IMCD N.V.

Ladies and gentlemen, thank you for holding, and welcome to the full year 2020 analyst call of IMCD. At this moment, all participants are in listen-only mode, and later we will conduct a question-and-answer session. I would like to hand over the call to Mr. Piet van der Slikker. Go ahead, please, sir.

Yes, thank you very much. Hello, everybody, again. I, as usual, sit in here with Hans-Corey Malms. who will later take you through the numbers, and we will both answer the questions on the full year 2020 results. Now, as you all know, it's now almost a year after many countries went into first lockdown, and I think we are now in the second or third here in Holland, and the world has changed dramatically. However, we stayed open, IMCD stayed open for business, And I'm very happy to say that our strong and resilient business model helped us through this year. Actually, we can present very good results, achieving again growth in all important KPIs. go in more detail, but you have seen in our press release that our EBITDA increased with 13% versus 2019, and even with 16% on a constant currency base. Free cash flow grew with 27% to 282 million, I think that's a record, and cash earnings per share with 13%. Many regions and countries showed strong growth, while some who were affected by severe lockdowns had a more difficult year. Also during this year where we could not travel, we were able to acquire several attractive businesses. In Israel, China and India we made important acquisitions which fit into our strategy to globalize our pharma business. In Mexico, We increased our presence by acquiring two companies who will be both integrated into IMCD Mexico and we expect a lot of that in the future. And in Brazil we strengthened our presence in the food industry. We are very optimistic about the contribution of all these companies to our overall growth and strategy. I need to say that all this has been possible because of our fantastic people, many of whom work from home. I would also like to mention those who helped us in logistics, in our warehouses and kept our business going. Our IT and digital infrastructure also played a key role and we have been able to further optimize our capabilities in this field. Despite uncertainties in the outside world, we remain quite positive about our ability to grow, also this year. Our business model proved to be strong, and we will benefit once economies turn to normal again. And with this, I would like to hand over to Hans to take you through the numbers of 2020. Hans? Thank you, Peter. Thank you. Good morning ladies and gentlemen. Earlier today we published our full year results in the form of a short press release and we further published our annual report, a legible document with information about various aspects of IMCD's business model, including a lot of details about our financial performance. In this call I will limit myself to a summary of the 2020 members, but I would like to start on page 10 of the presentation. As you can see on this page, Forex adjusted revenue increased 6% and gross profit increased with 11%. The increase in gross profit was a combination of 6% acquisition-related growth and 5% organic. The acquisition growth is the balance of the four-year impact of acquisitions done in 2019 and more recent acquisitions done in 2020. For an overview of the 2020 acquisitions, I would like to refer to page 8 of this presentation. Growth profit in percentage of revenue increased with 1% point from 22.3% in 2019 to 23.3% in 2020. And this increase is the result of gross margin improvement initiatives, the usual changes in local market circumstances, currency fluctuations and newly acquired businesses. All reasons contributed to the margin growth and improved cross-margin percentage. For your convenience, we included a line with an operating EBITDA comparison. However, for IMCD's asset-light business model, combined with the impact of IFRS 16, the EBITDA development shown in the next line seems to be more relevant to our opinion. Operating EBITDA increased 16% on a constant currency basis to 254 million. This increase was a combination of healthy organic growth and a first-time inclusion of acquisitions. The operating EBITDA in percentage of revenue increased by 0.7% from 8.4% in 2019 to 9.1% in 2020. The conversion margin, calculated as operating EBITDA in percentage of gross profit, increased from 37.5% last year to 39.2% in 2020. The improvement in conversion margin is amongst others the result of improved growth margins in combination with lower operational expenses. On the next slide, stage 11, you will find a few key figures from the P&L for operating segment. Growth profit of EMEA in the first column increased 5%, a combination of 1% organic growth and Acquisition growth as a result of the acquisitions of DCS in 2019 and Zicroni and Cocco Fiber in 2020. 2020 growth profit margin percentage increased with 0.7 to 25.4%. Operating EBITDA in EMEA increased 6% whereby the EBITDA margin increased from 9.6 in 2019 to 9.9% in 2020. Cross-margin in the Americas increased 11%, which is a combination of 10% organic growth and 1% as a result of the first-time inclusion of acquired companies. Margin growth combined with disciplined cost control resulted in a further improvement of the EBITDA and conversion margin with respectively 1.2 and 1.9% points. Then Asia-Pacific, who had another good year, whereby they realized 36% growth profit growth. And this was a combination of 11% organic and 25% as a result of acquisitions like Marwan, Daveling and Cignet. The growth profit margin increased from 20.5% last year to 21.1% in 2020. Operating EBITDA increased 53% on a constant currency basis, which was a combination of healthy organic growth and acquisition zone. EBITDA margin increased to 10.5% and conversion margin further improved to close to 50%. In the last column, you will find in the holding companies all non-operating companies, including the head office in Rotterdam and regional support offices in Singapore and New Jersey in the US. The absolute amount of holding cost increased from 15 to 17 million, and holding cost as percentage of revenue remained stable at 0.6%. On the next page you will find a summary of the P&L lines from EBIT to the net result for the period, some general remarks about the sheet. The development of net finance cost and income tax expenses are summarized on the next two slides, but before we go there, Amortization of intangible assets and related tax credits are both MON cast cost items related to the amortization of supplier relations, distribution rights and other intangibles. The increase is mainly the result of acquisitions done. Then, MON recurring income and expenses of about 5 million in both years includes cost of M&A activities and costs related to one-off adjustments of the organization mainly as a result of post-acquisition integration processes. On the next slide, slide 13, a breakdown of the 2020 finance costs, adding up to 26 million, which is about a million lower than previous year. This decreases, as you could see, a combination of 2.8 million lower interest costs related to our financing structure. Further positive changes in the first considerations of 2 million are reported on this line, and we experienced unfavorable currency exchange results, adding 7.5 million to the 2020 finance cost. On page 14, a summary of our income tax expenses. The reported increase of our regular income tax expense is 5 million, which is an increase of 12%, more or less in line with our reported EBITDA growth. 2020 tax cash out was 46 million, compared to 44 million in 2019. I would like to refer to our annual report for further details on tax and tax calculation. On the next page, the calculation of cash earnings per share and our dividend proposal. As you can see on this slide, we report 3 euro and 22 cents cash earnings per share in 2020, which is 37 cents or 13% increase compared to 2019. At the AGM in June, we will propose a dividend of €1.02 in cash per share, which means an increase of 13% compared to last year. This dividend proposal leads to a payout ratio of 34%, an increase of 2% points compared to last year. Then on page 16, a summary of IMCD's balance sheet. Property, plant and equipment slightly decreased and is as a result of the asset-like business model still relatively low compared to the size of our business. Right-of-use assets is a result of the application of IFRS 16, and this 68 million reflects capitalized operational leases. Intangible assets and related deferred tax liabilities are mainly a result of acquisitions made. Then there is a growing equity position of close to 1.3 billion, covering 63% of capital employed. The increase in 2020 is a combination of a share capital increase, the addition of net profits, minus a dividend payment in cash in July last year of 47 million. In September last year, IMCD successfully raised 400 million in share capital by issuing 4.4 million new shares. And the net proceeds of this new capital have been used to finance the acquisition of 70% of SIGNET and for general corporate purposes. Through other balance sheet lines, working capital and net debt are summarized on the next two pages. On page 17 you will find a summary of the absolute amounts of the various working capital components and these absolute amounts translated in days of revenue. As you can see, the absolute amounts the absolute working capital amount increased 7 million and this increase is a combination of 74 million additional working capital related to 2020 acquisitions and a minus 31 million as a result of exchange rate differences. Further, we report an operational decrease in 2020 of 35 million in capital. Working capital days based on year-end balance sheet positions, were end of 2020 slightly lower than end of 2019. On page 18, a summary of our net debt position. At the end of 2020, we report $739 million of net debt, which means an increase of $4 million compared to year-end 2019. Apart from the usual bond loans, Hulstein and bank loans, net debt includes $81 million of operational lease liabilities as a result of the application of IFRS 16. Further, under net debt, we report about 194 million of deferred considerations. Most of these deferred considerations relate to the remaining 30% of sickness that we will buy in 2024. On this same page, an overview of the maturity profile of our debt structure as per December 2020. Compared to a similar overview in last year, you may notice the increase in contingent consideration and the change in our revolving credit facility. We were able to increase the borrowing capacity on this revolver facility in March last year from 400 to 500 million and extended the maturity from March 24 to March 25 combined with better terms. Reported leverage at the end of 2020 was 2.3 times EBITDA, and the leverage ratio calculated based on definitions used in the loan documentation was 1.6 times EBITDA, which was well below the required maximum as set in the loan documentation. I would like to finish the financial summary with the cash flow overview on page 19. As you can see, the absolute amount of free cash flow improved from 60 million to 282 million, as mentioned before by Pete, whereby the cash conversion ratio increased to 109%. This increase in conversion ratio is the result of higher operating EBITDA combined with relatively low capex and a negative working capital investment. And on the last slide of this presentation, you will find the outlook in which we can indicate that IMCD sees interesting opportunities to increase its global footprint and expand its portfolio both organically and by acquisitions in 2021. So far my summary of the 2020 figures and Peter and myself are happy to answer your questions.

Thank you sir. Ladies and gentlemen we will start the question and answer session now and to be registered for the question and answer queue You may press star 1 at any time. So that's star 1 for your question. Go ahead, please. And the first question is from Mr. Matthew Yates, Bank of America. Go ahead, please, Matt.