IMCD N.V. (IMCD) Earnings Call Transcript & Summary

Hello, and welcome to IMCD's 2026 Half Year Results Conference Call hosted by Marcus Jordan, CEO, and Hans Kooijmans, CFO. [Operator Instructions] I would now like to give the floor to Marcus Jordan. Mr. Jordan, please go ahead.

Thank you very much, Elba. Good morning to you all, and a warm welcome. I'm Marcus Jordan, and I'm here today with our CFO, Hans Kooijmans, for the 2026 half year results, which we published in a press release earlier this morning. We had a positive first half of the year with both gross profit and EBITA organic growth and a strong cash conversion. When looking at the overall business during the first half of the year, I'm proud of how our teams navigated the dynamic environment, which included the majority of our suppliers implementing price increases. The magnitude of these price increases varied significantly with the larger specialty part of the portfolio generally receiving much lower percentage increases and showing less volatility than our smaller semi-specialty component. We, as IMCD, have been particularly careful and responsible when passing on price increases as we maintain our focus on long-term partnerships with our customers and suppliers. If we now move on to the business from a demand perspective. As Hans and I highlighted on our last call, we did not see any significant prebuying in Q1, but we did see some at the beginning of the second quarter, although I must say that the amount appears to have been relatively limited as we believe customers learned valuable lessons from post-COVID when they overstocked and ended up with high-priced inventory. Later in the quarter, demand was more stable, and we have not to date seen any significant reduction. Looking across our various markets, our Pharmaceutical and Signet business in India, as we anticipated, has returned back to its normal order pattern during the first half of the year. Food and Nutrition continues to perform well. And in Beauty & Personal Care, we generally see stable demand versus last year. This is an area that we continue to focus on as there are good opportunities with the technical capabilities and lab infrastructure we have. On the industrial side, the best way to describe our business in the first half of the year is positive with some nice bright pockets in areas such as medical plastics, wire and cable and the lubricant market. This business was also supported by some nice supplier wins. Looking a bit forward, it is still early in the third quarter, but I can say that we have had a promising start in what are still dynamic market conditions. And as always, we have confidence in our specialty focused and diverse business model. Moving on to the 2026 half year numbers. You will find a summary of our financial results on Slide 4, where we reported gross profit of EUR 658 million, up 7% on a constant currency basis. EBITA was up to EUR 285 million, which is plus 8% on a constant currency basis. And I'm happy to report that we increased our free cash flow to EUR 222 million, leading to a cash conversion margin of 76.2%, which illustrates our close attention to working capital management and at the same time, ensuring that we have the right inventory in place to service our customers on a just-in-time basis. If we now look at M&A, you can see on Slide 5 that we have made 3 acquisitions during the first half of the year. Firstly, Dong Yang FT in South Korea, a company active in Beauty and Personal Care. The second acquisition was Willows Ingredients in the U.K. and Ireland, a company active in human and animal nutrition. And the third acquisition we announced at the end of June is Merit Solutions, which will strengthen our position as a solution provider for the plastics and compounding market in Thailand. Moving on to the next slide for some updates on our strategic pillars, where you will see that we continue to expand the use of AI to support our commercial organization through a number of initiatives, including further development of our sales assistant tool and more recently, a fully automated pre-visit summary for our salespeople, which summarizes all major topics that they should cover when visiting or calling their customer. On the people pillar, with people being our greatest asset, we are pleased to add a Global People Director to IMCD's Executive Committee, and we look forward to working closely together to continue to further enhance our ability to attract, develop and internally promote top talent within our organization. You will have seen some examples of this at Managing Director level during the first half of this year. And last year, we announced our commitment to setting SBTi near-term targets, and we will shortly submit our targets for validation. To summarize and to end my part of the introduction, I believe we have executed well in the first half of the year, and I see good traction on the commercial, operational and digital excellence initiatives we have been focused on, including supplier development and expansion. In these unpredictable times, it is even more important that we have the highest level of sales activity that we quickly adapt to changing market conditions and that we remain a reliable partner for both customers and suppliers. We focus on the things that we can control and are committed to delivering long-term growth for our partners and stakeholders in the years ahead. I would now like to hand over to our CFO, Hans Kooijmans, who will give you an update on the numbers.

Thanks for the introduction, Marcus, and good morning, ladies and gentlemen. And I would like to start as usual on Page 8 of the presentation, where you will find a summary of the key figures taken from the press release with our 2026 first half year results. And as you can see, ForEx adjusted revenue increased 11%, which is a combination of 3% organic growth and 7% resulting from the impact of the first-time inclusion of acquisitions. And ForEx adjusted gross profit increase was 7% compared to the same period of last year, a combination of 5% resulting from acquisitions and 2% organic. We started the year, as you know, with a minus 4% organic growth in the first quarter, followed by a positive 7% organic growth in the second quarter. And in this second quarter, all regions reported organic gross profit growth. Gross profit in percentage of revenue was 24.9%, which is about 0.7 percent points lower than last year. It's important to mention that more than half of this decrease in percentage was the result of recently acquired companies, mainly in EMEA with on average, lower gross profit margins than the legacy IMCD business. We further had the usual impact of changes in product mix, local market circumstances, price and currency fluctuations. Then ForEx adjusted operating EBITA increased 8%, and this increase was a combination of modest organic growth and a positive contribution of acquisitions of 7%. Like gross profit, we started the year with minus 9% organic growth in the first quarter, followed by a positive 11% organic growth in the second quarter. And in this second quarter, all regions reported organic EBITDA growth. As explained to you in our Q1 call, we had quite some currency headwind in the first half of the year, both operational and when translating local currencies into the euro. The minus 4% currency translation impact on EBITDA in the first half of the year was in absolute numbers, a minus EUR 12 million. Operating EBITA in percentage of revenue of 10.8% and a conversion margin of 43.3% were both just slightly lower than the same period of last year. On the bottom of this slide, you see that IMCD has about 5,200 full-time employees. Compared to the end of June last year, we welcomed about 150 new colleagues as a result of acquisitions. We further invested in the quality of our sales and digital teams, and we rationalized the back office where needed to the back office structure and that leaded to a net saving of about 200 employees. We exercised prudence in filling vacancies and maintained strict cost control, resulting in no organic increase in our own cost compared to last year. Then ForEx adjusted net result and earnings per share all increased with double-digit percentages, and Marcus already referred to the healthy cash flow, and I will come back on cash flow later in the presentation. Page 9, a bit more color on the year-on-year development of gross profit, EBITA and conversion margin per operating segment, whereby the differences, as you see, are split in organic acquisition and currency impact. In EMEA, in the first column was by far the best performing segment in the first half year. The organic gross profit growth in the first quarter was flat, followed by 11% growth in the second quarter, resulting in the reported 5%. The drop in gross profit margin in this segment from 27.5% to 26.7% this year was pure M&A related. When normalizing for the impact of recent acquisitions, the average gross profit margin would have been slightly higher than last year. Similar pattern for organic EBITA growth in EMEA. A minus 4% in Q1 was followed by a very strong 20% organic growth in the second quarter, resulting in 7% organic growth in the first 6 months. The EBITA margin was stable at 11.7% and conversion margin slightly improved to 43.6% -- in the Americas, we had, as you might remember, a soft start of the year with substantial negative organic gross profit and EBITA growth in the first quarter. Although still modest, we are happy to see that the second quarter improved, but we reported low single-digit organic gross profit and EBITA growth. The organic growth in the second quarter was not enough to compensate the decrease in Q1, resulting in negative organic growth in the first half of this year and a decrease of EBITA and conversion margin. In Asia-Pacific, after a low single-digit organic decrease in gross profit and EBITA in Q1, we saw a much healthier second quarter with positive mid-single-digit organic growth. Operating EBITA and conversion margin were more or less similar as last year and still the best-performing segment in the group. Holding costs in the last column were lower than last year at 0.6% of revenue compared to 0.7% last year. This decrease is partly due to lower cost and partly the result of a higher cost recharge to the operating segments. Then on Page 10, a summary of the P&L lines between operating EBITA and net results for the period. You can see net result is EUR 12 million or 10% higher compared with the same period of last year. Higher income tax expenses were compensated by lower finance costs. Amortization of intangible assets increased as a result of acquisitions done and these are, as you know, noncash costs related to the amortization of supplier relations, distribution rights and other intangibles. Then the one-off costs are EUR 6 million lower than last year. And on this line, we reported a gain of EUR 4 million on the sale of a warehouse as a profit and slightly lower costs related to acquisitions and one-off adjustments to the organization. On Page 11, a specification of the net finance cost. And as you can see, lower changes in deferred considerations as a negative and lower currency exchange results as a positive are the main drivers of the reported decrease. Currency exchange results are, as you know, realized and unrealized result of translating the monetary assets that we have in foreign currencies into local currencies. Then the IFRS hyperinflation adjustment relates to IMCD Turkey. Page 12, summary of the IMCD balance sheet. And on most lines, little changes compared to the year-end 2025 numbers. Property, plant and equipment, so the real fixed assets that we own are still relatively low as a result of the asset-light business model. The combination of intangible assets and related deferred tax liabilities of about EUR 2.5 billion in total are a result of acquisitions done since July 2014 and our history as a private equity-owned company. On the financing side, there is EUR 1.6 billion of debt, and I will come back on that in a minute and EUR 2.1 billion of equity. This substantial equity position covers 58% of our capital employed. Page 13, a summary of reported working capital. Total working capital at the end of June was just over EUR 1 billion, which is about 10% more than December 2025 and EUR 66 million more than June last year. And the overall increase that is a combination of the impact of working capital as a result of acquisitions done. We had some currency impact and some operational developments. The increase compared to December is the usual cycle during the year and mainly the result of higher debtor positions as a result of higher sales in the month of June compared to the month of December. When translating the amount of working capital in days of revenue, we reported 70 days end of June this year compared to the 69 days end of June 2025. And on the bottom of this slide, you could see the development of the days for the 3 most important working capital components. And -- the increased debtor days from 60 last year to 68 this year is mainly driven by much higher sales in the second quarter this year compared to last year. Last year, June, I explained to you that 54 days of stock was relatively high. You might remember at that time, I spoke about external and internal factors having a negative impact. And we discussed last year items like the Red Sea issue, customers postponing delivery dates due to changing market conditions like tariffs and corrective measures that we took to bring down stock levels in various segments. This year, the relatively high stock days number is more positive. As Marcus mentioned, we had a promising start of Q3, whereby current stock levels are needed to cover demand of our customers. On the next slide, a summary of our net debt position, leverage ratios and the maturity profile of our debt. Net debt in the first 6 months was more or less stable at EUR 1.6 billion. And in the first 6 months, we spent about EUR 50 million on acquisitions. We paid a dividend of EUR 107 million and generated healthy cash flow. The leverage ratio end of June based on IFRS and our loan documentation was 2.8x EBITDA. This level was well below the maximum set in our loan documentation. And as you know, we are historically more cash generative in the second half of the year. So dependent upon our acquisition activity, I expect our leverage to come down. On the right side of this slide, you will find our debt maturity profile. I would like to finish this short summary with a cash flow overview on Page 15. Free cash flow was EUR 222 million, an increase of EUR 49 million compared to the same period of last year. The main driver of this increase are higher operating EBITDA combined with lower working capital investments. CapEx of approximately EUR 3 million were lower than last year's spending and primarily directed towards IT investments, a bit of office improvements and lab equipment. Then last but not least, on Page 17, you will find the outlook for this year. I assume everybody has already read the text in our press release, and therefore, I won't repeat it allowed. And I would like to hand over back to Elba, the operator, to open the lines for Q&A.

[Operator Instructions] The first question comes from Suhasini Varanasi from Goldman Sachs.

A couple from me, please. On 2Q, a very healthy improvement. Is it possible to give some color on pricing versus volume trends? Would you say that most of the growth was pricing led? Or did you also see volume improvement? And within this, you had indicated some pre-buy at the beginning of the quarter. Is it possible to quantify that? Is it something that benefited maybe EMEA growth in particular? And then the last one, please. You've indicated a promising start to 3Q. would you say the trends are probably broadly similar to the second quarter at the beginning of 3Q or any variances by region?

Thank you for the questions. If we look at the second quarter and the pricing versus the volume impact, I think there's a variety of different components that really drove the organic growth that you saw in the second quarter. There were definitely some tailwinds from pricing. But as I mentioned in my previous commentary, I would say the bigger impact on pricing with the greater percentages was very much focused on the smaller, let's say, semi-specialty, semi-commodity component of the portfolio. On our larger specialty component, the percentages were much, much less single-digit percentages. So whilst there was an impact there, it was just one component. The volume side, I think it's fair to say that we did gain some market share on the more semi-specialty semi-commodity part, where availability from Asia-Pacific in some of the more remote locations, I would say, became less. But 2 other, I would say, just as important components was, firstly, I feel that our teams are executing particularly well. And also, I feel that we've got very good levels of commercial activity. As Hans -- and I mentioned on, I think, the last couple of calls, we've quite significantly strengthened the commercial teams during Q4 last year and the beginning of this year. And we're very pleased, I would say, with the increased level of commercial activity that we see. And then linking to that, as I also mentioned in the commentary, some nice supplier wins, which have begun to come through.

on the promising side, Marcus?

Yes. The promising side. Yes, for Q3. I think that's as much as we can say at this stage. I mean, we're still in very dynamic market conditions. We're very focused on the things that we can control. Let's wait and see how the quarter develops. But as I said, we've had a promising start.

Sorry, just rephrase that EMEA a bit alone because the strength in EMEA was exceptionally strong compared to other regions. Would you say that, that's an underlying strength? Or is it more one-off in nature linked to the geopolitical conflict? I think it's something that would help us understand how trends should evolve in the second half of the year.

Yes. I think it's fair to say that EMEA is the more stable market that we see. You could also read into a bit the supplier win component that I mentioned where I would say, for the 3 regions, that's probably the greatest impact there. Also, if we look from the other side, if you look at the North America, I think that, that is also a market that's been more insulated and isolated from things like the price increases. So you've also got a variance there where you see a little bit more, I would say, tailwind from pricing in EMEA and less from a North America perspective.

The following question comes from Anil Shenoy from Barclays.

Just 2, please. The first one is on your cost development. Now Q2 -- I mean, this quarter was the first time after 4 quarters that we've seen positive operating leverage. That is EBITA organic growth exceeding gross profit organic growth. Now you had said in your 2Q '25 call that you had built up some costs in the system because you were anticipating like 4% to 5% kind of gross profit growth, which did not materialize. And that is why we have been seeing the negative leverage for the last 4 quarters. So I'm just trying to understand, has the business now reached a scale where these prior cost investments are now completely leveraged? And can we expect this positive operating leverage to continue into H2? So that's my first question. And the second question is on Americas. In your Q1 call, you highlighted that there was a substantial organic decline in Americas due to a volatile business mix. Given that now we've reported 2% organic growth in both gross profit and EBITA, maybe you could provide some color on the -- on whether the American business has stabilized? And what is the outlook for this -- for Americas for the rest of the year, please?

Yes. Perhaps I should answer the cost question.

Yes, that's the go, yes.

What we report in our year-to-date figures is that the cost structure is more or less flat compared to last year. What we did is, on the one hand, we strengthened the sales organization, as what Marcus mentioned, because it's very important to be active, active in the field and have the right people on the road to further develop businesses and also to deal with the new suppliers that we onboarded. At the same time, over the years, we developed a lot of digital tools to support the salespeople. And that also means that we can make our back-office infrastructure much more efficient. And that net-net, resulted in a slightly lower number of people, but also a change in the mix of people. At the same time, I hope to report at year-end a little bit of a cost increase because we had to pay higher bonuses because people reach the targets. You might remember that over the last 2 years, we had difficulties with the results that also resulted in savings on the bonus side. And I hope to report at year-end to say, unfortunately, my costs increased a bit, but it has to do with the fact that we had a fantastic year and paid a bit more bonuses. But so far, we have a structure that can cope with more sales than what we have today, thanks to all the digital developments and thanks to the additional salespeople that we got on board in the first 6 months.

Great. Thank you, Hans. And if we move on to the question for the Americas, I think, just as a reminder, we, of course, had a very tough comp for Q1, where Q1 2025, we showed organic growth of 21%. As I mentioned before, if we look at the U.S., the North America dynamics are a little bit different to what we saw elsewhere in the second quarter, where, let's say, the pricing impact was somewhat delayed and muted. So we saw relative to the other regions, I think, a little less prebuying although -- and as you know, also, and we've mentioned before, in the U.S., particularly, we've got a larger industrial component, particularly on the coatings and construction side, and we still see quite a weak market within the U.S. on that space. As you say, we have seen a better Q2 performance, but we're still not at the level that we want to be. And we have recently strengthened quite a lot of the management team within the region to ensure basically that we fully capture the opportunities that are definitely available to us. So we see a lot of opportunity still for the region. Again, we're focused on the things that we can control. And I feel that we're on a better track to deliver the kind of growth numbers that we expect going forward.

The following question comes from Annelies Vermeulen from Morgan Stanley.

I have 2 questions, please. So firstly, you commented in one of the previous answers, I think that you saw some less availability in Asia-Pacific and saw some market share gains, particularly, I think on the semi-specialty side, you said as a result of that. So could you expand on that a little bit in terms of are you seeing supply issues anywhere else? Any sort of constraints in supply from the Middle East and how that has driven any market share gains anywhere else in the portfolio and how that's developing so far in Q3? And then secondly, just on the balance sheet, I think previously, you said you'd expect to see a working capital improvement through the year. But given the improvement in growth that we've seen and assuming that continues and the inventory that you need to cover the demand, how would you expect working capital to develop through the second half now?

Annelies, on the availability side, in general, I would say we haven't suffered tremendously from availability issues so far. It's fair to say that we have seen pockets though. And it's really -- I would say that it's quite widespread. So it's not that I would say that it's one region or another that we've been particularly impacted. But again, I would say that the impact is not so material in the second quarter, but with some pockets. And Hans, on the working capital?

Yes. On the balance sheet and working capital, Annelies, what basically, I don't expect big changes in the number of days is what I would call for the different components. So it will hover a bit what will happen with the revenue. So if the revenue goes up, my debt position goes up. And during the year, we have the typical cycle that Q2, Q3 are always the highest points in the cycle because we have the biggest revenues always in Q2 and Q3. And towards year-end, we typically see a drop in the working capital amount. And I don't expect that, that trend will change during this year. But I hope to come back to you that we invested a lot of debtors because of high sales. It's a bit similar to the bonus thing. That is the result of additional activities. And I'm happy to report that to you if that happens.

Just a follow up on the last part. Marcus, you said you're not seeing it -- it's not been material in the second quarter, that availability piece. But do you see anything changing through Q3, perhaps as later impacts from some of the issues in the Middle East start to come through on the supplier side? Or at the moment, is it stable?

At the moment, I would say that it's stable. So coming into the third quarter, no difference really than we saw in Q2. Of course, as I mentioned before, it's dynamic market conditions. So let's wait and see what happens. But yes, I would say it's stable so far.

The following question comes from David Kerstens from Jefferies.

Two questions from my side, please. First of all, on the pricing tailwinds that you highlighted, would you say those were strongest in the second quarter? Or will you see a continuing impact in the second half of the year and will inflation remain elevated for longer? I think, Marcus, you indicated the delayed impact from that inflation in the Americas. And also on the inflation, the impact was largest on the semi-commodity side. Besides the higher prices, is that also a reflection of easing competition from Chinese suppliers in markets such as Brazil and Southeast Asia? Then the second question is on the M&A. You highlighted 3 acquisitions. I think you spent EUR 50 million. That seems the lowest level since 2020. How do you see the market for M&A at the current moment?

David, the pricing tailwinds, I mean, yes, we -- I would say that we saw during Q2, the number of increases, I would say, was particularly high at the beginning of the quarter. And then I would say, somewhat eased. I would say that it's still a dynamic price market at the moment, very much related to what's happening within the conflict. But I think it's fair to say that generally, it's become a bit quieter as we kind of progress through the latter part of Q2. Easing competition from China, I think it's fair to say that in some of the more remote countries like Brazil, it's fair to say that during the second quarter, we did see less competition on the semi-specialty semi-commodity side. But also maybe in the latter part of the quarter, maybe some of that Chinese competition was more focused also into the Asia-Pacific market. So again, it's quite dynamic on that side. And again, it's really a case of the commercial teams being very focused and adjusting as fast as they can and they need to. On the M&A side, I'm very pleased with the 3 very important acquisitions that we made in the first half of the year, albeit they are quite small. As you know, we don't set a target in terms of either the value or the amount that we spend on acquisitions or the number. I feel that, that's incredibly important because we need to remain, as we've always been very laser-focused on only acquiring those companies that are a good strategic fit that we have confidence that will accelerate our organic growth. We still have a healthy pipeline. But it is fair to say that the discussions on the acquisition side are taking longer during these dynamic market conditions. We are definitely not being impatient, and it's a case of us also gaining confidence that we're paying the right price for the acquisition.

The following question comes from David Symonds from BNP Paribas.

A couple of questions from me, please. Firstly, can I ask on Signet, how that progressed in the second quarter? I remember you said there were some green shoots there. I know the comps get easier for Signet in the second half of the year, but I'm just curious as to whether we are flat year-on-year in Q2, down, up or how that business is trending in general? And then secondly, you mentioned obviously that the pricing was concentrated in the semi-specialty part of the business. So just to understand from a different lens, the dynamics in the second quarter, were the specialty earnings higher year-on-year, do you think? Or was it just a semi-specialty contribution?