IMCD N.V.

Hello and welcome to the IMCD NV full year 2022 results. My name is Caroline and I'll be your coordinator for today's event. Please note this call has been recorded and for the duration of the call, your lines will be on listen only mode. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you'll be connected to an operator. I will now hand over the call to your host Mr. Pete Wendersenke, the CEO, to begin today's conference. Thank you.

Thank you very much, Caroline. Good morning, everyone. As usual, I'm here with Hans Koyman, CFO, who will lead us through the results after my preliminary remarks, and then we are open to questions. The year 2022 has been very successful for IMCD. We added more than $1.1 billion to our revenue portfolio, and more than 180 million to our EBITDA compared to 2021 with a strong organic growth. This resulted in an EBITDA for the year of 555 million, a growth of 48%, most of it organic. To arrive at this result, we faced many challenges. Strong demand from customers, in particular in the first period of the year, price inflation, supply chain issues, product shortages, and allocations from suppliers. It forced us to take more stock than usual. Despite all this, we were able to maintain and even improve our margins. In certain countries, of course, we were not able to enter. In China, we were faced with severe lockdowns, in particular also in Q4. Nevertheless, we kept our momentum in growth, but also regarding acquisitions, and strengthened our position in all three regions. Our pipeline for the current year is quite promising. We expect to close the acquisition of Sunrise in China, which we announced late last year in Q1, which will give us a very nice position in the personal care market in China. In Q4, we saw customers destocking and we ourselves took the opportunity, in particular in Asia, to correct some too high stock levels which resulted in a temporary lower margin in this region. This is not structural and we see healthy growth already in Q1. All in all, we are satisfied with our performance and although we continue to think it is wise not to make predictions of future results. We remain quite positive about the current year. And with that, I will hand over to Hans for leading you through the 2022 results.

Pete, thanks for the introduction, and good morning, ladies and gentlemen. Earlier today, we published our annual report, an informative, colorful document about various aspects of IMCD's business model and a lot of details about our financial performance. Key financial figures from this annual report are summarized in the press release that we issued this morning, and in this call, I will quickly take you through these numbers before we move to Q&A. And I will start on page 10 of the presentation where you will see a Forex adjusted revenue increase of 28% and the growth profit increase of 31%. The increase in growth profit was a combination of 24% organic growth and 7% as a result of the first time inclusion of acquisitions. The acquisition growth is the balance of the four year impact of acquisitions done in 2021 and more recent acquisitions signed and closed in 2022. And for an overview of the 2022 acquisitions, I would like to refer to page seven and eight of this presentation. Gross profit in percentage of revenue increased with 0.6% to 24.9% in 2022. The segment Americas was the biggest contributor to both the absolute margin growth and the improved course margin percentage. The increase in average course margin percentage is the result of margin improvement initiatives, the usual changes in local market circumstances, product mix, currency fluctuations, and the impact of newly acquired businesses. Then for your convenience, we included a line on this slide with an operating EBITDA comparison. However, in a people organization like IMCD, with an asset-light business model, with outsourced logistics, a low fixed asset base, the development of EBITDA, shown in the next line, seems more relevant for us. Operating EBITDA increased 42% on the constant currency basis to 555 million. And this increase was a combination of 34% organic growth and 8% growth as a result of the first time inclusion of acquisitions. Operating EBITDA in percentage of revenue increased by 1.1% points from 10.9% in 2021 to 12% in 2022. Then the conversion margin calculated as operating EBITDA in percentage of gross profit increased from 44.7% last year to 48.3% in 2022. This 3.6% increase in conversion margin is the result of substantial organic EBITDA growth, whereby gross profit growth more than compensated own cost growth. Then on the next slide, slide 11, a few key figures from the P&Ls per operating segment. with a focus on gross margin and EBITDA development. Gross profit of EMEA in the first column increased 30% Forex adjusted, which is a combination of 28% organic growth and 2% acquisition growth. And this gross profit increase is the main driver of the 39% EBITDA increase in EMEA. And most of this gross margin and EBITDA growth, again, is organic. EBITDA margin increased with 1% to 12.3%, and the conversion margin increased with 2.7%. Both in absolute numbers and percentage-wise, we saw the biggest increase in gross profit and operating EBITDA in the Americas. Gross profit increased 35%, which is a combination of 27% organic growth and 8% as the result of the first-time inclusion of inclusion of the acquired companies. And this gross profit growth, combined with disciplined cost control, resulted in 52% growth of operating EBITDA and an increase of conversion margin with 5.8%. Then Asia Pacific, who had another growth year, whereby they realized 29% Forex-adjusted gross profit growth. This was a combination of 14% organic growth and 15% as a result of acquisitions. Operating EBITDA increased to 145 million, whereby the EBITDA margin and conversion margin both slightly decreased. And despite this small decrease, both ratios are still by far best in class and group. And then in the last column, you will find in the holding companies or non-operating companies, including the head office in Rotterdam and regional support offices in Singapore and the US. And the absolute amount of holding costs increased from 29 to 32 million. Holding costs as a percentage of total revenue decreased from 0.9% last year to 0.7% of revenue in 2022. Then on the next page, you will find the summary of the P&L lines from EBITDA to the net result for the period. A few general remarks, and I would like to start on the bottom half of this slide with amortization of intangible assets and related tax credits. These are non-cash cost items that relate to the amortization of supplier relations, distribution rights, and other intangibles. And the increase is mainly the result of the acquisitions done. Then the 11 million of non-recurring expenses. This includes, amongst others, the 6.5 million euro to cover the estimated financial impact of winding down the IMCD operations in Russia. Further, it includes costs related to successful and unsuccessful acquisition projects, some severance costs, related to one-off adjustments of organizations. And on this line, we also report a one-off income of about 3 million as a result of the sale of a warehouse building in Indonesia. A line lower, the 2 million non-recurring tax expenses in 2022 as the tax on the non-recurring income and expenses. Then the net finance cost and income I created a separate slide for that. On slide 13, a breakdown of the net finance cost adding up to $26 million, which is about $4 million more than previous year. And as you can see, this $4 million increase is a combination of $8 million higher interest cost related to our financing structure, and we have positive changes in the deferred considerations of $8 million and $4 million more negative currency exchange results. Higher interest costs on the financing structure is mainly the result of increasing interest rates during 2022, combined with, on average, a higher debt amount. And when looking at our today's net debt position, it's fair to say that our future exposure to interest rate fluctuations further reduced during 2022. At the moment, we have about 600 million of our actual debt position consist of corporate rated corporate bonds loans with an average fixed coupon just below 2.5%. Then the changes in deferred considerations. As you might remember, another $275 million of our net debt refers to deferred purchase price considerations, like the 30% for SIGNET. And the nominal values of these deferred considerations are discounted with a relatively low interest rate, triggering limited interest costs. And further on this line, we need to reflect changes of the expected value of the deferred considerations as a result of changes in expected financial performance, these targets. Then a summary of our tax expenses, always a bit more complicated in an international environment, and the reported increase of our regular tax expenses is 45 million. And you might remember as a guidance for our tax cost, we indicated to you to expect a blended tax rate in the range of somewhere between 24 and 28% of our result before tax, calculated as EBITDA minus finance and non-recurring cost. As you will notice in the summary on the bottom of this page, indicates that IMCD's blended tax rate in 2022 was 25.2%, which is slightly above 2021 level, but still at the low end of the guidance that we gave to you. 2022 tax cash out was 130 million compared to 84 million in 2021. And I think I would like to refer to the annual report for further details on tax and tax calculations. Then a slide about the calculation of our cash earnings per share and our dividend proposal. And as you can see on this slide, we report €6.78 cash earnings per share in 2022, which is a 46% increase compared to 2021. At the upcoming AGM in April, we will propose a dividend of €2.37 in cash per share, which means an increase of 46% compared to last year. As you might remember, the company has a dividend policy with a target annual dividend in the range of 25 to 35% of adjusted net income. And this dividend proposal leads to a payout ratio of 35%, which is at the top of the range that we set ourselves as a policy. Since our listing in 2014, we increased our dividend from 20 cents in 2014 to the proposed 2 euro 37 in 2022, which means a growth kegger of 36% during the period that we are listed on the stock market. Then a few words about the balance sheet. Property, plant and equipment slightly increased indicated before, as a result of the asset-light business model still relatively low compared to the size of our business. Then right-of-use assets is the result of the application of IFRS 16, and so this $83 million reflects capitalized operational leases. And the big amount of intangible assets and related deferred tax liabilities. These are mainly a result of the acquisitions made and our history as private equity owned company. Then there is a growing equity position of close to 1.7 billion, covering 62% of capital employed. And the increase in 2022 is amongst others the result of the addition of the net profit for the year of 330 million. Other comprehensive income added six million and there was a minus for dividend payments in cash of 92 million last year then the other two balance sheet lines working capital on the next slide a summary of the absolute amount of the various working capital components and these amounts translated in days of revenue and as you can see the absolute amount of working capital increased 158 million. And this increase is a combination of 48 million additional working capital related to acquisitions in 2021. 21 million as a result of exchange rate differences when calculated this on year and balance sheet positions. And further we reported an operational increase of around about 88 million. Towards the end of 2022, working capital days came back to more normal levels, also as indicated by this, whereby especially stock and debt-to-days normalized. And you might remember that we finished 2021 with strong sales in December and relatively high stock positions due to customers at that moment in time anticipating supply changes, disruptions resulting in relatively high working capital days at the end of last year. Then a summary of our net debt position. At the end of 2022, we report a bit more than a billion net debt, which means an increase of 87 billion compared to the end of 2021. Apart from the usual bond loan, shield shine and bank loans, net debts includes 86 million of operational lease liabilities, Further in the net depth, we reported what I mentioned before, the $275 million of deferred considerations, and most of these deferred considerations relate to the remaining 30% of significant that we will buy and pay in respectively 2024 and 2025. On the same page, an overview of the maturity profile of our debt structure as per December 2022. The 200 million bridge facility and the 600 million revolver facility columns reflect the maximum amount that we can use as per, and not the amount that we draw, which is much lower, of course. Reported leverage at the end of 2022 was 1.7 times EBITDA, and the leverage ratio calculated based on the definitions used in the IMCD loan documentation was 1.2 times EBITDA, which was well below the required maximum, as said in the loan documentation. Then I would like to finish with a summary of the cash flow overview on page 19. And as you can see, the absolute amount of free cash flow in 2022 was 435 million. by the cash conversion ratio increased to 77% and this increase in conversion ratio is a combination of substantially higher operating EBITDA combined with a lower investment in working capital compared to last year. And then last but not least, On the last slide, you will find the outlook in which we, amongst others, indicate that IMCD sees interesting opportunities to increase its global footprint, expand its product portfolio both organically and by acquisitions in 2023. So far, a summary of our 2022 figures, and Pieter and myself are happy to answer any questions you may have. So back to the operator.