IMCD NV

AEX:IMCD

Earnings Call Analysis

IMCD Reports Resilient Earnings Amid Challenges

IMCD's resilient business model is highlighted by its EBITDA holding strong at EUR 364 million despite a 6% decrease. The company's performance is expected to be below last year's, with a 1% ForEx adjusted revenue decline and net results as well as earnings per share both down 16%. The digital platform advancements are lauded, promising more efficient organic growth ahead. Future expectations include boosted fourth-quarter performance over the previous two quarters, amid cautious recruitment and increased employment costs due to inflation.

Executive Transition and Resilient Performance Amid Challenging Economic Conditions

IMCD N.V., a leading distributor of specialty chemicals and food ingredients, faced a complicated macroeconomic landscape in the third quarter of 2023. Pieter van der Slikke, the outgoing CEO, introduced Valerie Diele-Braun, his successor, in an environment of declining manufacturing indexes in the Eurozone and the U.S. and reduced world chemical production. Despite these headwinds, IMCD showcased the resilience of its business model, having succeeded in maintaining the majority of its EBITDA growth from the previous year, with a decrease of only 6% after adjusting for currency effects. The company's strong IT infrastructure and investment in digital solutions are expected to drive cost-efficient organic growth, positioning IMCD uniquely within the industry. As a parting note, van der Slikke forecasted an improved performance for the fourth quarter relative to the previous two.

Financial Stability with Slight Revenue Decline and Margin Improvements

The company's ForEx adjusted revenue decreased marginally by 1%, with a stable gross profit compared to last year. Although there was a 4% organic decline in gross profit, acquisitions from 2022 and 2023 accounted for an equal percentage increase. Gross profit margin improved marginally to 25.3%, influenced by market conditions, currency exchange rates, and IMCD's diverse product portfolio. Operating EBITA declined by 6% to EUR 400 million, 16% lower in net results and earnings per share, and 9% lower in cash earnings per share after accounting for noncash amortization. The free cash flow increased substantially by EUR 115 million to EUR 364 million, with an improved cash conversion margin of 89%. This gain in cash flow was primarily attributed to reduced working capital investments, leading to an improvement in working capital days. Full-time employee numbers also increased by 12%, reflecting staff additions from new acquisitions.

Regional Performance Variances and Cost Control

Regionally, EMEA reported solid numbers with an increased gross profit margin despite currency headwinds and lower sales. The Americas faced the most pronounced declines across several financial metrics, bearing in mind the extraordinarily high growth rates of the previous year. Asia-Pacific, however, showed an 11% growth in gross profit and 4% growth in operating EBITA at constant currencies. The corporate cost, including non-operating companies, remained stable at 0.7% of revenue, underlining effective expense management.

Leverage Conditions and Outlook for Year-End

The net debt of IMCD increased by approximately EUR 325 million compared to the end of the previous year, a consequence of positive operating cash flows balanced against cash outflows for acquisitions and dividend payments. A new 500 million bond was issued at just below 5%. The reported operating leverage ratio was 2.4x EBITDA, with leverage as per the loan documentation at 1.8x EBITDA. Looking ahead, while the overall expectation for 2023 is below the previous year, a recovery is anticipated in the fourth quarter, showing signs of improvement over the prior two quarters.

Strategic Focus Amidst Volume and Working Capital Challenges

In a Q&A session, executives clarified that the fourth quarter is expected to bring an improvement in volumes, with robust margins throughout the year supporting performance. The average order size, having been reduced due to market uncertainties, has reached a point of stabilization, although at lower levels compared to the previous year. This cautious stabilization may reflect ongoing challenges but also indicates a potential for regained stability looking forward. The company successfully managed working capital despite decreased sales, with an increase of just under EUR 40 million.

Earnings Call Transcript 2023-Q3

[Operator]

Hello, and welcome to the IMCD N.V. Q3 2023 Results Analyst Call. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions]

I will now hand you over to your host, Pieter van der Slikke, CEO, to begin today's conference. Thank you.

[Pieter Slikke, executive]

Thank you, Laura, and good morning, ladies and gentlemen. Hans Kooijmans, and I welcome you to our analyst conference call on the third quarter of 2023.

With us this morning is also Valerie Diele-Braun, who will take over from me as CEO as of 1st January. She will briefly introduce herself after my remarks.

Before commenting on our results, I would like to give some context about the economic environment we are operating in. From the Q3 presentation of BASF, we learned that world chemical production without China decreased at more than 4%, perhaps, more important for our business is that the manufacturing indexes of the Eurozone and the United States have contracted for, respectively, the last 16 and 11 months. It shows the difficulty of the economic environment we are working in.

Despite this, our European results and our results in APAC actually performed quite satisfactory, but we saw a decrease in orders in our industrial segments in the third quarter and particularly in the Americas. I would like to remind you that we grew our EBITDA in the first 9 months of 2022 with 51%. After the first 9 months of this year, EBITDA decreased with 6% Forex adjusted. And this shows the remarkable resilience of our business model as we are able to hold on to most of the growth we made last year.

We remain optimistic about the near future. IMCD has strengthened itself considerably with the acquisitions we made so far this year and we have expanded our product portfolio as well. We're also very encouraged by our digital progress. IMCD is unique in this respect. We have a global ERP and CRM platform, [Technical Difficulty] we keep investing in digital solutions. These all results is very encouraging customer adoption and will drive cost-efficient organic growth. I'm confident to state that our IT infrastructure and cloud-based solutions are leading in the industry.

Finally, we expect fourth quarter results to be better relative to the previous 2 quarters.

And now I would like to invite Valerie to introduce herself.

[Valerie Diele-Braun, executive]

It is a pleasure for me to be with you today and to have started with IMCD as part of the Management Board and as designated CEO taking over from Piet in January. Some of you might already have come across my name during the various functions I have had in the past 27 years within the specialty chemicals industry.

Having started with Unilever at the Quest International division, which was later acquired by ICI and then by Givaudan. I worked with large key accounts and with development teams in Europe, Asia and Americas, across many divisions and product groups. After stint as consultant, we are focused on services, I then joined DSM as part of the personal care management team, including their e-commerce initiative and then moved on to become President of 2 of the 3 divisions of Archroma, a carve out by private equity firm, SK Capital from Clariant, we developed sustainable product portfolios and new business areas.

In 2018, I took on the position of CEO at CABB Group, a contract manufacturing company, mostly active in ACA, pharma and personal care and all of the key producers of monochloroacetic acid in the world. In my 5 years as CEO of CABB Group, I substantially increased EBITDA; I acquired and integrated Evonik Jayhawk business and completed 2 successful refinancing.

In 2020, I joined IMCD to provide as a member, and was always impressed by the talent and professionalism of the company and its diversified an asset-light business model. Joining now full year, I'm happy to state that from the insight, IMCD is even more impressive. Based on IMC's deep technical expertise, and extensive lab network, its best-in-class technical and IT infrastructure and excellence in M&A execution and integration. I'm looking forward to build further on these pillars and to discuss with this in our next call.

For today, I will, however, leave all questions to Piet, and I'm excited to meet you again albeit, virtually in Q1 in my new role.

[Pieter Slikke, executive]

Thank you, Valerie. And as usual, Hans will lead us now to the numbers. Hans?

[Hans Kooijmans, executive]

Thanks, Piet, for the handover. And good morning, ladies and gentlemen, and I will briefly summarize IMCD's first 9 months results. Before we go to the Q&A.

As usual, I would like to start on Page 9 of the presentation that we put on the web. As you can see, ForEx adjusted revenue decreased 1% and ForEx adjusted gross profit was more or less equal compared to last year. And when looking at gross profit development, we report a combination of 4% organic decline and a 4% increase as a result of the first-time inclusion of acquired businesses in 2022 and 2023.

Gross profit in percentage of revenue increased with 0.2% to 25.3%. And this increase is the result of changes in local market conditions, combined with various local gross margin improvement initiatives. Further currency exchange rate developments played a role and the usual fluctuations in our product mix and product portfolio.

Forex adjusted operating EBITA declined 6% or EUR 400 million, the EUR 43 million decrease compared to the same period of last year. The conversion margin, as you know, EBITA in percentage of gross profit, was 46.8%, which is 3.4% below the record year 2022. However, 1.8% better than the same period in 2021. Forex adjusted net result and earnings per share both decreased 16%. The decrease in cash earnings per share saw after adding back the noncash amortization net of tax is 9%.

Our free cash flow, we report a EUR 115 million increase compared to last year to EUR 364 million. Cash conversion margin of 89% was higher than the same period of last year. Reduced working capital investments were the main driver of this increase. The relatively low working capital investment was primarily driven by a slight decrease of our business activities and further we report a little improvement in working capital days from 67 last year to 66 days this year.

And then on the last line of this page, you will notice a 12% increase over a number of full-time employees and it's fair to say that the majority of this increase is the result of new employees as a result of acquisitions that we did.

Then on the next slide, Slide 10, you will find a summary of a few key figures split into the various regional operating segments. In EMEA, first column, we reported solid numbers given difficult market conditions, quite some currency headwind and challenging comparable figure of last year. We were able to further increase gross profit percentage to 27.4%. And this margin increase helped us compensating for the impact of lower sales in the last 2 quarters and to grow the amount of ForEx adjusted gross profit. ForEx adjusted operating EBITA of EUR 188 million was 2% lower than last year. Inflation driven on cost growth was the main driver of this small decrease. And this cost impact is also reflected in slightly lower ratios for both EBITA and conversion margin.

The second column, the Americas and in this segment, we reported most significant negative difference on most of the lines compared to last year. As a positive, we could keep our average gross profit margin at 24.1%. Now when comparing the 2022 Americas numbers with last year, we should remember the extraordinary growth that we reported in Q2 and Q3 of 2022, resulting in a 57% EBITA increase in 2022 and a 6% increase in conversion margin in last year's year-to-date Q3 figures. So the 47.3% conversion ratio reported to 23% is lower than the outlook of last year, but still about 1.5% better than 2021.

Asia Pacific, the third column reported 11% gross profit growth and 4% operating EBITA growth at constant currencies. Operating EBITA in percentage of revenue and conversion margin are still the highest in the group. And the decrease that we report in gross profit percentage is mainly the result of acquisitions in this region. And then in the last column the cost of the holding companies, and this includes all nonoperating companies, like the Head Office in Rotterdam and the regional support offices in Singapore and the U.S. Reported cost remained stable at 0.7% of revenue.

Then on Page 11, a summary of IMCD's free cash flow. As mentioned earlier, EUR 115 million higher than last year. The cash conversion ratio improved to 89.1%, mainly as a result of lower working capital investment, and I already mentioned the lower level of business activities as the logic region for the lower working capital investment. CapEx was low as usual, in line with our asset-light business model.

Then on Page 12, a short update on net debt and leverage. Compared to the end of December last year, net debt increased with about EUR 325 million and this increase was a combination of positive operating cash flows on the one hand combined with cash outflows as a result of acquisitions and the EUR 135 million dividend payment. Our net debt includes 300 million bonds with a coupon of low 2%. And further, it includes a new 500 million 5-year bond that is successfully issued in September this year at a coupon just below 5%.

Reported operating leverage ratio, including the full year impact of acquisitions was 2.4x EBITDA. A leverage based on the definitions in our loan documentation was 1.8x EBITDA.

Then last but not least, on Page 14, you will find the outlook for 2023, where you could read that we expect the outcome of this year to be below last year. However, actually foresees its performance to improve in the fourth quarter related to the prior 2 quarters.

That was a short summary of our year-to-date financials, and Pieter, myself are happy to answer any of your questions. I would like to hand over back to Laura. Operator?

[Operator]

[Operator Instructions] We'll now take our first question from analyst Vermeulen at Morgan Stanley.

[Annelies Vermeulen, analyst]

I have 3 questions, please. So firstly, on your comment around performance improving in the fourth quarter. Could you elaborate a little bit more on what that means? Is that a pickup in volumes? Is that better profitability, better margins? And as a sort of a related point, do you have any comments on how your performance has developed through October relative to the third quarter that gives you the confidence to make that statement?

And then secondly, it's related question. Based on your conversations with customers and the visibility you have in the order book, do you expect this sequential improvement in the fourth quarter to also continue into the first quarter?

And then lastly, just a quick one on China. Your peer reported yesterday noted a slight uptick in performance in China and noted you also slightly better pricing. Are you seeing that as well in your business in that region?

[Pieter Slikke, executive]

Yes. Thank you very much. As to the first question on the fourth quarter, what we're saying is that we see that the fourth quarter will show improvements relative to the other 2 quarters that quite where we saw quite a significant decrease. We cannot totally forecast how that will end in terms of percentages. But I think that we see some improvement on the volumes. I think margins are quite robust so far throughout the year. And I think that's quite remarkable. And we even improved our margin somewhat and let's see how the fourth quarter develops further.

Whether or not this continues in the first quarter of next year, I will not comment on. We will have to see that. And I'll leave that also to my successor next year.

On China, I think it's very anecdotal. I think I should not comment. I think the product mix of the companies that we're talking about is different. We still see some weakness in China, but I find it too anecdotal to comment on individual countries so far.

[Annelies Vermeulen, analyst]

Okay. Understood. And just as a follow-up on that first point. So your comments are predominantly relating to volumes improving in the fourth quarter relative to the second and third quarter?

[Pieter Slikke, executive]

Yes, Yes.

[Operator]

And we will now take our next question from Suhasini at Goldman Sachs.

[Suhasini Varanasi, analyst]

Just wanted to clarify again on the outlook, please. Appreciate the commentary on volumes but you normally talk about EBITA growth in your outlook or EBITA change in EBITA for the year. So when you're seeing the performance to improve in the fourth quarter relative to prior quarters, are you effectively saying that you expect the declines in 4Q on EBITA to be better than the declines in EBITA that you saw in 2Q and 3Q.

[Pieter Slikke, executive]

That is exactly right. That's exactly right.

[Suhasini Varanasi, analyst]

Perfect. And I think just a follow-up on that, please. I think in 4Q last year, you did have a write-down of inventory, which was double-digit millions, and that flowed through to EBIT. So when you are talking about the declines in 4Q, do we need to adjust last year's number for the inventory write-down or just keep it off the 111 EBIT that you reported last year.

[Pieter Slikke, executive]

That's a very detailed question.

[Suhasini Varanasi, analyst]

Sorry.

[Pieter Slikke, executive]

Very good that you remember that one, by the way, so well done. But what you always see is that when you are making your annual account, you always have all kinds of pluses and minuses finalizing the year and on stock provisions and on bonus accruals and so on and so forth. So I think the reason that we mentioned the additional stock provision last year is because it had very severe impact on the result of Asia Pacific in the last quarter. And there, we wanted to stress it has nothing to do with what I would call a commercial performance either with the one-off. I don't expect such a one-off this year. But I think -- too early for me to say we should normalize for that number because you always have these type of potential pluses and minuses when finalizing the result.

[Suhasini Varanasi, analyst]

Got it. That's clear. And just one on -- if you think about pricing and volume trends, I think you've always maintained that pricing has never been an issue and you don't see what some of the chemical companies report on price deflation, is it possible to clarify that, that is still true for you today?

And the second one is on volumes. Obviously, volumes per order have come down. Has that stabilized sequentially? And if we -- if all else equal, if we assume that this volume per order continues into 1Q, and I appreciate I'm not asking for an outlook over here. But if that continues at these levels into 1Q next year, does it still imply declines? in volume on a year-over-year basis.

[Pieter Slikke, executive]

Well, I'm not sure if we ever said that prices are not relevant. I think if you look at the, let's say, the total range of our products portfolio, which is, of course, wide and goes from very specialized pharma products to maybe a little bit more volume-driven coating products. Then of course, there is a bit of a difference in terms of how price sensitive products are. But if you -- I think it's important to emphasize again that we're very much focused on specialties. And that, as a whole, of course, makes us more price robust but we see in certain segments, of course, some price deflation.

And I think the other question was on...

[Hans Kooijmans, executive]

Yes. The average order size that we see and what you typically see in an environment that is more uncertain than the environment -- it reflected on the start of this call is that, customers typically have a tendency to order smaller quantities per order. I think the average order size more or less stabilized, but it's still at a lower level compared to the same period of last year.

[Suhasini Varanasi, analyst]

Got it. Okay. And effectively, sequentially, come down, right, the volume per order from the beginning of the year?

[Pieter Slikke, executive]

Yes.

[Hans Kooijmans, executive]

Yes.

[Pieter Slikke, executive]

It is like before.

[Operator]

We'll now take our next question from Matthew Yates at Bank of America.

[Matthew Yates, analyst]

A couple of questions, please. The first is on the Americas performance. Understand what you're saying about the comparison base. Can you disaggregate a little bit for me, the performance in North America versus South America? And I guess the reason I asked that is in [Dallas] yesterday we're talking about competitive pressures in their South American business, wondering whether that is specific to them or something that you are also seeing more broadly?

And then the second question, sorry if it's a bit pedantic, but just on the working capital. So group sales are down 4%, but you still increased working capital by just under EUR 40 million. Is the way to understand that it's the consolidation of the acquisitions that you've done? Otherwise, I'm just surprised working capital hasn't come down a bit more given the generally lower activity levels?

[Pieter Slikke, executive]

Thank you, Matthew. I will take the first question. We certainly see these pressures in Latin America, Latam. I think we should also realize that last year, of course, we saw extraordinary and unprecedented price increases in certain segments in Latam and that has reversed. So in that sense, we see the same pressures as somebody else reported earlier this week.

But also in the United States, I would say, and I refer to the decrease in the manufacturing index that we see also the chemicals construction, but also in the advanced materials, aerospace industry, we saw a decrease in orders in Q2 and Q3. So both regions, North and South America have pressures, in particular, in these segments. Hans, do you want to...

[Hans Kooijmans, executive]

Matthew, perhaps to answer on the working capital question. What we typically do at the end of September as we compare the end of September position at the end of December last year. And there is what I would call the usual cycle during the year that the December numbers are always the lowest working capital position during the year due to typically low sales and relatively low stock positions. So low sales in the last quarter, typically December, resulting in a low debt positions and also slightly lower stock positions at year-end in most companies and therefore, the highest point in the working capital cycle during the year is always in the December period, it comes slightly down at the end of Q3 and the lowest point in the cycle should be December again.

So if this trend continues, you typically should expect a slightly lower working capital position at the year-end and then the December versus December should show the impact that you were just referring to.

Does that make sense? Or did I make it too complicated?

[Matthew Yates, analyst]

No. No. I got it.

[Operator]

And we'll move on to our next question from Rikin at BNP Paribas.

[Rikin Patel, analyst]

I've got 2. First is just a follow-up on pricing. So again, some of your peers have spoken about GDP units stabilizing towards the end of Q3 and at the beginning of Q4, just wondering if you could confirm whether you have also seen the same trends and how that differs in each different region. And secondly, on M&A, could you give us a sense of what the contribution could look like in Q4 on my numbers, I have a back-end waited year in terms of the M&A contribution.

So just wondering if you could provide any color, that would be helpful.

[Pieter Slikke, executive]

I think I can confirm that, let's say, the prices -- and again, I mean, we have a wide range of products. So it's always a bit difficult to generalize this picture, but that there's more stability in the market on that front. So I can confirm that. And Hans, anything on the M&A?

[Hans Kooijmans, executive]

Yes. So what we reported 14 acquisitions having an impact out of the 14 we closed 13. So the only 1 we did not close yet as Euro Chemo in Malaysia. And then based on the press releases, if you look at the revenue numbers that we disclosed, you should expect about EUR 100 million revenue as a contribution from these acquisitions. So the longer we acquired this year and the full year impact of the acquisitions that we did in the last quarter or last year.

[Operator]

And we'll now take our next question from [ Declercq ] at KBC Securities.

[Unknown Analyst]

I have a question with respect to the gross margin developments. In Q4 with respect to the seasonality, how should we look at -- is there a seasonality component in Q4? Or will it mainly be the product mix, which will determine the gross margins in the fourth quarter?

[Pieter Slikke, executive]

That's -- I can confirm -- it will -- it's product mix, but there's no specific Q4 effect.

[Unknown Analyst]

Okay. And then looking at FTE base going forward? Can we expect a slowdown in hiring given the pretty significant increase in FTEs? Or how should we look at the FTE evolution?

[Pieter Slikke, executive]

Yes. Well, the increase, of course, is mainly the result of acquisitions. But you're right, we will be extremely cautious in hiring going forward. And given the economic circumstances. But most of our increase comes from the acquired companies.

[Unknown Analyst]

And then last question with respect to the prices. But on the supplier side, how are the conversations going with suppliers based looking at the prices?

[Pieter Slikke, executive]

I would say, as usual, of course, also here, you cannot generalize some suppliers have quite some difficulty in, let's say, also on their end in terms of prices and that has an effect on us. But as you can see that we can hold on to our margins, percentage margins that we are successful in translating that to the market. I can let's say, also emphasize that the relations with suppliers are always very transparent and strong and that we have mature discussions about these issues as we are strategic partners of our suppliers. So I would say that all these discussions always grow harmonious. And our objective is to try to, let's say, secure the strategic position of our suppliers, but also to maintain or increase our margins.

[Operator]

And we'll now take our next question from Nicole Manion at UBS.

[Nicole Manion, analyst]

Just a follow-up question, please, on the cost base. It looks as though your SG&A was flattish just slightly up year-over-year and sequentially in Q3. How should we think about that going into Q4? And in general, how are you thinking about that balance between savings and investments?

[Hans Kooijmans, executive]

Try to understand the question. So I don't expect a change in the trend numbers that you saw. And what Pieter earlier indicated that we are very careful in filling vacancies and adding people to the structure, likely has been also in the previous quarters. And basically, we only had people if there is also business rationale behind adding people to the structure. So if there is new suppliers coming in or then basically you need to top up, if needed. Maybe to add to that, we, of course, look at productivity and that is a major yardstick of whether or not we can add people. But we -- as I said earlier, we are extremely cautious in this environment to do that.

[Operator]

And we will take our next question from Quirijn at ING.

[Quirijn Mulder, analyst]

Yes. I have 3 questions. First of all, anything that you can still say about the destocking? Is there anything visible in that -- in your numbers still. Then the second question is about -- you speak about inflation in your cost. Can you maybe elaborate on that? Is that wages, is that over cost? And my final question is about let me see, If I remember, the previous call we had after the second quarter numbers, you saw some light in U.S. markets and it looks like that the third quarter was disappointing. Whereas we're now seeing that EMEA, in fact, was doing better than, in fact, you expected at, let me say, in -- at the end of July and beginning of August.

My question is, is there any specific reason or was, for example, September quite good in EMEA? And what is the risk that, let me say, we will see some setback as in -- as we have seen in the U.S. in the third quarter, that also happens in EMEA, let me say, in the first quarter of 2024.

[Pieter Slikke, executive]

Quirijn, thank you for your very bright questions. First, the destocking. I tie that -- I think it's safe to say, and I think you also see that in the chemical industry at large that probably that part of, let's say, the issues that we faced earlier this year are more or less down. And I think that generally, the stock levels that our customers are sufficiently let's say, destock, so to say, to hopefully not expect further consequences of that.

The inflation question, of course, also good question. And what we have seen, of course, is pressure on, of course, our employment costs. And that's -- we have seen that everywhere. I mean inflation has been high and we had to adjust it accordingly to the product conditions of our employees.

So I would say that, that is the main factor in increase in costs. Then my remark, apparently, my memory getting vaguer, vaguer about the Americas last time we spoke. It shows you again how careful you have to be. I think what we saw in the Americas in the third quarter, in particular in LatAm, as I spoke before, is these pressures on the industrial segments. And yes, I don't think that you can see the same thing again in the fourth quarter in terms of misjudging that. But it shows you, again, how difficult it is to look into the future.

[Quirijn Mulder, analyst]

And on the risk of EMEA, maybe a word, let me say that. So EMEA was better than expected, and that is also a -- I would say, an industrial part with plastics and coatings, et cetera. So what is the meaning that was somewhat better than expected?

[Pieter Slikke, executive]

Yes, true. And I would say that if you look at total EMEA that certain parts of Europe had performed quite strong and others are a little bit less strong, depending on the product mix also. Yes. So a very robust and particularly, also in the more southern parts of Europe, Turkey also very strong. So we -- yes, we expect that, that will continue also in the fourth quarter.

[Operator]

[Operator Instructions] And we will now move on to our next question from Chetan Udeshi from JPMorgan.

[Chetan Udeshi, analyst]

Maybe if I can clarify the comments on Q4, but -- because I think we're all confused and really that wasn't the intention. So just to clarify. So when you say improving trends versus second quarter and third quarter? If I'm not mistaken, as I understand it, it's more referring to maybe the year-on-year organic decline getting smaller just because the comps are easier as you also referred previously? Or are you also assuming Q4 absolute EBITDA goes up versus Q3 and Q2?

[Pieter Slikke, executive]

No. I think the first part of your observation was right, similar to what Goldman Sachs asked earlier.

[Chetan Udeshi, analyst]

Okay. That's clear. The second question I was wanting to ask you, just looking at your M&A contribution in third quarter because -- if my math is correct, I get to about 2% contribution from M&A in Q3, which is well below the 5% to 6% run rate you had in first half of this year despite more acquisition in Q3 as we can see in the cash flow as well. So can you explain why have you seen that decline almost halving of contribution from M&A in third quarter versus what we saw in the prior 2 quarters.

And the last question I had was, maybe it's for Hans. Just looking at the gross debt on the balance sheet, if I again, calculate it correctly, it's close to EUR 1.6 billion, give or take. You mentioned there are a couple of bonds, 2% new bond, just under [ 5% ]. So can you just remind us how much is the sort of interest cost will change next year versus this year on a weighted average basis, roughly speaking? That would be useful.

[Pieter Slikke, executive]

Perhaps first, your remark about how to say it, first, your remark about the decline of M&A contribution in Q3. I don't think there the outcome of your calculation is correct, looking at the M&A contribution talking about the revenue, it was slightly higher than the quarter before, similar on the EBITDA. So perhaps you should check that off-line.

On the debt side, if you look at the debt profile that we have, the interest on the 3 bonds that we have is, of course, fixed for next year. So we have EUR 600 million at a [ 2-and-a-bit ] percent, and we have EUR 500 million involved of 4.875% or just below 5%. Another big component in my debt profile is about EUR 300 million related to deferred considerations. And these deferred considerations, of course, don't trigger cash interest.

Although under IFRS, I need to discount them back to the net present value and then add a bit of interest every year. And then we have a little bit of revolver swings that basically vary with -- we do acquisitions or not. So the impact on our interest cost is basically, I think, easy to calculate on the basis of the data point that you just mentioned.

[Operator]

And we'll now have a follow-up question from Quirijn Mulder at ING.

[Quirijn Mulder, analyst]

Yes. Pieter, one follow-up question from my side. With regard to a remark on, let me say, to be cautious on hiring people. If you are optimistic about your business model and the outlook for this industry, and you're hiring not people for a couple of months but for a longer time. Do you think that this -- the correct decision here because maybe this -- the war for talent will return, let me say in '24 second half '25.

[Pieter Slikke, executive]

Yes. But I think that's a good question. And of course, that's why we are extremely, let's say, diligent to keep our talent in-house and also develop new talents. But we also have, of course, to look at the general economic environment and keep our costs in line with our productivity goals.

So as Hans, I think, also pointed out before actually when we get new business, and we are constantly of course, working on that and new product lines, then we will hire -- but we also want to keep our cost base as efficient as possible, for example, by investing in digital solutions. So I fully understand the word on talent. I think we make our company as attractive as possible.

So I'm really confident that if we can attract talent, but we have to do that at the right time.

[Operator]

There are no further questions in queue. I will now hand it back to Pieter for closing remarks.

[Pieter Slikke, executive]

Yes. Well, thank you very much all again for listening to us. This was my last analyst call and I will dearly miss you all, not your difficult questions, but it has been since 2014, the privilege to do this quarterly analyst calls.

And I wish Valerie, my successor, all the success in the coming period. I think she put it well in her introductory remarks about strength of our business, the quality of our business, also the strength of our business model. Also again, during these challenging economic circumstances. So I'm pretty sure that she and Hans and Marcus and the whole team will do great.

I wish you all well, and maybe we see each other somewhere, sometime. So thank you very much.

[Operator]

Thank you, Pieter. Ladies and gentlemen, this concludes today's call. Thank you for your participation. Stay safe. You may now disconnect.