Imcd Group Nv U/Adr

Ladies and gentlemen, thank you for holding, and welcome to the IMCD analyst call. At this moment, all participants are listen-only mode, and after the presentation, there will be an opportunity to ask questions. I would like to hand over the call to Mr. van der Slikken. Go ahead, please.

Yes, good morning, everybody. As usual, I'm here with Hans Klooymans, my colleague, and together we will answer your questions on our first quarter results. As reported in our press release, we had a strong first quarter with an EBITDA growth of 28% and 34% on a constant currency basis. Growth consists both from organic growth and growth from acquisitions in 2020 and a most notably signet in India. As said in earlier calls, our business model is robust, also under difficult economic circumstances. We saw in the first quarter strong demand from our customers and we must assume a preparation of economies that will open up after COVID. Across many markets, we experienced delays in deliveries because of product shortages or supply chain issues. We also saw price increases over a wide range of products. Notwithstanding this, we were able to cope with all these factors successfully, and we look with optimism for the remainder of the year. Now Hans will take you through the Q1 numbers, And after that, we will answer your questions. Thank you, Pete. Good morning, ladies and gentlemen. And I will give you a short summary of IMCD's first quarter 2021 results. And as usual, I will start on page 10 of the analytical presentation. We are happy to report a thoroughly suggested revenue increase of 13% and 17% gross profit increase in the first quarter of this year. The gross profit increase was a combination of 9% organic growth and 8% as a result of the first-time inclusion of companies acquired in 2020 and 2021. Gross profit in percentage of revenue improved by 0.8%. percent point from 23.6 to 24.4%. This increase in percentage was a combination of the contribution of newly acquired businesses, product mix effects, changes in local market circumstances and successful internal growth margin improvement initiatives. Forex adjusted operating EBITDA increased 34% to 19.6 million. This increase was a combination of substantial organic growth and first-time inclusion of acquisitions. The operating EBITDA margin increased by 1.7% from 9.5% in the first quarter of 2020 to 11.2% in the same period this year. The conversion margin, calculated as operating EBITDA in percentage of gross profit, was 45.9%, which is 5.7% better than the same period of last year. In all regions, we saw an improvement of this ratio. Forex adjusted net result before amortization and non-recurring items increased 32% to 64 million. Free cash flow and cash conversion ratio both increased compared to the same period of last year. Substantial operating EBITDA growth in 2021 more than fully compensated for the increase in working capital in the first three months. This working capital investment of about 27 million was mainly the result of increased business activities. Net working capital, translated in days of revenue, were 54 days, similar to the first quarter of last year. Year-to-date CAF earnings per share were €1.11, an increase of 18% compared to the same period of last year and a 22% increase when adjusting for forex differences. On the last line of this page you could see a 10% increase in our number of employees and most of this increase is the result of the first time inclusion of acquisitions. On the next slide, slide 11, you will find growth profit, EBITDA and conversion margin per operating segment. EMEA reported 8% forex-adjusted growth profit growth and 18% operating EBITDA growth. Operating EBITDA in percentage of revenue improved from 10.5% to 11.3%. As most of the acquisitions in this region were relatively small, it's fair to assume that most of the growth is organic growth, and the impact of the acquisitions is limited. A bit of a similar story in the second column with America's Q1 figures. However, weakening of local currencies in this region had quite an impact on reported Euro numbers, as you can see. Forex adjusted growth profit in the Americas increased 10% and operating EBITDA increased 11%. Most of the EBITDA growth is organic, and amongst others driven by an increased growth profit percentage. Asia Pacific in the third column reported 70% growth profit growth and more than doubled operating EBITDA. This was a combination of substantial organic growth and a first-time inclusion of acquisitions. Operating EBITDA in percentage of revenue and the conversion margin further improved. This increase was a combination of the acquisition of Signet in India in November last year and healthy organic growth profit and EBITDA growth. And in the last column, as usual, you will find the cost of holding companies. And this includes, as you know, all operating companies, including the all MOEM operating companies, including the head office in Rotterdam and the regional support offices in Singapore and in the US. On page 12, a summary of IMCD's free cash flow. Free cash flow and cash conversion ratio were both substantially higher than the same period of last year as a result of increased operating EBITDA combined with a lower working capital investment. Further, CAPEX was about 2 million lower than in the same period of last year. Then on page 13, a short update on the net debt and leverage. As you can see, reported leverage ratios and leverage based on the definitions in the loan documentation. at 2.3 and 1.6 times LTM, either DAP. The 1.6 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 15 you will find our outlook for 2021. So far the short summary of our year-to-date financials and Peter and myself are happy to answer your questions.

Ladies and gentlemen, if you would like to ask a question, please press star 1. For questions, star 1. Go ahead, please. First question is from Mr. Moodley-Gondegans from ABN Hamburg. Go ahead, please.

Yes, good morning, Speaker Hans. Three questions, if I may. The first one on EMEA. So your operational costs were rather low this quarter. I think at the percent of sales, 13.6%. So just wondering, is that a temporary effect? And if so, how quickly do you think that it should normalize to the historical average? That's the first one. Then secondly, on Asia-Pacific, I'm really surprised to see that OPEX was nearly up 1% a year, 1 million a year to 13.2 million. If that's the new run rate per quarter for this year, and if so, does this mean that our conversion margin of 65% is too low for Cygnet? And then thirdly, on the sentence in the press release, where you talk about product shortages and disturbances in the supply chain, just wondering, was that overall a positive or a negative for IMCD as a whole? The

The first question on operational costs in Enea, we have of course compared to last year operating costs because of COVID, in particular, of course, in travel institutions. And as you all remember, last year COVID started more or less in the course of March. So there we have a normal level of cost. So we have some benefit of that. The question whether or not it will return in the usual form is of course something that we think about. It will of course increase a bit if the situation normalizes again. Whether it will come back to the original level, we doubt, but we will see because we also learned a lot during this period. So yes, there's some positive cost effects because of the situation we are in. Then OPEX Asia House, is that something you want to... Yeah, I would first try to understand, Mutlu, what you are referring to there, to make sure that there is a common understanding about the numbers that you just mentioned. I think basically if I look at the cost trends in Asia Pacific, organic... cost growth is a bit similar to what Pete just indicated so there could be a little bit of a positive impact of lower travel costs but other than that we just see in that region normal cost inflation and a bit of growth of our own organisation to cope with the healthy organic growth in that market segment and I'm not sure if I completely followed your conclusion on

conversion margin of Cygnet perhaps I use your question there yeah maybe to add so if I look at the OPEC test so operating EBIT A minus close profit and if I issue something on depreciation I see that that number was 13 million 13.2 versus something like 12 million last year in Q1 And I had expected that that would increase more mainly on the back of the acquisition of thickness. So maybe the operational cost of thickness is significantly lower than what I have or maybe other analysts have.

That could be the case. Yeah. Because they're very efficient. Maybe that is something to address maybe offline. I think with respect to your last question, product shortage, that's a good question actually. Is that good or bad? Well, actually of course it is. It causes us many headaches, in particular our order processing staff, salespeople, because we have delivery dates, we have commitments. So in that sense it is not good. I think generally of course we see also, and part of that will be the product shortages, we see prices increase generally and that is generally good for us because of course our absolute gross margin, gross profit will increase. That's a mixed picture, Mudlu, I would say. And it's, of course, it causes us a lot of problems also with customers. But in the end, deliveries will take place because then, of course, we need to postpone. But it's in particular, I would say, an internal additional burden for our staff.

Can I just follow up? That's the second time that you mentioned higher prices. Just wondering, if you assess the situation, where do you think you or your supply stand in terms of higher prices or putting in higher prices? Did it just start halfway through? How long do you expect it to last?

That's a very difficult question again. I mean what we see with a lot of industrial products, let's say more base products, quite significant increases for our principles, which make them more sophisticated products for that they deliver to us. Yeah, are we through that? It's difficult to say. I think it will depend very much on how demand will develop in the course of the year. And the other factor in this is that, I mean, there were multiple factors that played a role. We had force majeures in many places, for example, because of the Texas harsh winter situation that caused problems. So it's partly, it was, let's say, climate related, and partly it is the demand in the market. and this service of supply chain. But how long this will continue, I think I would be, you know, I would be a very valuable person if I would be able to predict that. So I don't know.

I understand.

Thank you. Next question is from Mr. Matthew Yates from Bank of America. Go ahead, please.

Hey, good morning, everyone. Are you able in any way to quantify how much sales you may be missed out on in Q1 from those delayed deliveries? And does that spill over into Q2 or has those sales effectively been lost to a competitor? And if we just think about the regional dynamics following up what you were saying about Texas, is it fair to assume that those shortages were more acute in the U.S. And that would be why perhaps organic growth there was less than Europe. The second question, just curious in terms of the significant rise in COVID cases in India, whether that is having any impact operationally on Cigna thus far? Thank you.

Okay, I think it's very difficult to say how much, let's say, of our turnover is affected by product shortages. It's certainly not lost. What we see is that it is pushed over to the next month or the next quarter, and that is an effect that we see today as well. So the turnover, the sales is not lost. So that is a positive I think you're right that the United States, particularly the U.S., have more problems because of the Texas situation, which is, I guess, more or less most of the things that are solved. So that certainly had an effect on our first quarter results there. Yeah, until now we have not, let's say until in the first quarter we have not noticed it yet. Of course, let's say the wave that we now see is of the last, what is it, two weeks, that it really breaks through. And we have to see what the effect is, but it... certainly is serious. I'm not sure if these will affect the production capacity of the Indian pharmaceutical industry. I mean, the effect could be, of course, because of logistic problems, but until now we haven't seen it yet.

And, sorry, if I can just follow up. maybe around the outlook and the guidance to the extent you can give it. Usually Q1 is a fairly elevated quarter for the company in terms of activity. And if I look back historically, sometimes Q2 has been down, sometimes it's been flat, sometimes it's been up. And directionally, is there anything you can indicate in terms of your expectation for Q2 sales versus Q1 at this juncture?

It's, of course, very difficult because we don't give forecasts for quarters, but I think generally I can say that the trend that we see is still there.

Very good. Thanks, Matt.

Next question is from Mr. Rajas Kumar, HSBC. Go ahead, please.

Hi, good morning. Thanks for taking the questions. The first question is on cross-selling. Prior to the pandemic and even last year, one of the growth drivers for INCB has been the ability to bring new products to new markets from existing suppliers. How has the pandemic and especially as we go through 2021 first quarter, how has that changed? And is the product availability slowing that process up a bit? The second question is on a follow-up on the product shortages. Has your service been disrupted to any of the segments, be it customer segment or geographic segment, because of these shortages? or have you managed so far to deliver the service as you would have anticipated, but with difficulty? And finally, basically, if you look at your generic form of footprint, are you happy with the shape it is in, or do you still see some gaps which you could potentially target with M&A?

Okay, thank you very much for the questions. On the first one, cross-hailing. Yeah, one of the, let's say, elements of our model is, of course, that we want to, what we call cross-fertilize, cross-sell, let's say, our supplier relations across the territories where we work. That is a process, that is a part of our DNA, and that goes on, and that is not interrupted because of COVID. I think that in the context that we have, with our suppliers and principals, we always speak about possibilities to further expand cooperation in other territories. So that is not really interrupted and in this particular case, product shortages have not played a role. Service interruption because of product shortages, yes, of course. Well, what does that mean exactly? It means delays, I would say. And sometimes in certain product categories, even our allocation, and that means that we have to very carefully consider which orders we can confirm and which not. That's not with everything. product category of course the case so but we need to be very diligent in ensuring that we can deliver in time on time and in the volumes that are required so it's a much more demand on our internal staff to take care of that The last question I now, the pharma footprint. Pharma footprint. The pharma footprint is, that's a good question. As you know, we have a global strategy in pharma. There's still some gaps, geographical gaps. Don't want to elaborate too much on that, but yes, we I think we cover many, many, many major markets, but there's still some wishes that we have, and for that we will continue to look for opportunities in acquisition.

Understood.

Thank you very much. Next question is from Mr. Kuran Noda. Go ahead, please, from IMB.

Yeah, good morning everyone. Congratulations as you start at the results. We have a couple of questions here. My first question is about, was there anything visible from the Brexit on the 1st of January? I know it's a long time ago, but... And my second question is, and we have posed it already last time, is there any impact from the vaccine production related to them, say, especially in India, related to your raw materials, excipients, et cetera, which had an influence on your business in the first quarter. And then on your organic growth, it's correct to assume that your organic growth in the Far East was double-digit? That's one of my questions.

Okay. Okay, Mirijn, on your first Brexit, my answer would be no, not yet. Other than, of course, internally we have a lot more work because of the Brexit. But in terms of, let's say, the quality of our business and the growth, we have not seen an effect in these first couple of months. on vaccine that they are able also to contribute to vaccine production. It has not had an effect on our results. We are looking for potential products that could help produce vaccines but at this moment our results have not been influenced by that and finally the organic I think the question was was it double digit organic growth in Asia Pacific and the answer is yes yeah my estimate is 15% maybe that's you can confirm that it's a bit on the conservative side ok thank you

Ladies and gentlemen, if there are any more questions, please press star one. For additional questions, star one correctly. There's a question from Ms. Susa Sini-Farandasi from GCF.

Hi, good morning. Thank you for taking my questions. Just a few, please. Could you maybe give some color on how the growth has trended across the verticals, especially industrials versus non-industrial verticals? That would be helpful. Thank you. And any trends that you're seeing there? And just a couple of housekeeping questions after that. Any non-recurring charges that you've taken in 1Q that we should be aware of? And the impact of the disposal of nutrient granulation in business, the manufacturing efforts? for 2021. Thank you.

Do you want to do the last two, Hans? Yeah, perhaps the impact of neutral granulations. We closed this sales transaction in early April, so there was no impact in the Q1 figures, and it will have limited impact on Q2. What we disclosed as revenue was about 11 million of US dollars of this activity. Then your other question, I think referred to one-offs that you should be aware of and do one. Is that the question? Nothing to report. Nothing to report, yes. And then your first question about, let's say, the dynamics around the different business groups that we have, particularly industrial life science. We saw... strong demand as I also I think we reported in the press release in the industrial sectors so advanced materials which is basically covering plastics and composites and all kinds of products around that saw strong growth I must also point out though that that was of course a sector that last year decreased the most. So it's also regaining, so to say, strength. Coating construction did well. I think in life science we saw a recovery of, at least a partly recovery of our personal care sector, which had suffered also significantly because of COVID. And Lifesigns of course very stable, business segments, but we saw in particular strong dynamics in the industrial sector.

Understood, thank you very much.

That's an additional question from Mr. Kurain Milder from ING.

Two questions. You made a remark about maybe for supplies of excipients for vaccine production. So can you maybe elaborate on that, what your plans are there and what the possibilities are there? Probably a new market for you, so maybe you can give me some idea. And the other question is about, yeah, you spoke about the advanced materials. You know, the biggest acquisition in Europe was VLOGS a couple of years ago. So how is that going in VLOGS? Is that now in line with the returns of the rest of the business? And the cost savings are, let me say, completely finished, is that more? Those are my two questions.

Yeah, only one last question on the VLOGS. acquisition a few years ago that has been fully integrated and let's say all the positive cost effects have been absorbed and of course that part of the business has done also in this situation quite well. We have a significant medical application part of e-logs that is doing also quite well. On your vaccine question again, yeah, I don't want to elaborate too much on it. I mean, there are various, let's say, supporting substances that grow need to go into vaccine production and of course we are looking at possibilities to interest suppliers to work with us but there is nothing to report on that in a concrete way at this moment

Ladies and gentlemen, if there are any additional questions, please press star 1. For any additional questions, star 1, go ahead, please. There's a question from Mr. Fernando de Boer from the growth.com. Go ahead, please.

Yes, good morning. Maybe you have followers who are interested that I may start the presentation if I must kick out. But regarding this industrial demand, in your view, is that a lot of restocking or also recurring business?

Yeah, that is, of course, a million-dollar question always. I think part of that will be, but it's more a guess, because you can't, of course, of 40,000 or 50,000 customers exactly understand what the motivation is. But I guess it's partly restocking, it's maybe partly also fear of losing out because of the shortages. But it is also driven by demands on our customers. We see, of course, in end markets, in coffee construction, we see car industry, automotive also going up. So we see in various industries, we see growth. And, of course, these are the, let's say, customers of our customers. So part will be restocking, but part will also be continuous demand. Okay. To add from my side, Hans. For me, this is always a bit of a funny question, because I remember the first quarter call of last year, while we had a very strong quarter. And the $100 million question in that call was, is the strong demand in the end of Q1 the result of stocking of customers because of COVID? And the answer at that moment was, we don't know. Because we see it every time we have a strong quarter, people think it's related to restocking of customers.

Yeah, probably that will always be the case. Then I had another question. On the gross profit margin, you say it's something from acquisitions and rate-driven, but also from mix and message taken. And you also mentioned, okay, on the question of Mutru, that price, that this was helpful for pricing. Could we conclude that actually price was the major part of your organic road, or is it simply mostly falling within it?

No, it's both. It's absolutely both. It's volume growth and price growth or price increase. Okay. It's certainly volume growth as well.

Okay. Thank you. Thank you.

Ladies and gentlemen, for questions, please press star 1. Star 1 for questions. Go ahead, please. From the slicker, there are no more questions. Please continue.

Okay. Well, then, thank you very much again for your attendance, for your questions, and look forward to seeing you all in the next quarter. And enjoy the day. Thank you very much.

Ladies and gentlemen, this concludes today's analyst call from IMCD. You may now disconnect your line and have a very nice day. Thank you.