Brenntag achieves stable results in a still-difficult market environment
Difficult macroeconomic environment impacts adversely on operating activities again
Brenntag achieved stable results in the third quarter of 2019 that were once again impacted by the difficult macroeconomic conditions. Particularly in the two large Brenntag regions EMEA and North America, the economic environment continued to turn down. Asia Pacific delivered good quarterly results again. Overall, the Group generated operating EBITDA on a par with the previous year despite the difficult environment. The reported increase in operating EBITDA is mainly attributable to the initial application of IFRS 16, the new financial reporting standard on leases.
Brenntag generated sales of 3,254.3 million EUR in the third quarter of 2019, a year-on-year decrease of 1.4% on a constant currency basis (+1.0% as reported). Brenntag’s key performance indicator operating gross profit rose to 722.2 million EUR, an increase of 3.9% on a constant currency basis (+6.5% as reported). Operating EBITDA was up by 13.9% on the prior-year quarter at constant currency rates (+17.0% as reported) to 262.8 million EUR. The growth in operating EBITDA is mainly attributable to the initial application of the new financial reporting standard IFRS 16. The effect of this IFRS on Group operating EBITDA amounts to 30.4 million EUR in the third quarter.
Profit after tax was up on the prior-year figure of 110.5 million EUR to 128.4 million EUR in the third quarter of 2019. This translates into earnings per share attributable to Brenntag shareholders of 0.83 EUR.
At 245.9 million EUR, free cash flow was well above the figure for the prior-year period (150.4 million EUR). This is due primarily to the lower increase in working capital compared with the third quarter of 2018.
Steven Holland, Chief Executive Officer of Brenntag AG, said, “Since the beginning of the year, the market environment has continued to turn down. This negative trend affected us again in the third quarter, impacting adversely on our operating activities, particularly in the two large regions EMEA and North America. Despite this environment, we were able to achieve stable results at Group level thanks to our highly diversified product range and industries served by our global network.”
Overall weak demand in EMEA
Business in the EMEA (Europe, Middle East & Africa) region continued to be marked by weak demand and a lack of economic impetus in the third quarter of 2019. Brenntag EMEA generated operating gross profit on a par with the prior-year figure at 285.5 million EUR (+0.1% on a constant currency basis; +0.2% as reported). Operating EBITDA reached 103.2 million EUR, an increase of 7.3% on a constant currency basis (+7.6% as reported).
Market environment in North America continues to turn down
The North American companies saw a continuation of the trend from the previous quarter during the third quarter of 2019, with the market environment becoming increasingly difficult. Brenntag North America posted a 5.0% increase in operating gross profit on a constant currency basis (+9.8% as reported) to 318.7 million EUR. Operating EBITDA climbed to 131.1 million EUR, a rise of 12.3% on a constant currency basis (+17.2% as reported).
Quarterly results in Latin America impacted by volatile environment
Brenntag Latin America was unable to sustain its positive performance and the growth trend from the first half of 2019. The third-quarter results reflected the still-volatile and difficult market environment throughout the region. Operating gross profit rose by 3.5% on a constant currency basis (+5.7% as reported) to 44.5 million EUR. Operating EBITDA was up by 12.2% on a constant currency basis (+12.3% as reported) to 12.6 million EUR.
Asia Pacific delivers good quarterly results
In the Asia Pacific region, Brenntag posted high growth in the third quarter of 2019, which therefore saw a continuation of the sound performance from its operating activities over the course of the year. The acquisitions also made a positive contribution to the growth. Operating gross profit rose by 13.6% on a constant currency basis (+18.4% as reported) to 68.1 million EUR. Operating EBITDA was up by 34.9% on the prior-year figure on a constant currency basis (+42.1% as reported) to 25.3 million EUR.
In all Brenntag regions, the initial application of the new financial reporting standard IFRS 16 led to an increase in operating EBITDA and higher growth rates.
Forecast for full-year 2019
In July 2019, Brenntag provided guidance for the growth of the Group’s operating EBITDA in 2019 to be between 0% and 4%. The company has specified this and expects growth of operating EBITDA around the lower end of that range. This is to be understood on a constant currency basis, based on unchanged financial reporting standards and including acquisitions.
Steven Holland said, “The current situation and earnings trend in our regions and the annual forecasts for global economic performance confirm that we are right to take a cautious view of the economic situation over the coming months. Macroeconomic conditions are not expected to show any improvement. In this challenging environment, however, we continue to demonstrate resilience. This has already been in evidence in the first nine months of the year, where we have achieved stable results.”
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