IMCD N.V.

Welcome to IMCDNV First 9 Months 2024 Results Conference Call. My name is Alan and I'll be your coordinator for today's event. Please note this call is being recorded and for the duration, your lines will be on listen only. However, you will have the opportunity to ask questions at the end. This can be done by pressing star 1 on your telephone keypad. If you require assistance at any time, please press star 0 and you'll be connected to an operator. I'll now hand you over to your host Valerie Dele Brown, to begin today's conference. Thank you.

Good morning, everyone, and welcome to the IMCD Q3 2024 call. As usual, 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. In the first three quarters, we recorded revenues of €3.6 billion and operating EBITDA of €403 million. On a constant currency basis, this is a 3% EBITDA increase versus previous year's same period. This increase can be mainly attributed due to an improved performance in Q2 and Q3 after a disappointing Q1. During the third quarter of this year, we were able to deliver a gross profit of €303 million, which is a FX adjusted growth of 13%, resulting in a 13% EBITDA growth on a constant currency basis versus the same quarter last year. This result was a combination of the performance of first-time inclusions of acquisitions as well as organic growth. Additionally, we strengthened our position in all operating segments as well as regions through 12 acquisitions year-to-date. Despite continuing difficult market conditions, we are happy that we saw organic growth, cross-margin and editor growth in all three regions in the third quarter. Still modest organic growth in EMEA, but more notable in Americas and Asia. 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. We see many volumes and orders being moved to the next month, and the ongoing geopolitical changes make predictions very difficult, which is why we focus on those elements which we can drive, commercial excellence, digital upgrading, and principal as well as customer collaboration and support. In terms of effective business development, we were able to win new principals and to expand with existing ones. Our principals continue to be excited about the volumes we have been able to gain and we will closely work 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, as mentioned, 12 acquisitions across all three regions of business segments. And last but not least, we continued with our digital investments and sustainability programs, which we will further roll out in 2025, as mentioned during the lab tour in Milan in September and a respective presentation which was published on our website. We are confident that our investments made, our strong commercial teams, digital and logistics infrastructure, combined with a continuous drive for operational excellence and cost control, will deliver further growth and efficiencies. Simultaneously, We feel it to be prudent to be cautious with predictions in such a volatile environment with a changing geopolitical landscape. Hans will now give you a short update on the numbers.

Thank you. Thank you, Valerie. Good morning, ladies and gentlemen, and I will briefly summarize IMCD's first nine-month results that we published earlier today before we go to the Q&A at the end of this presentation. I would like to start on this page, page 9 of the presentation. And as you can see, Forex adjusted revenue and growth profit both increased with respectively 7% and 8% compared to last year. And the 8% growth profit growth in the first nine months of this year is a combination of slightly positive organic growth and a 7% increase as a result of the first time inclusion by businesses. During this year we saw a positive development of organic gross profit growth. As you have seen from a minus 8% in Q1 via a plus 4% in Q2 to a plus 7% organic gross profit growth in this third quarter. Gross profit in percentage of revenue slightly increased to 25.4% and this increase is the result of changes in local market conditions combined with the usual fluctuations in our product and various local cross-margin improvement initiatives. And these effects more than compensated the negative impact from acquisitions on the gross profit percentage, as these acquired businesses on average had a lower gross profit margin than group average. Forex-adjusted operating EBITDA increased 3% to $403 million. And this 3% increase was a combination of a plus 8% as a result of acquisitions and a minus 5% organic. When looking at the trend here over the quarters, we saw a similar trend as mentioned for gross profit. Negative organic in Q1, a small plus in Q2, and 5% organic EBITDA growth in Q3. The conversion margin was 44.3%, which is 2.5% below last year. Then Forex suggested net results, earnings per share both slightly decreased. The cash earnings per share, so after adding back amortization net of tax, is more or less similar as last year. On free cash flow, we reported 65 million decrease compared to last year. Cash conversion margin of 73% was lower than the same period of last year. Increased working capital investments were the main driver of this increase. And this working capital investment was primarily driven by an increase of business activity. Further, we report a little increase in working capital from 66 last year to 68 days this year. And on the last line of this page, you will notice a 7% increase in our number of full-time employees. And it's fair to say that this increase is the result of new employees as a result of acquisitions done. And when normalizing for these acquisitions, we would have reported a little decrease as we were very cost-conscious and careful in filling open positions given the uncertain market conditions. Then on the next slide, slide 10, you will find a summary of a few key figures split into the various regional operating sectors. In the first column in EMEA, we reported solid numbers given difficult market conditions in the various markets and challenging comparable figures of last year. Year-to-date gross profit growth was positive, and we were able to further increase the gross profit percentage to 27.8%. In EMEA, Forex adjusted operating EBITDA of $186 million was 1% better than last year. Modest organic gross profit growth combined with inflation-driven own-cost growth was the main driver of slightly lower like-for-like EBITDA and reported ratios for EBITDA and conversion margins. Organic EBITDA growth was positive in both the second and the third quarter. Then in the second column, the Americas, positive development of organic growth, profit, and EBITDA growth, both with double-digit organic growth number in the third quarter, could not compensate the relatively weak performance in the previous two quarters. However, we've seen a promising and ongoing quarter-after-quarter improvement since the weak first quarter of this year. And the gross margin percentage in the region increased from 24.1 last year to 24.7% this year. Asia-Pacific, the third column, is the only segment where we saw a decrease in gross profit percentage. This 1% decrease from 23.3 last year to 22.3 this year. And the reason of this decrease is mainly the result of acquisitions done. These acquisitions contributed 20% to the top line and only 14% to gross profit. Therefore, it's obvious that these acquisitions had on average a lower gross profit percentage than our legacy businesses. When normalizing for this acquisition impact, the average gross margin percentage slightly increased compared to last year. And similar to the Americas, we saw healthy organic gross profit and organic EBITDA growth in the third quarter. And then in the last column, you will find the cost of holding companies. And this includes all moon operating companies, including the head office in Rotterdam and the regional support offices in Singapore and Miami. The cost increase reflects the growth of IMCD and the corresponding need to further strengthen the support functions both in Rotterdam and in the regional head office. On page 11, a summary of the free cash flow. Free cash flow was, as I mentioned earlier, 65 million lower than last year, resulting in a 17% lower cash conversion ratio. The reported decrease is mainly a result of higher working capital investments as a result of higher level of business activities. Strong sales in September and additional stock to cater for the open orders in October were the main driver for the working capital increase. And CAPEX was low in line with the, as you know, asset line business model of IMCD. Then on page 12, a short update on net debt and leverage. Compared to the end of December last year, net debt increased with about $300 million. This increase was a combination of positive operating cash flows on the one hand, combined with, amongst others, a $128 million dividend payment and $277 million of considerations paid for acquired businesses. When looking at the debt position, the debt includes at the moment two 300 million bonds with a coupon of a low 2%, and further it includes two 500 million bonds. As you might have seen, we successfully issued a new 500 million bond in August. And this new bond matures at the end of April 2030 and has a fixed coupon of 3.725%. Then you can see the reported leverage ratio, including the full year impact of acquisitions was 2.8 times EBITDA. And leverage based defined on the definitions in our loan documentation was 2.7 times EBITDA, and that is well below the maximum level that we can have there, the 4.25. Then last but not least, on page 14, you will find our outlook for 24. They could read that we are positive but cautious as market conditions make future demand and developments difficult to predict. And that was my short summary of our year-to-date financials. And Valerie and myself are happy to answer questions that you may have. And I would like to hand over to the operator, Ellen.