Sales and Profit Growth, but Operating EBITDA at low End of Guidance

Global chemical distributor Brenntag AG (Essen, Germany) has published annual results for 2018 earlier this week. Except for Latin America, all regions (i.e. EMEA, North America and Asia-Pacific) did show sales and earnings growth. Earning per share rose 27.4% to EUR 2.98, the highest level since the IPO in spring 2010. This allows management to propose a further increase dividend of +9.1% to EUR 1.20 per share (or equivalent to 40.2% of the Profit after Tax attributable to Brenntag’s shareholders).

Brenntag’s sales in 2018 were EUR 12’550.0 mn, +6.9% as reported and +10.2% on a constant currency basis when compared with last year. (Operating) Gross Profit was EUR 2’660.9 mn, an increase of 4.2% as reported, and +7.5% on a constant currency basis. Overall, the group generated an Operating EBITDA of EUR 875.5 mn (equivalent to a 6.98% Return on Sales / ROS, down from a level of 7.12% in 2017), 4.7%  up from 2017 as reported (an increase of 8.4% on a constant currency basis). Brenntag noted that the positive contribution to earnings resulting from the sale Brenntag Biosector A/S (Denmark) during Q4-2018 was reported below the Operating EBITDA line, just as any other non-operating items affecting net income.

Profit after tax was up EUR 100.3 mn at EUR 462.3 mn. This results in earnings per share attributable to Brenntag shareholders of EUR 2.98 per share (up from EUR 2.34).

Working capital increased to EUR 1’807.0 mn, up from EUR 1’510.5 mn at the end of  2017 (+19.6%). At a level of EUR 525.2 mn in 2018, free cash flow was up 19.3% from the EUR 440.3 mn realised in 2017. Increasing prices for many chemicals have led to this increase in working capital during most of 2018.

Across the geographic regions, the picture continues to be mixed. On the Operating EBITDA level, the EMEA region increased by 5.4 % as reported to EUR 385.5 mn (+7.2% on a constant currency basis).Growth during 1H-2018 was higher than in the last 6 months of the year, due to an economic slowdown and tougher market conditions in the region, Brenntag said.

North America reported a slightly higher relative increase of the Operating EBITDA, +6.4% to EUR 409.6 mn (+11.2 % on a constant currency basis).  The company achieved higher growth across all customer industries there.

Latin America reached an Operating EBITDA of EUR  39.9 mn, down 5.9% as reported but  up 2.3% on a constant currency basis, in a “generally challenging and volatile economic environment in the region”.

Asia Pacific contributed an Operating EBITDA of EUR 77.9 mn, +5.7% as reported and +9.4% on a constant currency basis, fuelled by an increase in sales to EUR 1’383.5 mn (up from EUR 1’170.6 mn), growing 18.2% as reported and 22.7% on a constant currency basis. Part of that increase is attributable to a larger acquisition made at the end of 2017.

Brenntag continues to see a “challenging environment” on both, a global and a regional level for the year 2019, but still expects growth in its key performance indicators (Operating) Gross Profit and Operating EBITDA. The pace of growth may be slower though, CEO Steve Holland was reported saying.

Additional details can be obtained via the links below:

https://www.brenntag.com/media/documents/news/news_2019/20190306_pm_bilanz2018_en_final.pdf

https://www.brenntag.com/media/documents/investor_relations/2019/brenntag_annualreport_2018.pdf

Source: Brenntag press release and annual report; DistriConsult analysis

HGE – DCG / 07.03.2019