Imcd Group Nv U/Adr

Good day and welcome to today's IMCD and the first half year 2024 Results Conference call. Throughout today's recorded presentation, all participants will be in a listen-only mode. Later, we will conduct a question and answer session. You may register for questions at any time by pressing star 1 on your telephone keypad. And now, I'd like to call over to Valerie Dill-Brown, CEO. Please go ahead.

Good morning, everyone, and welcome to the IMCD first half of 2024 call. As usually, I'm here with my colleague Hans Koimans, the CFO of IMCD, who will lead you through the financial results after my preliminary remarks. And then we are open to answer your questions. During the first half of 2024, we recorded revenues of €2.385 billion and operating EBITDA of €270 million. On a constant currency basis, this is a 2% EBITDA decrease versus first half 23. This decrease can be mainly attributed due to a weak first quarter whilst we return to gross profit and EBITDA growth in Q2. During the second quarter of this year, we were able to deliver a Forex-adjusted gross profit growth of 11%, resulting in a 11% EBITDA growth on a constant currency basis versus the same quarter last year. This result was mainly based on the performance of first-time inclusions of acquisitions, as well as on some organic growth. Markets remained sluggish in the Americas, where reported gross profits increased only slightly, while the EMEA saw a gross profit growth of 4% and Asia-Pacific a gross profit growth of 9%. In the Americas, we were mostly affected by a lower demand and some temporary pricing pressure for food and nutrition. Whilst in APAC and in EMEA, we experienced an improving environment, but not yet on a continuous basis and not in all countries. In terms of our life science businesses versus our industrial businesses, we continue to maintain a balanced portfolio where revenue of life science was 1.2 billion and revenue in the industrials was 1.1 billion. In our life science segment, personal care, with the exception of China, continued to perform very nicely, while food and nutrition and pharma have not yet fully seen the expected recovery. In our industrial segment, we continue to see a better performance, and specifically coatings and constructions are seeing increasing demand and a slow but steady recovery. In terms of general market development, we continue to see volatile months across all regions and business lines, with little visibility beyond six weeks due to the desire for low inventories and just-in-time orders by a substantial part of our customers. To support these customer needs, whilst controlling networking capital and ensuring optimal coverage simultaneously, we continue to invest further in our digital network and commercial excellence. New customer care tools, as well as commercial support programs, are currently being rolled out, and we're excited to share the details on some of these systems in our upcoming event in Milan. For those who cannot attend, we will make a short presentation available via our website as we get closer to the date. In terms of effective business development, we were able to acquire new principles and to expand with existing ones. Our principles are excited about the volumes we have been able to gain, and we continue to work closely with them to develop additional opportunities. As far as our M&A pipeline is concerned, we maintain a healthy, attractive target list and delivered year-to-date 11 acquisitions across all three regions and in various business segments. And last but not least, we continued with our sustainability programs throughout our organization, on which I'm excited to provide an update later in the year. We are confident that our investments made, our strong commercial teams, digital and logistic infrastructure, combined with further driving operational excellence and cost control, will deliver further growth and efficiencies. Hans will now give you a short update on the numbers.

Thank you. Thanks for the introduction, Valerie, and thanks Good morning ladies and gentlemen and as usual I would like to start on page 10 of the presentation where you will find a summary of key figures taken from the first half year press release. I'm struggling a bit with the call so if you hear me sniffing that's not because of emotions but because of practical issues. As you can see on this slide, Forex-adjusted revenue increased 5%, which is a combination of a 4% organic decline and the positive impact of the first-time inclusion of companies acquired in 2023 and 2024, which added 9%. Then forex-adjusted gross profit increased 5% compared to the same period of last year, and this increase was a combination of 7% as a result of the first-time inclusion of acquisitions and negative organic growth of 2%. There's quite a difference when comparing the two individual quarters. In the first quarter, you might remember we reported organic gross profit decline of 8%. And in the second quarter, we report 11% Forex-adjusted gross profit growth, which is the combination of acquisition growth and 4% organic. Gross profit in percentage of revenue in Q1 and Q2 of this year were more or less similar. We did 25.4% in Q1, 25.5% in Q2, and adding up to around the 25.4%, which is more or less equal to the 25.5% in the first half of last year. The Forex adjusted operating EBITDA decreased with 2%, and this decrease was a combination of positive contribution of acquisitions of 9%, combined with negative organic EBITDA growth of 11%. Similar to gross profit, reported for operating EBITDA a soft Q1 with a Forex-adjusted 13% EBITDA decline, followed by a stronger second quarter with an 11% increase, which is a combination of M&A impact and a modest organic growth. Operating EBITDA and percentage of revenue decreased to 11.3%. The conversion margin in the second quarter was 46%, and this second quarter conversion margin was more or less similar to the second quarter of last year. Further, it was a substantial improvement compared to the 42.9% reported in Q1. And due to this soft first quarter, the year-to-date conversion margin of 44.5% is still lower than last year's 48%. And the difference in conversion margin is the result of higher gross profit being more than offset by inflation-driven organic own cost growth. And with respect to that own cost growth, it's obvious that in an asset-like business model, so a people organization like IMCD, the employee-related cost is one of the most important cost drives. And on the bottom of this slide, you could see that IMCD employs about 5,000 full-time employees. Compared to the end of June of last year, we added 465 new colleagues, and this increase in the number of employees is a combination of about 500 people joining IMCD as a result of acquisitions done in the last 12 months. In that same 12-month period, we report an organic decline of about 50 people. And as mentioned in previous calls, we have been and still are very prudent filling vacancies or adding people given current volatile market conditions. On the next slide, you will find a bit more color on the year-on-year development of gross profit, EBITDA, and conversion margin per operating segment. In EMEA in the first column, we report 6% Forex-adjusted gross profit growth. We were able to increase our gross margin percentage with 0.6% to 27.9. The soft first quarter with negative organic growth was followed by a stronger second quarter with 6% organic gross profit growth. We saw a similar trend in EMEA when looking at organic EBITDA growth. Negative organic growth in Q1 followed by 5% organic EBITDA growth in Q2. Year-to-date operating EBITDA of 129 million was still just below last year. In the Americas, more or less a similar picture. A soft first quarter, followed by limited organic growth profit growth in the second quarter, which was unfortunately not enough to cover the inflation-driven own-cost growth. As a positive, we increased the year-to-date gross profit margin percentage with 50 BIPs compared to last year. And this margin percentage increase was one of the drivers of organic gross profit growth in the second quarter. However, this could not compensate the decrease in revenue totally. As a result, we report year-to-date 11% lower operating EBITDA and a lower conversion margin. Organic EBITDA growth is still negative, but improving, from a minus 31% in Q1 to a minus 5% organic in Q2, adding up to the minus 19% year-to-date. Then Asia Pacific. In Asia Pacific, we report in the second quarter a return to organic gross profit and EBITDA growth of 4% and 2% respectively. Unfortunately, not enough to compensate for the soft start for the year, but further, this is the only reason where we report a lower gross margin percentage. However, when excluding the impact of acquisitions done in the second half of 23 and the first half of 24 in this region, the gross margin of our legacy business would have been stable compared to last year. The average gross margin in the acquired businesses was substantially lower than the average 23.8% that we reported last year. Page 12, let me go there. A summary of the P&L lines between operating EBITDA and net results for the period. A few general remarks there. You can see that net finance cost increased 1 million from 26 million last year to 27 in the first six months of 2024. On page 22 of our press release, there is a breakdown of the different income and cost components driving the change. I would like to mention the main items responsible for this report in limited shape. First, on bank loans and bonds, the interest on bank loans and bonds increased about $30 million from $16 million last year to $29 million in the first half of 2024. And this increase is a combination of higher base rates in our revolving banking facilities combined with, on average, a higher debt amount. And this increase is in line with the guidance that we gave you when we discussed the full year 2023 results. And secondly, the negative currency exchange results that we also have to report on this line, they increased from negative 3 million last year to negative 9 million this year, adding 6 million additional costs to the finance cost line. And last but not least, The change in deferred considerations that we have to report on this line moved from a minus 4 million last year to a positive 14 million in our year-to-date numbers. And this positive change related mainly to adjustments to the fair value of contingent considerations and then mainly to sunrise. So the 1 million increase in finance cost is a combination of 13 million real bank and bond-related interest costs and about 12 million non-cash movements, often IVRS related, reported on this line. And income tax expenses, they are based on the actual tax rates in the countries where we generate taxable profits. The tax cash out, as you could have seen in the press release, in the first six months was about 52 million. And the blended tax rate, the one that we report in the half-year figures, is slightly lower than the guidance that we gave to you in the past. Amortization of intangible assets are non-cash costs related to the amortization of supply relation distribution rights and other intangibles, often coming with the acquisitions that we did. And last but not least, on the bottom of this page, you could see net result for the period of 141 million, and the Forex suggested 1% decrease in cash earnings per share to 3 euro and 23 cents. Then a summary of the balance sheet, page 13. Property plans and equipment of 42 million is, of course, relatively low as a result of the asset-light business model. And the increase that we report includes $7 million of new fixed assets that came with recent acquisitions. So when we bought businesses there were some warehouses in the structure that we got. Then there is right of use assets of $109 million. These are the capitalized operational leases as a result of IFRS 16. Then there is the combination of intangible assets and related deferred tax liabilities of about 2.3 million in total and they are the result of acquisitions done since July 2014 and now PE owned history as a company. Then on the financing side of the balance sheet there is 1.6 billion of debt. I will come back to that in a minute and then there is 1.8 billion of equity. and this substantial equity position covers more than half of our capital employed. Working capital is summarized on this slide, 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 2024 is more or less similar to the amount end of June last year. Compared to last year June, the overall working capital days were a bit lower with 63 days, and it's fair to say that Q2 and Q3 are typically the highest points in our working capital cycle during a year, and Q4 is typically the lowest point in the cycle. When looking at the individual components, we see small differences on inventories and other payables when comparing June with June. You see a rather big jump in days both on the trade receivables and the trade payables, and this change is primarily due to the fact that we had the situation that the last day of the second quarter fell on a Sunday this year, and as a result, Many customers took advantage of this by paying invoices, which were typically due by the end of the month, just one day later on the first day of July, causing the reported increase in debt-to-days. And if you look at the credit-to-days, you could see that we also learned from that habit ourselves. Then on the next slide, a summary of our net debt position, leverage ratio, and the maturity profile of our debt portfolio. Net debt increased with about 300 million to 1.6 billion, and this increase is, amongst others, influenced by a dividend payment of 128 million and considerations paid for acquired businesses of about 250 million. The 1.6 billion of debt includes 1.1 billion of bonds and these bonds have a blended fixed coupon just below 3.5%. Further, there is 112 million of deferred considerations related to the acquisitions done, and the remainder, about 400 million, is the balance of cash and bank facilities and IFRS 16 related operational lease liabilities. The leverage ratio end of June based on our loan documentation was 2.7 times EBITDA, which was, as you can see, well below the maximum set in our loan documentation. Then there was the reported leverage based on IFRS, which was 2.9 times EBITDA. And then on the right side of the slide, you could see the maturity profile of the different debt components, where you see a nice spread over the coming years. Then I would like to finish this short summary with a cash flow overview on page 16. As you can see, free cash flow decreased with 20 million to about 221 billion, and the main driver of this decrease is a combination of slightly lower results with a little bit of higher working capital investment. And the increase in working capital was, as what I mentioned before, mainly due to temporary higher debtor days, which were resolved within a few days after the month's end. Additionally, capital expenditure of approximately $6 million were largely in line with last year's spending and primarily directed towards IT investments, office improvements, and lab equipment . You will find the outlook for this year, and I assume everybody has already read the text in our press release, and therefore I won't repeat it aloud. And I would like to hand over to the operator, Sergio, to open the lines for Q&A.

Thank you, sir. Ladies and gentlemen, if you wish to ask a question at this time, please signal by pressing star 1 on your telephone keypad. If you find that your question has already been answered, you may remove yourself from the queue by pressing star 2. We will now take our first question from Zach Alchirotti from Morgan Stanley. Please go ahead.

Good morning. I have two questions, please. First, could you please comment on how pricing dynamics have evolved since Q1 and maybe call out any end markets where you're seeing persistent pricing pressure? And secondly, could you please elaborate on the drivers in underperforming end markets and also call out where you've seen any outperformance or any green shoots? Thank you.

I think, as I said in the script, we continue to see that personal care is doing really well. Quotings and construction is coming back, advanced materials also. I think where we are starting to see green shoots is foods. That was pricing, a market that really suffered from very low pricing, more competition, and also volumes. Being a bit down, we see that it's coming back. That was what affected Americas, I think, the most. And then in terms of the others, they are not, you know, as sizable except for pharma. And on pharma, I think I said in Q1, pharma, this is not a pharma year. You see it also with a lot of pharma companies that there's a post-COVID inventory rundown. But I would say, yeah, it's in a normal course of action. So, yeah. Does that answer your question?

Yes, thank you. And then kind of any pricing pressure, kind of broad base, or how have those dynamics evolved? Or is it kind of just by end market?

It's mostly by end market is what I mentioned, and I would say we really pride ourselves of being a specialty company, and a specialty company should not have such reflections of a lot of pricing. So I think we can see that we are keeping our pricing pretty stable with some dips in some end markets where there's a specific one like on foods, for example.

Thank you.

We will now move to our next question from Suhasini Varanasi from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my questions. Your organic GP growth has turned positive in the second quarter. Can you maybe talk about whether you saw any volatility over the months in the quarter, any trends that you saw in July so far, and what are your expectations for trajectory of improvement that you expect in second half this year on an organic basis? The second one is on the order book.

Before you ask a quick one, were you asking about the second quarter or the third quarter? Because you talked about July, which would be the third quarter, or were you referring how it moved in the second quarter?

The first part of the question was on the second quarter, whether you saw any volatility, and if you could comment on any current trading in July.

Okay. Then let me answer that one before we come to your second question. I think in the second quarter, we saw a strong April. I think we indicated that in our Q1 call. May was not as strong and it was surprising. That's why we are talking about the fact that it is still volatile and we don't see a continuous trend. At the same time, you know, it was definitely much better than what we had seen, particularly in Q1 and in some parts of Q2023. So I would say volatility within the month, volatility in the markets, July is not looking so bad. But I would not talk about we are in a great market yet and things are, you know, foreseeable. We have, as we said in our outlook, political situations in the world that make things a bit difficult to predict.

Thank you very much. The second question is on the order book actually. Is there a way you can comment on how the order book looks like sitting here today versus how it was at the end of OneQ? Have you seen any kind of sequential improvement on volume? Thank you.

It's always nice to look. I think we... We explained in the past that typically when we talk about the order book, we have visibility of five, six weeks of sales roughly. At the same time, we offer customers the flexibility to postpone delivery dates if they need so, or to break orders in two or three. And that drives a bit the volatility and uncertainty and makes it rather unpredictable to say, in the course of a month if it will be very strong or very weak. If you look at the development, then when we did the Q1 call, we were pretty positive about April. That materialized, but at that moment in time, we were at the end of April. I think Fallery was also not negative about July, to put it like that. So we started the quarter well, The market is so volatile. And we see, of course, different trends in different parts of the world. And also there's a holiday season ongoing at the moment. People drive the stock levels down in the summer period. And that makes it very difficult to predict. And we learned a bit that it's better to be cautious than to create an expectation now that everything is back to normal. Because the market is still not normal. But it is... stronger than last year in general.

That's fair.

Yeah, and what I said also in the script, I think, you know, we actually pride ourselves also on the fact that we are very flexible in terms of moving the volumes and the important thing is to at the same time keep networking capital under control. So, yeah, I would say The important thing is to manage the expectations, manage also our volumes and ensure that our customers and principals are happy.

That's clear. Thank you so much.

We will now move to our next question from Matthew Yates from Bank of America. Please go ahead.

Hi, everyone. Good morning. A couple of questions, please. Looking back over my notes, Sunrise, the third value was already written down, I think, at the end of, 2023. So you've taken another change to the deferred consideration today. Should we assume that this reflects a weak personal care market in China, which is impacting the business? Or is there anything specific about this deal? I know you have sometimes a healthy skepticism of the business plans pitched by sellers and structured deals accordingly to protect yourself. But I'm wondering whether the business is underperforming and whether that has any broader implications for your willingness to do other deals in China. And then the second question, just back on the quarterly development. So I was looking at the degree of operating leverage and it's always a little bit random, I guess, because of mixed changes. I guess we've seen a nice rebound in your high margin Asian business. My question is, did you proactively do anything on the cost side of the business? We talked a lot in Q1 about that cost inflation, and I think you gave a number, what, 50 lower headcount organically. Did you do something on the cost base to improve the results in Q2, or is this more just a bit more volume coming through the business? Thank you.

Valerie, should I pick up the sunrise one and you about the cost? Matthew, when we acquired Cignet, they came out of a fantastic year, 2022, and for sure they... Not Cignet. Sorry, Sunrise. Sunrise. Yeah, I was mixing two names. Personal care business in China coming out of a fantastic year and created a hockey stick towards the future, and they wanted us to pay for that. And that is why we structured that transaction in a way that We said we are a bit careful about valuation and let's leave 30% with the owner and reward him for the hockey stick as long as it materializes. And what you then typically see is that you, under IFRS, on the basis of that hockey stick, you need to create that earn-out obligation and that valuation of the remaining 30%. And what we saw in the beauty and personal care market in China specifically, and that is something that is different than what we see in the other parts of the world, because we see in our beauty and personal care market, as indicated by Valerie, in most markets a strong rebounds and a strong performance, with the exception of China. And there it now pays off, the fact that we were so conservative in our valuations. And then for me, the only unfortunate thing, and that is what I already said when we discussed the four-year figures, is that these conservative earn-out obligations on the one hand inflate my debt, and at the same time when I need to release them because they don't materialize, it flows through my P&L. And that's why I mentioned already at the four-year figures that you should normalize for these releases. But it shows that being careful to value your acquisition targets and to take a prudent approach there pays off. The personal care market in China is, I think it's fair to say, is still pretty soft. It is improving compared to last year, but by far not where the former owner of Sunrise expected the market would be at this moment in time.

Now, Matthew, coming back on your cost question, I mean, clearly, as you have seen, we have been cautious in adding people. And with acquisitions, of course, we are happy to get good people. And in general, our strategy is not about cost decrease per se, but about efficiency increase. We are striving for growth, and we are striving for being an efficient company with the growth that we generate. That's why we have continued our investments in digital and we invest in sustainability in our labs. And where we can be cautious, of course, we should be cautious because in the past we have been a bit more efficient and that clearly should be our target.

Okay, thanks both.

Thank you. We will now move to our next question from Chetan Udeshi from JP Morgan. Please go ahead.

Hi, thanks. Excuse me. Morning. I just wanted to follow up on previous questions. I know you don't like to give guidance, but just given that you have turned the corner on organic growth in Q2, do you think Q3, Q4, you'll be able to generate organic growth both on a cross-profit and earnings line? Maybe one for Hans. Is there an impact that you see in your numbers today from Maybe, Valerie, this may be also business-related, but we've seen the shipping costs have gone up. And I'm just wondering, both operationally in terms of supply chain disruptions and also for hunts on costs, is it relevant? Is it material in any shape or form? Thank you.

So on the outlook, I think we can only reiterate what we say, which is that we are confident that with our tools and people, we will deliver further growth and efficiencies. But how much that will be in this year is very difficult to predict.

But they are ambitious people, as you know. So talking about increased shipping costs and supply chain issues, yes, for sure, that has an impact on business. In certain markets and regions, it drives cost prices up because higher transportation costs are translated in a higher cost price for customers. And as you can see on our margin development, we passed that pretty well to the market. We have seen in various regions delayed deliveries. For instance, our pharma business in India struggled a bit with goods coming out of Europe. It took longer to get them into India and these type of operational things, but I don't think in the end it had a material impact on the numbers that we present, but it plays a role, and that we are good in dealing with these type of potential issues.

Thank you very much. Our next question comes from Luke Van Beek from DeGroote. Please go ahead.

Yes, good morning. I have a question about the acquisitions that you've done in age one because the appears to have been somewhat more expensive. Can you confirm that and also indicate what's driving that? Furthermore, can you comment on the acquisition, sorry, the competition that you're seeing for new drivers? Is there any change there?

Yeah, I'm not sure if I agree with your observation that the acquisitions were more expensive. I'm not sure where that's based on, to be brutally honest. If I look at the multiples that are typically paid in this industry, what I mentioned before, they hover somewhere between six, seven times EBITDA on the low end and 11 times on the high end. And then depending on the quality of the supplier base, the target, the breadth of the portfolio, the interest that there is for a target, you either end up at the low or the high end of that range. And I think the blended mix that we saw in the first half was not different than previous years. And, Luc, I missed your second question.

Do you see a difference in the competition for new targets? Are there any changes in

No, there is always – I think if you look at the market, there are typically similar players being active, and what you see in the specialty business, most owners that look for an alternative ownership of their company, they typically talk to people whereby their supplier portfolio fits in the portfolio of a potential buyer. So as an example, if we do Givaudan food flavors in Europe, then if somebody has a business in Europe representing Simrise as his most important supplier, he will never ever talk to us, and vice versa. So there is also a bit of an often logic combinations, and sometimes there are more possibilities for owners, but then it's all based on building a relation, building trust with people, and that's why we are very active always in the market and talking to people, building those trust relationships and making sure that you are well positioned at the moment that the owner wants to change ownership. And then looking at the pipeline and looking at recent transactions, I think we do pretty well there as a company.

Okay, that's clear. Thank you.

We will now move to our next question from Dominic Edrich from Deutsche Bank. Please go ahead.

Hi there. Three questions from myself, please. Firstly, maybe just to clarify on the net finance costs. I think you said it's about sort of minus 32, I think, is the underlying number in H1. Is that a good starting point to think about for H2, or are there any sort of other moving parts you would be highlighting there? The second question is about Cygnus. I know that you've appointed a new managing director there. Could you maybe just talk a little bit about the change process? I know that obviously that's probably due to the change in shareholding there. Could you maybe say if you've seen any other movements there or what your plans are for the businesses that's fully integrated into IMCB India? And then the last point, and apologies for this, I'm going to have a try-making attempt to get you to comment on the second half. If we look at normal seasonality at IECD, it's been typically being 52 to 54% of your EBIT A has been in H1 historically. Is there any reason to think it should be any different this year? Thanks so much.

Shall I take the one more final? Dominique, when we spoke about full-year results, I gave the guidance on what to expect on normal interest year-to-year, and then I said something around somewhere between 50 and 60 million, based on the year-to-year index. If you look at the components, and the CPAT helps with 1.1 billion of bonds at a fixed rate of roughly 3.5 percent. And then the rest of the debt is typically revolver related with the rate that moves with market rate with the margin of the base rate and the margin is below 1%. And I think the number that we reported in the first half here is normal interest. If we won't do any additional acquisitions, you could more or less double that amount. And that would mean that we would fall in the ballpark of guidance at the start of this year.

I think I take that one structure. Maybe you can elaborate a bit further on afterwards. But, yeah, I mean, we are very pleased about the succession of Harish because we were able to get executive of the pharma industry in India who is extremely well known in the market. who knows our products already for many years and therefore could fit in perfectly. We feel that there is a lot of positive momentum. She joined in May and has already participated clearly in the second quarter, which was a good quarter also for Cygnet. So I think we are very confident about the way forward.

And Dominic, your last question about... Your line is a bit noisy, by the way, Dominique. I'm not sure if that is on your side. If you look at the split over the years, this year we started with a soft Q1, a stronger Q2. Typically, historically, we always made a bit more of the result in the first half than in the second half of the year, and that typically has to do with always a relative... week December month, which drives lower sales due to holiday season at that moment in time. I have no idea how this will develop this year due to the uncertainties and volatility in the market, and let's see.

Okay, thank you very much.

We will now move to our next question from Eric Wilmer from Kempen. Please go ahead.

Good morning, everyone. Two questions from my side. Some of the food and beverage ingredient manufacturers have indicated softer food service volumes in Q2 in the US, which are mostly compensated by stronger retail. I was wondering to which extent this dynamic had an impact on your US food and beverage business in Q2. And secondly, to what extent do you see smaller distributors using availability of product to support sales in these volatile markets? and hence impact your cash performance? Thank you.

I think considering the first one, we saw that food is rebounding in the second quarter. We don't split by food service versus retail. So therefore, I think I cannot really answer that question in terms of if there was a shift. But I can say in general, we are starting to see that in America, food is coming back, both in terms of pricing as well as in terms of volumes. in general, I think, a better development. In terms of your second question, which was on... Can you help me again? The smaller distributors. I mean, we are selling a specialty portfolio. It's very difficult that somebody is replacing it. I think in 22 that probably happened because there was a lot of stock out in the market and people were desperate and replaced whatever they could. I don't think we see this at this point in time, not in a material way.

That's very helpful. Thanks for that. Could you perhaps on my first question answer whether any shift in one or the other, so in food service or in retail, which would benefit you more, or is that very difficult to say?

I think that's really difficult to say. I cannot. I will try to have that for the next quarterly call, but this one, I really cannot because we don't do the split. I will look into it.

Thank you very much.

Thank you. We'll now move to our next question from Karine Milder from ING. Please go ahead.

Yeah, good morning, everyone. I have questions about the US. So it looks like that, Valerie, that you're a little bit cautious on that market. If I look at the second quarter numbers, I see the gross profit, let me say, organically from minus 14 to plus 2.4% in the second quarter. given your minus 6% you said in your press release. And I think there's a substantial improvement, especially with the second half coming. So how do you look at the situation with regard to the gross profit in the U.S.? That is the question I have on this number.

Before Valerie answers, Quirijn, first, America for us is more than just the U.S. For us, that's the region from Canada up to and including Brazil. Sorry, sorry, sorry.

Yes, America is, yeah, next question.

And that's actually, Hans is pointing in the right direction, which is it is so, I mean, there are so many different countries in there, and then you have eight business groups, some more substantial in some countries, some are in others. I think that's where the caution is coming in, because you might have some large ones that are doing really well, but you have maybe an aggregate of several others where there are movements happening in the market due to all kinds of circumstances. So I think it's, yeah, being overly optimistic I find a bit dangerous in such volatile markets. But I think, as you pointed out, it is pointed in the right direction. That gives us a positive feeling.

Let's then zoom in on, let me say, Latin America. That was clearly double-digit down in terms of revenues and gross profit. So is there any visibility on recovery?

Yes, yes. In part, there's definitely a recovery going on.

Yeah, okay. So it's only in part, so that makes you a little bit uncertain about the second half. You say, okay, We see some green leaves, we see some improvements here and there, and we don't know whether it is sustainable.

We see light at the end of the tunnel, and we hope it's not the train. No, it's light at the end of the tunnel.

Perfect. Thank you. We will now move to our next question from Dario Dickmann from HSBC. Please go ahead.

Yeah, good morning. Could you maybe add some additional color on the quite substantial EBITDA conversion margin improvements in APEC and Americas between Q1 and Q2?

Yeah, basically it is a combination of a couple of factors. That is, you might have seen that we were able to improve the blended gross margin percentage. You heard Valerie saying something about it being a bit more positive on volumes, volumes coming back in certain market segments. And if you then are at the same time cautious on the cost side, then you automatically see an improvement on the conversion ratios. And that is basically what we saw happening. And that drives the improvement as we reported.

Okay, thank you. So it was no special mixed effects from different products or just really cost control and volume improvements, right?

No, no, no. At the end of the day, in our industry, and that makes it so nice, critical mass is important. And if you have a certain cost structure and if you then grow your business, either with additional suppliers or new products or better cross-selling at your customers, you use the same structure to do more volume and more business. And that creates that operational leverage that basically people like yourself and also our other stakeholders are always looking for. And that is also the ambition to drive that do more volume with the same structure, with your same IT infrastructure, use your digital tools in a more efficient way, and that should further drive efficiency.

Great. Thank you.

Thank you. We will now move to our next question from Nicole Mannion from UBS. Please go ahead.

Good morning. Thanks for taking my question. Just one follow-up question, really, on the outlook, please. I think in your business, there isn't usually lots of forward visibility anyway. Obviously, at the moment, it seems that that uncertainty is clearly heightened. Could you maybe give us some more detail on maybe just the kind of things that you are tracking that would maybe give you that incremental confidence and why what you've seen there so far hasn't? So things like customer order sizes and frequency and your conversations with suppliers, I guess that's got a little bit more positive in Q2, but not enough for you to extrapolate it. So yeah, any more detail, that would be great. Thank you.

Yeah, I think what we said in Q1, it would really help if inventories were being filled, and we don't see that happening. because that clearly all of a sudden you see a big move in the market in a direction where you then also can predict a little bit more what the restocking of those inventories means. Now you have sometimes somebody who is out of stock and all of a sudden you get a big order and then the month after he's getting cautious, he's getting a bit worried, there's negative political news. He says, okay, let me hold it and then all of a sudden you get again a request for an order. That's why our digital tools are so important to ensure that we are not stuck with material that is waiting and cannot be shipped. And on the other side, we have material available when, you know, customers want. And the predictive forecast is really key for us. And I think this is where the difficulty in the market lies. If you want really one big thing that would change it, I think political stability is and people gaining in confidence to restock their inventories in a substantial way would be two really nice things to happen and for the market to become much more foreseeable.

Great. That's very helpful. Thank you.

As a reminder, to ask a question, please signal by pressing star 1. The next question comes from Carl Rainsford from Berenberg. Please go ahead.

Yeah, morning, everybody. Just two quick ones from me, please. The first one is just around the refinance, probably for you, Hans, to be honest, but refinancing the 2025 bond next year, I think, for 300 million. Do you have any idea of how that may impact your interest cost or possibly what sort of rate you're expecting when you refinance that? Granted, probably a little hard to predict, but it would be useful to know your thoughts on that. And the second one, I saw acquisitions spend relatively high in the first half this year versus last year. Just bearing in mind, it leverages around 2.9 times now. What are your intentions in the second half? Can we think that you may be able to continue that momentum, or should we consider that slowing down? I'm just wondering if provenance may be an issue there. Thank you.

Yeah, Kyle, I think two valid questions. I think if I would refinance the 300 million, I'm not sure what today's market price is, but I expect somewhere between 3.8, 4.2 percent. It should be a reasonable for a company of our size and with our structure. So they'll be close to the blended rate that we have now, but slightly higher than the bond that we need to replace, because it was one bond with 2 point something percent. Your second question, if you look at the leverage level and the cash profile of this company, what we always see is that we typically spend more cash than what we earn in the first six months of the year, and then we see a lot of cash inflow in the second half of this year. out of what I would call the operational part of the business. And in the first half of the year, we typically also pay a dividend and we pay quite some interest in bonds that we have. At the same time, the bigger known is M&A. That is difficult to predict. The pipeline looks healthy, but we also will generate loads of cash in the coming months. So if nothing special happens, I expect leverage to come slightly down and be lower towards year end. And if we do a lot of M&A, we need to see what we do there. But I don't have any concerns there, to be honest.

Perfect. That's very helpful. Thank you. Thanks, Hans.

Thank you. And is there enough other questions at this time? I'd like to hand the call back over to Valerie Diel-Brown for any additional or closing remarks.

Over to you, ma'am. It was a pleasure talking with you, and we are looking forward to seeing several of you in Milan and to then our Q3 call later in the year. Thanks so much, and wishing you a good summer. Bye.

Thank you. This concludes today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.