IMCD N.V.

Hello and welcome to IMCD NV first half year 2023 results. My name is Alicia and I will be your coordinator for today's event. Please note this call is being recorded and for the duration of the call, your lines will be on listen only. 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 question. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to Piet van der Slijk, CEO, to begin today's conference. Thank you.

Thank you very much, Alicia. Good morning, everybody. I'm here with Hans Kormans, as usual, and we will answer your questions in a moment. In 2022, we reported an unprecedented growth of 48% of our operating EBITDA under exceptional circumstances. The exceptional circumstances were the result of strong price increases and high demand, partly caused by supply issues. This year and the first six months, we see the reverse. Soft demand and price pressure in certain segments. This resulted in the first six months of 2023 in a flat revenue and a decrease of our operating EBITDA of 6%, and forex adjusted minus 3% to 280 million euro. Q2 was in particular weak, which was mainly driven by lower demand in our industrial segments across all regions. Notwithstanding this, our gross margin percentage increased to 25.5%, and gross profit increased forex adjusted with 2%. Cash flow more than doubled versus the same period as last year to 241 million. As reported by many companies in the chemical sector, global chemical production declined resulting from low customer demand and ongoing inventory reduction. Many in our industry expect that a tough economic environment in the second half of the year will remain, but that demand will gradually improve as further reduction of inventory is not expected. Despite the challenging conditions, we remain positive about our superior growth potential, both organically and by acquisitions. Our organic growth percentage over a number of years lies significantly above our target of on average 6%, and we have a healthy acquisition pipeline. Until now, Until now, this year, we have closed 13 acquisitions with a combined annualized revenue of $400 million. In summary, as soon as demand picks up, we are in a great position to benefit from this with our strong portfolio of products and from the quality acquisitions that we have made this year. And with this, I give you to Hans, who will lead you through the numbers in more detail.

Thank you, Piet. Good morning, ladies and gentlemen, and I would like to start as usual on page 10 of the presentation, where you will find a summary of the first half-year income statement. As mentioned by Piet, and as you can see on this slide, Forex adjusted revenue increased 1%, which is a combination of an organic decrease of 6% and 7% increase due to the acquisitions. In the press release, you could read that there were differences in growth rates per region and per activity. As an example, revenue in our life science activities increased with 11%, and our industrial activities had a tougher start of the year with a 12% revenue decrease. Gross profit increased 2% compared to the same period of last year. This 2% increase was a combination of 5% as a result of the first time inclusion of acquisitions and negative organic growth of 3%. Gross profit in percentage of revenue increased 0.3% to 25.5%. Forex adjusted operating EBITDA decreased 3%. And this decrease was a combination of the positive contribution of acquisitions of 5% combined with negative organic EBITDA growth of 8%. Operating EBITDA in percentage of revenue decreased with 0.6% to 12.2%. The conversion margin calculated as operating EBITDA in percentage of gross profit slightly decreased to 48.1%, and the decrease in conversion margin is the result of higher gross profit being more than offset by the growth of our personnel costs and other operating expenses. As mentioned in previous calls, we experience the impact of higher than usual cost inflation in most of our companies. Then on the next slide, page 11, a bit more detail on the year-on-year development of gross profit EBITDA conversion margin per operating segment. In the first column, we report 1% Forex-adjusted gross profit growth. we were able to increase our gross margin percentage with 0.7% to 27.3%. Operating EBITDA of $131 million was 4% lower than last year. Inflation-driven on-cost growth was the main driver of this small decrease. In the Americas, a bit of a similar picture. As a positive, we increased gross profit with 40 BIPs. However, this could not fully compensate the decrease of revenue. And as a result, we report 6% lower operating EBITDA and a slightly lower conversion margin. Asia Pacific is the only region where we reported gross margin percentage slightly lower than last year. However, when including the impact of the acquisitions done in the second half of 2022 and the first half of 2023 in this region, And so companies like Trade Impacts, Parkash, Welex, the gross margin, if you exclude for these acquisitions, the gross margin of our legacy business would have gone up with about 30 pips. The gross margin in these acquired businesses was on average substantially lower than the average 24% that we reported last year. And holding costs remained stable Then on page 12, a summary of the P&L lines between operating EBITDA and net result for the period. A few general remarks. Net finance costs increased from $8 million last year to $26 million in the first six months of 2023. On page 23 of our press release, there was a breakdown of the different cost components whereby the 18 million increase could be split in two categories. First, an increase of about seven million on bank interest. We reported nine million bank interest last year versus 16 million this year. And this increase in bank interest is a combination of higher base rates in our revolving bank facilities combined with, on average, a higher debt amount. And the second reason for the increase on this line is currency exchange results and changes in deferred considerations. They moved from a positive $3 million last year into a negative $7 million of this year. So the $18 million increase in finance costs is a combination of $7 million real bank interest costs and about 10 million non-cash movements reported on this line. Then income tax expenses more or less decreased in line with EBITDA, and the tax cash out in the first six months of this year was about 56 million. Amortization of intangible assets are mainly non-cash costs related to the amortization of supplier relations, distribution rights, and other intangibles. Then non-recurring items These are costs related to acquisitions that we did, and also the acquisitions that we did not do, and a bit of cost related to one of adjustments to the organization. And then when looking at 2022, that year, the cost also included the estimated financial impact of the winding down of our operations in Russia. And then last but not least, on the bottom of this page, you could see net results for the period of 153 million and a Forex-adjusted 9% decrease in cash earnings per share to a healthy 3 euro and 28 cents. Page 13, a summary of IMCD's balance sheet. Property, plant, and equipment of 30 million, still relatively low as a result of the asset-light business model. Then we have, thanks to IFRS 16, 86 million right-of-use assets. So these are capitalized operational leases Then there is the combination of intangible assets and the related deferred tax liabilities of about 2 million in total. As you can imagine, these are the result of acquisitions done since July 2014 and a bit that we carried over on the basis of the history as a private equity-owned company. And then on the financing side of the balance sheet, there is 1.3 billion of debt. I will come back on that in a minute. and 1.7 billion of equity and this substantial equity position covers about 57% of our capital employed. Then working capital summarized on this page where you will find a summary of the absolute amounts of the various working capital components and these absolute amounts translated in days of revenue and as you can see The absolute amount of working capital end of June 2023 is more or less similar to the amount end of June last year. And compared to last year, June, the overall working capital days were stable at 65 days. And when looking at the individual components, so inventories, debtors, trade and other payables, we see small differences when comparing June with June. However, no major changes there. The debt side, a summary of our net debt position on this slide, leverage ratios and maturity profile. Net debt increased with about $200 million to $1.3 billion, and this increase is, amongst others, influenced by a dividend payment of $135 million that we did in May and considerations paid for acquired businesses of $167 million. The $1.3 billion of debt includes $600 million of bonds at a 200-bit percent fixed interest rate. Then in that $1.3 billion, there is about $330 million of considerations related to acquisitions, so deferred considerations. And then the remainder, about $350 million, is the balance of cash and bank facilities. The leverage ratio at the end of June, based on our loan documentation, was 1.6 times EBITDA, which is well below the maximum set in our loan documentation. And the reported leverage, based on IFRS, was 2.1 times EBITDA. And then on the right side of this slide, you can see the maturity profile of our debt position. Then I would like to finish this short summary with a cash flow overview. As you can see, free cash flow increased with 123 million to 241. The main driver of this increase was lower level of business activities, which resulted in a substantially lower working capital investment. And a further capex of about five million was more or less similar to last year, and mainly relates to IT investments, office improvements, some lab-related equipment that we bought. On page 18, the outlook for this year, whereby we felt it's prudent not to give a near-term trading outlook, given the microeconomic uncertainties. I would like to hand over to the operator to open the lines for Q&A. So, Alicia, the floor is yours.