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

Hello. Welcome to IMCD's 2026 First 9 Months 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, Alba. 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 first 9 months results, which we published in a press release earlier this morning. Before we move on to discuss the results, I would like to take this opportunity to note that this is a very special call as not only is this the last earnings call with Hans, who will retire at the end of this year, but it is also Hans' 50th earnings call. I think we all agree this is quite a remarkable milestone. As announced in December last year, Hans will be succeeded by Floris Lagerwerf, and I would like to take this opportunity to thank Hans very much for the smooth transition this year, and I'm looking forward to working even more closely together with Floris going forward. Now moving on to the first 9 months results, we have had a good year so far with both gross profit and EBITA organic growth and a strong cash conversion. When looking at the overall business, I'm proud of how our teams have navigated through the dynamic environment and focused on the commercial and operational topics, which we can control with the primary aim of getting even closer to our customers and suppliers. It is clear that our partners need us now more than ever, and we need this from a customer perspective in, for example, the amount of formulatory projects we see going through our technical centers or laboratories, and the resulting opportunity pipeline that is developed and converted. Customers also continue to order just-in-time, and it is our job to ensure that we have the right inventory in place to fulfill these requirements. On the supplier side, we continue to focus on delivering what we promised in terms of business simplification, market intelligence, formulatory expertise and growth. As I mentioned on our last call, we also have a healthy pipeline of new supplier projects and some nice wins coming to fruition. Regarding our suppliers, as we also spoke about on the last call, we saw in the second quarter of this year, 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 components. In the third quarter, whilst there was still some price movement, it has generally been much more stable with, I would say, more normal pricing behavior. This more stable message is also applicable from a demand perspective, and we haven't seen any real difference in terms of ordering frequency. When looking across our various markets, our Pharmaceutical, and Food & Nutrition segments continue to show resilience and are performing well. In Beauty & Personal Care, we generally see stable to increasing 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. This market also has some nice positive trends like K-Beauty in Korea, an area in which we did 2 acquisitions recently being YCAM, which we closed last year, and Dang Yong FT, which we closed in January this year. On the industrial side, the best way to describe our business in the first 9 months is positive with some bright pockets in areas such as medical plastics, lubricants and wire and cable for data centers. Moving on to the 2026 first 9 months numbers. You will find a summary of our financial results on Slide 4, where we reported gross profit of EUR 991 million, up 9% on a constant currency basis. EBITA was up to EUR 425 million, which is plus 11% on a constant currency basis. And our free cash flow stood at EUR 317 million, leading to a cash conversion margin of 73%, which illustrates our close attention to working capital management and at the same time, as I mentioned earlier, ensuring that we have the right inventory in place to service our customers. 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 will continue to 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. Looking forward, it is still early in the fourth quarter, but I can say that we have had a promising start to the quarter. And as you can read in the outlook we have published this morning in our press release, we expect organic operating EBITA growth this year. To summarize and to end my part of the introduction, I believe we have executed well in the first 9 months of the year, and I see good traction on the commercial, operational and digital excellence initiatives we have been focused on, including continued supply development and expansion. I would now like to hand over to our CFO, Hans Kooijmans, who will give you an update on the numbers.

Thanks for your kind word, Marcus, and good morning, ladies and gentlemen. And you are right. This is indeed my 50th analyst call. And together with many other investor meetings and discussions I've had over the years, it has been a real, real pleasure to keep you updated on the developments of IMCD. And I'm particularly pleased that the tone of this call as well as that of our other more recent calls is considerably more positive than it was about 1.5 years ago. And this change in tone is not just a matter of sentiment as it's clearly reflected in the figures presented on Page 6 of today's analyst call presentation. Taken together, these developments show a clear and also a positive trend, underscoring the resilience of IMCD's business model and confirming that we are moving in the right direction to once again have a strong foundation for sustainable organic growth in the years ahead. And as you can see on Page 6, the ForEx adjusted revenue and gross profit both increased with respectively, 10% and 9%, compared to last year. And this 9% organic gross profit growth, that was a combination of 4% organic and 5% the positive impact of the first-time inclusion of acquisitions. These recently acquired companies had on average a slightly lower gross profit margin than those of IMCD. And as a consequence, the average gross profit margin of the total group slightly dropped to 25%. But if you would normalize for the impact of these recent acquisitions, the gross profit percentage in 2026 would have been slightly higher than the 25.2% in the first 9 months of last year. If you look at the organic gross profit growth development in the first 3 quarters, you might remember that IMCD reported a minus 4% organic in Q1, then a plus 7% in Q2 and in this quarter, a plus 10% organic growth. And all in all, a positive trend through the year. And this organic gross profit growth, combined with the strict cost control, resulted in a similar type of outcome for operating EBITA. And the reported 11% ForEx adjusted increase to EUR 425 million was a result of 5% organic and 6% M&A-related growth. Organic EBITA growth in the third quarter was, as Marcus mentioned, 14%, whereby all segments reported organic EBITA growth. The year-to-date conversion margin slightly improved with 0.4 percent points to 42.9%, and we further report a very healthy free cash flow of EUR 317 million. And I will come back on the cash flow in a later slide. The net result and as a consequence, also the earnings per share that both increased with 20% ForEx adjusted. And the increase of cash earnings per share in absolute numbers of EUR 0.57 was slightly higher than the EUR 0.52 of earnings per share increase. All in all, solid growth numbers. Compared to September 2025, the number of full-time employees slightly decreased but you should take into account that in the year-to-date 2026 numbers that, that includes an additional 150 new employees as a result of the acquisitions that we did in the last 12 months. Then on the next page, Slide 7, you will find a summary of a few key figures split into the regional operating segments. You can see a very crowded slide with a lot of numbers. And I could imagine Floris and Tosca will change the format next year. Tosca is confirming for me that she will do. When looking at the different columns, it's clear that the result of EMEA and APAC are satisfactory, positive high single or even low double-digit organic growth on all lines, combined with high single-digit acquisition growth. And as a result of these healthy growth numbers, we were able to improve our EBITA margin and conversion ratio in both EMEA and APAC. The outcome in the Americas is disappointing, a very weak first quarter of 2026 with a minus 25% organic EBITA growth. You might remember that, that number could not be compensated with the 2 following quarters, whereby we reported modest organic gross profit and modest EBITA growth. This is definitely a segment which we are working hard on to improve. And in the column, holding companies, we report a slightly lower cost base compared to the same period of last year. Then on Page 8, a summary of IMCD's free cash flow. The absolute amount of free cash flow was EUR 33 million higher than last year, whereby the cash conversion ratio was 73%. And this is, to my opinion, an acceptable number for a third quarter with 6% organic top line growth. Higher operating EBITA was the main driver of the improvement. Working capital investment was more or less similar as last year whereby increased stock and debtor positions were the most important drivers of the investment. At the end of the quarter, we had a relatively high stock position to cater for the strong Q4 order book. The higher debtor positions were the result of strong sales in the quarter. We are confident that we will report at year-end a cash conversion ratio somewhere around the high 80% or a low 90% number. Then on Page 9, an update on net debt and leverage. Net debt at the end of September was close to EUR 1.5 billion, which is slightly lower than end of December. Reported leverage ratio, including the full year impact of acquisitions, as usual, was 2.6x EBITDA, which is similar to the leverage based on the definitions in our loan documentation. Then last but not least, on Page 10, you will find our outlook for 2026. And as Marcus already mentioned, you could read there that we expect organic operating EBITDA growth in this year. I would like to hand over to Alba, the operator, to open the lines for Q&A.

[Operator Instructions] The first question comes from Anil Shenoy from Barclays.

First of all, many congratulations to Hans on the 50th earnings call. It's been a pleasure to work with you, and I wish you all the best for your future endeavors.

Thank you.

Just two questions from me. Yes. So two questions from me. The first one is on sort of like your medium- to long-term outlook on organic growth. Where I'm coming from is that in the last 5 years, organic growth has been really extreme, very high in '21, '22 and then moderating in the next 3 years. And before that, gross profit organic growth was around the 6% level. So going forward, over the medium to long term, is there any reason to believe -- has there been any change in the last 5 years to think that this gross profit number of 6% cannot be achieved or can be achieved? This is especially in context of your competitor who recently came up with, sort of, like a midterm target of -- mid- to high single digits on gross profit and high single digit on EBITA. So very keen to hear your thoughts on the mid- to long-term sort of organic growth. And the second question is on the M&A pipeline. Your leverage has clearly declined to now 2.6x from 2.8x at the end of 2025. So that gives you a significant runway for acquisitions. So how should we think about your acquisition strategy for the next 12 months? Is there going to be an acceleration now the leverage ratio is pretty much well below your target of 3x. So basically, the acquisitions, how the acquisitions are going to be in 9 months compared to the last 12 months?

Anil, firstly, the first question with regards to the medium- to long-term organic growth. As you say, we've given guidance in the past of that number at around about 6% to 7% organic gross profit growth year-over-year. Of course, over a prolonged period, I think we're still very comfortable with stating that. If you look at the industry drivers, and we've spoken many times about things like consolidation, outsourcing, the rationalization by suppliers in terms of the number of distributors that they use. All of those, I would say, business fundamentals are very much intact. So we feel comfortable with the historical guidance that we've given. And of course, as the critical mass of the company grows and the business model basically benefits from scale. So we also have the ambition for the conversion margin to increase. On the mergers and acquisitions pipeline, we're very happy, I would say, to have the firepower that we now have with the ratio of the 2.6x. We've got, I would say, a healthy pipeline of projects. As I mentioned on the last call, some of those discussions are may be taking a bit longer than they would have done in the past. Super important for us, as we've always been to remain laser-focused on really only going after targets which we see a very good fit with, that we see as being able to accelerate the organic growth for the long-term future, not be in a rush to close deals. And yes, we're very optimistic, I would say, with the discussions that we have in place.

The follow-up question comes from Suhasini Varanasi from Goldman Sachs.

And I wish you all the best for the future, Hans. And just the trading, please. I just wanted to understand if you've seen growth in organic GP change materially over the course of the quarter or any changes that you saw in September, October? And how is the current state of the order book for the next 4 weeks, please? And secondly, on Americas, I just want to understand the growth momentum over there, please. It feels a little bit more lackluster compared to the other regions. Are there any difference in performance between the U.S. and LatAm, and any specific verticals that are dragging the business down there?

Suhasini, firstly, on the organic GP growth and the order pattern, I would say nothing material to really state in terms of changes throughout the quarter. I think that I've said as much as I would like to say in terms of the outlook where we've again had a promising start to the fourth quarter. On the Americas growth momentum, as Hans previously mentioned, this is an area that we've been very open that we need to improve. Also, as I mentioned on the last call, we have recently strengthened the management team that we've got in place in there. I must say, I'm extremely pleased with the changes which we've made, and we're cautiously optimistic for the future in the region. I think if you also look at the performance of the region and you go back over the years, this is a region that has historically performed extremely well. And in many years, actually outperformed both the EMEA and the APAC region. So there's also a little bit of a comp topic to keep in mind there. And we have also mentioned in the past that particularly from a North America perspective, we've got a bit more industrial exposure and things like coatings and construction, where we have, in general, seen a bit of a weaker demand for the reasons that we know and LatAm being a bit more volatile in general. But again, I think particularly with the changes that we've made recently, we have quite some optimism for the future there.

The next question comes from Annelies Vermeulen from Morgan Stanley.

Hans, I have two questions, please. So just firstly on pricing. When we spoke at the H1, you said pricing has been strong in Q2, but had eased through the quarter. And I think earlier, you also said you've seen more normal pricing behavior in Q3. So could you -- but clearly, we've also had a lot of volatility in oil prices and input costs and so on through the quarter. So could you comment on what you've seen for pricing through Q3 and in particular, whether you think there's scope for that to pick up again perhaps as we move into Q4 and into next year? And then secondly, just on customer behavior. Again, Marcus, I think in your opening comments, you said you haven't seen any change in order frequency. So can we infer from that, that we're still seeing, sort of, more frequent orders and that hasn't changed. But I think, again, given the hopefully improving backdrop, do you think that, that will shift into next year? Or do you think actually this is the new norm in terms of customer behavior?

Thank you, Annelies. On the pricing side, yes, it has really returned back to, I would say, more normal pricing behavior, where there's some suppliers that continue to push pricing up. But in general, it's been, I would say, much more stable. We don't yet know, of course, what the outlook is going forward. But as is normal in our business, there are some product lines which are under more pricing pressure than others. And it wouldn't surprise me with crude remaining at a relatively high price if suppliers do begin to also push some additional pricing through at the beginning of the new year. But let's wait and see. But yes, generally, I would say, more normal pricing behavior. On the customer behavior side, yes, I would say no real change from an order frequency or from a quantity perspective. As you know, we tend not to look at quantity too much being focused very much on the specialty side. What is clear, though, is that customers still require and request just-in-time deliveries. And I think that this may be for the longer-term future. I think that customers have also changed their behavior as they've come to rely upon us to be able to deliver that performance. And as a distributor, we actually like that because it is the job that we offer, and we see as part of their skill set.

Clear. And just as a follow-up to that, if -- as you say, more just-in-time deliveries and order frequency, does that have any sort of additional cost implications? Or actually, do you think the business is well set up for that now that you can manage that going forward?

It's very well set up because of the global ERP platform that we've got. We've got instant visibility in terms of what our costs are. And so if logistic costs do change or if a customer does require a smaller quantity, obviously, per kilo or per gram, the relative freight cost goes up, we immediately identify that and pass that through.

Very clear. Thank you, Marcus. And Hans, all the -- wish you all the best and thanks for the engagement.

Thank you.

The next question comes from Matthew Yates from Bank of America.

Sorry, it feels like it's been a long day already with so many results. Hans, again, I'll just echo statements of others. Thank you for your help over the years. A couple of questions, please. I'm sure you're aware that Azelis recently took a very large write-down as multiple deals they've done are not expected to meet their hurdle rates. I won't ask you to comment on other people's capital allocation. But from an IMCD perspective, can you just remind me the process internally you have for running impairment tests and whether there's any deals you've done in the past that perhaps need to have assumptions revisited? And going forward, are there any learnings to be made that may change the way that you screen targets or integrate them to ensure that the strategy does continue to accrue. I heard Marcus, his statement earlier about, sort of, the laser focus, but I'd just like to talk a little bit about the impairment process. And then the second question is, I guess, around headcount and costs, you suggested that the, sort of the, underlying headcount was down by about 150 this year. If you do believe we are now back to a sustainable kind of growth algorithm, how do we think about the cost and the headcount going forward? And maybe this touches on some of the digital initiatives you have. Do you still think there's opportunity there to drive more productivity that can help contribute to operating leverage in the future?

Marcus, I think, I should take the impairment one. Matthew, if you -- the process is pretty simple. If there is a triggering event, you need to take immediate action. And internally, we have a bit of a formal process that for sure, every quarter, and we have that discussion internally. And then once a year, we do a more formal process whereby we, on the one hand, ask the input for what are the parameters that you should use for impairment testing. And on the other hand, as base input, we use the estimate for this year, the budget for next year, the 2 planned years ahead and what we call the terminal growth rates. And we are in the middle of that process now based on preliminary results. I think it's fair to say that we don't expect any impairments there. I think if you look at our behavior over the years, when you look at the parameters that we use and the most important one are the pretax WACC, the terminal growth rates. I think we take a much more conservative approach there than most of our peers in the industry. And that also indicates that we are a bit more robust there. And at the same time, but that's more difficult to judge, Marcus has already mentioned, we are pretty disciplined when calculating purchase prices and very prudent in our valuation there. And that certainly also helps to avoid big impairment tests. And so let's see how it develops, but I'm pretty positive. And then your question about individual companies. Looking back on the performance of the companies that we acquired, I think it's fair to say that there's always a bit of volatility between expectations and real outcome. But net-net, I think the outcome is pretty positive. And that's also one of the other reasons that you don't see impairment issues on our side. On the cost side, Marcus, is that something you want to take?

Yes.

I think, it is going forward.

Yes. Matthew, if I look at the headcount and costs going forward, I would say when we look at what we're doing there, certainly, I would say, short term is where we're still being very cautious in general about adding additional headcount. But at the same time, making sure that we really invest in everything that we're doing from a commercial excellence perspective. So really driving sales activity, making sure that we are in front of the customers as much as we can and therefore, not being afraid to invest in, let's say, the frontline commercial teams, whether they be out on the road or from an inside sales perspective. Of course, we're heavily investing also from an AI perspective to look at how can we improve operational excellence, how can we improve customer service. And again, that's driven primarily at the moment, how can we become even more effective. Efficiency gains we do expect, but I think that will come more from a longer-term perspective.

The next question comes from Nicole Manion from UBS.

Congratulations and all the best to you, Hans. Two questions, please. Firstly, just to go back to Americas, you've obviously talked about the weaker performance and the changes you've made there to management. Do you think there's more investment required into the business there heading into next year? How do you think about that? Or kind of what areas are you still, sort of, looking at to upgrade? And then secondly, you talked in Q2 about gaining some share in semi specialties as Asian supply became less secure in some markets. Is this something that you've continued to see in Q3? Is that still impacting performance? Or has there been any sort of, I guess, normalization there?

Thank you, Nicole. If you look at the Americas side, I wouldn't say that there's anything specific in terms of additional investments required. It's really about, I would say, strengthening what we're doing from a commercial excellence perspective. And I'm sorry, but I don't really recognize the question on the semi specialties side. It is a component of our business, but it's relative to the whole portfolio, quite small. It is an important section. But like everything that we do, we're looking at the whole portfolio across each of the business lines and units, looking at how do we fill product portfolio gaps. And that's both from a specialty and also the semi-specialty perspective. But I would say nothing specific to report from the semi-specialty side. Does that answer your question or?

Yes. Sorry, maybe I can just put it a bit differently. I think there was a bit of a comment in Q2 that maybe some of the Asian supply have become a little bit less secure and that kind of situation, sort of, temporarily abated, but maybe you expected some of that kind of Asian competitive pressure to, sort of, come back at some point. I'm just wondering if you've still seen that. Yes.

Yes. I mean, I would say it's a little bit, again, that word of stable where we haven't seen a lot of change between Q2 and Q3. So China competition is definitely there, but I wouldn't say that there's been a significant change between the 2 quarters.