to the operator to open the line.

Thank you very much, sir. Ladies and gentlemen, we are starting the question and answer session now. If you have a question or remark, please press star 1 now on your telephone. Star 1 for your questions or remarks. Go ahead, please. Our first question is from Mr. Muklum Gundogan of Avian Amro. Go ahead, sir.