IMCD N.V.

Ladies and gentlemen, thank you for holding, and welcome to the full year 2021 Results Analyst Call of IMTD. During the presentation, all participants are in listen-only mode, and later we will conduct a question-and-answer session. I would like to hand over the conference to Mr. Piet van der Snikke. Go ahead, Pieter.

Yes, good morning, everybody, and welcome to this call. As usual, I'm here with Hans Kooijman, CFO. I will start with some opening remarks and then Hans will take over and after that, of course, we will be happy to answer your questions. As you could have seen from the press release, 2021 was an excellent year for IMCD with record results. Our EBITDA increased at 54% and our cash earnings per share at 53%. We saw very healthy business activities in all regions and our growth came from increased demand, so volume growth, increased pricing, new product lines that we started, and acquisitions. I want to emphasize that other than what some people write, it's not only price increase, it's also and predominantly volume growth. It is gratifying to see that we, despite travel restrictions because of COVID, were also able to continue to execute our strategy by doing acquisitions. I won't mention all acquisitions, but want to emphasize our acquisitions in Mexico, Central America, China and Indonesia. To give you some color, in Indonesia we are now a leader in life science, with a few hundred people working in pharma, food ingredients and personal care. At the same time, in Indonesia, we are expanding our industrial segment. In a country with 275 million people, this will give us very good growth opportunities. In Latin America and in China, we are also making great progress. Our presence in Latin America has been very much expanded due to acquisitions in Mexico, Central America and Colombia. And we announced last week another acquisition in this region. And we have therefore also very high expectations on further growth. You may have noticed that Q4 of 2021 shows very strong growth. 30% increase in revenue and 55% in EBITDA. Order intake in this quarter remains also very high. and in preparation for delivery in Q1 of this year, we had to build up our stock position which consequently explains our lower than usual cash conversion. In the end, this is positive news, as it means that demand remains high, which will lead to continued strong growth in Q1. I repeat what I said before. IMCD's future looks bright as our business model is robust and resilient, and we are therefore also quite optimistic about the outcome of 2022. And with that, I would like to hand over to Hans to lead you through a few numbers.

Thank you, Pete. Good morning, ladies and gentlemen. Earlier today, we published our four-year results in the form of a short press release. And we further published our annual report, a good readable and informative document 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 2021 numbers, whereby I will start on page 10 of the presentation, where you will see Forex adjusted revenue increase of 25% and a gross profit increase of 30%. The increase in growth profit was a combination of 21% organic growth and 9% as a result of the first-time inclusion of acquisitions. The acquisition growth is the balance of the full-year impact of acquisitions done in 2020 and more recent acquisitions in India. For an overview of the 2021 acquisitions, I would like to refer to page 7 and 8 of this presentation. Cross-profit in percentage of revenue increased at 1% to 24.3% in 2021. All regions contributed to the margin growth and the improved gross margin percentage. The increase in margin percentage is the result of cross-margin improvement initiatives, the usual changes in local market circumstances, product mix fluctuations and the impact of the newly acquired businesses. Then for your convenience, we included a line with an operating EBITDA comparison, but as you know, IMCD is a people organisation with an asset-light business model with outsourced logistics and a low fixed asset base. As a consequence, EBITDA development, shown in the next line, seems more relevant for us. Operating EBITDA increased 55% on a constant currency basis to 374 million. This increase was a combination of 35% organic growth and 20% as a result of the first time inclusion of acquisitions. Operating EBITDA in percentage of revenue increased by 2.1% from 8.8% to 10.9% in 2021. The conversion margin, calculated as operating EBITDA in percentage of growth profit, increased from 37.6% last year to 44.7% in 2021. The increase in conversion margin is the result of substantial organic EBITDA growth, whereby gross profit growth more than compensated on cost growth. And this combined with a positive impact of acquisitions made. On the next slide, page 11, you will find a few key figures from the P&Ls per operating segment. Growth profit in EMEA in the first column increased 22%, which is a combination of 20% organic and 2% acquisition growth. 2021 gross margin percentage increased with 0.3% to 25.7%. Operating EBITDA in EMEA increased 39%, whereby the EBITDA margin increased with 1.4% to 11.3%. Most of this EBITDA growth is organic. Gross margin in the Americas in the next column increased 26%, which is a combination of 21% organic and 5% M&A related. Margin growth combined with disciplined cost control resulted in further growth of EBITDA, a 36% increase, and EBITDA and conversion margin both increased with respectively 1 and 3% points. Then Asia Pacific, who had another good year, whereby they realized 61% growth profit growth, and this was a combination of 19% organic and 42% as a result of acquisitions. Gross margin increased growth margin percentage increased from 21.1% last year to 24.4% in 2021. Operating EBITDA more than doubled to 110 million, whereby EBITDA margin increased to 15.4% and conversion margins further improved. The improvement of EBITDA and conversion margin is the result of higher growth margins offsetting higher own costs. In an addition, The acquisition of Cygnet in November 2020 had a positive impact on the development of the conversion margins in this segment. In the last column you will find under holding companies all non-operating companies including the head office in Rotterdam. The absolute amount of holding costs increased from 27 to 29 million and holding costs as a percentage of total revenue slightly decreased. On the next page you will find a summary of the P&L line from EBITDA to the net result for the period and some general remarks. The development of recurring 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 non-cash cost items related to the amortization of supplier relations, distribution rights and other intangibles. and the increase is mainly the result of acquisitions done. The 3 million non-recurring expenses and related 1 million non-recurring tax income in 2021 relate to cost of realized and non-realized acquisitions, net result on the sale of neutral granulation business in the US, and cost of one-off adjustments to the organization. And then on the next slide, slide 13, a breakdown of the 2021 net finance cost, adding up to $22 million, which is about $4 million lower than previous year. This $4 million decrease is, as you could see, a combination of $3.7 million lower interest costs related to our financing structure. Further changes in deferred considerations, adding $3.2 million to the difference, are reported on this line. and we experienced lower negative currency exchange results in 2021. On page 14, a summary of our income tax expenses. The reported increase of our regular income tax expense is 37 million. And as a guidance for our tax costs, we indicated to expect a blended tax rate in the range of 24 to 28% of results before tax, calculated as EBITDA minus finance and non-recurring costs. And as you will notice, the summary on the bottom of this page indicates that IMCD's blended regular tax rate was slightly above the 24%, which is close to the low end of the guidance that we gave to you. 2021 tax cash out was 84 million compared to 46 million in 2020, and I would like to refer to the annual report for further details on tax. You might have seen that all previous slides include a small footnote that the 2020 numbers have been restated as a result of a change in accounting policy following the IFREC agenda decision on cloud computing arrangements. A bit of an annoying change, in my opinion, and perhaps just to rephrase your memory, in 2019, the application of IFRS 16 resulted not only in capitalizing rented offices on our balance sheet, but also to capitalize the value of our longer-term software-as-a-service contracts. In 2021, the IFRIC, which is an interpretation committee from IFRS, issued a so-called clarifying guidance about the treatment of these SaaS contracts under IFRS. Basically, IFRIC changed the reporting goalposts, and under this revised accounting policy, Costs that previously would have been capitalized are treated as operating expenditure in case you cannot demonstrate the ability to control the relevant software, which is obvious often the case with SaaS products. The change in accounting policy have been adopted retrospectively, whereby comparative figures for the 2020 years have been restated. And on slide 15, a short summary of the impact on the IMCD reported numbers. The impact of the change in accounting policy on the operating EBITDA of 2021 and 2022, sorry 2020, is negative 10 million and only affects holding, the segment holdings. The impact on the net result for both years is negligible, as higher operating expenses are practically compensated by lower amortization costs as a result of the revised accounting policy. For more details, including the impact on cash flow and balance sheet, I would like to refer to the annual report on page 127 and further. On the next page, the calculation of the cash EPS and our dividend proposal. And as you can see on this slide, we report €4.64 cash earnings per share in 2021, which is a 44% increase compared to 2020. At the AGM, in May, we will propose a dividend of €1.62 in cash per share, which means an increase of 59% compared to last year. This dividend proposal leads to a payout ratio of 35%, an increase of 1% compared to last year. Page 16, a summary of IMCD's balance sheet. Property, plant and equipment slightly increased and is, as a result of the asset-light business model, still relatively low compared to the size of our business. The right of use assets is the result of the application of IFRS 16. This 69 million reflects capitalized operational leases. Intangible assets and related deferred tax liabilities are mainly the result of acquisitions made. Then you will see a growing equity position of close to $1.5 billion, covering 61% of capital employed. The increase in 2021 is, as you might understand, the result of the addition of the net profit for the year of $207 million. other comprehensive income, adding a positive 57 million and a minus for dividend payments in case of 58 million. Through other balance sheet lines, working capital and net debt are summarized on the next two pages. Page 18 you will find a summary of the absolute amount of the various working capital components and these absolute amounts translated in days of revenue. As you can see the absolute working capital amount increased with $169 million and this increase is a combination of $50 million additional working capital related to the companies that we acquired in 2021. Then we have $15 million addition as a result of exchange rate differences and further we report an operational increase of $104 million. At the end of December 2021, net working capital in days of revenue was 63 days, an increase of 8 days compared to last year. And as Pete already indicated in his introduction, in particular the strong sales toward the end of 2021 contributed to higher trade and other receivable days, at a plus 5 days compared to the end of 2020. And in addition, the healthy order book for the beginning of 2022 had an upward effect on the inventory positions and on the trade payables. Then on page 19, a summary of our net debt position. At the end of 2021, we report 940 million of net debt, which means an increase of a bit more than 200 million compared to the end of 2020. And apart from the usual bond loans, the Schulzstein and the bank loans. Net debt includes about 70 million of operational lease liabilities as a result of IFRS 60. And further, under net debt, we report about 309 million of deferred considerations. And most of these deferred considerations relate to the remaining 30% of SICnet and Megasatria that we will buy today in 2024. On this same page an overview of the maturity profile of our depth structure at the end of the year and the purple bar represents the full revolver facility of 500 million which is of course not fully drawn. Reported leverage at the end of 2021 was 2.3 times either depth The leverage ratio calculated based on the definitions used in IMCD's loan documentation was only 1.5 times EBITDA, which is well below the required maximum as set in the loan documentation. We'd like to finish the financial summary with a cash flow overview on page 20. As you can see, the absolute amount of free cash flow in 2021 was $279 million, whereby the cash conversion ratio decreased to 73%. And this decrease in conversion ratio is a combination of substantially higher operating EBITDA as a positive, combined with lower CAPEX as a positive and a substantial working capital investment, mainly due to the increased business activities and the strong T22. Then on the last slide of the presentation you will find the outlook in which we amongst others indicated IMCDC's interesting opportunities to increase its global footprint and to expand its product portfolio both organically and by acquisitions in 2022. So far a summary of our figures and Piet and myself are happy to answer any of your questions.