Operating EBITDA passes EUR 1 bn Mark, driven by initial Application of IFRS 16 Rule on Leases

Global chemical distributor Brenntag AG (Essen, Germany) has published the annual results for 2019 today. Except for EMEA, all regions (i.e. North America, Latin America and Asia-Pacific) reported growth in Sales and Operating Gross Profit. Earning per share rose slightly to EUR 3.02 per share (up from EUR 2.98 per share).  This allows for a further increase of the dividend to EUR 1.25 per share or equivalent to a payout ratio of 41.4% of the Profit after Tax attributable to Brenntag’s shareholders, subject to approval by the AGM in June.

Brenntag’s sales in 2019 were EUR 12’821.8 mn, +2.2% as reported and -0.3% on a constant currency basis when compared with last year. (Operating) Gross Profit was EUR 2’821.7 mn, an increase of 6.0% as reported, and +3.4% on a constant currency basis. Overall, the group reported an Operating EBITDA of EUR 1’001.5 mn,  up 14.4% from the EUR 875.5 mn in 2018 as reported (an increase of 11.3 % on a constant currency basis). However, Brenntag noted that the change in the IFRS 16 accounting rule regarding treatment of leasing obligations had a positive impact of EUR 116 mn on the Operating EBITDA. Discounting that effect, the increase was +1.1% to EUR 885.5 mn only.

Profit after tax was up sightly by EUR 6.9 mn at EUR 469.2 mn. This results in earnings per share attributable to Brenntag shareholders of EUR 3.02 per share (up from EUR 2.98 per share).

Working capital decreased slightly to EUR 1’767.7 mn (down 2.2% from EUR 1’807.0 mn at the end of  2017). Declining chemical prices during 2019 helped here. At a level of EUR 837.3 mn in 2019, free cash flow was EUR 837.3 mn, up almost 60% from the EUR 525.2 mn realised in 2018, amongst other things helped by  a reduction in Net Working Capital, Brenntag said.

In EMEA weak demand and a lack of economic drive during the whole year 2019 created a difficult operating environment. On the Operating EBITDA level, the EMEA region increased by 5.4 % as reported to EUR 406.3 mn (+5.6% on a constant currency basis). However this includes a positive effect of EUR 46 mn from IFRS 16, Brenntag said.

North America had a good start into the year, but later the market environment got more difficult for the company. The region reported an increase of the Operating EBITDA, +15.9% to EUR 474.8 mn (+10.1 % on a constant currency basis).  The positive impact from IFRS 16 is EUR 53 mn (equivalent to a 13 percent-points, leaving a operational contribution of 2.9 percent-points). Particularly Q4 was weak in that region, with a decline of Operating EBITDA of EUR 17 mn (-16% when compared with the same quarter in the previous year).

Latin America reached an Operating EBITDA of EUR 55.9 mn, up 41.1% as reported from EUR  39.9 mn (+38.0% on a constant currency basis), despite  “a continued volatile and difficult market environment” in the region”. The figure includes a positive effect of EUR 9 mn from IFRS 16.

Asia Pacific contributed an Operating EBITDA of EUR 101.1 mn, up 29.8% from the EUR 77.9 mn reported for 2018 (+24.7 % on a constant currency basis. The IFRS 16 effect was a positive EUR 9 mn (or ca. 11 percent-points). Main driver was the positive contribution from acquisitions, Brenntag sai in the statement. 

Brenntag said it expects a “positive performance at Operating EBITDA level in 2020, assuming  that exchange rates remain stable. The company is operating in a macroeconomic environment of considerable uncertainty. The outlook is based on the assumption that the effects of the macroeconomic risks and, in particular, the effects of the crisis regarding the new coronavirus remain very limited.”

Brenntag’s new CEO, Dr. Christian Kohlpaintner, who took office at the beginning of the year 2020 commented that “Brenntag is a strong brand with a good reputation in its markets. Our company offers great potential for organic profitable growth. My Board of Management colleagues and I will therefore make every effort to unlock more of this potential. Going forward, we will not only maintain our highly market-centric approach, but also focus to a greater extent on optimizing our processes, procedures and structures, thereby creating the conditions crucial to long-term organic growth.”

The company is currently examining its internal structures, processes and organisational forms along the value chain, where it sees potential for improvement in harmonisation and standardisation. Besides a “stringent internal execution of initiatives and measures”,  Brenntag also intends to further expand its already very customer-centric approach.

Additional details can be obtained via the links below:

https://www.brenntag.com/media/documents/news/news_2020/20200304_pm_fy2019_en_final.pdf

https://www.brenntag.com/media/documents/investor_relations/2020/brenntag_annualreport_2019.pdf

Source: Brenntag press release, earnings call and annual report; DistriConsult analysis

HGE – DCG / 04.03.2020