IMCD N.V.

Hello and welcome to the IMCD first half year 2022 results. My name is Jess and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero and you'll be connected to an operator. I will now hand over to your host, Piet van der Slicke, CEO, to begin today's call. Thank you.

Thank you very much, Jess. And hello, everybody. Hans Koijmans and I have dialled in from different places this time. And after a few words from me, Hans will take you through the numbers and then there's an opportunity to ask questions. You have seen in the press release that we continued the trend of the first quarter with strong growth of all leading indicators, resulting in an increase of gross profit of 42% and operating EBITDA of even 58%. Most of that growth has been organic and all regions contributed to that and also all business segments. Demand remained strong and prices remained on a high level. As shown in our numbers, we were able to pass price increases all to the market and strengthen our margins. Business-wise, we were able to expand cooperation with leading international suppliers adding important product lines. We're also proud to report that IMCD received a top-rated badge from Sustainalytics ESG risk rating, recognizing us as a top performer in the industry. Sustainalytics is a leading Morningstar company in ESG rating. Actually, IMCD ranked first, meaning with the lowest risk among over 180 international peers in trading and distribution, placing us in the top 7% of almost 15,000 companies which were assessed worldwide. We all know that we live in extraordinary macroeconomic times, heavily influenced by the pandemic and the war in Ukraine, resulting also in very high energy prices. So nobody can predict how economic circumstances will develop in the coming periods. We continue to execute our strategy and trust on our strong business model, which will produce growth and has produced growth in the last eight years. So we will continue to do that, not only this year in a spectacular way, but also in the medium and long term. Our focus remains on organic growth and consolidation of the market. Our pipeline is strong and so there's enough, let's say, feedstock for future growth. And with this, I will hand over to Hans to take you through the numbers. Hans?

Thanks for the introduction and good morning, ladies and gentlemen. And I would like to start on page 9 of the presentation where you will find a summary of the first half-year income statement. And as you can see, Forex adjusted revenue increased 33% and gross profit increased 36% compared to the same period of last year. And this 36% gross profit increase was a combination of 6% as a result of the first-time inclusion of acquisitions and 30%, so 30%, organic growth. Gross profit in percentage of revenue increased 0.7 percent compared to the same period last year to 25.2 percent. And this increase was a combination of product mix, currency and M&A effects, changes in local market circumstances, and successful internal growth margin improvement initiatives. Forex adjusted operating EBITDA and EBITA both increased with 49 and 52 percent respectively. And the increase of operating EBITDA was a combination of strong organic growth of 45% and 7% as a result of the first time inclusion of acquisitions. Operating EBITDA in percentage of revenue increased to 13.4% and operating EBITDA increased with 1.6% to 12.8%. The conversion margin, calculated as operating EBITDA in percentage of gross profit improved substantially to 50.8%. And when using EBITDA instead of EBITDA, when calculating the conversion margin as a numerator, like most of our peers do, we would have reported a 53.4% conversion margin. On the next page, page 10, you will find a bit more detail on the year-on-year development in gross profit EBITDA and conversion margin per operating segment. In all segments, we report on a constant currency basis more than 30% gross profit growth. In EMEA, we are happy to report a 36% gross profit growth and an operating EBITDA of $140 million versus $93 million last year. An EBITDA margin of 13.3% is substantially higher compared to the same period of last year, and most of this EBITDA and gross margin growth in EMEA is organic. In the Americas, in the next column, we report double-digit gross profit in operating EBITDA growth, respectively by 39 and 53%. Operating EBITDA and percentage of revenue improved 1.7% to 12%, and like EMEA, most of this growth is organic, In Asia Pacific, slightly lower growth percentages, but still very impressive growth numbers with 34% growth profit growth and 38% EBITDA increase. This is the only segment where growth margin percentage did not improve, and this is mainly the result of the impact of recent M&A in the region. An operating EBITDA percentage of revenue improved 0.3% to 16.1%, and This growth was a combination of substantial organic and a first-time inclusion requisitions. In all segments, we report substantial improvement in conversion margin compared to the same period of last year, and this improvement is the result of substantial organic EBITDA growth, whereby organic gross profit growth more than compensated the own cost growth. Then in the last column, all non-operating companies, including the head office in Rotterdam, and regional support offices in Singapore and the US. Reported costs were slightly higher, mainly as a result of further strengthening of support functions in these offices. Holding costs in percentage of revenue decreased from 0.8% last year to 0.7% in the first half of 2022. Then on page 11, a summary of the P&L lines between operating EBITDA and net results for the period, and a few general remarks. Net finance cost more or less stable, some fluctuations on individual cost lines, and I will come back to that in the next slide. Then income tax expenses increased in line with EBITDA, and the tax cash out in the first six months was about $57 million, as you could have seen in the cash flow statement in the press release. Then non-recurring items turned from a positive 2 million last year in a negative 7 million this year. Perhaps you remember the positive in 2021 was mainly due to the sale of Nutri-granulation activities in the US in the first half of 2021. And this year we had the usual costs related to acquisitions, a bit of cost related to one-off adjustments to the organization. And further, the 2022 costs include the estimated financial impact of winding down of the IMCD operations in Russia. Then amortizations of intangible assets are mainly non-cash costs related to the amortization of supplier relations, distribution rights, and other intangibles. And then last but not least, on the bottom of this page, you could see net results for the period increased 60% to $177 million. And Forex adjusted 50% increase in cash earnings per share to €3.68. On page 12, specification of the net finance cost, whereby costs this year were similar to last year. Main fluctuations were higher interest costs of about close to €2 million, which were offset by positive currency exchange results. End of March, IMCD issued a 300 million rated corporate bond with a fixed coupon of 2.8%. And the combination of this bond and the 300 million bond with a fixed coupon of 2.5% issued in 2018 will make our future interest costs pretty stable and pretty predictable. Then on page 13, a summary of IMCD's balance sheet. A property plant and equipment 32 million relatively low as a result of the asset line business model, then right of use assets of 78 million that these are the capitalized operational leases as a result of the application of either a 16. Then a big number, the combination of intangible assets and related deferred tax liabilities of about 1.8 billion in total are a result of acquisitions done since July 2014 and our history as a PE-owned company. On the financing side, there is 1.1 billion of debt and 1.6 billion of equity, and this substantial equity position covers about 59% of our capital employed. Then a few words about working capital summarized on this the next page, where you will find the absolute amounts of the various working capital components and these absolute amounts translated in days of revenue. As you can see, the absolute amount of working capital end of June increased with 220 million compared to year end 2021. And this increase is a combination of additional working capital due to increased business activities combined with the usual seasonal pattern. Further, it includes working capital as a result of acquisitions in the first half of 2022 and currency exchange impacts on working capital positions. Compared to last year, June, the overall working capital days increased nine days from 56 to 65. And when looking at individual components, debtor and creditor days end of June are more or less stable compared to June last year with 66 and 39 days. A main driver of the overall increase is the absolute amount of the impact of our increased debtor position as a result of the very strong sales growth, combined with increased stock positions to cater for the Q3 order book and the usual fluctuations in other payables. Then on the next slide, a summary of our debt position, leverage ratios, and maturity profile. What I mentioned before, debt increased with about $200 million to $1.1 billion. The increase is, amongst others, influenced on the positive side by the cash flow, on the negative side by a dividend payment of $92 million. and considerations paid for acquired businesses of 93 million in the first half of this year. The leverage ratio end of June based on our loan documentation was about 1.5 times EBITDA, which was well below the maximum set in our loan documentation. And then reported leverage based on IFRS was 2.2 times EBITDA. On the right hand side, our debt maturity profile, which improved due to the new bond issued in March. I would like to finish this short summary with a cash flow overview on page 16. Free cash flow, more or less similar to last year, as increased EBITDA was more or less compensated by the working capital investment as a result of the substantial business growth. Further, CAPEX was about 3 million higher than last year, mainly due to IT-related investments and some office changes and related CAPEX. On page 18, the outlook for this year, in which we express our expectation of operating EBITDA growth in 2022. And with this finish on the summary, I would like to hand over to the operator to open the lines for a Q&A.