IMCD N.V.

Hello, welcome to the IMTD Half-Year 2025 Results Conference Call hosted by Marcus Jordan, CEO, and Hans Goijmans, CFO. For the first part of this call, all participants will be in listen-only mode. And afterwards, there will be a question and answer session. If you wish to ask a question, please press key pound five on your telephone keypad. I would now like to give the floor to Marcus Jordan. Mr. Jordan, please go ahead.

Thank you very much, Alba. Good morning to you all, and a warm welcome to our 2025 half-year result analyst call. I'm Marcus Jordan, and I'm here today with our CFO, Hans Coymans, for the 2025 half-year results, which we published in a press release earlier this morning. The first half of 2025 was generally characterized by global economic uncertainty and tariff discussions across all regions, which had a significant impact on customer behavior. When looking at our numbers in the first half of 2025, they can be summarized as this having a good start to the year, as you saw in the Q1 numbers. And after this, we saw demand generally softening in the second quarter. You will find a summary of our financial results on slide four. Gross profit is up to 634 million euros, plus 7% on a constant currency basis. EBITR is up to 275 million euros, up 4% on a constant currency basis. Our free cash flow of 173 million euros was lower compared with the first half of 2024, which was mainly due to higher inventory levels. These higher inventory levels are a result of the ongoing uncertainty in the market, and as I mentioned before, customer demand generally softening during the second quarter. This has resulted in the inventory levels we currently see being too high, and we are actively working to reduce these. Our CFO, Hans Coymans, will discuss working capital in more detail later in this call. Moving on to M&A. After mentioning a healthy M&A pipeline in the Q1 call, I'm pleased to share that we announced four acquisitions in the second quarter of this year. These acquisitions were well diversified across all three regions and business groups. To start with, two acquisitions in Spain in the food and nutrition market with Ferrer and Taycom. Our presence in Spain in the food and nutrition ingredients market was previously relatively small. and we're therefore very happy with these two complementary acquisitions. We also announced the acquisition of Apus Chimica to strengthen our offering to the advanced materials industry in Chile and the acquisition of Trichem to accelerate our growth in the pharmaceutical market in India. In addition to these M&A announcements, we were pleased to also close the acquisition of Daikin in food and nutraceutical ingredients in China, and YCAM in personal care and pharmaceuticals in Korea. Both were already signed and announced in December 2024. We further exercised the call options to acquire the remaining 30% of Sunrise in China and Megasetia in Indonesia. Having defined our six strategic growth pillars, which we presented during our investor day in Milan last year, I'm pleased to share some highlights of our progress in these areas. We are particularly proud of the further rollout of the sales assistant product recommendation tool to empower our people to easily identify the right solutions for our customers. This tool is now rolled out internally for all business groups and in a couple of our business groups externally via My IMCD. As is a core strength of IMCD, we also continue to develop new business with a number of supplier wins and expansions during the first half of the year. And after successfully developing our APAC region over the last three years, we recently announced the appointment of Andreas Eagle as president EMEA and head of our industrial business groups. We have created this new position to further drive best practices and growth across the region and industrial markets. To summarize, under challenging and unpredictable macroeconomic market conditions, I am assured by the resilience of our asset-light business model that we have been able to achieve growth during the first half of the year, and thankful to our teams for their hard work and continued focus. Whilst these challenging conditions remain, we are well positioned for the future through our leading specialty-focused portfolio, diverse geographic and market coverage, and advanced digital and supply chain capabilities. I would now like to hand over to our CFO, Hans Coymans, who will give you an update on the numbers.

Thanks for the introduction, Marcus, and good morning, ladies and gentlemen. I would like to start on page eight of the presentation, where you will find a summary of the key figures taken from the first half-year press release that we issued earlier today. And as you can see, Forex suggested revenue increased 6 percent, which is a combination of 2 percent organic growth and 4 percent resulting from the impact of the first-time inclusion of acquisitions. The Forex adjusted growth profit increase was slightly higher than the revenue increase with 7% compared to the same period of last year. This increase was a combination of 4% as a result of the first time inclusion of acquisitions and 3% organic growth. As Marcus mentioned, we started the year strong with 6% organic growth in the first quarter followed by modest organic growth in the second quarter. We saw demand softening in the course of this year due to ongoing tariff discussions and related uncertainty, which had a significant impact on the customer demand. And further, the weakening of currencies like the US dollar did not help and resulted in a negative impact on the absolute amount of revenue and gross margins. All in all, given the general market conditions, we are happy to report organic growth profit growth in this first half of 2025. If you look at the growth profit in percentage of revenue, that improved by 0.2 percent point to 25.6 percent, and this increase in the percentage was a combination of product mix, acquisition effects, changes in local market circumstances, and a continuous internal gross margin improvement process. The Forex suggested operating EBITDA on the next line increased 4%. This increase was a combination of modest organic growth and a positive contribution of acquisitions of close to 4%. Operating EBITDA in percentage of revenue decreased to 11.1% in the first half of 25. The conversion margin was 43.4%, a decrease of 1.1% point compared to the same period of last year. This decrease in the conversion margin is the result of higher gross profit being a bit more than offset by inflation-driven organic on-cost growth. And talking about cost on the bottom of the slide, you can see that IMCD employs about 5,300 full-time employees. And compared to the end of June last year, we added 263 new colleagues, which is the result of acquisitions done in the last 12 months. As mentioned in previous calls, we have been, and still are, very prudent in filling vacancies or adding new people. On the next page, page 9, you will find a bit more color on the year-on-year development of gross profit, EBITDA, and conversion margin per operating segment, whereby the differences, as you can see, are split on organic acquisition and currency impact. EMEA in the first column reported 3% Forex-adjusted gross profit growth, which was not enough to compensate for the on-cost growth in this segment. And then as a consequence, operating EBITDA and EBITDA-related ratios all slightly decreased compared to the same period of last year. Market conditions were difficult, and demand was soft across this segment. Despite these challenging conditions, we were able to keep our gross margin percentage in EMEA at 27.5%, and this 27.5% is still way above the average of the group. In the Americas, we had a strong first quarter with double-digit organic growth, and then gross profit and EBITDA growth, followed by a much softer second quarter. weakening of the US dollar and other currencies in the region combined with softer demand due to macroeconomic uncertainties played an important negative role in this second quarter. Organic growth, profit growth combined with strict cost control resulted in higher EBITDA and conversion margins. In Asia Pacific, a bit of a similar picture whereby a solid first quarter was followed by a softer second quarter. And same as in the Americas, weakening of the U.S. dollar and other currencies in the region combined with softer demand played an important negative role in this quarter. As a positive, we are happy to report that we were able to further improve cross-margin percentage and EBITDA margin in this region. Holding costs in the last column were slightly lower than last year at 0.7% of revenue compared to the 0.8% last year. I mentioned the impact of currencies now a few times, and for a reason. Currencies have been volatile in the second quarter, whereby we see the impact of this volatility on various places in our numbers. As you can imagine, there is a currency impact when translating assets on the balance sheet held in foreign currencies to euros, and that currency impact is then reported in the net finance cost and OCI. I will come back on the finance cost a bit later. Then there is also an operational impact on revenue and gross profit as a result of a weakening of, for instance, the US dollar. In various countries it is, as you know, quite common to quote and price your products in dollars and then invoice in local currency. The weakening of the dollar versus the local currency then often leads to a lower absolute amount of gross profit, as you get less local currency margin for the same US dollar amount. This impact is, of course, less visible. It's also difficult to put a number on it, but certainly negative and not neglectable in this second quarter. What is more visible is the impact of translating foreign currency results into the euro. In the first quarter of 2025, this translation impact was neglectable. However, if you look at the second quarter, we lost about 4% of our revenue in EBITDA due to the translation of Forex result into the Euro. This currency translation impact means that we lost about 50 million of revenue and 6 million Euro of EBITDA only in the second quarter. Weakening of the US dollar and the Indian rupee during the second quarter were the most important drivers. I assume that you, as an analyst, already made an estimate of our expected currency translation loss and impact on the remainder of this year to update your forecast. And I realize that nobody can predict the exchange rates going forward, and neither our EBITDA for the second half of this year. However, to get a feel for a number, I could imagine and see that just as an indication of a translation loss for the second half of this year, you could recalculate the second half last year EBITDA at the exchange rates prevailing at the end of June this year. Based on this data, these data points that we gave you, you would arrive at a currency translation impact on our second half year EBITDA somewhere between 12 to 15 million Euro negative. And this would then come on top of the 6 million already reported in the first half of this year. So currencies more and more play a significant role in this international and volatile environment. On the next page, page 10, a summary of the P&L lines between operating EBITDA and net result for the period. Net result is 11 million or 7% lower compared with the same period of last year and mainly as a result of higher net finance costs. Before I explain this cost increase, a few general remarks about the other lines. Amortization of intangible assets, non-cash costs related to the amortization of supplier relations, distribution rights, and other intangibles, and this increase is mainly the result of acquisitions made. Then there is $7 million of what we in the past called one-off costs, and that could be split more or less 50-50 between acquisition-related costs and one-off adjustments to the organization. Now on the next page, page 11, a breakdown of the net finance cost. And as you can see, changes in deferred considerations and currency exchange results are the main drivers of the reported increase. Overall interest costs slightly decreased. Currency results are the negative result of translating monetary assets and weakening foreign currencies into the Euro, and further it includes an IFRS hyperinflation adjustment related to Turkey. The changes in deferred considerations that relates on the one end to a negative fair value adjustment of 12 million for Blue Mosque in Chile and Value Tree in India, and a 4 million positive adjustment related to Sunrise. China. Then on page 12, a high-level summary of the IMCD balance sheet. Property, plant and equipment, $134 million. It's always a combination of, in this case, $41 million of fixed assets and $93 million of right-of-use assets, of the stuff that we lease and need to put on the balance sheet. And the fixed assets are Of course, they're relatively low compared to the size of our business, given the asset-light business model. Then you see the combination of intangible assets and the related deferred tax liabilities of about $2.4 billion in total, and these are the result of acquisitions done since our listing in July 2014, and our history as a private equity-owned company. Then on the financing side, there is $1.5 billion of debt, and I will come back on that in a minute, and $2 billion of equity. And this substantial equity position covers about 56% of our capital employed, as you can see. The next page, a summary of reported working capital, and Mark has already referred to that. Total working capital At the end of June was 963 million compared to 907 December last year and 843 in June last year. And the overall increase is a combination of the, first of all, the impact of working capital as a result of acquisitions done. Then there is a bit of tailwind here from the currency impact and we had some negative, what I would call operational developments. And when translating the absolute amount of working capital in days of revenue, we reported 69 days end of June this year compared to 63 days end of June 2024. And this increase is not something to be proud about. And when you look at the bottom of this slide, you could see that we improved on the debtor days. And that came down from 64 last year June to 60 days end of June this year. The other thing you can see is that the main driver of the increase of working capital days are a combination of increased stock days combined with slightly lower creditor days. Most important, the increase in the stock days is partly market related and partly created by ourselves. And when I talk about market related, I refer to increased stock days as a result of customers delaying their delivery days of already agreed orders. I've referred to that already a couple of times in previous calls about the trend that we see more and more customers that take the opportunity to get a later delivery date than earlier planned. And another aspect that became more and more important is the increased time that stock is on the water, mainly as a result of the situation in the Red Sea area. And also internally, I think it's fair to say we should have been faster and more alert when buying stock to adapt to changing market conditions. Marcus and myself have taken corrective measures to actively reduce working capital levels, and as Marcus indicated, to get back to a bit more normal levels there. Then on the next slide, a summary of our net debt position, leverage ratios and maturity profile. And as you can see, net debt increased in the first six months with about 260 million to 1.5 billion. And this increase is amongst others influenced by a dividend payment of 127 millions, which we did shortly after the AGM. And considerations paid for acquired businesses of 239 million. The 1.5 billion of debt includes about 1.3 billion of bonds. The leverage ratio end of June based on IFRS and on our loan documentation was 2.6 times EBITDA and this level was well below the maximum set on our loan documentation. And then on the right side of this page you could see a healthy maturity profile of our debt position. Then I would like to finish the short summary with a cash flow overview on page 15. Free cash flow was $173 million, a decrease of $48 million compared to the same period of last year. And the main driver, as mentioned before, is the increase in the higher working capital investment. And this was, as mentioned before, mainly due to higher stock days. Capital expenditure of about $5 million, largely in line with last year's spendings, and primarily directed towards IT investments, a bit of office improvement and lab equipment. And then on page 17, you will find the outlook for this year, and I assume everybody has already read the text in the press release, and therefore I won't repeat it aloud. And I would like to hand over back to the operator to open the lines for Q&A. So Elba, the floor is yours.