Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- IMCD NV (IMCDY, Financial) recorded revenues of EUR2.385 billion and operating EBITDA of EUR270 million on a constant currency basis for the first half of 2024.
- The company achieved an 11% EBITDA growth on a constant currency basis in Q2 2024, driven by acquisitions and some organic growth.
- Gross profit growth was observed across regions: 4% in EMEA and 9% in Asia Pacific.
- IMCD NV (IMCDY) maintained a balanced portfolio with Life Science revenue at EUR1.2 billion and Industrial revenue at EUR1.1 billion.
- The company successfully completed 11 acquisitions across all three regions and various business segments in the first half of 2024.
Negative Points
- Operating EBITDA decreased by 2% compared to the first half of 2023, primarily due to a weak first quarter.
- The Americas region experienced lower demand and temporary pricing pressure in the food and nutrition sector.
- The conversion margin for the first half of 2024 was lower at 44.5% compared to 48% in the previous year.
- Net finance costs increased by EUR1 million, driven by higher interest on bank loans and bonds, and negative currency exchange results.
- The company faced volatility and limited visibility beyond six weeks due to customers' preference for low inventories and just-in-time orders.
Q & A Highlights
Q: Could you please comment on how pricing dynamics have evolved since Q1 and maybe call out any end markets where you're seeing persistent pricing pressure?
A: We continue to see personal care doing really well, coatings and constructions coming back, and advanced materials also performing well. Food is starting to recover from low pricing and competition, particularly affecting the Americas. Pharma is still experiencing a post-COVID inventory rundown. Pricing pressure is mostly end-market specific, with food being notably affected.
Q: Outstanding GP growth has turned positive. Can you maybe talk about whether you saw any volatility over the months in the quarter or any trends that you saw in July so far? What are your expectations for the trajectory of improvement in the second half this year on an organic basis?
A: In the second quarter, we saw a strong April, a weaker May, and overall volatility. July is looking better, but the market remains unpredictable due to political situations and other factors. We have visibility of about five to six weeks of sales, but customer flexibility in delivery dates adds to the volatility.
Q: Looking back over my notes, Sunrise, the fair value was already written down at the end of 2023. Should we assume that this reflects a weak personal care market in China?
A: Yes, the personal care market in China is still soft, although improving compared to last year. We were conservative in our valuation, which has paid off. The market in China is not performing as expected by the former owners.
Q: Just given that you have turned the corner on organic growth in Q2, do you think Q3, Q4 you'll be able to generate organic growth, both on gross profit and earnings line?
A: We are confident in our tools and people to deliver further growth and efficiencies, but it's difficult to predict the exact figures for this year. Increased shipping costs and supply chain issues have had some impact, but we have managed to deal with these challenges effectively.
Q: Can you confirm that acquisition activity has been more expensive in H1? Also, can you comment on the competition for new targets?
A: We don't agree that acquisitions were more expensive. The multiples paid were within the typical range for the industry. Competition for new targets remains similar, with owners looking for buyers whose portfolios fit well with their supplier base.
Q: Could you talk about the change process at Signet and any plans for the business as it's fully integrated into IMCD?
A: We are pleased with the succession at Signet, having appointed an executive from the pharma industry in India. The new Managing Director has already contributed positively, and we are confident about the way forward.
Q: Could you give more detail on the kind of things you're tracking that would give you incremental confidence in the outlook?
A: We are looking for signs of inventory restocking and political stability, which would make the market more foreseeable. Our digital tools are crucial for managing material availability and customer orders efficiently.
Q: Could you elaborate on the substantial EBITDA conversion margin improvements in APAC and Americas between Q1 and Q2?
A: The improvement is due to a combination of better gross margin percentages, cautious cost management, and positive volume developments. Critical mass and operational leverage are key drivers.
Q: Could you give an idea of how refinancing the 2025 bonds may impact your interest cost?
A: We expect the refinancing rate to be between 3.8% and 4.2%, slightly higher than the current bonds. We anticipate generating significant cash in the second half, which should bring leverage down unless we engage in substantial M&A activity.
Q: To what extent do you see smaller distributors using product availability to support sales in these volatile markets?
A: We don't see a material impact from smaller distributors replacing our specialty portfolio. The market dynamics of 2022, where there was a lot of talk and desperation, are not present now.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
