Brenntag SE (BNR) Earnings Call Transcript & Summary

Good afternoon, and a very warm welcome to you all. Thank you for joining the Capital Markets Update 2020 of Brenntag AG. My name is Diana Alester and I'm responsible for Brenntag Investor Relations. Unfortunately, we cannot meet you in person today, given the COVID-19 restrictions, here, in our headquarters in Essen. And we have our 2 future Chief Operating Officers available, Steven Terwindt in Toronto. Good morning, Steven.

Good morning.

And Henri Nejade in [ Walldorf ]. Good afternoon, Henri. Both also talk about our new divisions, Brenntag Essentials and Brenntag Specialties. Please can I draw your attention to the disclaimer on Page 2 of the presentation. Today, we have a full afternoon for you. After the presentation, we will start the Q&A session. The dial-in details will be provided at the end of the presentation. And with this, I would like to kick off our Capital Markets Update 2020. [Presentation]

Good afternoon, and a very warm welcome also from my side, and thank you for joining our [ Capital Markets Update 2020 ]. Through Project Brenntag, our transformational program, we will become far more market orientated. We will optimize our cost base, and we will invest into our future. This transformation will help us move our business from being #1 in terms of size to become the true market leader. Before we dive into Project Brenntag in more detail, we want to quickly recap on where we stand today. Brenntag is the undisputed leader in global chemical and ingredients distribution. We can rely on a terrific team and the largest site network globally to serve around 200,000 customers with a portfolio of more than 10,000 products. Over time, our business model has evolved from pure distribution services to an integral part of the chemicals and ingredients value chain. Value-added services such as formulation solutions, application advice and mixing and blending are at the core of our business, just to name a few. Brenntag has become a one-stop shop for its customers and is a strong partner for several thousand suppliers. So how do the markets we are operating in look like? The chemical distribution market is at about EUR 270 billion, significant in its size. Brenntag holds in each region of the world already the #1 or the #2 position. The growth in chemicals distribution is driven by the underlying demand for chemicals and the increasing requirement for value-added services. This is particularly true for the specialty chemicals sector, which is expected to grow slightly faster than the industrial chemicals market. In addition, outsourcing is an ongoing trend and an additional growth contributor in our industry. Chemical and ingredients manufacturers use increasingly distributors to reduce their complexity and to market their products tailor-made to relevant industries and to relevant customer segments. A further characteristic of the global chemical distribution market is that it is still highly fragmented. According to the last ICIS publication, the #10 by size is only 1/10 of Brenntag's turnover and the number 100 accounts only for 1% of our sales. Brenntag is the largest player, act as a consolidator and has a long-standing track record of successful acquisitions. As this is my first Capital Market Day, allow me to share some short reflections on my first year as the new CEO of Brenntag. 2020 was a very special year with unique circumstances and significant challenges, which we have managed very well so far. This year was, of course, dominated and still is dominated by the global COVID-19 pandemic. When the situation became serious, we implemented a strong and a comprehensive global crisis management to take proper care of the health and the safety of our people and of our business partners. Throughout the year, we were able to report strong and resilient financial results, including a positive development of our operating EBITDA. We provided guidance to the financial markets as soon as we reliably and accurately were able to do so. We made noticeable changes to our management board in summer, and I am delighted to have now a strong team in place that will drive the future development of our company. We announced the first milestones of Project Brenntag. In particular, our new operating model with our 2 new global divisions, Brenntag Essentials and Brenntag Specialties. Last week, we also announced the overall framework for Project Brenntag, on which today, we want to provide all the details behind this transformation program. So let me summarize. It has been a busy first 10 months for Brenntag, for my team and for me. You heard us talking about our holistic analysis, which led to Project Brenntag already since the beginning of this year. After 10 months of hard work, despite managing the COVID-19 pandemic, the overall framework is completed and now ready to be shared with the financial markets. Let me emphasize, Brenntag and we are acting out of a position of strength. Brenntag is a great company. We are the global leader in a growing market. We have an excellent reputation with our customers and our suppliers, and you offer them the broadest portfolio of products, solutions and value-added services. Our employees are amongst the best people in the industry. Our business is robust and resilient, and we have a strong financial profile. Brenntag is the undisputed leader in chemicals and ingredients distribution. And above and beyond that, the company has significant untapped potential to be unlocked. As part of our holistic analysis, we also gathered feedback from our different stakeholders, including investors, customers, suppliers as well as our employees. We have identified several areas for improvement. All are addressed clearly by Project Brenntag. Let me go through various aspects. Agility. Our suppliers prefer strong and efficient channel partners with specialized industry expertise and logistic excellence to best serve their markets, commercialize their products and accompany their growth ambitions. It is our job to make them successful in their markets. Our customers have an increasing expectation for an agile and highly differentiated business experience, tailor-made interactions must meet their changing demands, including functional expertise and technical know-how. With Project Brenntag, we will sharpen our profile towards the individual needs of our customers and our suppliers. Internally, even though we have a highly motivated workforce, we had at times weak execution, and we were lacking a strong performance-focused culture. With our highly experienced and passionate team and with its unique industry knowhow, we must better utilize our capabilities to support our partners' business development with creative and innovative ideas and with reliable solutions. In particular, the capital markets and also we, ourselves, have not been satisfied with the growth and the margin development over the last few years. We believe this has also been reflected in our subdued value creation. Let me emphasize, we are ready to exploit our untapped potential and we have an exciting journey ahead of us. The various aspects and topics I have just shared with you are all addressed within Project Brenntag. With this holistic transformation program, we now take decisive and comprehensive action to sustainably strengthen our global #1 position and to deliver sustainable organic earnings growth. We have, with Project Brenntag, identified EUR 220 million additional EBITDA uplift over the coming years. So how do we intend to achieve this? Our 2 global divisions, Brenntag Essentials and Brenntag Specialties, have a strong focus based on the previously described suppliers and customer needs. They follow a differentiated business steering and a distinct market approach. We will talk about this in more detail later. By sharpening our profile, we will be the partner of choice for our suppliers. We will refocus our sales force in line with customer requirements to build even stronger partnerships while allocating resources in line with customers' current contribution and future potential. An important topic in our transformation program is the reduction of complexity. Over the years, we have grown significantly, but our processes and our organization has become too complex. Reduction of complexity and reducing costs of our organization is clearly a must. We need to better leverage our global scale and create a setup to draw on our footprint and drive material synergies while ensuring functional excellence. And last but not least, such a transformation will not be possible without the full support of top management and our highly motivated people. In summer, we have already announced changes to the management board. And over the last weeks, we have completed the nomination of our leaders on Board minus 1 and Board minus 2 level based on the newly defined set of leadership competencies and behaviors. The competence and leadership skills needed for the transformation are truly reflected in the organizational setup and in the new leadership team. As a result, this Project Brenntag, we will also implement an improved focus on our performance culture. Let me share with you now what we expect going forward. Based on the predicted growth profile of the chemicals and ingredients distribution market and against our footprint, Brenntag will return to organic operating gross profit growth of more than 4% over the cycle. Let me emphasize this is based on stable, and you may call it, normal business conditions. While moving from gross profit to operating EBITDA, our improved performance management, our differentiated steering approach for both divisions, our product mix, our value-added services and our geographic positioning will deliver additional earnings growth. Therefore, we expect organic operating EBITDA growth of 4% to 6% in the midterm over the cycle. This is the potential of the organic underlying business. In addition, Project Brenntag is expected to deliver an annual uplift in operating EBITDA of EUR 220 million by the beginning of 2023. Contributions to our operating EBITDA will already be considerably noticeable in 2021, and the full run rate will then be achieved beginning of 2023. Furthermore, we will continue to follow our proven M&A strategy. We have a successful track record of bolt-on acquisitions and will continue to play an integral part in the overall market consolidation. Therefore, also our future acquisitions will contribute to the growth of our company. Ladies and gentlemen, we believe these are ambitious, but overall achievable objectives. So let us take now a closer look at the transformation plan of our company. As we have communicated to you since the beginning, restructured project Brenntag into 4 major work streams. The core work stream concerns our future operating model, which includes the creation of 2 divisions: Brenntag Essentials and Brenntag Specialties, catering to the different supplier and customer requirements. Both divisions will jointly contribute to our company's success. They sharpen and they differentiate Brenntag's market-facing profile. Both divisions will be steered in a differentiated manner according to the strengths and the market requirements. We will make better use of our economies of scale, our global asset base and our value-added application knowhow and our services. Furthermore, our new operating model includes the global harmonization and standardization of our business support functions and processes like HR, like IT, like finance, like indirect procurement, et cetera. We will create lean and efficient business services to support the divisions in their full focus on commercial execution. We remove redundancies. We simplify our structure, and we leverage our global reach and our scale. Functional excellence will secure an ongoing optimization of our business support backbone. The second work stream is the so-called go-to-market approach. In line with our new operating model, we introduced a stringent and globally harmonized approach towards our customer segmentation. We will allocate our resources in a more value-oriented way, enabling us to free up capacities to focus on our highly value-creating customers with promising and future potential. The third work stream focuses on our global site network. Brenntag has grown significantly over the past decade, including many acquisitions. This has resulted in a broad intense global network, but also includes some locations, which are either too small or not as efficient as we would like them to be. So we have, therefore, identified a broad number of sites, which we aim to close, while at the same time, we will set up hubs, mega sites and also new facilities to occasionally close white spots. In total, we aim to close around 100 sites over the next few years, while maintaining and even improving the experience for our customers. Last but not least, our fourth work stream is focused on strengthening our execution focus and progressing Brenntag's culture. Our management board composition mirrors our new organizational setup with a clear focus on global business execution, transformation capability and our change. This includes a new leadership structure and the removal of hierarchies to create clearer and more direct accountability. On top of these 4 work streams, we identified a number of early wins which are already being implemented. This includes a stronger focus on margin-accretive transactions, the optimization of our working capital as well as our indirect procurement processes. Across all those work streams, we have identified a total EBITDA potential of around EUR 220 million to be realized by the beginning of 2023. In order to realize this, we expect to incur a one-off net cash out of around EUR 370 million. Georg Muller will later share with you the details and financial implications of the overall program. Project Brenntag is a comprehensive exercise. And given the numerous angles of the transformation program, it will be a multiyear journey. My board colleagues and me will now take you through the 4 work streams in more detail on the following pages. Let me come to some of the specifics of our new operating model first. Full line chemical and ingredients distribution will remain the core of Brenntag's business model. Brenntag offers the most comprehensive portfolio of products and services, and we will continue to do so. However, with the implementation of our 2 new divisions, Brenntag Essentials and Brenntag Specialties, we will sharpen our operating model. Both divisions follow a distinct market approach to [indiscernible]. Both business divisions address attractive markets, and will equally contribute to strengthening Brenntag's global market-leading position in specialties and in full line chemicals distribution. Our future Chief Operating Officers, Steven Terwindt and Henri Nejade, will lead you through the details of our divisions later on. Beyond the introduction of the 2 divisions, the new operating model introduces global business services as our service backbone to allow both divisions to focus on commercial execution. With the introduction of Global Business services, like IT, like finance, like HR, we will create a step change for Brenntag. Coming from a purely regional and country-specific model, the shared business services enables functional excellence, enough scale for efficiency and global collaboration. The intended establishment of regional shared service centers for key processes will further drive standardization, efficiency and automation. Our business service concept consists of 3 parts. Centers of excellence with a centralized expert team to provide support for both divisions and across countries. In regional shared service centers, we will bundle transactional activities to ensure global standards and a simpler global steering. Our business partners are regional and local representatives, who will be responsible for the adaptation and implementation of global functional policies and guidelines within the businesses. Our corporate functions, on the other hand, will support the management board to govern and to steer the group. Dispose global corporate functions and business services, we will become faster, more efficient and consistently strive towards functional excellence with a stringent focus to best support Brenntag Essentials and Brenntag Specialties in their commercial execution. Now let me come to the core change of our operating setup. We are going to implement 2 complementary global champions integrated within Brenntag Group, Brenntag Essentials and Brenntag Specialties. Due to the different nature of the business requirements, the 2 new global divisions will be steered in a differentiated way according to their related key success factors and performance levers. Brenntag Essentials follows a regional logic with superior reach and customer proximity. Brenntag Essentials will be the agile, lean and most efficient partner of choice for customers and suppliers in local geographies. Brenntag Specialties follows an industry logic to achieve better market penetration through dedicated focus and a tailored solutions offering. This division will drive our market position and reputation as the global specialties leader in our selected focus industries. With its size of about EUR 1.1 billion operating gross profit in 2019, Brenntag Specialties is by far the largest chemicals and ingredients distributor in the world and 40% bigger than our largest competitor in specialties. Ladies and gentlemen, in connection with the long-term positioning of our company, we also made changes to the composition of our management board. I am proud to be here together with my colleagues, and we as a team are delighted to present the details of our initiatives in connection with Project Brenntag to you today. Besides our CFO, Georg Mller, whom you know well for many years, we also have Steven Terwindt and Henri Nejade here today. Georg has a long-standing history and experience within Brenntag. In this position since 2012, Georg is already well-known to you as a highly experienced CFO with an in-depth knowledge on our industry, our company and our financial performance. Henri is a savvy and experienced business creator who built our Asia business from scratch within the last 12 years, with a very innovative and a creative mindset and the spirit and the drive to lead our specialties business successfully in the future. Steven has an excellent track record within Brenntag for delivering with passion and dedication superior business results while guided by in-depth experience in the chemicals distributions business. Steven will lead our Essentials business starting January 1, 2021. So Steven and Henri will now take the opportunity to introduce themselves and talk about the divisions in detail, while Georg will reflect on the financial framework later on.

Thank you, Christian, and good afternoon, ladies and gentlemen. My name is Steven Terwindt. You could say that I grew up in this company, starting as a management trainee 23 years ago, making sales calls on hundreds of customers in different industries and, of course, in the regions of Latin America and North America. I have witnessed this company transform from a regional player to a strong global market leader by staying true to its core strength, a deep-rooted safety and service culture, combined with strong business ethics and agile supply chain capabilities around the world. Before joining the management board of Brenntag earlier this year, I served as Executive Vice President and COO of Brenntag North America. From January 2021, I will lead our new global division of Brenntag Essentials, and I'm very much looking forward to this exciting new role. Today, I would like to introduce you to Brenntag Essentials and provide details of how we will run this division and drive our top line growth going forward. What excites me personally about Brenntag Essentials is that it embodies who we are and where we come from. The best team in the industry that is linked to the most agile and efficient distribution network around the world, offering lean distribution solutions to our valued customers and suppliers. Aligning on these strength between the global regions while sharing best practices through my board role, represents an exciting opportunity in itself. Moving to Project Brenntag. I would like to emphasize that our 2 global platforms will allow for differentiated steering, focus and execution. They will strengthen each other as complementary forces within One Brenntag. Differentiated steering and execution in the case of Brenntag Essentials is through a low-cost supply chain setup that is efficient and agile in delivering large volumes to a wide range of customers. Based on the 2019 figures, Brenntag Essentials accounts for approximately EUR 7.1 billion in sales and EUR 1.7 billion of operating gross profit. Our target conversion ratio for this division is approximately 35%. As you can see in the pie chart below, 57% of the business is generated in the Americas, 38% in EMEA and 5% in Asia Pacific and China. Typical product families include solvents, glycols, acids and lyes, and hydrocarbons. Brenntag Essentials builds on our existing undisputed strength, which are highlighted on the right side of the slide. A robust infrastructure network with superior global reach and local market knowhow, making us cost efficient, agile and competitive in all regions. Full line distribution of a broad portfolio of chemical products across industries and regions with a true global and local presence. In addition, we benefit from strong brand recognition and our industry-leading safety standards as well as high barriers to entry. Tailor-made distribution solutions that includes breaking bulk shipments into smaller volumes, tolling and blending, drumming and packaging and inventory management. Let me give you an example. As you know, hand sanitizer and disinfectants have been critical essentials during this pandemic and will continue to be so for the seeable future. Right from the onset, our regulatory teams worked closely with our customers in the sanitization industry as well as the health and regulatory institutions in the regions to make sure that critical ingredients for these products were tested and approved. Meanwhile, our supply chain teams around the world worked closely together with our producer partners to secure the supply of raw materials and ingredients, such as ethanol, isopropyl alcohol, glycerin and antibacterial bonding agents. We brought these critical materials in bulk parcels via ocean vessels, railcars and tank trucks into our tank farms around North America and Europe, close to the producers of sanitation products. We made sure we stored sufficient inventory in our tank farms, toll blended on-demand and packaged it safely into drums and other packaging sizes. We ensured we were a reliable and are a reliable source of supply and regulatory support to the sanitization industry in both North America and Europe as well as the other regions in the world. To show our commitment to the health care sector and our communities during these unprecedented times, we donated considerable amounts of material to our hand sanitization customers in support of their efforts to the community. With this example, I wanted to illustrate to you how we contributed to hand sanitizer and disinfectant cleaners being readily available using our core strength around the world. Brenntag Essentials will continue to be managed with a regional focus, in line with our ambition to continue to be the local partner of choice. At the same time, we will align globally on our supplier strategies as well as our service offering to global key accounts. The 5 regions, which you see here, the country clusters and subregions will be managed by our highly experienced leadership teams. This means that the current regional setup remains fundamentally unchanged. Given the opportunity that China represents and the focus we will give it, we will manage it as a separate region going forward. We will drive an increased focus on our cost performance and through an efficient back office setup, leverage our scale. This will enable us to offer our customers high-volume deliveries in an agile manner at competitive prices. Dedicated product managers with strong market expertise will ensure leading market share positions for our key products. Brenntag Essentials and Brenntag Specialties will each have their own dedicated sales teams. Both divisions will see significant synergies in sharing operations and back-end functions. Brenntag Essentials will own and manage the infrastructure network and logistics as well as customer service teams. That will serve the customers of both divisions. This will allow us to reach full-scale in operations and optimize the site network across the divisions. Brenntag Essentials and Brenntag Specialties are naturally different with regards to the requirements of customers and suppliers, requiring a different steering approach. Brenntag Essentials customers typically buy large qualities of standardized process chemicals. Therefore, the purchase decision is made mostly on a competitive commercial offering. The key value add for our suppliers in Essentials is Brenntag's unique ability to efficiently respond to their market share ambitions, even on a short notice, while at the same time, providing value. Therefore, from a supplier perspective, it is important to have a strong local distribution partner with high safety standards, excellent supply chain management and the ability to manage swings in demand effectively. In conclusion, Brenntag Essentials combines all the characteristics that we as a global market leader in the chemical distribution are well-known for. Being an agile and nimble partner of choice in the local geographies for both our suppliers and our customers. Having a comprehensive product portfolio and local access to a broad customer base, allowing us to be true #1 at local level. Having experienced professionals with market expertise and passion for the business that are hunting opportunities. Best-in-class customer service recognized for local intimacy, fast response times, on time and in full deliveries as well as reliability. Our newly developed digital marketplace, Brenntag Connect, which allows customers online ordering, document downloads and delivery tracking, which I will cover in more detail later on. And of course, industry-leading safety and compliance standards that we'll continue to drive throughout the organization. And with this, Henri over to you and the Brenntag Specialties division.

Thank you, Steven, and good afternoon, ladies and gentlemen. My name is Henri Nejad, and those of you who have followed Brenntag for a while will know me already. I have been with the company for 12 years, and I was sent to Asia Pacific to build our business there back in 2008. I joined the management board of Brenntag AG in 2015. Today, I am absolutely delighted to talk about our Specialty division. Brenntag Specialities is the largest specialty chemical and ingredient distributor globally. With the new operating model and the implementation of the business divisions, we want to be able to better serve our -- or respond better to our requirement of our business partner. Let me give you some key figures here. Based on 2019 figures, Specialty division with EUR 5.3 billion of sales represent 40% of the group sales. This division generated EUR 1.1 billion operating gross profit with the conversion ratio between 41% to 43%. Brenntag Specialities will build a strong customer relationship by offering dedicated application knowhow and a broad range of value-added services. The division will leverage our existing application expertise and value-added services to grow the focus industries organically. We will be the world's largest solution provider and create an even more differentiated position versus specialty-focused competitor. With this setup, we will be able to capture untapped opportunities, particularly in the selected focus industries. I will talk about the details of our focus industries in a minute. This division will follow an industry logic. It was mentioned by Christian and Steven. Within the Brenntag Specialties, we stick to the regional setup, having the region Americas, EMEA and Asia Pacific. The major change in our approach within the Brenntag Specialties is that we have identified 6 focus industries. Those are nutrition. We are already in the food and nutrition business. We include here in the nutrition human nutrition and animal nutrition; pharma; personal care, home care, cleaning; water treatment; lubricant; and material science. Within the material science, we have our coating, construction polymer and rubber segments. With this setup, the division will focus on growth in attractive industries by offering application and industry knowhow for tailor-made solution, and high-value products. Brenntag Specialties will be a true global champion in those focus industries. Beside the regions, we also implement a global industry marketing team, real expert on those industry. Within the Brenntag Specialties, industry and market knowhow play an important part and role. This team ensure a smooth information flow and knowledge transfer within the regions with our dedicated industry management, product management and sales force and the technician, we ensure an increased and more focused customer interaction and expand the collaboration with our business partner. With Brenntag Specialties, we will drive our market position and reputation as a leading specialty player across the globe. As mentioned before, our supplier and customer have specific requirement. They have a specific demand. Therefore, we apply a differentiated steering approach within our 2 divisions. Specialty products and ingredients are used by our customer to make the finished product. Therefore, we have to define right specification, right quality, of course, right product and satisfy regulatory requirement. In this case, the purchasing decision is often made by relevant product developer, product owner and required substantial upfront communication and contact with product owner and customers' R&D centers. From a supplier perspective, Brenntag needs to be able to market-specific product effectively, implement our suppliers' strategies, provide technical and regulatory advice to customers accordingly and promote our suppliers' brand. In this industry, often, supplier consider Brenntag as a continuity of the sales force to the industry. So this promotion of brand is absolutely fundamental. Our new operating model is logically derived to the basis of the 2 different sets of customer growth, which we are now addressing in a very focused and distinct way. Obviously, the focus on selected industry is one of the biggest change we implement in connection with Project Brenntag. And we selected our focus industry using the clear set of criteria, which include the growth and the solution potential. All those industries have increased need for value-added services, no doubt on that. In addition, we looked at the size of those industries within Brenntag group to make sure we have the critical math as well as the ability to service customers globally. Particularly, nutrition, pharma, personal care and home care have a very strong presence in consumer-oriented industry in highly regulated market. Those industries make almost half of our operating gross profit in Brenntag Specialties. All of those industries having comment that they are exposed to global megatrend, providing for sustainable end market growth, and require a strong distribution partner like Brenntag. So what is our ambition? Our ambition is to be the distributor of choice for specialty suppliers globally. We want to be recognized as the global #1 solution provider for our customers. We want to increase our market penetration, driven by our new operating model. And together with Brenntag Essential, we will realize significant cross-selling opportunities and will differentiate Brenntag compared to specialty-focused competitor. We are confident, we will achieve our ambition. I have no doubt on that. As we are #1 by size, we have the global footprint, we have dedicated sales and technical expertise. Including labs, we have more than 50 labs globally today, and we will continue to develop and even create more when we need it. And this, together with Brenntag Essential, will allow us to accelerate our growth, which will drive organic top line growth above the GDP. With this, I will hand back to my friend, Steven.

Thank you, Henri. Well, our operating model with the 2 divisions also comes along with differentiated go-to-market approach, considering the individual requirements of our customers, which I would like to take you through right now. With our new go-to-market approach, we introduce a globally harmonized and consistent customer segmentation model for both divisions in our joint CRM system. The segmentation model consists of 2 dimensions. On the horizontal axis, it is considering current performance in terms of generated gross profits and profitability. And on the vertical axis, it is considering future potential in terms of annualized gross profit opportunity and the relevant what are spend of the customer. The objective of our new customer segmentation is a more streamlined and effective deployment of our sales force to create higher quality customer interaction with customers where we see growth opportunities and better leverage the full potential of these customers as well as new prospects. This increased customer focus will also drive commercial excellence, including sell price and margin management, opportunity generation and conversion, cross-selling as well as value creation from value-added services. Our goal is to make best use of our highly professional sales force and intensify our customer relationships. This more targeted and effective deployment of our commercial team will unlock optimization opportunities contributing significantly to the financial results of Project Brenntag. Brenntag Essentials, with its strong market position, broad customer base, competitive and agile supply chain setup around the world; and Brenntag Specialities, with its formulation expertise, technical service, industry know-how and deep customer relationships will complement each other and strengthen the value proposition of Brenntag as a whole. Let me now briefly explain how our 2 divisions will benefit from our new digital service offering. Brenntag's digital service offering through our digital platform, Brenntag Connect, is actively being rolled out around the world. We are already live in various regions, including North America, Europe and Asia Pacific. And 20% of our customers in those regions are now active users of the platform, allowing them instant document downloads, product search and recommendation as well as access to their invoice history. In the U.S., as an example, 5% of our active customers are now placing and tracking orders through the platform. Brenntag Connect will provide a best-in-class customer experience and much improved ease of doing business and represents an opportunity for us to reduce service costs while speeding up processes. Our customers especially during this pandemic time, have reacted very enthusiastically to the core functionalities such as: placing and tracking orders online; one-click reordering; document downloads; product search and recommendation engine; instant lab connect and technical service. As more and more of our customers benefit from the instant services being offered online, our commercial and customer service teams are able to focus more on value creation rather than performing administrative tasks. With Brenntag Connect being fully integrated into our CRM tool, we enable our sales force to more effectively generate opportunities while providing our customers an instant response to their solution requirements. Henri will now lead you through our efforts with regards to the site network optimization. Thank you.

Thank you, Steven. Now let's come to the third work stream of Project Brenntag, the site network optimization, which we call SNO. As I am the sponsor of the site network optimization within the Project Brenntag, I would provide some more detail on this. During the last 20 years, Brenntag has grown and expanded its global footprint significantly. We acquired more than 100 companies. And as a result, also inherited additional sites. When we started our analysis at the beginning of 2020, we recognize that there is also room for improvement within our site network. So what is our objective? Our objective is to make our site network more efficient, improve customer proximity, consolidate our global footprint, reduce overlap in subregion or countries and develop megasite to drive scale efficiency. We will also close white spots in area where we are underrepresented. In the next few years, we will close about 100 sites across all regions, focusing on the consolidation of small Brenntag on-site and third-party logistics site. With our future site network, we improve routing and optimize our distance to customers. We reduced material movement and optimize inventory allocation to site, and we will also contribute to our sustainability program. The new setup of our network, which will be implemented by 2025 provides a lot of advantage. We address the different needs of both divisions. We will leverage our leading market position and improve our customer service level by investing in the regional hub with suitable capacity and capabilities. We move more to an asset-light model and will replace inefficient sites within our network. The new network will allow both divisions to concentrate their effort on value-added services for both our customers and suppliers. This transformation will take a few years, 3 to 4 years. During this time, we'll ensure a smooth transition process. With the optimized network, we create the basis for future growth by maintaining our global reach and better leveraging economies of scale. And with this, I would like to hand back to Christian.

Well, thank you, Henri. Thank you, Steven. Ladies and gentlemen, let me come now to another important part of Project Brenntag concerning our people and our change process. Obviously, Project Brenntag foresees quite significant changes in our operational setup in the business support functions, changes in the leadership team as well as a new composition of the Board of management of the group. Implementing these changes and becoming the true market leader is only possible if we take care about our people, amongst them truly some of the best experts in our industry. The capabilities, the dedication and the passion of our employees were decisive success factors in making us the global market leader. We appreciate the past achievements and we want to build on this strong foundation. In order to realize the full potential of Project Brenntag, it will be essential to root our new approach deeply within the organization. We will ensure the successful execution of Project Brenntag by moving our culture towards a stronger focus on performance and individual recognition, particularly with regards to delivery on promise. This will be supported by clear targets for our global leadership team, which will be based on a distinct incentive structure for the entire EBITDA uplift potential. Project Brenntag needs to be a success for the entire company. Clearly defined roles, responsibilities and direct accountability will be the enablers for this performance-orientated culture. Brenntag has a lot of untapped potential. The new leadership and our focus on people will help us to unlock the company's true potential. In order to drive the transformation of our company and to open the next chapter for Brenntag, we have also changed the composition and amended the role of Brenntag's management Board. As we change our operational setup, we will also strengthen the joint global perspective in the Board. My colleagues and I will focus on the strategic steering and the business development of the group. We will focus on execution and a stringent decision-making within the organization. With regards to the composition of the Board, besides the CEO, the CFO and our 2 Chief Operating Officers for the divisions, we also have created the role of a Chief Transformation Officer. This position will, amongst other roles, be responsible for the overall transformation process we initiated, drive functional excellence and the digital transformation of Brenntag as well. The selection process has already started and is on a good track. Consistent with our new operating model, the new Board structure will be effective from January 1, 2021. With this, I hand you now over to Georg, who will lead you now through the financial framework.

Thank you, Christian, and good afternoon. Project Brenntag builds a strong foundation to return the company to sustainable organic earnings growth. The project will make us more market focused. It will also allow us to optimize our cost base. We are starting out of a position of strength, and I will now share how these measures will translate into an even stronger financial profile. I will also explain what earnings growth you can expect. We are a highly resilient company. We weathered each downturn well and delivered healthy growth in gross profit and EBITDA. This is organically and also through a proven track record of acquisitions. We are also very considerate about cash return to shareholders. In each and every year since our IPO in 2010, we increased the dividend payment, and that includes 2020 in the middle of the pandemic. A key reason we have been able to do this is a strong cash-generative and resilient nature of our business. However, in recent years, the organic element of growth has been stalling. We are implementing Project Brenntag to build a strong foundation for returning the company to sustainable organic earnings growth. Let me shed some light on the highly cash-generative nature of our business model. Brenntag delivers high free cash flow. On average, we have produced about EUR 600 million free cash flow annually in the last few years. In our likelihood this year, and that is despite the crisis, we will generate the highest free cash flow since our IPO. Year-to-date September, we already delivered around EUR 800 million, and there will be more in Q4. Our strong cash flow generation allows us to continuously pay dividends, and it supports the resiliency of our business. Particularly interesting, it gives us the ability to continue our proven track record of self-funded M&A. Our business is asset-light compared to any production model. In fact, 2019, our CapEx was only 1.6% of sales. In 2019, we had a 35.5% conversion ratio, and our working capital turns stood at 7x, both are solid numbers for our industry. We are certainly building on strong foundations, but we are convinced we can do better on our conversion ratio and working capital turn. Part of our focus and our work is to drive these numbers up. Let us now look at how Project Brenntag will deliver significant uplift in operating EBITDA. We will deliver a EUR 220 million operating EBITDA uplift through Project Brenntag. From a timing perspective, we expect a ramp-up year-by-year and the full amount will be achieved by the beginning of 2023. Every work stream we have shared with you today will contribute. You can see the respective numbers on this slide. Let me point out that the operating model actually has a higher significance than the EUR 75 million stated here. So operating model anchors our new structure on Brenntag Essentials and Specialties. This new structure is a fundamental basis to return the company to sustainable organic earnings growth above and beyond the direct impact of the project. We are going to achieve the EUR 220 million uplift in operating EBITDA through enhanced top line growth as well as efficiency measures. Let me now cover the impact from a P&L perspective. About EUR 40 million are related to top line measures and will positively impact our gross profit. These include pricing initiatives. We will implement stricter pricing guidelines and discipline. An amount of EUR 180 million is related to efficiency measures. The measures of Project Brenntag deliver a step-by-step increase in the financial performance as we move towards the financial year 2023. We expect the somewhat front-loaded trajectory as we benefit from our early win initiatives. We will improve pricing discipline quickly. Long-tail products, transactions with negative margins and transactions within appropriately low margins give us plenty of potential. We also expect quick results from bundling purchases and having more professionalized purchasing processes, moving away from having indirect spend managed locally as we do now. And finally, let me touch on working capital. We started to reinforce focus on working capital management. We also implemented a new governance structure for term decisions. While this will not impact EBITDA, it will show in working capital turn quickly. Let me be transparent about our plans for personnel resources. Brenntag has continuously increased its headcount over the years. This is partly from acquisitions, but also we employed more and more people. Our organization has become rather complex. There is some overlap between functions, and we also have only limited global harmonization. This creates potential to reduce overlap, to increase harmonization and to generate efficiency gains. We expect to reduce existing headcount by about 1,300 jobs, about 8% of the total workforce over the next 2 years. We are in consultation with the employee representatives, in line with the legal framework in the different countries of operation. The headcount reduction contributes materially to the focused EBITDA uplift. So what financial means do we need to make all of this happen? To achieve sustainable organic EBITDA growth, we will continue to invest into the infrastructure of our business. We expect annual CapEx to be, give or take, what we spent 2019, so say about EUR 200 million. In addition, we are reviewing our global ERP landscape, and we will upgrade the IT infrastructure. We are defining the scope of the project. Our current expectation is a spend of about EUR 200 million over the next 3 years. Project Brenntag will require a cash out of about EUR 370 million. The cash out will be spent between this year and 2023. The amount comprises expenses and CapEx. And then there is M&A, which is continuously on the cards for Brenntag. We continue to earmark an annual M&A spend of EUR 200 million to EUR 250 million. Any given year might be lower or well higher, depending on the pipeline. Let me summarize our ambition for growth. Project Brenntag will enable us to fully capture the underlying market growth, and it will also make us more efficient. Our ambition is to grow gross profit organically by more than 4%, and organic operating EBITDA by 4% to 6% through the economic cycle. In addition, the different work streams of Project Brenntag will deliver an annual EBITDA contribution of EUR 220 million, and we will continue our proven path of value accretive M&A. For reference, let me give you a side-by-side comparison of our 2 divisions. Essentials accounts for EUR 1.7 billion of gross profit, and Specialties accounts for EUR 1.1 billion of gross profit. This is roughly a 60% to 40% split. We also give a range for conversion ratios. At this stage, we are not fully precise on conversion as we are in the process of finalizing the cost split into the 2 divisions. Finally, let me state that we will report the rest of world segment separately. This is mainly the global headquarter. The EBITDA for that segment is a negative of approximately EUR 50 million. On the next 2 pages, let me explain how we allocate our revenue to the 2 divisions. As previously mentioned, the buying decisions are often taken by different stakeholders. In order to offer tailor-made solutions and to fully meet the product and services demand of our customers, Brenntag Specialties will focus on selling baskets of ingredients and value-added services that are directly used in the production of our customers and products. As an example, we have shown on this slide, products and ingredients that are accounted for in Brenntag Specialties in the nutrition industry. These are, for example, flavors, emulsifiers, sweeteners or colorants. All these products make up the specific products of our customers in the nutrition industry like pastries, yogurt, ice cream or soft drinks, just to name a few. Brenntag Essentials will complement this product and service portfolio with so-called process chemicals. These products are bundled in Brenntag Essentials and are needed in the broader production processes of our customers. They are typically not part of the final product. Here, the examples for the nutrition industry would be sodium hydroxide, sulfuric acid or hydrochloric acid. Tailoring these baskets to the specific requirements of our customers will increase our value-add opportunities and will help us to better respond to our customers' needs. We want to be very clear how we allocate the business to Essentials and Specialties. Only a transaction with 1 of our 6 defined specialty industries will be accounted for a specialty business. And even within the specialty industries, there is a further requirement. It needs to be a sale of ingredients, only then will it be accounted for as specialty sales. Everything else, particularly the sale of all process chemicals will be accounted for under essentials. As you can see, we have a precise and demanding definition of our specialty business. I want to give a preview on our reporting structure in the future. From the first quarter 2021 onwards, our reporting will reflect our new divisional setup. We will report separately on the 2 divisions, Brenntag Essentials and Brenntag Specialties. Within each division, we will report regional data for EMEA, Americas and Asia Pacific. This will give you a clear view on the development of the different parts of our business. Last but not least, I would like to spend a little time on our capital allocation going forward. We will continue our dividend policy of spending 35% to 50% of our profit on dividend payments. There is no change in our leverage target. We do feel comfortable with a leverage of around 2x, and we recognize the benefits of an investment-grade credit rating. If and when our leverage falls sustainably below 2x, we will consider further cash return to shareholders. Let me summarize. Project Brenntag is a strong foundation for our return to sustainable organic earnings growth. We expect 4% to 6% EBITDA growth per year through the economic cycle. On top, we will increase EBITDA by around EUR 220 million with the help of the dedicated measures and initiatives in Project Brenntag. Our reporting will provide you transparency to analyze our performance division by division. And finally, we will allocate the cash generation of the business in a value-accretive manner. That's it from me regarding the financial framework back to Christian.

Well, thank you, Georg. Well, now we have almost finished our capital markets update 2020. But I would like, of course, to summarize the key takeaways for you and also let you know what we are going to do over the next couple of months. In introducing the new operating model we provide now for the first time, full transparency on the 2 distinct businesses and their performance in the relevant markets. Full accountability and responsibility are ensured as well as one success factor I greatly believe in, focus and full management attention. So what are the benefits for having both under one roof? First, we have a significant overlap of customers across both divisions, providing for significant synergies as well as the opportunity to cross-sell products. Today, on average, one customer only buys 1.5 products from Brenntag. Second, our suppliers value our Brenntag brand and our ability to offer the best suited channels to their end markets. Third, we have a leading global distribution network. The synergies and in efficiency gains for both divisions by the joint utilization of the common supply chain, common infrastructure and common site network are substantial. Fourth, global business services are efficiently managed and are utilized by both divisions to greatly improve the cost base for both divisions. The same applies for the corporate center. Last but not least, the large-scale of Brenntag with its 2 divisions allow us to prepare Brenntag for the future. For instance, both digitization and sustainability require substantial investments. Our size allows us to make those investments shared by both divisions and thus, reaching the highest level of return. Over the next 8 weeks, we will finalize our organizational design, and we will prepare the reporting systems and structures. A large and significant amount of work which needs to be executed with proper diligence and accuracy. At the same time, we will assign the relevant customer and supplier relationships to the individual representatives of Brenntag. Let me emphasize that for 70% of our gross profit, these personal relationships will not change as of go live January 1. Early wins have already contributed to our performance this year, and we will continue to extract value as quickly as possible out of these initiatives. Let me assure you that our leadership team is determined to ensure a proper and a smooth go live on January 1, 2021. Ladies and gentlemen, in summary, what are we going to achieve with our transformation program, Project Brenntag. With the initiatives we developed within this comprehensive program, Brenntag will expand its global market-leading position and deliver sustainable organic earnings growth in the coming years. To recap, we will be the channel partner of choice using the differentiated steering via our 2 divisions. We will increase our customer focus with an agile organization and strong accountability. This will further sharpen our profile as a true full liner or a one-stop shop distributor. We truly believe that we can only be successful as a team. And by creating value for our suppliers and our customers, the shareholders and all other stakeholders, the Brenntag team will drive the evolution of our enterprise. With Project Brenntag, we strengthened our competitive positioning, our performance, and we will expand our position as the market leader to become the true market leader. With this, I would like to close the presentation, and thank you for staying with us this afternoon. We will start the Q&A session in a few minutes. And the operator will now provide further instructions for joining the Q&A. Thank you very much.

[Operator Instructions] The first question received is from Dan Hobden of Crdit Suisse.

Dan Hobden from Crdit Suisse. Obviously quite a lot to digest, but maybe just a couple of clarification questions first for me, if that's okay. So question number one, the exceptional ERP investments. The -- I think you see additional EUR 200 million. Is that included within the EUR 370 million cost out or is that in addition to it? My second sort of clarification question is around the regional reporting. So I think you mentioned sort of the 3 different territories under Specialties and under Essentials. Are they going to be externally reported to us? So when we think about building the models, do we have EMEA Specialty and EMEA Essentials? Question number 3 is on the phasing of the EUR 370 million. I think the recognition of the additional EBITDA is going to be front-end loaded, is the same truth, the EUR 370 million. And maybe my final sort of clarification question. Your midterm guidance of 4% to 6% growth in EBITDA. Are we to think of that from 2023 onwards? Or is that a target that you're seeking to hit every year and the EUR 220 million is then on top of that?

Yes. Thank you very much for the questions. So those are mostly related to Georg. And so I would hand over now to Georg to go through those 4 questions you had. And then I'd chime in, if necessary. So Georg, please.

Thank you, Dan, for the questions. When it comes to our global ERP landscape and to our IT infrastructure, we are in relatively early phases of defining that project. Nevertheless, we wanted to be fully transparent and flag already today that a more harmonized and more standardized steering of our group probably requires over several years, investments into our ERP infrastructure. So in that sense, the EUR 200 million I mentioned does come on top of the EUR 370 million, but it is a number that is much more preliminary at this stage. The reporting that I presented, indeed, we expect this to be the external reporting structure so you will not only see data on the 2 divisions, Essentials and Specialties. Within each of the 2 divisions, you will also see regional data for EMEA, the Americas and Asia Pacific. The timing of the EUR 370 million onetime cash out cost to achieve is between this year and 2023. The bulk of it will be '21 and '22 but some amount this year already and some smaller amounts also in '23. So 4% to 6% organic EBITDA growth are definitely on top of the EUR 220 million EBITDA uplift Project Brenntag. Project Brenntag has its defined initiatives and its defined measures that deliver the uplift. So 4% to 6% is capturing the underlying market growth. We are, as we all know, we had some struggles over the recent years. We are convinced that we see new setup into the 2 divisions, Essentials and Specialties. We will be much better able to steer the business in a differentiated manner and to go back on an underlying growth track. So that is not only 2023 onwards, it's also on the path to 2023. Obviously, next year and maybe the year after are a little bit difficult to predict particularly because of the COVID-19 and pandemic situation. So 4% to 6% is through the cycle, it requires some normalized condition, which we hopefully will see soon.

Perfect. And maybe one follow-up or additional question, and I promise I will stop. In terms of the M&A, obviously, sort of no change there to the strategy. I was just wondering if you could provide a bit of color on the pipeline. Obviously, there is a market consolidation underway and possibly a hiatus this year as you develop the scope of Brenntag. How should we think about M&A? Is it near term, midterm? And yes, how does the pipeline look?

Yes. Thanks for the question concerning the M&A. I think as you have seen, we are -- also historically have spent EUR 200 million to EUR 250 million on M&A. So we are not changing that. It's earmarked for M&A, and we will continue to do that. We will, of course, look on how -- what lens do we apply when it comes to geographies, when it comes now to which industry segments. We want to perform M&A and also to which sizes of targets we are looking. So of course, when you have that amount earmarked, you need to have a healthy pipeline in place, which we do have. So we are constantly working and filling the pipeline and exploring the opportunities as we move forward, so I'm not concerned that we are running out of ideas or out of targets, to be very clear. But it will be an ongoing effort, maybe a little bit sharpened lens of where and how we want to acquire.

The next question received is from Christian Cohrs of Warburg Research.

First, maybe to Brenntag Connect. Do you have any penetration target? Yes, with regards to customer penetration, do you offer customer incentives? And do you expect to roll out this device also to other countries. If I'm not mistaken, you have just rolled out to 12 countries so far. Secondly, now with this new 2 divisions, am I right to assume that the business would still be run on a joint asset base? And so that does that actually mean that you can steer the division solely on a gross profit and operating EBITDA basis and not on return on capital or [ EVA ] numbers? And then lastly with regard to the EUR 220 million uplift. Can you maybe also provide us an idea how this will actually allocate on these 2 divisions?

Okay. Thank you. Thanks for the questions. There are three. So I would ask Steven maybe to answer for the first one also, maybe shedding a little bit the light on the asset base and how we're running it. The implications on the asset base and also the EUR 220 million uplift question and allocation to the divisions, I would then suggest that Georg is answering. So I give the first question to Toronto. Steven?

Thank you. And thank you, Christian, for your question. So on Brenntag Connect, our digital platform, we are, of course, trying to penetrate a large amount of customers. And certainly, the smaller customers, where we see that there's an enormous benefit from allowing them to use the platform to place their orders. But what we are also seeing is that we are able to cross sell much better a wide range of products. Christian Kohlpaintner mentioned that we, today, have roughly 1.5 products per customer. Well, we see on the platform that as we have now a product search and recommendation engine that customers typically look for more -- a much broader range of products, which helps us to build a broader portfolio inside each of the customers. Obviously, the speed of rollout, you saw that we are rolled out now in 12 countries, is accelerating. We are adding countries in EMEA, in Europe and in Asia Pacific. We will soon also roll out the platform in Canada, for example. So this is on the go, a continuous effort. And we also expect, especially now during the pandemic, that there is an accelerated adoption level of customers coming on the platform. Thank you.

Then on the asset base, I mean, Steven, forgot the first part of your question, Christian. So the asset base will be operated and owned by Brenntag Essentials. So they are focusing on the lowest cost to serve in that network and driving competitiveness with our global asset base. And the financial implications, you asked about the asset base and how we steer that plus also the allocation of the EUR 220 million uplift to the divisions, I give now to Georg to answer that question.

Thank you, Christian. Let me be very clear. Return on invested capital is very close to our hearts in the management Board. So we will absolutely make sure that for every euro invested, we do achieve an adequate return. Allocating or steering the divisions by return on invested capital is still a little bit at early stages for the reasons that Christian mentioned. So the asset base will mainly be operated by the Essentials business, so they will host the asset base. And Specialties will mostly purchase services, warehousing services, logistic services from the Essentials part of the business. But return on invested capital in our business is not only on the PPE, on property plant equipment. For return on invested capital in our business, it's also important to consider working capital and intangibles, particularly those intangibles that come from M&A. So the point I want to make is we still have to make steps to steer the divisions appropriately on return on invested capital, but it's by no means that we have nothing at the start. So there are elements to controlling the return and controlling the assets that are tied into the divisions well at our hands. When it comes to splitting the EUR 220 million EBITDA uplift into divisions, I would, if I may, I would try to stay a little bit away from artificially over detailing it. We do have, in the EUR 220 million, benefits from our go-to-market approach from measures and the initiatives in the operating model and from the site network operations. And as you can well see, all of our business, both divisions will for sure benefit.

And the next question received is from Markus Mayer of Baader-Helvea.

I have 3 questions that's from -- as well. Coming back to your own digital platform, Brenntag Connect recently also signed a cooperation. This link says CheMondis platform. Could you shed some light about what is behind this move, and the additional cooperation's plant and how do they interlink with your own platform? That would be my first question. The second question are again on this ambitious medium-term targets, which in my view imply market share gains. And the question here is, should you expect those, in particular, to happen in the specialties business? There were -- last year's several competitors has outperformed you. And therefore, we could think that here you have the highest catch up potential. That's the second question. The last question is then on what Georg said this -- the leverage falls below 2x that Brenntag would [indiscernible] further cash out to shareholders. What are the preference for this cash return especially cash returns to shareholders? Is a special dividend then has a higher priority than a share buyback or this appears [indiscernible]?

Markus, thank you for the questions. I will take the first 2 one. The last one, I refer to Georg on the leverage question. Now the first topic on digital connect and our digital efforts and Brenntag Connect. I think you have seen by Steven's presentation that we are making good progress there. We are rolling that out now globally into many different countries, and we are encouraged by what we see is happening and the world is changing. And also, our business is changing here. And what we have now started as a first collaboration with CheMondis, which is a digital marketplace to be us -- as the global market leader to also market our products there is something where we are exploring what various digital channels will mean for the chemical distribution world. And so for me, it's not either/or. It is an additive channel we want to explore. Should we get the expected benefits out of that, that is something which we will continue to explore further. Then we had the question on the medium-term growth, whether we are able to capture market share. Let me be very specific. When we look on the underlying organic growth of the company is -- you saw on the gross profit roughly 4%, slightly 4%. So this is driven by the underlying chemicals market growth. And this is different from industrial chemicals to specialty chemicals. You certainly know that. So specialty chemicals growing faster than industrial chemicals. So we expect a certain underlying chemicals demand growth as we move forward. And we add to this the ongoing outsourcing trend, which, as I've also mentioned in our Q3 call is definitely there existing and even more pronounced as we move forward. So this gives us the 4% operating gross profit growth. And then with our performance measurement in steering the businesses in a different way and also being more efficient of how we are acting and operating in the market, we believe those 4% gross profit growth will translate into an EBITDA organic growth of 4 point -- 4% to 6%. So this is not yet about talking, grabbing market share. Brenntag would have not an answer for that. We are developing that answer in the year 2021, 2022 when the divisions are operational and when we draw our strategic plans, division-by-division and business unit by business unit. And once we have defined that, we will show a plan also going forward after the time of Project Brenntag, which is ensuring that we are returning the company to organic earnings growth, nothing more and nothing less than that. And with the leverage question, I refer it to Georg so that he can answer that question.

Markus, you actually named the 2 obvious routes for cash return to shareholders, one being dividends and the other one being share buybacks. Openly, we haven't really done the detailed work yet. So let's approach this step-by-step, understand better what the advantages and prerequisites for each of the 2 roots are. And once we reach the stage, we will take a decision. No decision taken yet at this stage.

And the next one is from Steven Goulden of Deutsche Bank.

I just wanted to go into a little bit more detail on the working capital improvement. Can you give us a bit of a feel for roughly where that could be? Obviously, you're saying in a minute, working capital turns around 7x or maybe if you think about it in terms of percentage of net working capital as a percentage of sales, but where do you think that could get to? And I guess, across the organization, where do you see the major opportunities? And how quickly can you begin to address those? And I guess, just a final part of that question would be, how material do you think that could be in terms of an improvement to your cash position? And then I just wanted to clarify earlier. I think you said that the EUR 200 million CapEx and the IT -- within that, the IT spend would be on top of the EUR 370 million. I'd originally assumed it was kind of within the EUR 370 million, but I just want to clarify that, if that's okay. And then you touched on something earlier on around looking to be a little bit more capital-light when we were discussing site decommissioning. Can you give us a bit of an understanding as to -- as you close down these 100 sites, and I think you commented previously that around 50 would be third party. And I assume within that, you're implying that it's a lot easier to decommission those. What is -- in getting to the cost savings that you've outlined, what is the kind of cost to run per site? And is there an -- is there going to be a focus toward third-party sites? Or just more -- generally a more capital-light approach here? And will that -- how material will that be? That's it.

Steven, thanks a lot for your 4 questions, if I counted them correctly. The first 3 about the working capital improvements, about the material cost impact of our organizational changes and how the ERP investment plays into the cards will be covered by Georg. Let me maybe take the last one, the capital-light approach of the site decommissioning. You're absolutely right. From the about 100 sites, which we intend to close, about half of it is 3 -- third-party locations. This is something just very natural where you try to optimize the network where you have because some of the sites are not ideally utilized which we own. And so we bring back inventory, we bring back business into our sites to also reduce the overall cost per unit sold into those sites. This is, I think, a homework which needs to be done. Ari, I think, has very nicely shown to you that we have grown over the last 2 decades through a lot of M&A. So we never really looked at the site network in a structured way and saying, okay, is this the right site network, bringing us into the future 5, 10, 15 years down the road? And I think we have a very clear vision of how our site network will look like in the future, and this, of course, does not exclude, per se, third-party warehouses, if they are needed in a certain location or for a certain market entry. But this is a very typical, I must say, initiative where you try to optimize your footprint from various angles. And so from that perspective, this is a very holistic approach of how we want to deal with this. And the other 3 questions, I hand over now to Georg, who will give you the answers there.

Steven, when you start working on working capital improvement projects, in my experience, it gets pretty granular pretty quickly. So there is not necessarily the one-catches-it-all answer on how we are going to improve working capital turns, but let me point you to a few directions. First of all, I would point to standardization and harmonization of inventory management. And historically, a lot of inventory management within Brenntag has taken place at the respective warehouse and was very much based on the experience and the focus of the local warehouse manager. I'm not necessarily saying this was handled in a weak way, but it was handled in a non-harmonized approach with light and shadow through our Brenntag Group. Plus, it was very much based on the knowledge of the individuals. And now with more and more professionalized IT tools being available to use available data in an objective way to take inventory decisions will, for sure, help us a lot. So inventory management, very important. Other than that, we spoke about customer segmentation, and even though it's kind of a side effect, part of customer segmentation is also how do we take term decisions for customers. So have we, in each and every case, appropriately ensured that customers with specific turn terms are particularly interesting for us? So there also lies quite some potential. Where will it take us? We currently planned for our first positive material step. We would expect the working capital turn to increase from last year's 7x to, say, 8x rather quickly, and then let's take it from there. An increase from 7 to 8x would actually free up EUR 200 million to EUR 250 million from working capital, which is also a question you asked. I have to admit the ERP question escapes me because I was making a note about the working capital question. So can you remind me of the ERP question, Steven?

Yes. Sorry, I just wanted to clarify, I mean, I didn't hear it fully earlier on. But in terms of the EUR 370 million, when you originally gave that number, my understanding was that within that, a component of it would be CapEx, and obviously, today, we've discussed ERP. There wasn't much information a couple of weeks ago. I think I've heard before that you said that the EUR 200 million of CapEx would be on top of the EUR 370 million. I just wanted to clarify, and apologies, if I got the wrong into the statement.

No. Yes, you're right. That's what we said.

And the next question is from Simona Sarli of Bank of America.

So a couple of them. You mentioned that for specialty, you will follow sector logic with a dedicated sales force and same for essentials. Do you already have such expertise in-house, especially for specialty? And if not, how difficult it will be for you to recruit externally salespeople with specialty chemical expertise? And what is the timing for that? Secondly, you talked about a more disciplined pricing approach. Could you maybe provide some practical examples on how you're achieving that? And how receptive are customers in industrial versus specialty? And lastly, a question on Brenntag Connect, and overall, on the increasing role played by digitalization in the chemical distribution. To what extent this can be an opportunity to address the long tail of very small customers that potentially you are not reaching today versus the potential risk of increasing pricing transparency?

Okay. Thank you very much for the question, which I think, the first question I would like to ask Ari about the dedicated sales force and specialties and how he sees that evolving. So we will give it to him in France. And Steven, then I ask to talk about the pricing, the pricing approach because he has worked intensively on this one already. And also the digitization question, I'll also let Steven answer. So Ari, maybe you start first.

Thank you. Thank you for the question. When you say the sales forces, if we have efficiencies and/or good team in place? Yes, definitively. I think we demonstrate that we have already ourselves 5.3 billion sales we have on specialty divisions. What is not harmonized is the maturity of it by region. Just to illustrate this one. We started -- 2 years ago exactly, we started our Food & Nutrition. We build the structure on the Food & Nutrition. We have a real expertise on Food & Nutrition globally through 28 application labs and experts already in our organization. What we have done, we leveraged from the knowledge that we have. And just to illustrate one example, we have a knowledge on ice cream in Italy. We duplicated in the rest of the world. We had food expertise, and wanted to -- coming on the meat, particularly meat expertise in Poland, we used it in the rest of the world. But U.S., we didn't have this kind of expertise that we are trying to leverage and use it. Vietnam was wonderful investment we did on UHT, which is the first -- as a distributor, I think we were the #1 investing on UHT on the milk industry to develop the know-how on some of the developing countries. So we have a lot of expertise, but it's not harmonized way that we wanted to do that. Food was very wonderful experience. It demonstrated that it works. We need to have the right what -- marketing, and we were talking about the flow of the information and expertise across the region. It will work perfectly. We do have an expertise in cosmetic in the U.S., in Europe. We need to leverage to develop that in Latin America, et cetera. So I can go through all those industries. So what you should takeaway is, we have a different expertise on different industries, but this is a fantastic opportunity to build this harmonized approach globally and using the marketing team that we need now to structure this one properly. So are we going to need going to outside and bring some new people? Probably, yes, here and there. But we have also a lot of experts in-house already that we want to leverage on that and develop this one. When it's coming to the different structure you were talking, sales and marketing team will be really on the sales and marketing platform. That's the reason why we use all the logistics services from BS as well as we use our business excellence partners, I would say, from HR, from IT, et cetera. So that will be really for me and sales and marketing platform for development. I hope I answered your questions.

Yes. That was very clear.

Thank you, Ari. So Steven?

Yes. Thank you, Ari, and Simona, thank you very much for your questions. So let me address first your question about the more disciplined sell price management at Brenntag. And what we are aiming for here is a more consistent and coherent pricing focus. As you can imagine, we do thousands, tens of thousands of transactions per day to make sure that there is a more coherent approach, for example, to low margin, or even sometimes, negative margins, which fall through the cracks with all the pricing fluctuations that's going on. So what we want to make sure that there is a focus on enhancing low-margin business, lift that business to more acceptable margin levels, but also make sure that we minimize the negative-margin transactions, which sometimes happen as a result of price fluctuations in the market. So that's one area where we will focus on. Another area is, for example, we see that the more products customers buy, the more value they perceive from a distributor. And as you broaden your basket of products, you can improve the overall value of the basket to the customer, and that's why we will also focus on cross-selling. Then there is another area which we are focusing on, which is the differentiated sell price management, making sure that the price reflects the value that you create. You can't have a one-price-fits-all across the market. For each customer, for each application, there is a different individual sell price. And to be able to identify this, to be able to manage that through our system will enable us to improve the profitability of the business in general. Another area which is important to mention here is that we are intending to extract better value from our value-added services by focusing on the value of, for example, formulation, blending, even outsourced toll blending that we do for certain customers, packaging, et cetera, et cetera, making sure that we charge the correct value for these services. We can also improve the sell price and margin of that business. So that illustrates a few of the examples how we intend to have a more coherent and disciplined approach to sell price, which means also that our leaders, our commercial leaders and our commercial excellence managers across the regions will, in a more coherent fashion, drive those measures, not only in country clusters, but in regions like North America, EMEA and Asia Pacific in a coherent way. I hope this answers your question on sell price. Let me move to your third question on Brenntag Connect, our digital platform. And yes, you're absolutely right. It will help us to reach a lot of small customers, where, in general, the value of Brenntag, margin-wise, is very interesting. And by allowing these customers through their user name and password to get on Brenntag Connect and have access to a broad portfolio, have access to product information and certificates, to be able to download those instantly provides a huge value. And at the same time, for us, it is less cost intensive as it would be if we wouldn't have those customers on our digital platform. Now pricing transparency. We have no issues really with pricing transparency, and you will see Brenntag sharing prices on Brenntag Connect to the customers. On the one hand, you have, of course, a general price list. On the other hand, we will also have customer-specific pricing in Brenntag Connect, allowing them to make instant decisions on their purchasing intentions. But in the end, the big value here is reaching a much broader customer base in a very easy-to-use fashion and allowing customers to really purchase a much broader portfolio from Brenntag than they would otherwise do today. I hope that answers your question. Thank you.

And the next question is from Laurent Favre of Exane BNP Paribas.

The first question, I guess, is for Georg. On the EUR 220 million, can you perhaps talk about how much of that is already falling into 2020? You have talked about early gains or easy wins. It sounds like some of those might already be seen already this year. So can you talk about that? And the second question is for Christian. Can you talk about changes in the incentives around the organization? And so for instance, when you look at divisional management, or indeed, the Board, it's difficult to imagine that you can be equally incentivized against efficiency gains on one side and organic growth on the other side. So how do you think about that? And when you go further down the organization, let's talk about few kind of people sitting in the same country, if they fall into more kind of essentials or specialties, how is the incentive plan really changing based on this new organization?

Yes. Laurent, thanks for the question. I will take the second one. I will ask Georg to talk about the early wins 2020 a bit. On the incentive scheme, this is clearly work-in-progress as we progress now to our Go-Live on January 1, 2021. So it's an ongoing debate we have with the Supervisory Board of what we intend to do. But let me be very clear, delivering Project Brenntag and its uplift potential is extremely important for Brenntag. And the delivery to promise is a core value of us as we move forward. And so we need to make sure that we have the proper incentive schemes behind who allow us to deliver with a high level of security of the results, which we are today outlining to you. So again, give us some time before we have finalized. This is an ongoing discussion, which we're having, so I cannot talk too much about this. Then I would ask maybe Georg to answer the question about the early wins and the impact in 2020.

Laurent, we are in the middle of preparing the Go-Live for January 1, 2021. So 2021 will really be the first year where you see material EBITDA impact from the uplift potential we see; the EBITDA, the positive EBITDA impact from the early wins in 2021. And keep in mind, we just started implementation, it's probably a single-digit million figure. Where you do already see a positive impact from early wins is working capital management, where we improved working capital turn over the last 2, 3 months, and we fully expect that to be sustainable towards the end of the year.

And Georg, maybe if I can follow up on this. I mean I assume you did not wanted us to start with the 2020 target and just add on all the positives [indiscernible] negatives, and in particular, I'm thinking about temporary savings that you may have in 2020, for instance, on travel and entertainment. So I'm just wondering, can you help us with what we should be aware of in the negative column when we build our bridges to 2023 from 2020?

That's -- if I got the question correctly, that's more a question of underlying business dynamics with the COVID crisis. But yes, of course, we have some cost savings this year that just relate to lower business activity like travel and entertainment -- just like travel and entertainment that would be in a moment in time where we would expect this to be fully compensated, overcompensated by better gross profit generation.

And the next one is from Isha Sharma of MainFirst.

In terms of CapEx, just to be clear, is it fair to assume north of EUR 350 million for 2021, given the additional ERP investment and cash-outs related to Project Brenntag, and then close to EUR 270 million in 2022 and '23? That would be great. Second question, the midpoint of conversion ratio that you indicated for the respective segment brings me to a group conversion ratio of around 37%. Is this an indication of your target conversion ratio? Or is it where we stand today? And the EUR 220 million EBITDA uplift, are these net savings and included in this indication or not? And the last one, could you please shed some light on how you would achieve the more than 4% growth in gross profit? Does this target include the EUR 40 million pricing impact that is expected to drop down to EBITDA? It would be a really great question if you could share with us some tangible examples of why we should expect a significant change in organic progression for Brenntag over the cycle?

Yes. Isha, thank you very much. I take the last question and let Georg ask your question about the CapEx and the conversion margin, and also the EUR 220 million net savings. And I will then talk about the 4% growth. So Georg, you want to take a start on the first one.

Yes. Isha, thank you. Let me take the CapEx question, and I hope I capture all the different elements. So we basically have to talk about -- when it comes to CapEx planning about 3 building blocks. So one is the ongoing maintenance CapEx and CapEx for returning the company to organic underlying earnings growth. That would be, give or take, in line with the number that we spent in 2019. So let's say, EUR 200 million annually. But there are 2 further building blocks. So one building block is the CapEx element of the EUR 370 million cash-out for Project Brenntag, and the CapEx element is roughly 1/3 of the EUR 370 million. And I can't give you an exact timing at this stage. So the CapEx from Project Brenntag will mostly hit '21 and '22, to a degree, also '23. And the third building block is that where we are lease-specific currently. That is a review of our ERP landscape and IT infrastructure upgrade, where we are in early stages of defining the scope of the project. In order to be transparent and to give you the full picture, we are assuming a total of EUR 200 million at this stage, but that will spread out over several years, where I can't give you the exact number of years at this stage. So a little complicated, but I hope it helps you to build, to piece the different blocks of CapEx together. Conversion ratio, the number framework that we shared for essentials and for specialties actually is based on 2019 figures. So in that sense, it does, by no means, include an ambition of savings or growth going forward. It is a snapshot of what the business is or what the business has been in 2019. I do recognize that the average for the midpoint of the 2 ranges that we shared is EUR 37 million -- sorry, 37%, apologies. Let's not forget that on top of that, we will have the Rest of World segment, which will carry around EUR 50 million cost for the global headquarter. So if you make the step from the average of the divisions to the group, we have to include the Rest of World segment, and that takes off 1.5 percentage point of conversion. Hope that answers the question.

It does. Very helpful.

So Isha, let me come to your last question about why we believe we can return to at least grow with the market. First of all, we talk about, as I've described earlier when Markus asked the question, how does this underlying gross profit growth is composed of. It's the underlying chemical markets and demand growth. It is the outsourcing trend, which I think is unbroken, and it's true. But then we start to look in this differentiated steering of those 2 divisions. I think this is extremely important to understand that Project Brenntag is not only in the EUR 220 million, but it has, of course, effects into harvesting the organic growth on the gross profit side as well. By this differentiated setup, we are absolutely convinced that we are much, much better catering to the needs of our suppliers and also catering better to the needs of our customers. And that makes us confident that where else we have -- whereas we have been lacking this kind of growth in the past, this differentiated approach towards the market, towards our suppliers and to our customers, will bring us in a better position to participate better in the underlying growth of the industry. Thirdly, Project Brenntag has a substantial amount of cost takeout, and that will make both divisions much more competitive. And based on the stronger competitiveness, we are also convinced that we are able to harvest more growth with our existing customer base and with our supplier base, and this will also contribute to capturing this organic operating earnings -- operating profit growth, which we couldn't harvest in the past. And last but not least, there is a small portion on pricing there as well. We also, as we said, differentiatedly (sic) [ differentially ] steering these businesses, and that will have also an impact on how we are benefiting from, what Steven has described, impacts of an improved pricing and how we move forward. But again, that's, for me, a small part to contribute to this 4% growth. So I think overall, Project Brenntag should be really convincing answer to the question, what does it need to bring Brenntag back to organic earnings growth? And Project Brenntag is the answer, not only because of the EBITDA uplift, which is substantial, but also building the foundation and creating the prerequisites, which allow us to capture that normal market growth, which we see for our industry moving forward.

The next question received is from Rajesh Kumar of HSBC.

The first one is, can you explain to us if there will be cross-charging of logistics between speciality and the bulk business? So when you report the conversion margin that [indiscernible] cross-charging of logistics and warehousing facilities? Or are you thinking of using third-party logistics going forward, so in terms of the asset intensity? The second question is on the specialty chemical business. Obviously, there are quite a few consolidation opportunities in that industry. There seems to be a few high-profile deals. Do you think you are well positioned to play into that consolidation story? And if so, what are the steps you need to take before you get there? And the third question would be on the technical or the lab capacity within the specialty business. Are you happy with your existing footprint? Or do you think that's something you can build upon?

Okay. Rajesh, thank you very much. I will refer the first question about the cross-charging of logistic costs to Georg. On the specialty side, I will ask Ari to talk a little bit about the consolidation in that sector and also about the technical capabilities we have in that place. And then maybe I'll say a few words afterwards, how I see that landscape developing, in particular, in the consolidation in that sector. So I give the first question to Georg.

Rajesh, so we have no intention whatsoever to let the specialty business wait for free. So what I mean is, indeed, essentials will host most of the assets and will provide warehousing and logistics services to specialties, but the specialty business will pay for it. So the essential business charges out its services to specialties. And the 2019 snapshot, which we have shown, the conversion ratio ranges, which we have given actually does consider these charge-outs on a preliminary basis. We are still refining, and we have 8 more weeks to go, but the conversion ratios we have shown already consider a service charge-out for warehousing and logistics services from essentials to specialties. At this stage, there is no intention for the specialty business to purchase services externally from third parties. We have a great and professional asset base, and we can more than well handle that internally at this stage. I think that would be my answer to the question.

So just...

Go ahead, Rajesh.

Ari?

I think there was a follow-up.

Yes, there's a follow-up for Rajesh, right? Georg?

Sorry, Rajesh, did I misunderstand? I thought you had a follow-up question on this charge-out?

It doesn't seem to be the case, so apologies. Then we go over to Ari, I would suggest.

Okay. Thank you for the question. I think we already mentioned, we have -- we are focusing on the 6 selected industries. They are all attractive, but the level of the attractiveness and consolidation -- the distribution side definitely for some opportunities on some of the selected markets... [Technical Difficulty].

Okay. Sorry. Obviously, we have a connection problem to France. So let me then answer that question. The 2 topics we had was about the M&A and the consolidation in the specialties field and how we want to partner and move on, and also the technical capabilities on specialties. Of course, I've said before, when we look on our earmarked M&A and what we do to build a strong pipeline and having a strong pipeline in that field is absolutely clear that the specialties distribution market is also clearly in focus. I mentioned that we are looking at where do we want to acquire, what geographies, what technologies, what industry segments. So I think as being the #1 in the specialty chemicals distribution market already by size, I believe, we will and will concretely play an active role in also consolidating in that sector. On the technical capabilities on specialties, I think Ari said it in his conversation, we have about 50 labs globally plus, and this gives us a strong basis, and we will continue to add our technical capabilities moving forward. For me, that's a prerequisite to be successful in the specialty distribution market. And so we will continue to strengthen our capabilities and strengthen our technical advice capabilities, but also regulatory capabilities, which you need to have to be successful in regulated markets like, let's say, pharma or in nutrition. So I hope that answers those 2 questions. And sorry for Ari's disconnect. Ari, you're back, I hope, for the next question. Okay. Good. No, we are all fine now. All right. Thank you very much.

I'm sure that you handled very well, Christian.

Thank you.

And the next question we received is from Rory McKenzie of UBS.

It's Rory here. Firstly, just following on from the earlier point on incentives and KPIs. For us, externally, will you actually be reporting a quantified organic gross profit and EBITDA growth metric, given that's kind of still, as always, of the heart of your targets? And secondly, Georg, sorry if I missed it, but of the EUR 370 million cost, did you give a CapEx versus restructuring cost breakdown? And are you expecting any offset from asset disposals as you exit sites? And then thirdly and finally, for Christian or maybe Ari actually. On those site closures, obviously, it's quite a large number, can you talk about the plan to transfer business operations from closed sites to new combined or mega sites? It appears in the past or in similar industries, you've seen market share -- have you maybe seen market share losses where that local service has been withdrawn or changed. So any thoughts to how you plan to handle that?

Yes. Rory, thanks a lot for the questions. Let me assign that -- I mean, Georg, of course, will talk about the EUR 370 million, also maybe about the KPIs and the incentives going forward. My take on that one, it's early days, and we will prepare now the reporting to the external world as we move forward into 2021. And so -- then we will define, and we'll give you a transparency on that one. And on the site closures, I'll let Ari take it over, if the -- we have France online again. So maybe the first one is Georg. You should talk about the CapEx versus restructuring, and then Ari should continue with the site consolidation question.

Thank you. We are setting up the reporting, and when it comes to the question, can we report organic growth rates going forward? It's a little bit of challenge we also have today that on an organic basis, you basically don't get audited figures, which makes it very difficult to include some in published report. Having said that, I mean, already today, we tried to help you guys along in understanding the organic development of the business by, for example, using our quarterly call presentations and including organic growth figure there for EBITDA. We haven't structured each and every detail from here going forward. But I would say, you can expect a similar approach that we will, for sure, help you along also to understand the organic growth profile of the business. The EUR 370 million is about 2/3 expenses and 1/3 of these EUR 370 million is net CapEx. So mid-term net CapEx already implying that this is a net of some site disposals. Not too significant, but some are in there, and I'll hand it over to Ari to give you a little bit of color and an understanding how relevant these are.

Yes. Thank you for the question. I hope we will not be disconnected here. I apologize for this technical issue. So your question about the site, you said -- not -- there's a lot of sites today. Yes, we were talking about 100 to be closed. Roughly, we can consider half of them is third-party. We operate or it's completely operated by third-party services. And obviously, the Brenntag is small size, and some of them, they are really old, and it -- we need a lot of investment to maintain them. So that's kind of the site and very small process that we have in place that we want to manage that during the next 3, 4 years that we mentioned. Your question about the mega site, how we will consolidate our business together on the mega site? And is there any risk of losing the market share or losing the business because of this mega site or distance? Let me just assure something. This analysis was wonderful. We never made it. We have a 6 billion data points that we collected everything. There is a different model was built it and the locations, particularly, we made a different scenario when it's coming by region, when it's coming within the regions or between the few countries, and the Board are always accessible to build this kind of operation. So our plan is very well structured to do that, but you will be surprised, we are not going to be far from our customers. The way that we did it, we will be even much closer to our customer. Also, we will reduce the distance to our customers. That was what I was trying to illustrate that. Of course, the mega site, it's one of the big operation that we will have, but the focus on the 100 that we were referring is really optimizing our network today and getting the much more modern structure that we want to have, automate that everything, having the digital clouds within our structure that we can use that and get rid of the -- everything which was roughly old. We have a few examples. Then within the countries, within the same region, we have 2, 3 sites, very close to each other with a different size, small, very small and medium size is the heritage that we have from the acquisition. We will combine, it will be the same region with the new one operating in much more efficient way, and that's the objective that we have today on those site closing. I think what Georg mentioned also concerning the CapEx and the spends, of course, we have some CapEx allocated to the mega site. And those CapEx, of course, it's a way we're talking about a net, we will sell what we have, the sites we will close. It will contribute a little bit to bring it our net CapEx, which was mentioned, too, by Georg. Hope I answered your question.

And we'll come to the next question, which is from Markus Mayer of Baader-Helvea.

Only one question remains. Basically, ESG is becoming more and more important to -- not only for investors but also for corporates. And we have also, in particular, S and G parts in your new strategy on Project Brenntag. But what is the ambition on the E part? Do you also have ambitions to reduce the CO2 footprint of Brenntag or a more sustainable value chains? Yes, that would be my remaining question.

Markus, thanks for the question. You know that the topic is dear to my heart, and it's very clear that Brenntag is already on a good path on that sector. We need to strengthen that efforts. We need to be much clearer also how we communicate about our sustainability targets moving forward. So you will see that evolving, in particular, now with the new operating model and what does it mean for Brenntag. We mentioned briefly that also the site network optimization is paying into our sustainability efforts. So we are about now to quantify this as well. We have some numbers available, but before we share that, we want to make sure that we have the quantifiable targets there. But it is also, of course, as we come closer to our customers, we reduce actually the travel distance for our products for delivery to our customers on average that this has also an impact on the CO2 footprint, which we will then quantify as we move forward.

And the next one is from Simona Sarli of Bank of America.

Just one follow-up question from my side. So you are showing the current conversion ratios for essentials and specialty. And I was wondering if you could say what is your medium-term target for both divisions? And also, how do you expect the current 60% to 40% mix to evolve in the medium term, both as a result of organic and M&A-driven growth?

So I would give the first question to Georg about the conversion ratio and medium-term targets, and I can maybe share some thoughts on the 60-40 split you were requesting. So maybe, Georg, you start with the first one.

Simona, thank you. We don't run this on a very specific conversion ratio target, but nevertheless, an improvement in conversion ratio is obviously a consequence of returning the company to organic earnings growth and from all the specific measures and initiatives we have within Project Brenntag. The way I would suggest to approach it is, out of the EUR 220 million EBITDA uplift, EUR 180 million actually relate to cost measures. So if you take out EUR 180 million of the cost base and then do some modest -- moderate progression of conversion ratio from returning the company to organic earnings growth, and you get there. I beg your pardon that we don't run this against the conversion ratio target. We do run this against a return to organic growth and an EBITDA uplift target.

And Simona, concerning your question on the 60%, 40%. First of all, we are very happy with the 60-40 split, to be very honest, given even the real, real clear definition of what we consider as specialties versus essentials. So I think this is probably one of the most stringent definitions you can come up with. So we are not counting anything into specialties. We are not clearly convinced that it is really indeed a specialty sales. So we were very pleased when we made the analysis of our portfolio, and then we assigned the product baskets accordingly to come up with this 60%, 40% split. Is specialties better than essentials? No. I think both divisions will contribute to the success of Brenntag overall, both in the different ways. Specialties, of course, focusing on regulated markets, focusing on growth, focusing on a more technical sale and also on higher conversion margins. But also taking essentials, we are here having a massive, massive player in that field with a very, very strong position and a very unique asset base globally, and we only need to steer them in a different way than specialties. There will be cost to serve. There will be efficiency. There will be a constant drive for getting better and more efficient as we move forward. So if you ask me, as the CEO, I'm very, very happy with those 2 divisions, and today would not be the day and not be the time to say that this ratio should change and should move as we move forward. I'm very happy with having the 2 champions under one roof.

[Operator Instructions] And the next question we received is from [indiscernible] of HSBC.

I have one. From the calculations, we can understand that the gross margin for specialty business comes to around 21 percentage. While bulk, it's around 24 percentage. Can you just explain why the margins are lower for the bulk business?

Yes. Thanks for the question. I will hand this over to Georg to give you a little bit more explanation behind how that looks like? And what is behind the gross profit margins. So Georg, maybe you share a few thoughts.

And what you observed is not unusual in distribution business. Keep in mind that the average selling price, the average value of the product in essentials is clearly lower than in the specialty business, but the core of the services are pretty similar. So warehousing, repackaging, transporting the product are as a core of the service, pretty similar, notwithstanding that the specialty business requires some more technical expertise and advice. On the other hand, as the selling price for specialty is much higher than the selling price for an essential, even at a somewhat similar or lower percentage margin, the actual absolute value contribution, the gross profit per unit in the specialty business is clearly higher than in the essential business and that supports actually the higher conversion ratio in the specialty business that we have shown you in comparison to the essential business. So long story, but the observation you have is very similar to what you will spot in other distributors.

And the last question for today is from Chetan Udeshi of JPMorgan.

Yes, it's actually Chetan from JPMorgan. Just a few questions from my side. I think there was a question previously on whether EUR 220 million EBITDA contribution, is that a net number? Can you confirm that is a net number? And it's -- we shouldn't include any inflation on cost base or reinvestment to consider within that EUR 220 million? That's the first question. Second question was, just historically, the problem with Brenntag has been just that the operating expenses have grown consistently faster than the gross profit growth on an organic basis. How are you addressing that sort of specific issue we've had in the past? So can you maybe lay out a few specific examples, which have been undertaken to make sure that doesn't happen in the future? And last question was, can you give us some flavor on what has been the historical growth rate of specialties and essentials, either on gross profit or on EBITDA line? And I'm not necessarily asking this 2019, but maybe like 3-, 4-year perspective would be useful.

So Chetan, thank you very much for the question. I will refer question number one, about the EUR 220 million net, not net, to Georg. I will also refer to him the question about the growth rate of specialties in the past -- over the last 3 years. On the second question on the operating expenses, we have a very clear understanding why we are now drawing up our financial framework and our plan for the different divisions that the operating expenses need to be underproportionate to what the profits are created, and here, it's absolutely clear that when I'm talking about functional excellence moving forward. This is a program Brenntag needs to start, needs to be clear that we have efforts in place, which constantly take out cost out of the system. So the Project Brenntag initiative and the Project Brenntag transformation is actually the first step to get a couple of things straightened out and building on the strong foundation we have and preparing ourselves for the organic earnings growth moving forward. But it's also clear that functional excellence needs to be implemented in a broad sense so that the organization constantly is taking cost out of the enterprise, and that is a very concrete way forward. I have a lot of experience in doing that in the past. So we will be making sure that the operating expenses are not overproportionately growing as we also recognized as a weakness of Brenntag over the last couple of years. So I'll hand over now to Georg to ask -- to answer the 2 other questions you had.

Yes. If I look into the recent 3 to 5 years and come up with the historic organic growth rate on gross profit for essentials and specialties, then the historic specialty organic gross profit growth rate has been clearly ahead of 4%, well higher than 4%. The essentials growth rate has been much lower. The essentials growth rate has been, give or take, half of it, if not a little less. So it is actually in terms of differential, what you would expect. You asked for confirmation on net or gross, the EUR 220 million EBITDA uplift is a net number.

And maybe if I can squeeze last one. You recently announced a collaboration with CheMondis on selling some products on that platform. Strategically, can you help us understand why would you do that given that you have your own Brenntag Connect platform as well? So what is the upside for Brenntag from selling on CheMondis?

Yes. Chetan, as I have said before -- it is the world also for us, when we look on the digital distribution arm or the channel we are using as Brenntag is a constantly emerging and changing environment, and we need to not only have our own efforts in place, but we also need to look for alternative ways of how we can create business for Brenntag and learning what could, for instance, a digital marketplace, which is, in a much broader sense, organized and set up, what can it give to Brenntag. If you want to call it, this is a first step into exploring this. So it's an exploratory move, which we are undertaking, and we will review and see how that emerges and how that develops. But I want to make sure that we -- when we look on the digital environment and how it is evolving that we actually have all the potential options in our view and in our considerations. And then trying it out and see what can it bring to Brenntag. So this is our first step where we try this and explore this because we have to. This is something a company of our size and of our meaning in the industry needs to explore as well. Okay. Ladies and gentlemen, that was the last question. Thank you very much. We have now reached the end of our capital market update 2020. So today, it was really the exciting opportunity for my Board colleagues and me to share with you our transformation story of Brenntag to achieve our joint vision, and this is to become the true market leader in chemical distribution. So thanks a lot for your attention and for your valuable time, and I'll see you soon, again. And please stay safe and healthy. Thank you very much.