Brenntag with positive business development and earnings growth across all regions in second quarter 2011
Brenntag continued its growth path in the second quarter of 2011. Compared to last year’s period, Brenntag increased sales and even more important again achieved an increase in profits. Sales grew by 11.2 % (15.9 % based on constant exchange rates) to EUR 2,173.4 million (Q2 2010: EUR 1,953.8 million), while gross profit* improved by 5.9 % (10.8 % based on constant exchange rates) to EUR 443.8 million (Q2 2010: EUR 419.2 million). Operating EBITDA reached EUR 167.7 million (Q2 2010: EUR 153.0 million), which reflects a strong growth rate of 9.6 % (15.4 % based on constant exchange rates). Net profit for the second quarter was at EUR 67.6 million (Q2 2010: EUR 38.7 million), an increase of 74.7 %. All regions contributed to the positive development.
Brenntag’s new CEO, Steven Holland, states: “A robust performance with strong results for the second quarter highlights the growth and resilient nature of our company and business model. We made further progress in our journey of continuous improvement with increased internal efficiency and an expansion in our products and services. In terms of acquisitions we successfully concluded the purchase of G.S. Robins in St. Louis, Missouri a leading distributor and a valuable addition to our North American business in terms of extending our reach and further consolidation within one of our core markets. We also announced the signing of a purchase agreement for Zhong Yung (International) Chemical Ltd. in June 2011 which provides us with a significant platform within an increasingly sophisticated Chinese market. There we expect to see long term sustainable growth for Brenntag based on the requirements for further value added services.”
Half-year results
In comparison to the first half of 2010, Brenntag showed pleasing results: Group sales increased by 16.6 % (18.1 % based on constant exchange rates) from EUR 3,687.6 million to EUR 4,300.5 million. More important, gross profit reached EUR 878.2 million, increasing by 10.3 % or 12.0 % on constant exchange rates (1st half-year of 2010: EUR 796.2 million). Operating EBITDA rose by 13.4 % (15.5 % on constant exchange rates) to EUR 325.8 million from EUR 287.3 million in the first six months of the previous year. Jürgen Buchsteiner, CFO Brenntag: “Our business maintains its characteristics of growth and resilience which gives us confidence that outside of currency translation effects and based on a moderately positive macroeconomic view we will continue to successfully deliver our growth strategy.”
Positive development and efficiency gains in Europe
Brenntag Europe performed well in the second quarter of the financial year 2011. Operating gross profit in the reporting period rose by 5.5 % or 5.1 % on constant exchange rates to EUR 232.2 million from EUR 220.0 million in the previous year. Operating EBITDA grew to EUR 82.3 million in the second quarter of 2011 reflecting an increase of 11.2 % (11.0 % on constant exchange rates) compared to EUR 74.0 million in the second quarter of 2010.
North America remains on growth path
Following the stable development in the first quarter, Brenntag North America remains on its growth path. Operating gross profit based on constant exchange rates increased by 10.2 % to EUR 160.6 million. However, the weaker US-Dollar led to a slight decrease of -1.0 % including exchange rate effects. Operating EBITDA was reported with EUR 69.6 million in the second quarter of 2011, exceeding the prior-year figure by 10.9 % on constant exchange rates, despite the generally more moderate development of the North American economy. Including exchange rate effects operating EBITDA slightly decreased by -0.1 %. Furthermore, the acquisition of G.S. Robins & Company in May 2011 enabled Brenntag to improve its presence in several of the group’s focus industries in North America.
Latin America continues to grow
In the second quarter of 2011, operating gross profit in Latin America increased strongly by 11.2 % on constant exchange rates and 2.2 % including exchange rate effects to EUR 38.0 million compared to EUR 37.2 million in the corresponding quarter of the previous year. In a weaker macroeconomic climate the Latin American companies recorded operating EBITDA of EUR 13.0 million in the reporting period. Adjusted for exchange rate effects, the growth rate amounted to 11.9 % which results in a growth of 4.0 % as reported. The as-reported figures for Latin America were – like for North America – influenced by the weaker US-Dollar.
Continuous strong development in the Asia Pacific growth region
In the second quarter of 2011, operating gross profit rose by 233.9 % (241.1 % on constant exchange rates) compared to the same prior-year quarter from EUR 5.6 million to EUR 18.7 million. Overall, the companies in the Asia Pacific segment posted EBITDA of EUR 8.4 million and quadrupled the previous year's figure of EUR 2.1 million (304.8 % on constant exchange rates). The result of the fully consolidated EAC Industrial Ingredients Group and the pleasing development of the previous Brenntag companies contributed to the significant increase in operating EBITDA. The signing of a purchase agreement for Zhong Yung (International) Chemical Ltd. in June 2011 will give Brenntag access to China, the fastest-growing chemical market in the world. The bundling of distribution know-how and joint market penetration by Brenntag and Zhong Yung is expected to open up further growth opportunities in the Chinese market.
Working capital mirrors sales growth
The company’s free cash flow in the first six months 2011 amounted to EUR 115.2 million in contrast to EUR 132.3 million in the same period last year. Fully in-line with the announced expectations, the higher business volumes lead to a cash outflow for working capital. The working capital turnover rate decreased slightly but remained at a high level at 9.5x. The decrease is partly due to the turnover rate of the EAC acquisition which is below the Group average based on EAC’s higher proportion of specialty chemicals business.
Rating upgraded
Due to the continued positive development of the Brenntag business and the further strengthening of the capital structure, Standard & Poor’s upgraded the credit rating of Brenntag in June 2011 from BB+ to BBB- within the investment grade and Moody’s from Ba2 to Ba1.
Refinancing of debt
In July Brenntag refinanced most of its debt and took advantage of the continued successful track record of the business and the positive market environment. At the center of the attractive new debt arrangements is a syndicated multi-currency loan facility with a five years tenor of about EUR 1.5 billion out of which approximately EUR 1.1 billion are drawn and approximately EUR 0.4 billion remain available. In addition, Brenntag issued a EUR 400 million inaugural seven years corporate bond. Finally, the maturity of the A/R Securitization program funding close to EUR 200 million has been extended to three years. The new debt structure provides extended maturities, a high degree of financial flexibility and significant interest savings as well as a higher degree of diversification compared to the former structure.
Prospects: Growth path confirmed
Within the current macroeconomic environment and under the assumption that there will be no major changes in the average US-Dollar exchange rate for the remaining year compared to the first half of 2011, Brenntag is confident to achieve a range of EUR 650 to 670 million operating EBITDA on a full year level. The comprehensive refinancing enables Brenntag to substantially reduce interest margins leading to lower financing costs. Overall, the group is optimistic to be able to further increase free cash flow.
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