Imcd Group Nv U/Adr

Hello, welcome to the IMCD 2025 First 9 Months Results Conference Call, hosted by Marcus Jordan, CEO, and Hans Kooimans, 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 pound key 5 on your telephone keypad. I would now like to give the floor to Marcus Jordan. Mr. Jordan, please go ahead.

Thank you very much, Elba. Good morning to you all and a warm welcome. I'm Marcus Jordan, and I'm here today with our CFO, Hans Kooimans, for the 2025 first nine months results, which we published in a press release earlier this morning. The first nine months of 2025 were generally characterized by challenging market conditions as a result of continued macroeconomic uncertainty particularly around tariffs across all regions. This resulted in softer demand across a number of markets, limited order visibility, and just-in-time deliveries. Moving on to the first nine months' numbers, you will find a summary of our financial results on slide four, whereby, considering these continued challenging macroeconomic conditions, I am pleased with our gross profit growth in the first nine months, which is up 5% on a constant currency basis to 927 million euros. This increase is driven by a combination of organic performance, successful acquisitions, and resilient gross profit margins. EBITR also increased by 1% on a constant currency basis to 394 million euros, and our cash flow of 284 million euros was a bit lower compared with the first nine months of 2024. driven by a combination of a slightly lower EBITR and a modest increase in working capital investments. As we mentioned in the half-year call, we are actively working on reducing our inventory amount back to historical levels. But I also want to stress how important it is that during these uncertain times, we have inventory in place to fulfill the demands of our customers. If we now look at M&A, We announced four acquisitions in the first half of 2025, and in Q3, we were very happy to add another two. In August, we announced the acquisition of Tillmans in Italy, which operates across a broad range of markets, including coatings and construction, food and nutrition, and water treatment. Tillmans have 78 people and had a revenue of 143 million euros in 2024. I'm very proud of this acquisition as we've become a real powerhouse for our partners, teams, and suppliers in Italy. In October, we also announced the acquisition of Dongyang FT in South Korea, a company active in beauty and personal care. With 14 people and 34 million euros in revenue, we strengthened our position in South Korea, which as you know, is one of the most innovative and largest beauty and personal care markets in the world. On a full year basis, these six acquisitions will add around €340 million of revenue and 185 employees based on their last full year numbers before acquisition. Looking at our business segments, we have seen pharmaceuticals, food and nutrition having the most solid performance in the first nine months, and our beauty and personal care and industrial segments being generally soft in demand across the three regions. Related to demand, we get a lot of questions around Chinese competition in our various markets. And during this year, it is fair to say that we have seen more competition from China. And whilst we are somewhat protected from this due to our specialty-focused portfolio, we have seen some pricing pressure, primarily on the semi-specialty components of our portfolio, and especially in the APAC and LATAM countries. It is important to highlight that competition from China is nothing new to us. And as we have done throughout the history of IMCD, we regularly review the portfolio we have in all countries and markets to ensure we are for the longer term competitive and where necessary, adapt our portfolio accordingly. Again, with the long-term growth of the company in mind. To summarize, despite the ongoing uncertainties in global trade and tariffs, our business model has shown resilience during the first nine months of the year. We are further intensifying our efforts to drive cost effectiveness and commercial excellence throughout the company and ensuring that we have the right people in the right positions for the future. We are in the process of further strengthening our sales organization, both those on the road and the inside sales specialists. At the same time, we're taking advantage of our digital initiatives to optimize other areas of the business. Overall, this will result in a reduction in the number of FTEs going forward. We are well positioned for the future through our adaptable specialty focused portfolio, geographic and market diversity, combined with advanced digital and supply chain capabilities. And we remain confident in the strength and long term outlook of our asset light business model. I would now like to hand over to our CFO, Hans Coymans, who will give you an update on the numbers.

Thank you, Marcus, and good morning, ladies and gentlemen. I will, as usual, briefly summarize IMCD's results for the first nine months before we go to Q&A, and I would like to start on page seven of the presentation. On this page, you can see Forex adjusted revenue and growth profit both increased with respectively 6% and 5% compared to last year. Despite the challenging conditions Marcus just mentioned, we still achieved a modest level of organic gross profit growth, along with a 4% increase as a result of the first-time inclusion of acquired businesses. Gross profit in percentage of revenue slightly decreased to 25.2%, and about half of this 0.2% decrease is the result of the negative impact from acquisitions, acquisitions with on average a lower gross profit margin than group average. Furthermore, we saw the usual fluctuations in our product mix, currency impacts, and changes in local market conditions. Then Forex adjusted operating EBITDA, which increased 1% to 394 million, and this increase resulted from an organic decline of 3% that was more than compensated by the positive impact of the first-time inclusion of the acquisitions. The reported EBITDA and conversion margin both decreased, and this is mainly the result of gross profit growth that could not fully compensate inflation-driven own-cost growth. When you look at the own-cost growth, the year-to-date organic own-cost growth came down to just below 4%. And compared to September 2024, the number of full-time employees normalized for the impact of acquisitions slightly decreased. Forex adjusted net result on the next line that decreased 9%. In our trading updates, we usually don't break down this difference in detail. However, it's fair to assume the main factors are similar to what you saw in our half-year results. Lower reported EBITDA and higher finance costs as the main drivers. These higher finance costs in year-to-date 2025 are mainly the result of a bit more forex losses and lower gains from fair value adjustments of deferred considerations. Further, we reported and will report additional costs related to one of adjustments to the organization. And these additional cost items are partly compensated by lower tax costs. At year end, you could expect higher than usual additional costs related to one-off adjustments to the organizations. You know, and we told you before, that we are always cost-conscious and prudent with our cost structure. However, as indicated also by market, current market conditions, but also opportunities as a result of our digital investments, allow us to reduce our fixed cost base and adjust the organization to changes in market conditions. Then of free cash flow, we report a cash conversion margin of 71%, which is slightly lower than the same period of last year. As mentioned in our previous call, we took additional measures to reduce our working capital investment, whereby we are careful to carry sufficient stock to fulfill our customer requirements. In our previous call, when we discussed the end of June figures, We reported that our working capital days were six days higher than the same period of last year. End of September, we were able to reduce this gap to three days, and we feel confident that we will report at year end a cash conversion ratio somewhere around a high 80 or a low 90% number. Then on the next page, slide eight, you will find a summary of a few key figures split into the various regional operating segments. When looking at top line and gross profit, we were able to grow organic, as you can see, in all three regions, despite these difficult market conditions. We also had quite some currency headwind when translating local results into the Euro, most significant in APEC and the Americas. This currency translation impact is easy to quantify and report it as a separate line, but more complicated is calculating the operational impact of these currency fluctuations. It's obvious that these currency fluctuations had a negative impact in regions where it's common to quote in dollars and invoice in local currency. Therefore, it's fair to assume that these currency fluctuations this year negatively impacted our results in LATAM, APEC, and a few OMA countries. Then on the bottom of this slide, you will find EBITDA margin, conversion margin per segment, and we report a negative development in three of the four segments. The only positive exception is holdings, where the cost and percentage of revenue ratio slightly improved due to lower holding cost. EMEA reports the biggest EBITDA and conversion margin deviation compared to last year. As mentioned in previous call, you should keep in mind that the majority of the global business group costs are reported in the EMEA region. This then automatically leads to, in general, higher cost base. The biggest swings in results during the year were reported in the Americas and Asia Pacific. The America and APEC reported, respectively, a positive 21.7% organic EBITDA growth in the first quarter, which turned into a minus 4% and minus 3% year-to-date September. Marcus gave you already a bit of color on the background. On page nine, a summary of IMCD's free cash flow. The absolute amount of free cash flow was $16 million lower than last year, and the cash conversion ratio was 71%. Lower EBITDA, slightly higher working capital investment were the main drivers of the difference compared to last year. As mentioned before, we are confident that we will report at year end a cash conversion ratio somewhere around a high 80 or low 90% number. Page 10, update on net debt and leverage. Net debt at the end of September was close to 1.5 billion, slightly lower than end of September last year and 228 million higher than the end of December. The year-to-date increase of our net debt position was, amongst others, impacted by a combination of positive operating cash flows combined with cash outflows of $281 million as a result of acquisitions and $127 million dividend payments. Our reported leverage ratio, including the full year impact of acquisitions done, was 2.6 times EBITDA, which is similar to the leverage based on the definitions in our loan documentation. And then last but not least, on page 12, you will find our outlook for 2025, and I assume everybody has already read the text in the press release. Therefore, I don't want to repeat it again loud. And I would like to hand over to Alba, the operator, to open the lines for Q&A.

thank you very much ladies and gentlemen we are now ready to take your questions if you wish to ask a question please press pound key five on your telephone keypad our first question comes from on a lease formula from morgan stanley please go ahead hi good morning marcus good morning hans um i have two questions please um so firstly could you talk a little bit how about how pricing has developed over the quarter

We had talked earlier in the year about stabilization, but I'm just wondering now how the combination of tariff driven inflation and some of the increased competition you mentioned is driving pricing and how that has trended relative to your expectations. And then secondly, just on the competition from Chinese suppliers, I think we spoke about this at the half year. So could you talk a little bit about how that has developed during Q3? Have you seen that competition step up? particularly as tariff noise has increased, and do you expect that to continue for the foreseeable future? And in that context, you mentioned keeping the portfolio under review, and so are there any structural changes that you're considering if you assume that that competitive pressure will continue? Thank you.

Good morning, Annelies. Thank you very much for the questions. I think in terms of pricing, what we can say there is that we haven't seen any real significant change during the quarter. We've seen, I would say, a little bit more normal pricing behavior where for some product lines we've seen small increases, but also related to your second question, we have continued to see pricing pressure in certain areas and business lines on the semi semi-specialty side from China. So I would say nothing has changed significantly since the last quarter. And then moving on to competition from China. Again, I wouldn't say that we've seen a very significant increase in the third quarter versus what we've seen in the past. I think generally we have seen more competition this year than last. But I think also important to stress, as I mentioned, Chinese competition is nothing new. And I think then related to the structural change and how we review the portfolio, I think important to mention that we've had Asia sourcing offices in place in India and China for more than 20 years. Historically, those were very much focused on some of the product lines that actually were predominantly manufactured there. Pharmaceutical Actives is a good example. but as you can imagine we also use those sourcing offices sometimes to look at what are the white spots that we've got particularly in countries that we're maybe freshly entering into and so we do keep a very close eye on what is happening within the let's say China manufacturers looking at our portfolio and still remaining very loyal to those long-term partners that we have and always being I think looking at the long-term growth of the company, making sure that we don't do knee-jerk reactions for what could be short-term market conditions. But again, I think the beauty of our business model is we've got a very agile product portfolio. We can adapt where we need to. But again, let's be cautious and make sure that we're doing that with a very long-term view.

That's very helpful. Thank you.

The next question comes from Matthew Yates from the Bank of America. Please go ahead.

Hey, good morning everyone. I'd really like just to continue on the theme of that competitive pressure really. Looking at your Asian performance, it would be helpful to unpack that a little bit. I mean, that flattish top line feels respectable in light of the tariff uncertainty that the world is operating in, but then the The 13% decline organically in EBA suggests some competitive pressure or investment that you're making to drive future growth. I don't know. But when Marcus went, when you talk about portfolio review, that to me just sounds like walking away from business and accepting that there are product lines that are no longer profitable for MCD to operate in. Is that fair? If so, how much of the portfolio are we talking? And is there anything else you can do to sort of reinforce the business model and the pricing pressure you have in light of these challenges? I appreciate you saying it's nothing new, but equally at the same time, it does feel like it's intensifying or accelerating. Thank you.

Okay. Good morning, Matthew. Maybe if I speak a bit about the first point first and the Asia-Pacific numbers. I think the standout there, Matthew, is related to India, where we do see, I would say, quite a softness from a performance perspective during the third quarter. And if we dig a little bit deeper into that, I think that we can talk then the most, I would say, the largest effect is related to pharma. So I think we all saw the pharmaceutical tariff discussions which took place during the third quarter. caused, I would say in general, quite some uncertainty. There was a big pharmaceutical exhibition in Frankfurt called CPHI last week, and we had the opportunity there to speak to a broad range of our own suppliers and customers. I think everybody saw the same trend of that softness in the third quarter, but pretty much everybody is also speaking confidently that that will be turned back to some kind of normality during Q1. So I think that this is a a short-term thing. I think with regards to then walking away from business, that's definitely not the case. I think firstly, if you look again at those long-term supplier relationships which we have, also important to state that with the partners that we have, a lot of those partners also have assets in China. So they're able to also keep competitive When we talk about reviewing the portfolio, again, this is nothing new. We constantly, country by country, look at what are the white spots that we've got? How can we strengthen the business? How can we strengthen the portfolio? But also looking at, which again, nothing new, is are there pieces of business or particular product ranges where we can't be competitive? And typically then, you know, that business has already deteriorated or is very small. So it's more a case of looking at how do we boost the business and grow the business again for the future rather than walking away from business that we have.

Thanks very much.

The next question comes from Suhasini Varanasi from Goldman Sachs. Please go ahead.

Hi, good morning. Thank you for taking my question. Just a couple for me, please. Can you maybe discuss how conversations with your customers are progressing? Are you seeing any signs of volume stability on a sequential basis at this point? And any color on the order book would also be helpful. And if you think about the gross margins in this quarter, it is deteriorated quite significantly versus the first half trends. You mentioned half of it was M&A. But the rest, is that basically the price pressure that you saw effectively? Thank you.

Firstly, I would say on the customers and kind of the volume stability or outlook, whatever, I would say that there's no change, unfortunately, in terms of the visibility that we have. So still a very volatile order book, I would say, minimal forecasting. A lot of just-in-time deliveries. So I would say, unfortunately, no general improvement there. And on the gross margin percentage, I think Hans kind of already covered that, where I would say that there's nothing exceptional there. A little bit of dilution from the M&A impact. Maybe product mix to a certain extent. But I would say nothing material.

Thank you.

The next question comes from David Kersten from Jefferies. Please go ahead.

Good morning, gentlemen. I've got two questions, please. First of all, on the stable organic revenues in the third quarter, that seems like a good performance against a substantially tougher comparative. And I was wondering, can you highlight maybe some product market combinations where you see this improvement sequentially relative to the second quarter? Then the second question is on the balance sheet. With leverage going up to 2.6 times EBITDA and the till months acquisition not yet closed, how do you see that leverage ratio develop into the fourth quarter towards the year end and after the closing of till months? And does that still leave you with sufficient headroom for further M&A going into 2026? Or would you temporarily allow higher leverage given the short-term unfavorable market conditions? Thank you very much.

Good morning, David. I think with regards to the stable organic growth, I think behind the scenes there's obviously an awful lot of work going into making that happen. I think if there's a market which has maybe stood out from a stability perspective, it's the food and nutrition space. I wouldn't say that there's significant change between the quarters, but out of the different market segments, that's the most stable and robust that we've seen for this year. And then on the M&A and leverage, Hans?

Yeah, David, good morning, Hans, here. On the leverage side, I don't want to predict the leverage number for year-end, and you're right, I still need to pay, and I also need to close Tillmans that we expect to do in the... last part of this quarter, if we get all the formalities done. If and when that happens, leverage will hover around that 2.6 number, I expect. So sufficient room to do further M&A. Typically working capital will come down towards year end, what we indicated as a cash conversion ratio should lead to an additional cash inflow. So I'm not concerned at all about our firepower.

Okay, great. Sounds good. Thank you very much.

The next question comes from Nicole Manuel from UBS. Please go ahead.

Good morning. Just one question from me, please. Can you elaborate a bit on your comments around the cost base and particularly FDEs? Obviously, this seems to be a nod to the volatility of the environment at the moment, but you've also linked it, I think, to ongoing digital initiatives, which might suggest it's a bit of a longer-term project. So I'm not sure if you can share any more details here, whether this is something you're looking at across regions, what's in scope. Yeah, and any sort of comment would be helpful. Thank you.

Great. Thank you, Nicole. Yeah, as I mentioned, it's not something new, but it's fair to say that we are intensifying our efforts to really drive that cost effectiveness, but also making sure that we're delivering premium customer service. And as we've spoken about before, the expectations of customers, they are evolving, this omni-channel way of working. And for us, that means very critically making sure that we've got very highly skilled technical development resource on the road visiting those customers face to face but also having very highly qualified inside sales people so that you know regardless of the way that the customer wants to interact they've got immediate contact and we're able to react in a very tight timely and effective and efficient way so What we're doing is really looking at making sure that we've got the right people in the right positions to really, again, be the leader from that sales excellence perspective to drive the long-term growth, but also using the digital tools that we're very proud of basically to optimize other areas of the business. And I think if you look at just one example, through the use of AI and different topics. Things like the marketing side, the way that we're able to handle that and to drive that in a more efficient way. I think that's a good example. So again, it's not something new to us, but it's fair to say that we are intensifying the focus there. Also because of the pretty challenging market conditions that we face. But again, I think what is important is looking for the long-term growth.

Great. Very helpful. Thank you.

The next question comes from David Simmons from BNP Paribas. Please go ahead.

Hi, thank you. So just coming back on the gross profit, so you mentioned some impacts perhaps from M&A and maybe some impacts from mix. I'm just curious, given that you're trying to bring down inventories and you've done a better job on free cash flow conversion in the third quarter, is there any inventory effects on gross profit margins at all? And then maybe a little bit of a sort of outlook question, again, on gross profit margins. Do you expect the sort of I mean, we didn't really see any pressure on gross profit margins in the first half of flat year-on-year, but they're down 90 bps in Q3. Would you expect that to reverse in the quarters ahead, or is that sort of a new level based on different mix and the different new M&A you've done for the next few quarters?

David, honestly, I understand your question. If you look historically at IMCD's numbers, there is always quite some volatility in the margin percentage between the quarters. And there is no exception in this year. And it's often driven by slightly changes in the product mix. M&A having, in this case, a bit of a negative impact on the overall margin percentage. For sure, here and there on the more commoditized products, there was a bit of pricing pressure. That played a bit of a role, but that also already happened in the previous quarter. In the end of the day, it is not so much about permanently increasing your margin percentage. It's more about growing the absolute amount. So the focus of our salespeople is always linked to having an absolute amount of margin target and not a percentage target. And if this is the new normal, I don't think so, but let's see what the future will bring.

Thank you.

The next question comes from Eric Wilmer from Kempe.

Please go ahead.

Good morning, everyone. I've got one question. Does the ongoing demand pressure and competitive pressure as European manufacturers have any implications for the level of outsourcing that they work with? Some manufacturers, I think, including today, have announced new incremental cost savings measures. So could this actually be perhaps another source of outsourcing? And does the growing Chinese presence give you leverage towards your existing suppliers, potentially for a larger share of wallet? Thank you.

Thank you, Eric. I mean, this very much depends on a supplier by supplier basis. But as I think we've spoken before, the general trend is to outsource a greater percentage. And I think that, you know, as our suppliers go through these tough market conditions, I mean, we do hear about quite some redundancies and headcount reductions that they're making. And they really then I think value us even more as their outsource sales and marketing partner. So yes, I think it's fair to say that in general, you know, there are greater opportunities when there is more market uncertainty, but it differs supplier by supplier. But we're in continual discussion with not only our existing suppliers, but also potential new ones to look at how can we further expand the relationships, both geographically and across more product lines.

Understood, thanks.

Ladies and gentlemen, just as a reminder, if you wish to ask a question, please press pound key five on your telephone keypad. The next question comes from Carl Rainsford from Edinburgh. Please go ahead.

Good morning, everyone. Just two from me, please. I just wanted to ask about your comments around food and nutrition being the most stable end market segment this year. Previously, pharma was seen as, you know, to paraphrase this, by far the best performing segment, judging by comments from yourselves and peers in the first half. um but it feels as if there's been a significant slowdown in q3 based on your comments sort of more around food nutrition now is that a fair assumption um and then the second question i just want to focus on the comment around decreasing fts over time again um presumably you mean decreasing the absolute number even as revenue increases um you know this business has always been about relationships and sales and high service levels and the ai opportunity in theory was useful for cross-selling So could you discuss why you think you can maintain the same levels of sales and relationships alongside an increase in cross-selling and at the same time decrease the number of FTEs and able to be on the road, use omnichannel ways of working, and the same service levels, really? Or just considering your answer to Nicole's question earlier, maybe a bit more around the marketing side, you're considering that. Yeah, thank you very much.

Good morning, Carl. Firstly, on the first question related to food and nutrition and pharma, as I mentioned before, we did see in Q3 a bit of a softening in the pharma market, but predominantly in the India space because of the tariff conversations. So because of that and also the feedback that we had at CPHI last week, That was the reason for my comment of not including pharma in that. But overall, pharma, when you look at it across the year, it's still performing well versus last year. But as I said, a bit of a softening in the third quarter, but we expect that to come back relatively short term. In terms of the service levels, I think it's really important, again, to reiterate that if anything, we're further investing in the commercial organization and infrastructure. So when you look at the FTE reduction, that's definitely not reducing the people out on the road. It's not the people that are interacting with customers or suppliers. It's really looking at how can we bring better efficiency through the digital tools on more of those, let's say, support functions. Hopefully that helps.

That does indeed, very reassuring. Thanks, Marcus.

The last question comes from Stefano Dofano from ABN Umbro-Odo. Please go ahead.

Yes, good morning, Marcus and Hans. Two questions remaining for me. And apologies if the first one is already answered, but I missed it. Regarding the Americas, can you maybe provide a little bit Just some highlights, some light on what you are seeing there in terms of end markets and also the consumer, how the consumer is behaving. The second question is more of a general question. You obviously throughout the years have seen quite some cycles. Is there anything different in this cycle compared to the past cycles where you say, well, this might be here to stay, this will continue to have an impact? Or is it just one of those cycles where you say, you know, give it a take for whatever long term years, we will definitely go back to a normal environment.

Thank you. Thank you, Stefano. I think with regards to the America's question, I think the standouts there, if you look at, let's say, more soft performance, I think the two countries maybe that we mentioned, and it's for different reasons. I think the U.S. In general, from the demand side, consumer confidence, we see that as being soft at present. And then Brazil is one of the countries, when we speak about Chinese competition and maybe greater competition in that semi-specialty space in APAC and LATAM, I would say within the LATAM region, Brazil definitely is one of the countries which has been the most affected there. And then coming on to the cycle difference, I do think that this is very different to what we've experienced in the past because we're not going through a normal kind of market cycle. I think that there are these kind of shock waves that come in through things like the tariff discussions where we're kind of getting back to a more normal kind of market cycle as we were coming through the end of last year and the beginning of Q1. and you saw the performance, I would say, more normalizing. But then the shockwave of tariffs and then the uncertainty around it, also with the continually changing messages about what is the tariff percentage, but also what are the products included in the categories within the tariffs. So I think that we just need some kind of clarity and stability on those kind of topics, and then hopefully we'll get back to a more normal type of market cycle.

Appreciate it. Thank you.

With that, due to time constraints, I will give the word back over to Mr. Marcus for any closing remarks.

Great. Thank you. And on behalf of Hans and I, a big thank you all for joining the call this morning and for your questions. And we wish you all a very good day. Thank you very much.