Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Brenntag SE (BNTGF, Financial) achieved results in line with market expectations despite a highly competitive business environment.
- Sequential volume recovery materialized as predicted, with improving capacity utilization rates.
- Gross profit per unit remained stable compared to the first quarter, thanks to various margin initiatives.
- The company executed further measures to achieve efficiencies and reduce operating costs, targeting an overall cost takeout of EUR300 million by 2027.
- Brenntag SE (BNTGF) received the EcoVadis Platinum status and improved its ISS ESG Corporate Rating to B-, indicating high transparency and industry-leading ESG performance.
Negative Points
- Sales in the second quarter amounted to around EUR4 billion, which is 2% below the prior year period.
- Operating EBITA declined by around 10% year-over-year, amounting to EUR297 million.
- Earnings per share stood at EUR1.03, compared to EUR1.23 in the second quarter of 2023.
- Free cash flow was significantly lower at EUR158 million compared to the prior year's exceptionally high free cash flow.
- The company anticipates sustained pressure on industrial chemical selling prices and a more stable gross profit per unit development in the second half of the year.
Q & A Highlights
Q: Can you elaborate on the sustained pressure on pricing in the market? Is it due to supplier behavior or competitor actions?
A: The pricing pressure is more pronounced in the industrial chemical side, particularly in Brenntag Essentials. This is driven by chemical manufacturers focusing on volume recovery and less on pricing, as they benefit from improved capacity utilization. This trend is typical in the early stages of a chemical cycle recovery. (Christian Kohlpaintner, CEO)
Q: Should we expect a similar level of net expense from special cost items in Q3 and Q4 as in Q2?
A: The expenses related to Project Brenntag and our cost-out program are predictable, and we expect a high two-digit million amount over three years. Other special items are harder to predict. (Kristin Neumann, CFO)
Q: Is the disentanglement of service functions being paused due to market volatility?
A: The pause is a short-term measure to optimize our cost structure. We remain committed to increasing divisional autonomy and independence step-by-step. (Christian Kohlpaintner, CEO)
Q: What drove the sequential improvement in EBITA in Q2 versus Q1, especially in Essentials North America?
A: The improvement was driven by substantial volume growth, both organic and acquisition-driven. We are gaining market share in North America, but we need to balance volume growth with margin management. (Christian Kohlpaintner, CEO)
Q: How should we interpret your cautious outlook for the remainder of the year?
A: Despite the challenging environment, we expect better performance in the second half compared to the first half, driven by volume recovery and stable gross profit per unit. (Christian Kohlpaintner, CEO)
Q: Can you explain the increase in inventories to EUR1.55 billion in Q2?
A: The increase is driven by higher volumes and acquisitions. We expect substantial volume uptake in the coming months, which justifies the higher inventory levels. (Kristin Neumann, CFO)
Q: What gives you confidence in maintaining a stable gross profit per unit in the second half, given the increased pricing pressure?
A: We expect stable gross profit per unit based on current trends and our margin management initiatives. The pricing pressure is more pronounced in Essentials, but we are managing it effectively. (Kristin Neumann, CFO)
Q: Can you provide more details on the legal costs related to TARC cases?
A: These cases stem from sales made over 20 years ago. We are defending ourselves and seeking indemnification from third parties. We expect further cases, but the exact number is hard to predict. (Kristin Neumann, CFO)
Q: How do you manage transport costs, and can you pass them on to customers?
A: Transport costs are roughly 30% of our total OpEx. We generally pass these costs on to customers, although there are exceptions. (Kristin Neumann, CFO)
Q: Can you update us on the cost and tax implications of the disentanglement process?
A: We are working to reduce the tax leakage associated with the disentanglement. The overall cost is expected to be lower than initially guided, but we are not ready to update the guidance yet. (Kristin Neumann, CFO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
