Brenntag (ISIN DE000A1DAHH0), the global market leader in chemical and ingredients distribution, reports another resilient quarter with positive operating EBITDA development and still limited impact of the COVID-19 pandemic.
Christian Kohlpaintner, Chief Executive Officer of Brenntag Group, said: “Although we reported solid results in the second quarter with still limited effects of the COVID-19 pandemic on our business performance, we noticed declining demand in various customer industries, and the uncertainty in the markets with regards to the further developments remains high. The positive performance in the first six months is a sound foundation for the second half of the year which we expect to be even more challenging.”
Consolidated income statement
(in EUR m)
|Q2 2020||Q2 2019||∆ as reported||∆ fx |
|Operating gross profit***||715.9||722.9||-1.0%||-0.6%|
|Operating EBITDA*/operating gross profit*** [%]||38.6||36.8|
|Profit before tax||167.0||168.3||-0.8%|
|Profit after tax||123.0||125.4||-1.9%|
|Earnings per share||0.80||0.81||-1.2%|
At 2,817.2 million EUR, sales in the second quarter of 2020 were below the prior-year figure on a constant currency basis by -12.9%, mainly based on a decrease in demand due to the COVID-19 pandemic. Operating gross profit of 715.9 million EUR was on previous years´ level (-0.6%). Operating EBITDA rose to 276.2 million EUR, a year-on-year increase of 4.0%.
Profit after tax was slightly down on the prior-year figure of 125.4 million EUR to 123.0 million EUR in the second quarter of 2020. This translated into earnings per share attributable to Brenntag shareholders of 0.80 EUR.
|Free Cash flow (in EUR m)||Q2 2020||Q2 2019||∆ |
|Investments in non-current assets (Capex)||-44.1||-39.6||-4.5||11.4|
|∆ Working Capital||12.1||-18.3||30.4||-166.1|
|Principal and interest payments on lease liabilities||-30.5||-29.3||-1,2||4,1|
|Free cash flow||213.7||179.1||34.6||19.3|
Free cash flow reached 213.7 million EUR compared to 179.1 million EUR in the second quarter 2019. This is an increase of 19.3% and it is the highest free cash flow the company ever generated in a second quarter since the IPO in 2010.
|Consolidated balance sheet (in EUR m)||June 30, 2020||Dec 31, 2019|
|Net financial liabilities||2,002.0||2,060.5|
The consolidated balance sheet reflects the continued sound financial profile of the company.
EMEA again with strong performance
|EMEA (in EUR m)||Q2 2020||Q2 2019||∆ as reported||∆ fx |
|Operating gross profit***||314.6||292.8||7.4%||8.6%|
The EMEA (Europe, Middle East and Africa) region again posted a very good quarter mainly driven by some customer industries such as Cleaning, Pharmaceuticals, and Personal Care. EMEA generated operating gross profit above the prior-year figure at 314.6 million EUR (8.6%). Operating EBITDA came to 130.1 million EUR, a significant year-on-year increase of 21.5%.
Market environment in North America remains difficult
|North America (in EUR m)||Q2 2020||Q2 2019||∆ as reported||∆ fx |
|Operating gross profit***||289.3||313.0||-7.6%||-9.0%|
In the second quarter of 2020, earnings in North America continued to be impacted by clear declines in the business with customers of the Oil and Gas industry as well as by the COVID-19 pandemic. In this environment, the operating gross profit generated by Brenntag North America was down by 9.0% to 289.3 million EUR. Operating EBITDA reached 117.1 million EUR, a decrease of 10.1%.
Latin America with strong operating results in a still volatile environment
|Latin America (in EUR m)||Q2 2020||Q2 2019||∆ as reported||∆ fx |
|Operating gross profit***||44.6||44.8||-0.4%||8.3%|
Also, in the second quarter, the Latin America region reported strong operating results in a continued difficult and volatile macroeconomic environment. In the region, Brenntag generated operating gross profit of 44.6 million EUR in the second quarter of 2020, an increase of 8.3%. Operating EBITDA grew significantly by 26.0% to 15.3 million EUR.
Impacts by the COVID-19 pandemic noticeable in Asia Pacific results
|Asia Pacific (in EUR m)||Q2 2020||Q2 2019||∆ as reported||∆ fx |
|Operating gross profit***||62.1||67.6||-8.1%||-7.1%|
The decrease in sales in Asia Pacific is mainly related to the COVID-19 pandemic, with some countries being in restrictive shutdown. Operating gross profit reached 62.1 million EUR (-7.1%). With an operating EBITDA of 24.3 million EUR Brenntag Asia Pacific is below the previous year’s level (-4.3%).
“Project Brenntag” enters next phase
Based on the holistic analysis of the company initiated at the beginning of 2020, Project Brenntag has been developed as a comprehensive transformation program to set the base for sustainable organic earnings growth. Core elements of the project are Brenntag’s operating model, market approach, global site network and people’s potential and leadership. The project entered the next phase of validating conclusions and initiatives that have been developed within the past months. Details on Project Brenntag will be provided at a Capital Markets Update early November 2020.
Outlook for 2020
In early April, the company suspended the forecast for the financial year 2020 due to the considerable uncertainty over the future effects of the COVID-19 pandemic. This degree of uncertainty of the global economy remains high and Brenntag cannot rule out a larger impact on its business development. The forecast will be updated as soon as the effects on Brenntag’s further business performance in 2020 can be reliably determined.
*Brenntag presents operating EBITDA before holding charges and special items. Holding charges are certain costs charged between holding companies and operating companies. At Group level, these effects net to zero. Brenntag is also adjusting operating EBITDA for income and expenses arising from special items so as to improve comparability in presenting the performance of its business operations over multiple reporting periods and explain it more appropriately. Special items are income and expenses outside ordinary activities that have a special and material effect on the results of operations, such as restructurings.
**Unless indicated otherwise, growth rates are on a constant currency basis.
***Operating gross profit is defined as sales less cost of goods sold.