Imcd Group Nv U/Adr

Welcome to the IMCD 2025 Full Year Results Conference Call, hosted by Marcus Jordan, CEO, and Hans Koimond, 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, Elder. Good morning to you all, and a warm welcome. I'm Marcus Jordan, and I'm here today with our CFO, Hans Coymans, for the 2025 results, which we published in a press release earlier this morning. After a positive start to the year, with good first quarter results, the following quarters of 2025 were challenging. amid macroeconomic conditions, tariff uncertainty and geopolitical unrest. This resulted in softer demand across a number of markets, limited order visibility and continued just-in-time deliveries. Looking at our business segments, we saw pharmaceuticals and food and nutrition have the most solid performance in 2025, and our beauty and personal care and industrial segments being generally soft in demand across all three regions. Moving on to the 2025 numbers, you will find a summary of our financial results on slide 4. Gross profit at almost €1.2 billion is slightly down versus last year, but up 3% on a constant currency basis. The gross profit margin is down from 25.4% to 25%, primarily as a result of the impact of acquired companies and product mix. EBITR was down 3% on a constant currency basis to €498 million. This is a result of a slightly lower gross profit combined with inflation-driven cost growth. As mentioned in the Q3 call, we optimised our structure during the second half of the year to further intensify our sales efforts and to drive cost effectiveness throughout the company, resulting in an overall reduction in the number of FTEs. I'm happy to report that we increased our free cash flow to €465 million, leading to a cash conversion margin of 91.4%. We propose a dividend of €1.81 per share, the payout ratio being 35%, which is at the top of the 25% to 35% range of the adjusted net income as mentioned in our dividend policy. If we now look at M&A, we completed seven acquisitions in 2025, with the two largest being Tillmans and Ferrer, both in Europe, which as you know, is our most mature region. Tillmans in Italy operates across a broad range of markets, including coatings, construction, food and nutrition, and water treatment. And in 2024, had 78 people and a revenue of 143 million euros. And Ferrer, a distributor of food and beverage ingredients in Spain, with 37 employees and 112 million euro revenue in 2024. On a full year basis, the seven acquisitions completed at about 320 million euros revenue and 200 employees based on their last full year numbers before acquisition. Recently in January, 2026, we also completed a further acquisition, Don Yang FT in South Korea, a company active in beauty and personal care with 14 people and 34 million euros in revenue. With this acquisition, we strengthen 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. We now go to the next slide. Having defined our six strategic growth pillars, which we presented during our investor day in Milan in 2024, I'm pleased to share some highlights of our progress in these areas. I am particularly proud of the complete rollout of the sales assistant product recommendation tool, which empowers our people to easily identify the right solutions for our customers. We've seen good traction with the tool and are confident that this will improve our ability to increase our right first time product recommendation and thus our cross-sell ratio. Behind every success within our company are our people. and in 2025, our people completed more than 175,000 hours of learning, leading to a 57% increase in training hours per employee, with a particular focus on sales and operational excellence topics. We also continued our focus on developing talent from within through two rising leader programs. We also further strengthened our supplier partnerships, and I'm encouraged with the number of positive discussions we are having with both existing and new suppliers to further expand our business. In summary, we are confident in our asset life business model, which enables us to stay adaptable to ever-changing market needs and reinforce our focus on customer centricity and supplier expansion. We also continue to invest in the tools and platforms that keep us both efficient and agile with a focus and commitment to creating long-term value for all IMCD stakeholders in the years ahead. I would now like to hand over to our CFO, Hans Kooijmans, who will give you an update on the numbers.

Thank you for the introduction, Mark, and good morning, ladies and gentlemen. As you have seen earlier today, we issued a press release summarizing IMCD's financial results for 2025. On the 4th of March, we will publish IMCD's annual report. a more than 300 pages report, including more detailed financial info, non-financial info, and various business examples. In this call, I will take you through a summary of the financial numbers before we move to Q&A. On page 8 of the presentation, you could see a Forex-adjusted revenue increase of 5% and a gross profit increase of 3%. And this increase in gross profit was a combination of 1% organic decline and a positive 4% as a result of the first time inclusion of acquisitions. The year started strong as Mark had mentioned with 6% organic growth in the first quarter, followed by modest growth in the second and single digit negative organic growth in the last two quarters. And as Mark has already indicated, we saw demand softening in the course of this year due to ongoing terrorist discussions, geopolitical unrest and related uncertainty which had a significant negative impact on customer demand. 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 margin. Then the 4% acquisition growth is the balance of the full year impact of acquisitions done in 2024 and more recent acquisitions signed and closed in 2025. And you could find an overview of the 2025 acquisitions on page five of this presentation. Gross profit in percentage of revenue slightly decreased to 25% in 2025. About half of the 0.4% decrease is the impact of the first-time inclusion of acquisitions and higher additions to provisions for slow-moving stocks. The other half of the 0.4% is the result of usual changes in product mix, changes in local market circumstances, currency impacts, partly offset by continuous internal cross-margin improvement initiatives. I skipped the operating EBITDA line, which we included for your convenience and would like to move to operating EBITDA. But you can see that Forex adjusted operating EBITDA decreased 3% to 498 million. And this decrease was a common.

Ladies and gentlemen, hold on. It appears we have some technical difficulties.

Good morning, ladies and gentlemen. Hans Koimels again. I hope you can hear me right now because we have the impression that the line broke when I started talking on slide nine, where I went to the segments. And I first wanted to start with the overall currency impact. And as mentioned earlier, we had quite some currency headwind when translating local results into euros, most significant in APEC in the Americas. This currency translation impact is easy to quantify, and in 2025 resulting in a minus 4% on revenue on EBITDA and a minus 3% on gross profit. In absolute numbers in 2025 we lost all in all about 20 million of EBITDA as a result of negative translation differences when comparing the 2024. Weakening of the US dollar and the Indian rupees since the second quarter of 2025 were the most important drivers. I realize also that nobody can predict exchange rates going forward, neither the impact on the EBITDA for this year. At the same time as most of the non-euro exchange rates for the weekend in the course of 2025, it's easy to predict that we might expect negative currency translation losses again in the first half of 2026. And just to get a feel for a number, and please see this as an indication, I recalculated first half 2025 EBITDA at the exchange rates prevailing end of January this year. When doing so, I arrived at a negative currency translation impact for our first half 2025 EBITDA, somewhere between 13 and 15 million euro. This is something to keep in mind when talking about the first half year result. Where this currency translation impact is easy to quantify and also reported as a separate line, The operational impact of these currency fluctuations is more complicated to calculate, but I think it's obvious that these currency fluctuations had a negative impact in regions where it is common to quote in dollars and to invoice in local currency. Therefore, it's fair to assume that these currency fluctuations negatively impacted our top line results in countries in LATAM, APEC and a few of the EMEA countries. Going to the columns, the segments, in the first column, EMEA, the only segment where we report modest but positive organic growth profit growth. Unfortunately, this 1% growth was not enough to compensate for inflation-driven on-cost growth, and as a consequence, there is a negative organic EBITDA growth and lower EBITDA and conversion margins in the EMEA region. The decrease in growth margin percentage in EMEA that you saw in the second half of the year is mainly the result of the impact of the first time inclusion of acquisitions with on average lower growth margin percentages. Then in both Americas and APEC, organic growth profit growth was slightly negative. And in both regions, the positive impact of acquisitions on growth profit and EBITDA was more or less wiped away by negative currency translation impact the total region. For the same reasons as mentioned before, EBITDA and conversion margins slightly decreased in both regions. And in the last column, then, you will find the holding companies. You know, the non-operating companies, including the head office in Rotterdam and regional offices in Singapore and the US, and holding cost as a percentage of total revenue slightly decreased from 0.8% in 2024 to 0.7% of revenue in 2025. Then on the next page, you will find a couple of P&L lines from EBITDA to the net result for the period. Some general remarks, I will summarize net finance costs and income tax expenses on the separate slide. On this slide, amortization of intangible assets are non-cash costs related to the amortization of supplier relations, distribution rights, and other intangibles. and the increase is mainly a result of acquisitions done. Then the 25 million of non-recurring expenses, and this includes about 15 million severance costs related to one-off adjustments to the organization, 7 million related to successful and unsuccessful acquisitions, and a few other small one-off items. Then on slide 11, a breakdown of the 2025 net finance cost, adding up to $80 million. And this is about $35 million more than previous year. And as you can see on this slide, our real cash interest cost decreased to $5 million. And the remainder, about $40 million more cash cost, is a combination of $20 million changes in deferred consideration and 16 million more negative currency exchange results. As you might remember, a part of our net debt referred to deferred purchase price considerations of acquisitions done and related potential earn-out obligations. At the end of 2024, we reported the deferred consideration of 99 million, which came down to 36 million end of 2025. This decrease was a combination of payments made in 2025, additions due to new acquisitions, and changes in estimated future payments of existing deferred considerations. And especially these changes in estimates will, as you know, flow through the P&L, through the interest line as a non-cash cost item. When making your financial model, I could imagine to adjust for these non-cash IFRS related adjustments. The hyperinflation adjustment that you see is a result of hyperinflation accounting mainly related to Turkey and currency exchange results relate to realized and unrealized currency exchange differences on our monetary assets. Then on the next page, a summary of our income tax expenses. On the regular income tax expenses, we report a decrease of 20 million. The tax credits related to amortization, a non-cash tax component, increased in line with amortization. And as a guidance for our tax cost, you might remember we always indicated to expect a blended tax rate in the range of 24 to 28% of result before tax. This result before tax is then calculated at EBITDA minus finance and non-recurring cost. On the bottom of this page, you could read that IMCD's blended regular tax rate in 2025 was 22.9%, which is slightly below the 24 level and also below the low end of our guidance. Then on the next page, the calculation of cash earnings per share and our dividend proposal. As you can see on the slide, we report €5.19 cash earnings per share in 2025. And at the AGM in April, we will propose a dividend of €1.81 in cash per share. The company has a dividend policy with a target annual dividend in the range of 25% to 35% of adjusted net income. And this dividend proposal leads to a payout ratio of 35%, which is at the top of the range that we set ourselves as a policy. Then on phase 14, a summary of IMCD's balance sheet. Property, plant and equipment mainly increased due to acquisitions done and limited investments in the IT infrastructure of the buildings and labs. As a result of the asset-light business model, the absolute amount is still relatively low compared to the size of our business. Then right-of-use assets, that's, as you know, the result of the application of IFRS 16, and this $98 million reflects capitalized operational leases, and the related lease liability of $104 million is included in the net debt line. The increase in intangible assets and changes in related deferred tax liabilities are mainly a result of acquisitions done. Then I will come back on working capital in a minute. Then you see a solid equity position of about $2 billion, covering 57% of capital employed. And therefore working capital and also net debt, I would like to go to the next two pages. Page 15 you will find a summary of the absolute amounts of the various working capital components and these amounts translated in days of revenue. You can see the absolute working capital amount increased 27 million. And this increase in net working capital reflects the positive impact of further optimisation in net working capital days in 2025 compared with last year, then the positive impact of the exchange rate differences on year and balance sheet positions, and as a negative, the impact of acquisitions completed in 2025. At the bottom of this slide, the development of the most important working capital components in days of revenue. And we report, as you can see, an improvement on stock and debtor days and reduction of the creditor days. On page 16, a summary of our net debt position. At the end of 2025, we report 1.6 billion of net debt, and the majority of this net debt position consists of 1.3 billion of corporate bonds. Further, it includes, as mentioned before, the 104 million of operational lease liabilities and about 36 million of deferred considerations. On this same page, an overview of the maturity profile of our debt structure as per December 2025. In Q1, 2026, so the first quarter of this year, we increased the maximum amount of our revolving bank facility with an additional 100 million to 700 million. And the revolver facility bar that you see in the chart on the right, reflects the old 600 million maximum amount we can use as per the end of 2025. Reported leverage at the end of 2025 was 2.8 times EBITDA and the leverage ratio based on definitions used in the IMCD loan documentation was slightly lower with 2.7 times, which was well below the required maximum asset in the loan documentation. I would like to finish this financial summary with the cash flow overview on page 17 and as you can see the absolute amount of free cash flow in 2025 was $465 million which results in a cash conversion ratio of 91%. The change in conversion ratio versus last year is a combination of lower operating EBITDA combined with lower working capital investment compared to last year. And then finally, on the last slide of the presentation, you will find the outlook in which we, amongst other, indicate that we remain confident that we will continue to contribute value to our stakeholders and to sustain our growth trajectory. So far, a little bit bumpy summary of the 2025 figures with the break in the line, but Markus and myself are happy to answer any questions that you may have. So back to Elba, the operator.

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 from Morgan Stanley. Please go ahead.

Good morning, Marcus. Good morning, Hans. I have three questions, please. So firstly, just on customer behavior, I think it's probably clear there was no Real improvement in customer order dynamics in Q4, looking at your numbers, but perhaps you could talk about how that's developed year to date. Are you seeing any increased signs of optimism or more normalized order patterns? And then secondly, just on pricing, perhaps could you talk about how that's developed through year end and year to date? And in that context, perhaps a comment on the competitive environment. I know we spoke a lot about more competition in Asia through last year, so wondering how that's developed. And then just lastly, a quick one on the one-off costs. So you mentioned 15 million of severance costs in that acquisition and one-off costs line. Are the majority of those restructuring costs done or is there more to go in 2026? How do you expect that number to develop? Thank you.

Good morning, Annalise. Thank you very much for the questions. Firstly, from a customer behavior perspective, what we see there is Pretty much a continuation of what we were speaking about on the Q3 call with very muted demand in general. Just-in-time deliveries have pretty much, as we said before, become the norm. A lot of orders shifting from one month to the next. So I would say that unpredictability unfortunately remains. In terms of the show of green shoots, we don't really see green shoots yet appearing, but I think positively we hear more conversations from both our customers and suppliers about the anticipation of that coming. So in general, I think the kind of the narrative in the market is more positive, but for us a little bit early to say that we see those green shoots materializing yet. On the pricing side, again, If you break it down into two different components, the specialty side of the business was, of course, it's not immune to price and competition. We still see quite a lot of stability there. On the semi-specialty side, very similar to what we reported in Q3, basically with the demand being so low, people fighting quite aggressively for a share of a smaller piece of the pie. So it's fair to say, yeah, it's a very competitive market, but we're doing everything that we can, of course, to make sure that we remain competitive and, again, focus on the absolute amount of gross margin that we win, not the gross margin percentage. And maybe just on that point on the gross margin percentage to complement to what Han said, if we win new pieces of business, particularly on that semi-specialty side, You can also expect that, you know, initially that would be at a slightly lower GM percentage. So, you know, if there is a slight four way there, we're not concerned. Also looking again at what that absolute GM amount is. And then maybe hands on the seven side.

Yeah, perhaps to add something, Annelies, and it's perhaps more anecdotal than anything else, but A lot of people always ask us what is pricing and what is volume? What is the impact of both on your business? And I always answer that it's difficult to come to a conclusion because some products we do in kilos, others in grams, and others in tons. And then if you add it up, it doesn't make sense. But just as an exercise, I calculated the total volume in kilos that we sold. and divided and took the total sales for both 2024 and 2025 and when dividing the two, the funny outcome is that my on average sales price in the group, which is in itself a ridiculous number because it doesn't say anything, but the average sales price in 2024 and 2025 was exactly the same. So I did not see any change in the average sales price across the group. I saw huge differences per market segment. I saw also quite some changes between regions, market segments, and anything else. And doing the same on the cost price side, I saw an increase, an average increase, which was below 1%. So if we talk about what did we mainly see last year compared to the year before, it's a volume issue. not a price issue. For sure on the different segments and individual product lines huge differences, but in total that was more or less the outcome. Again, see this more as anecdotal, because I don't like to do that adding up of all these kilos and tons and grams, but this is what comes out if you would do. Then coming back on your one-off. I think we are in the process there. I don't expect a short-term additional one-off cost, but we are still in the process of separating from a number of people in our organization. And as you know, in Europe, that often takes a bit more time than in other parts of the world.

Okay, perfect. Thank you. And thank you for the additional color. It's very helpful.

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

Hey, good morning, everyone. Maybe I'd just like to follow up on, Hans, your anecdote, please. So if you look at the year growth margin down 40 basis points, I think you said in the introductory remarks, roughly half of that can be put down to the M&A dilution. So you've got another 20 basis points that encompasses product mix, regional market conditions, and FX. So, again, is the conclusion from that that pricing really is not playing a material role in the outcome of your profitability here? And I don't know whether the message or the anecdote would have changed as you went through the course of the year because the Q4 gross margin was down much more significant, 140 basis points. I guess you have that more pronounced European M&A in there and the more adverse currency moves. But I was just wondering if you could just elaborate a little bit more on the relative order of importance between those four drivers that you've put in the press release about the margin evolution. And then maybe just a second question, just to follow up on that one on restructuring and the cost base. As you look into 2026, Is your expectation that your organic cost base is flat, higher or lower based on that restructuring effort that you were doing in Q4? Do you feel like we're going to see less inflationary pressure on the cost base going into 2026? Thank you.

Shall I start, Marcus, with the second one? We go back to the margin percentage. Matthew, I think if you look at the development of the cost base, there are a couple of factors there. There is the number of people, that is the wage and salary component, there is the bonus item and what I would call all the other operating costs that we have. If I look at the wage and salary component as a combination of the number of people and salary inflation, I think that it's fair to assume that we try to take out of the cost structure the impact of the wage inflation by doing the reduction in people. But at the same time, I hope that we come back to a situation where we can pay our people full bonuses. that we have now two or three years in a row that people miss their targets massively in certain areas. On the one hand, that leads to a cost saving, and that part of the cost will come back if people reach the targets, and the targets are based on growing compared to last year. That is, that I think on the cost base, than on the margin markets.

Yeah. So, Matthew, as I mentioned before, if you look at that kind of product mix, and not to go into too much of the detail, but as I mentioned on the Q3 call with the pharmaceutical market being soft, predominantly related to the India tariffs, we did see that continue quite heavily, I would say, in the fourth quarter. So there was an impact there, which is why we do refer to the product mix, but also market. I think just on that pharma piece, positively, we do see more normal ordering pattern coming back into play the beginning of this year. But the price pressure is, again, it's really on that semi-specialty component part where there is aggressive pricing. I would say competition. And again, it's not to say that specialties are immune from that, but definitely much more protected. And again, to reiterate, the much bigger impact is from a DMM perspective. Does that give you the color that you would like, Matthew?

Yeah, that's fine. Thank you, Marcus. Thanks.

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

Good morning, gentlemen. I've got three questions, please. First of all, maybe following up on the gross margins in Asia Pacific, there we did see a recovery quarter on quarter. And Marcus, you highlighted that you do still see that impact from Indian tariffs on SIGNET. But now with a trade deal in place between the U.S. and China, do you expect that we'll continue to show further improvement into 2026? And how do you see the competition from Chinese suppliers moving up the value chain in semi-specialties? Second question for Hans. You're cutting the dividend by 16% based on the top end of your payout ratio. I think you earlier were indicating that you are contemplating share buybacks as the M&A process takes relatively longer to complete. What made you change your mind? Is that the relatively higher leverage ratio at 2.8 times EBITDA or do you still have a full M&A pipeline and confidence that these acquisitions will complete? And maybe finally, Marcus, you highlighted you do see constructive conversations with your suppliers about outsourcing. How do you see these trends in the current environment and particularly in Europe where your suppliers are under substantial pressure? Thank you very much.

Great. Hi. Good morning, David. Firstly, from a pharmaceutical India perspective, as I mentioned, we do see, I would say, more normal ordering pattern at the beginning of this year. Of course, we're only a month and a half through the quarter, so a bit difficult to say that this is now the new norm. But our general feeling, at least today, is that there's much more confidence coming back on that front. With regards to competition from China, firstly, we very much recognize and take seriously both the threat, but very importantly, the opportunity from Chinese suppliers. And as we've spoken about before, we have had our own China sourcing office in place for more than 20 years. In general, we see that, yes, China in particular, we're not involved with the commodity side, but they're very present there. More and more in the semi-specialties and, of course, have the ambition to play within the specialty field. We have worked and do work heavily in some cases with quite some Chinese suppliers through that China sourcing office that we have. And it really, I would say, is a slow process, as with actually with Western suppliers when we founded the company, but really building the relationships with those Chinese suppliers over time where we get to know them, they get to know us, We get more comfort on the quality of the products that they have to supply, and maybe even more importantly, the stability of supply. You know, how committed are they, for example, genuinely in having long-term supply to Europe, to LATAM, or is this just because they have products available today that they're looking for a greater amount of export? But These are relationships, as I said, they're not new to us. Our business with Chinese suppliers continues to grow. As those relationships do develop, there are examples of them offering initially customer exclusivity. And then in some of the smaller countries, again, with many years of relationship building where there are some exclusive relationships coming into play. But their business model, as I've mentioned before, in general is quite different. But yeah, it is an important, I would say, consideration for us. And again, we see this as not only a threat, but an opportunity for the future.

Maybe Hans, you want to cover the leverage and then I talk about... Yeah, so David, basically your question about capital allocation. We have a dividend policy whereby we indicated from the start of our listing that we would use a payout ratio between 25% and 35%. The last five, six years, we have been on the top end of that range, and we did not see any reason to change that dividend policy, neither the place where we are in that range or on the top end of that range, and that's why we pay out what we mentioned in the call and in the press release. At least we proposed it to the AGM. It is of course up to the AGM to approve. Now on the M&A pipeline, we have a healthy pipeline there. We have quite some processes, processes that what we mentioned earlier sometimes take longer, take longer due to discussions around valuations about what is sustainable EBIT going forward. And at a certain moment, we need to decide if these processes take longer than expected, what do we find an acceptable average, and how do we use the cash that we have available for M&A? And I would like to keep all options open there. So we did not really change our mind, but we always look at the combination of cash that we generate, M&A pipeline, and opportunities to put the cash at work most efficient for all our stakeholders.

And then your last question, David, from a supplier outsourcing trend perspective. I would say here it's really a bit of a mixed bag. What you see is quite some suppliers making some mass redundancies and therefore looking to outsource a much greater percentage of their business because, of course, they're reducing quite significantly their own in-house commercial and tech support teams. On the other hand, you also see some suppliers which are looking at IMCD and the customer base that we've successfully been able to develop and looking at which are some of the larger accounts which we've successfully developed and could they take those accounts back in-house for short-term win for themselves. Of course, those are then healthy conversations that we have with them. A little bit, I would say, of horse trading. And in some cases, you can imagine that You know, there are those bigger accounts taken back in-house, but in return either for some smaller accounts transferred to us or even in some cases product line or geographical expansions. So I would say in general there's even more healthy conversations happening with suppliers about further developments and expansion than I've seen for a long, long time. Thank you very much, gentlemen.

The next question comes from Anil Shenoy from Barclays. Please go ahead.

Yeah. Good morning, everyone, and thank you so much for taking my questions. Just two questions, please. Am I right in, I mean, did I understand it right when you said that going forward in 2026 that any kind of a wage hike will be offset by a decrease in FT? So we can, on an organic basis, we can expect costs to be flat. And if that is so, given, I mean, I'm trying to understand what kind of a gross profit growth would be required so that you can offset any kind of a cost inflation, if there is any. So sort of like if I'm building a bridge between 2025 and 2026 EBIT A, then if EBIT A has to remain constant between 2025 to 2026, then what kind of a gross profit growth would be required? That's my first question. And the second question is specifically on the organic EBIT A decline of 18% in Q4, which has been considerably worse than the Q3 EBIT A decline. I know you don't like to talk about the business on a quarter-on-quarter basis, but I'm just trying to understand what has gone worse in Q4 versus Q3. Is there any particular end market or any one-off course? Just any kind of color on that would be very helpful.

Perhaps I should come back on the course side to make clear what I just mentioned. What we see, if I look at We are in an environment where people expect a salary increase every year. And what we see is that the reductions that we made in the organisation should compensate for the average salary increase. That is the basic work assumption that we have. On top of the salary increase, a lot of people missed their bonus this year. So that is a saving this year, like it was a saving in 2024, and unfortunately also in 2023. So we have three years in a row that people massively missed their bonus targets. We hope that that will come back. If that comes back, that leads to additional cost. And I'm happy to pay these costs as that is just a sign of a successful outcome over a year. And a successful outcome over a year means that we will grow gross margin substantially compared to last year. And that is the working assumption that we have. And then you were talking about an 18 percent miss and things that went wrong in the last quarter. I think it's first important to take into account that the base number of result is much lower than the quarter before. mathematically already the percentage goes up. At the same time, we are not happy with the development of gross profit. The organic decrease in the third quarter was minus 3% and minus 7% in the last quarter. Basically, that's not good. And we had a bit of a weak finish of the year. October, pretty okay. November, soft. December, very soft, I would

And again, in general, we would say that the pharma market was surprisingly soft for us again in the fourth quarter, as we mentioned on the Q3 call. But yeah, I think answer two is to support it. It was really a surprising lack of demand again from customers. And yeah, it wasn't... particular market segment or region, it was pretty much across the board.

Yeah, got it. Thank you. If I could ask a very quick follow-up, how has the trading in January been? I mean, you mentioned that November and December have been soft and very soft. So have you seen, have you started seeing any kind of improvement in January or is it similar?

Well, as you know, the first quarter of last year was our strongest quarter, and January was actually the strongest month within that quarter. Hans also has already spoken about the significant currency headwinds that we're facing on a light-for-light basis. So that comp is very tough. But I would say, look, beginning of the year, January looked pretty okay. We're only halfway through Feb. So we have limited visibility. So it's a bit too early to comment. But we're very much focused on the things that we can control. You know, the commercial team activity, developing and converting the new opportunities, both with the customers and the suppliers that I've mentioned. And, of course, being cost conscious.

Got it. Got it. Thank you so much for answering my questions.

The next question comes from David Simons from BNP. Please go ahead.

Hi, good morning, guys. Maybe I could just dive into that January comment. Could you talk about different, I know it's early in the year, but could you talk about the different end markets and what you're seeing changing? I think you said pharma was looking a bit more positive, but maybe you could give some views on the industrial side of the business. We've seen obviously USISM was much more positive. There's some European sentiment surveys which are looking a bit better in January. There's the industrial side also coming back. Secondly, if I look at the implied margins of acquired businesses in EMEA, then actually, obviously, it's still quite dilutive, but Q4 was less dilutive than Q3. I think implied margin was like 6.5% EVA, but 5% in Q3. Is that the early impacts of costs being taken out of that business and sort of how quickly would you expect the sort of acquired businesses to come back to group levels of margin? And then if there's anything you could say about price decreases with supplies in January, should we expect to sort of step down in your cogs as you sort of negotiate new terms of supplies at the start of this year? Thanks.

Thanks, David. I think firstly, if we look across the various markets, as you say, it's a bit early to really look at what the market trends are. But I think we're seeing, with the exception of pharma, pretty much a continuation of the trends that we saw coming out of last year, where we see food and nutrition, I think, being very stable to actually some pretty nice growth on a global basis across all three regions. Pharma I spoke about globally, I think we're seeing more normal order patterns beginning to come back into play. Beauty personal care, it was a soft market for us last year. I would say when I spoke about the green shoots and people talking about green shoots, the beauty market is definitely one of those markets where people are beginning to talk about an upturn coming. And as I mentioned on the previous call, again, we see a lot of reformulatory activity coming through our labs. So I'm pretty excited about the beauty opportunity. So we're confident about that market for the longer term. The industrial side, unfortunately, is the one that's more difficult to predict. We likewise hear, again, in the U.S., things like the coatings and construction market, which has been very depressed, and we all know about the stagnation from a housing market perspective. We hear people talking about, again, these green shoots coming, but we don't yet see them. So I think, unfortunately, on the industrial side, it's a case of wait and see. But, of course, I mean, we're confident that it will come.

You had a question about the integration of M&A and how quickly you can bring them back to more average IMCD levels. Most of the acquisitions that you refer to, either we did in December or in the third quarter of last year, so it will take a bit of time. We are, especially on the Ferrer side, in the process of integration. We are also cautious. It's always important in the first year that you don't lose your customers and your suppliers by massive price increases to get margins up to a more IMCD average level. So it's more important to stabilize the business there where we can get our cost benefits we will do. But we don't want to lose critical people, critical suppliers and customers in these processes. But for sure over time you could expect a bit more normalization of profit levels in these activities.

Yeah. And then, David, on the pricing side, you speak about price decreases at the beginning of the year, but what we've actually seen is quite some price increases. Of course, it's not across all product lines and all markets, but I think it's fair to say that particularly outside of the semi-specialty side, we've seen more price increases than decreases. And interestingly, that also includes from Chinese suppliers. So let's wait and see how much of those price increases really stick, but there's certainly ambition from our suppliers to try to push pricing up. Thanks a lot.

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

Hi, good morning. Thank you for taking my questions. Just a couple for me, please. It's just a follow-up to some of the previous questions. If we think about the 2025 results and the uncertainty that you saw impacting numbers, Would you see that that updated uncertainty being representing more of a one-off kind of a weakness and that hit your numbers and potentially hit your numbers in 1H26? If that eases, would you expect volumes to improve? Just trying to understand what went, what changed in 25, what is the catalyst to help it change in 26, I suppose. And then the next question is on gross margins. What do you think is more important for the gross margin percentage? Is it pricing of chemicals or is it volumes? If let's say we see further chemical price depreciation, especially on the semi-commodity side of things, but volumes recover, do you think gross margins can see some improvement underlying organic ethics adjusted? Thank you.

Hi, good morning. Thank you for your questions. I think with regards to the tariff uncertainty and the impact that that had, I mean, of course, it was a big shockwave that came into the market. And I think the biggest impact of that was it really damaged consumer confidence. My own personal feeling is that as we get and are beginning to get already some more certainty around what the tariff numbers are, I think that we will gradually get better consumer confidence back and therefore the volume demand will follow. And it's that volume demand which we need in order, I would say, to re-kickstart the business. So again, I think the talk of the green shoots are definitely there. Let's see when those green shoots do actually develop, but yeah. And on the gross margin, I think again, really important that we don't focus just on the GM percentage, because you could imagine that as demand does pick up, particularly on the industrial side, and the industrial side, as we've mentioned before, does tend to have a slightly lower GM percentage. As those markets do pick up, there could be a slight drop in the overall GM percent. So important that we really focus on what the absolute gross margin amount is. Also, again, to make sure that we're taking advantage of gaining new business because typically when you gain a new piece of business, particularly on that semi-specialty side, again, you know, the GM percent can be a bit lower. And then over time, as we build the relationship with the customer, we then look to increase that over time.

Thank you.

The next question comes from Luke van Beek from The Grove. Peter, please go ahead.

Yes, good morning. First of all, I have a question about your working capital. I noticed that the payables decreased significantly year on year. So can you give a bit more color on the working capital as a reference that you saw in Q4 and what you expect in 26? And my second question is on the bonuses. You mentioned those as a potential benefit. dampening impact on the stabilization of operating costs. So can you give a rough indication how much lower they were in the last two years versus the previous period, for example? So how big can that stream factor be?

Yeah, Luke, thanks for the question. First, working capital. I think and you specifically refer to creditor days and as a company IMCD is always we pay our creditors in time on the due date and we don't want to play around with that and if the due date is just before Christmas then we pay just before Christmas and we don't want to push the payment then in the first day of the new year to show a better number there so this is more a timing different than anything else. I don't see a change in the behaviour of suppliers there. On the bonus component, in previous calls we have mentioned a couple of times that if you look at the average bonus amount, I think if you look across the company we talk about somewhere between one and a half, two and a half months of salary that people can make. at least half of the target is linked to financial performance, reaching your financial targets, and there are always individual targets in there. And there is a bit of flexibility that we have there. I don't want to mention a specific number there, but that should give you a bit of a feel of the magnitude we are talking about.

Okay, thank you. That's useful.

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

Good morning, Marcus and Hans. Just one question, please, on the Americas business. As regionally, that's where you've seen perhaps the biggest slowdown through the latter part of the year. I wonder if you could give any detail on what you're seeing in Latin, perhaps, compared to North America through Q4. Obviously, aware that markets like Brazil, you've called out some pressure from increased competition, but you've also maybe got pressures on the US consumer side too, if you could help us isolate some of that maybe. Thank you.

Hi, good morning. Yeah, I would say from a US perspective, the biggest impact there is on the industrial side, particularly, obviously, coatings and construction. Beauty personal care also being fairly muted throughout last year. And then moving on to LATAM, yeah, Brazil most definitely, one of the more impacted countries that we have. As we've mentioned before, through the acquisitions that we made quite some time ago, a little bit more of a higher industrial semi-specialty component there and quite some price pressure. So yeah, Brazil definitely as a result of that price pressure, I would say one of the poorer performers.

And for me also, and Nicole, Brazil is one of the areas where we saw quite some operational currency impact. That is typically a market where we quote in dollars and then invoice in the local currency. And if I look at, if I compare the exchange rate, US dollar, Euro, versus what happens in Brazil, We saw a 13% drop in the dollar and only a 3% drop in the reais. You can imagine then you already lose 10% of your sales value locally with the same cost structure. And so these type of things, people often forget how important local currencies versus the dollar, how that plays a role in the day-to-day business environment. And that is one of the things that also really hit hard at P&L in that country.

Thank you. The following question comes from Eric Wilmer from . Please go ahead.

Hi. Good morning, everyone. Thanks for taking my question. I was wondering, are you seeing a difference between larger and smaller Chinese suppliers in their willingness to go exclusive? Are the bigger ones also as willing to go exclusive? I can see the smaller ones wanting this, but what about the larger ones? Would this be, for them, perhaps something that is seen as a potential sales limitation when you bet on one distributor? And then yesterday, I think a key food ingredient supplier highlighted a deterioration in Q4 with regards to food ingredient volumes in EMEA, and then particularly in food service. And I think you actually struck a bit more of an optimistic tone I was wondering, is this because you're perhaps differently exposed? And then lastly, maybe a bit of a silly question, but I believe you generally talk about 20% of your business being geared to semi-specialties. I was wondering, is this 20% still 20%, or more like 15% perhaps, given the underperformance, or is it actually still 20% due to recent M&A? Thank you.

Hi, good morning. On the food ingredient volume side, I would say that we haven't seen a big impact there. I mean, when we talk about food ingredients for us, it's also the nutritional side. So we see, for example, quite some nice formulatory opportunities as people are looking to increase the amount of protein and fiber within their diet. Similarly, by the way, for the U.S. where GLP-1 drugs have quite an impact, I would say, on consumer behavior. But again, similar to beauty personal care, a lot of formulatory work going through our labs as people are really looking to, I would say, enhance the quality of the products that they eat. Larger versus smaller. Chinese suppliers, sorry. Eric, definitely. In our experience, the smaller Chinese suppliers are much more, I would say, willing to build a closer relationship. Again, this is not something that happens overnight, but over a timeframe of a few years as we get to know them and vice versa. In our experience, the smaller ones are more willing to give the customer protection and in some cases the country exclusivity The larger ones, I would say, it's pretty rare. In our experience, it almost never happens. And then the final question on the semi-specialty to specialty, it really differs by market, where I think we've said before that things like the pharmaceutical market, you can imagine, is a much smaller semi-specialty percentage, but I think fair to say that across the board, that roughly 20% still stands.

Thank you.

The following question comes from from JP Morgan. Please go ahead.

Hi, morning. I have a few questions. on the trend of outsourcing, Marcus. I think I'm hearing this for the first time. You know, you were referring to some sort of a horse trading with a few suppliers trying to gain the access back to some of the bigger accounts. And I'm just curious, what is the net impact of that on IMCD? I see more, let's say, cannibalization or accretion in your customer relationship because of those changes or it's not meaningful in terms of impact. I'm just curious if this is a new trend of maybe customers wanting to in-source or is this something that you would say is part and parcel of the negotiations that you generally do? The second question was announced, you highlighted this, you know, a couple of times during your notes, which is the operational impact from currency. And I'm just curious, and this is just my impression speaking to my colleagues in India, correct me if I'm wrong, but even Signet in India prices in euros or dollars and then invoices in rupees. Is this beyond just the P&L impact? Is this creating some sort of a competitive pressure as well? Why would customers not look to source from local distributor or supplier who can quote them in rupee rather than having to pay in euros or dollars given the rupee in India has depreciated by 15 to 20% in the last 18 months. So I'm just curious if this coming with some competitive pressure on top. And the last question on Cygnet, is Cygnet back to growth now in Q1, do you think? Thank you very much.

You're a very specific old Cygnet. Maybe if I begin with the outsourcing, I think firstly, Chetan, when I talk about this horse trading and kind of the discussions that we have with suppliers when we grow accounts to a certain size, that's nothing new. I mean, that's been with us since the foundation of the company. I think what I was referring to there is that, you know, there's more and more discussions with suppliers about expansions and opportunities. I think they themselves also struggle significantly with their own performance. I think that they are more open to making change. And as I mentioned in my initial starting speech, I'm encouraged by the number of positive supplier conversations that we've got ongoing. So I would say generally very positive about that outsourcing trend. And hands on the Indian signet.

Now perhaps more in general around currencies, Chetan. There is In a lot of countries we import material and then in a lot of countries it's common to quote in either Euros or Dollars and then invoice in the local currency. We see that in India with Signet, we see that in Mexico, I see that in Brazil, I see that in Poland, I see that in Turkey. In a lot of B2B environment this is quite a common practice. If you then compete with a local producer that produces locally and always quotes in the local currency, there could be a positive or a negative. I think if I specifically look at Signet, there the risk is remote, because basically we import their material from American and European suppliers that are part of the formulation, part of an FDA-approved recipe, and so the Customers are then more or less obliged to use that material because the final product is then sold back to the American market or to the European market. But if I look, for instance, at the coating business in Mexico, there we quote, everybody quotes in dollars. And then you invoice in Mexican pesos. And if I look at the exchange rate, again, as an example, US dollar versus the euro versus the Mexican pesos versus the euro. If I see a drop of 13% in dollars and I see more or less a flattish Mexican pesos, I basically lose about 13% of my top line and my cost base is still in Mexican pesos. So what you then see is lower organic growth because of this currency impact and you see the same cost base. Because in the end of the day all these companies report in euros and that is for me always difficult to explain the impact of these changes, but it definitely had a negative impact in the second half of last year on top line growth and margin growth, whereby the cost line still remains in the local currency. But there is always that competitive element if there is a local producer that still quotes in local currency.

This is really helpful.

Thank you.

The following question comes from Stefano Tofano from Avian Umbro Auto BHF. Please go ahead.

Yes, good morning, gentlemen. Two questions remaining for me. So, I mean, the first one, taking a step back, I'm curious to see if you can highlight, where do you think we are in the cycle? Because obviously, you know, end of Q1 last year, Q2, lots of volatility due to tariff discussion, etc. And I think many thought, you know, Q2, Q3 would perhaps be the bottom. And I think today's surprise is mainly to see that it's getting worse. You know, looking at your free cash flow conversion up in the 90 plus percent, et cetera, you know, it's very high, maybe signaling really, really low demand. So just, you know, we can't see the future, obviously. But I'm just curious, where do you think we are in the cycle today? And then the second question is on the, let's say, headroom for M&A. How much headroom do you really have? The question here is because, you know, 2.8 times, obviously, compared to your bank covenants, you still have some room. But in my experience, particularly European investors, you know, when leverage gets to three times, they get nervous. Maybe in the US they say it's still too low. But in Europe, you know, that's my experience at least. Also thinking again about the high free cash flow conversion. If, you know, should demand come back, you need to invest something in your working capital. So overall, you know, on the base of 2.8 times, it might be that you had room for positions might be lower than it looks. If you can please comment on that. Thank you.

Good morning. The first question relates to where do we think we are in the cycle. I think we would also love to know that ourselves. But I think when we look at all of the different market reports and as I mentioned before, speaking to customers and suppliers, I generally feel that there's more optimism. than there was certainly during Q3 and Q4. And I think that the market reports, as was previously mentioned on this call, was an indicator of that. So we don't have a crystal ball, but as we said, I think people talking about the green shoots coming, we've definitely heard more of that since the beginning of this year.

And also a nicely building order book, a bit more positive there. Stefano, the headroom on M&A, I understand your question, at the same time I think you also saw that we generate quite a bit of cash every quarter creating additional headroom with looking at the pipeline and the speed of executing the M&A opportunities, there is room for us to maneuver, sufficient room to maneuver. And if for whatever reason we see something that the drives are leveraged temporary just over three times, we are not shy to do a transaction if that if we really feel this is needed to further grow the business. But then we will also explain to the market how we will bring leverage back to below the three times that you just mentioned. Mainly because of European investors. Because the American investors always tell me that the leverage is much too low and the business can have much more. But yeah, we need to take into account all stakeholders in this respect. But I feel

with the room that we have to manoeuvre there. That's really helpful. Thank you.

The following question comes from Tristan Lamut from Voterbank. Please go ahead.

Hi. Two questions please. The first is on 2025 you talked about relative price stability. But at the same time, you're saying explicitly that there's continued pricing pressure in semi-specialties. Are your European producers losing market share because they are pricing above Asian competitors? And therefore, effectively, although your pricing might look stable in some areas, effectively, the net impact is the same as prices basically traded for volumes lost. So really, still the leading indicator here is pricing, even if that is kind of indirect. Is that fair? And then second question, we're back at pre-COVID conversion margins in Q4, so kind of around your long-term average. Is this kind of a normalized level for the business, or was Q4 a bit of a one-off due to some destocking? And what kind of range could you see on that margin in 2026? Thanks.

Perhaps first let me answer your last question. Q4 is for us always a quarter whereby the December month is more or less half a month. And for the cost base we need to pay the full salaries in the third quarter, the fourth quarter. And so the conversion margin in the last quarter is always the lowest in the year. So this is not the new normal going forward as far as we see it.

Pricing, pricing stability.

Yeah, I just, I think, I mean, it's a very complicated question to answer, as you can imagine, because with over 50,000 products within the portfolio. But in general, as I've mentioned before, what we see is on the specialty side, you know, pricing stability during 2025 with, I would say, quite some price increases coming through the beginning of this year. But you're right, you know, on the semi-specialty side, there is pricing pressure, has been pricing pressure. But again, it's an early stage, but we have seen some price increases at the beginning of this year coming out of China. So let's see again if that sticks. But yeah, with such a diverse portfolio, it's difficult to be specific.

Did we now create more confusion, Tristan, or did we try to answer your question?

That's very helpful. Thanks.

The last question comes from from ING.

Please go ahead. Good morning. of course, a lot of discussions. First of all, Marcus, maybe can you tell me something you presented, let me say, at the Capital Markets Day in September 2020-2024, the new tools and the high expectations you had from that. Is there anything visible yet on the role out of that and the successes of that? My first question.

So thank you for the question. Yes, so I presented the sales assistant. Delighted, as I mentioned in my pre-commentary, with the full rollout of that internally from a global perspective during the course of last year. And, yes, we are seeing very good traction from our commercial teams there, the usage of the system, and also the ability to increase the cross-sell rate That tool has already been rolled out for four of our business groups externally on the MyIMCD platform and will be rolled out to the bigger business groups during the course of the next one to two months.

Okay, perfect. And then, Hans, with regard to the restructuring, can you indicate any signs of that and how it is spread over the areas and to what extent it is acquisition-related? Because it's for me not clear what exactly the amounts will be.

Maybe if I could just say a quick word on that to begin with, Kieran. It wasn't a significant restructuring. What it was was us really looking across the whole organization, making sure that we are as sales orientated and customer centric as possible. to be able to drive the sales activity in the most effective way. So we had a look at this and in some areas of the business, it meant actually investing in additional highly qualified commercial staff, but also looking at where can we make efficiencies. You mentioned the sales assistant, but you could also imagine that we've got quite some work ongoing around AI use on things like the order-to-cash or quote-to-cash process. So it's a combination of really looking across the company and making sure that, again, we're as active and proactive as we can be commercially, but also as efficient as we can be from a back-office perspective. Net-net, as we said, that resulted in a reduction in the number of FTEs. But it wasn't so much a massive restructure focused purely on reducing cost. It was really also about making sure that we are that hungry sales organization.

Yeah, and if you then ask me, if you look at the regional split, I think it's fair to say it was a bit more EMEA-oriented than in the other parts of the world, but all All in all, the fact that we have a global integrated IT and CRM system allowed us to make these efficiency changes across the globe. So it impacted more or less each and every country in the IMCD structure.

Okay, thank you. Maybe a final question. So on the M&A, so in the pressure on the growth profit margin, In EMEA, you mentioned, let me say, it was related to the M&A, as I see the text. Yeah, mainly because, but it is a little bit strange to me because it was only 2% increase of the revenue because of M&A, and the pressure, 80 basis points, something like 4 million. So it's, in my view, a little bit strange that the effect can be so large.

Yeah, it was, I think, larger than you would expect. I think I mentioned two things. I mentioned a combination of M&A and additional stock provisions. So it's fair to say that you need to take into account both. And in EMEA, we had both.

Yeah, yeah, okay. And basically, the stock provision impact is something that happens Thank you.

All right. And with that, I would now like to hand the call back over to Mr. Jordan for any closing remarks.

Great. I just want to thank you all very much for joining the call this morning and for your questions. And, yeah, Hans and I wish you all a very good day. Thank you all.