Brenntag SE

XETRA:BNR

Earnings Call Transcript 2018-Q1

[Operator]

Dear ladies and gentlemen, welcome to the call for the first quarter of 2018. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Mr. Steve Holland, who will lead you through this conference. Please go ahead, sir.

[Steven E. Holland]

Thank you very much. Well, welcome, ladies and gentlemen, and thank you everybody for dialing in for our review of results for the first quarter. As usual, I'm here with Georg Müller, CFO. And as always, we are happy to answer your questions after the presentation. So let me start with the highlights of the quarter. We had a good start to the year with strong results in both operating gross profit and operating EBITDA. Group generated an operating gross profit of EUR 637.6 million, which represents an increase of 6.6% FX adjusted. Operating EBITDA increased by an encouraging 10.2% to EUR 206.6 million again on an FX adjusted basis. There was also [indiscernible] by organic growth in our business and Q1 2018 marks the third consecutive quarter with an organic EBITDA growth for the group as a whole. In the first quarter, we clearly benefited from operating leverage which resulted in year-over-year improvements on our conversion ratio.The growth was broad based. Our largest regions are steadily growing and our smaller region, Latin America, reported flattish results in an environment that remains volatile. In addition to this, we are pleased with our most recent acquisitions, which are operating on or above plan, Earnings per share amounted to EUR 0.68 following last year's EUR 0.61. Looking to the operating bridge, I want to take you through a view of the development of the business in Q1. I will provide more details on the business units in a few moments. In Q1 we had a strong headwind for U.S. dollar- euro translation of around EUR 14 million due to a U.S. dollar that was clearly weaker than it was in Q1 2017. Our acquisition contributed EUR 4 million in the first quarter. Please note that 2 of the acquisitions we announced at the end of 2017 are not yet closed. In the beginning of May, we closed the acquisition of Raj Petro Specialities in India and we are working the closing as soon as possible.In EMEA, we saw good organic growth performance in the region. We are pleased in North America and Asia Pacific, which both showed strong organic growth. Again Latin America was flat last quarter, which would be a solid performance in a volatile environment. Now looking to segments. Looking to EMEA first. The region had an operating gross profit growth of 5% and operating EBITDA growth of 6.8% both FX adjusted. The EBITDA contribution of organic growth was 4%. In terms of the efficiency program in the region, large parts are completed and we are seeing the expected cost effects on the results. Turning to North America. We are particularly pleased with the results in the North American region. The segment continued its positive trend with strong growth in operating gross profit of 8.7% and with very encouraging EBITDA grew at 13.1%, both FX adjusted. The organic EBITDA growth was 13% in North America. This is broad based across all industries.In Latin America, we continued to see an overall volatile environment. In this environment, Latin America reported flat results in terms of operating gross profit and operating EBITDA. In Q1 we saw good performance in Brazil, but saw some weaknesses in other countries. [indiscernible] from high volume GP business in the region over the quarters and reduced operating cost. Coming to Asia Pacific, we are very pleased with the performance of Asia Pacific though we continue to see positive development. The region once again reported a double-digit growth of operating GP and operating EBITDA in the first quarter and organic EBITDA growth was 8% in the quarter. These positive results were mainly driven by Thailand, Vietnam and China. We continue to see this region with the highest growth potential going forward.Now I'd like to turn over the call to Georg.

[Georg Müller]

Thank you, Steve. Good afternoon, everybody. I would like to walk you through our income statement for the first quarter and I would start with the upper part of the income statement on Slide 10. On a constant currency basis, sales increased by around 8% in the quarter and the increase is also reflecting the higher chemical price environment. Gross profit shows a healthy growth of 6.6% on an FX adjusted basis and we saw particularly strong performance in the regions North America and also Asia Pacific. Operating EBITDA for the group grew even stronger than gross profit and amounted to EUR 206.6 million in first quarter, an encouraging increase of 10.2% compared to first quarter last year. As a consequence, conversion ratio improved and it improved by 120 basis points to 32.4% for the quarter.Turning to Slide 11 and coming to the part of the income statement with the lines below EBITDA. There are no major changes for depreciation and amortization. Depreciation for quarter 1 amounted for EUR 28.2 million and amortization to EUR 12.2 million. Financial result amounted to a net expense of EUR 19 million and that was an improvement against last year. In the first quarter, we recorded a tax rate of 28%. This is almost 4 percentage points lower than last year and it is mainly attributable to changes of the U.S. tax rate. Earnings per share at EUR 0.68 following EUR 0.61 a year ago. On the cash flow statement on Page 12. Q1 reported an operating cash outflow of EUR 12 million and that compares to an inflow of EUR 75 million a year ago.Both quarters, the first quarter 2018 as well the first quarter 2017, were characterized by pretty strong increases in chemical prices, which in both quarters led to an increase in working capital beyond the usual seasonality. The main difference in cash flow in this quarter compared to last year's quarter is from an extraordinary payment, which we received last year when in the first quarter we received EUR 48 million that were returned to us by the French authorities. On Page 13, you will see the investment cash flow and the financing cash flow in line with our expectations. CapEx for the first quarter was above last year's level. There were no major payments for M&A in this Q1. Also in neither of the quarters, a dividend occurred. The dividend will be paid only in the second quarter this year.Different to previous presentations, we have put the balance sheet into the back half at the end of the slide deck and I will move from Page 14 directly to the net debt leverage information. Net debt amounted to EUR 1,598,000,000 and that's on the same level at the end of 2017. The ops leverage stands at 1.9x. We also put the information on the maturity profile of our indebtedness into the back half so I'll move directly to Page 15 to the trade working capital information. Trade working capital slightly exceeded EUR 1.6 billion at the end of the first quarter. This increase is to a fair degree attributable to continuous price increases of chemicals. In addition, working capital turnover was at 7.5x in the first quarter and this is below the level we are targeting for this year, but we do expect some improvement in course of this year. Coming to my last slide on Page 16. In Q1 2018 we reported a free cash flow of EUR 27.7 billion, about the same level we achieved in Q1 last year.I'll hand it back to Steve for an outlook.

[Steven E. Holland]

Thank you, Georg. Now let's start with the current trading and then look at the outlook for the year going forward. So let me walk you through the gross profit per working day growth on a monthly basis. In January, growth was 8.6%, 7% organic; in February, growth was 7.3%, 6.4% organic; in March, growth was 8.5%, 7.2% organically; and April, the growth was 3.8%, 2.7% on an organic basis. And just for clarity, generally profit per working day as a percentage is [indiscernible]. This information, you have good gross profit growth for April was above 10%. Coming to the outlook. We have a good start in the year 2018. We confirm the outlook as we gave you in the middle of March when we announced the 2017 results. The [ economy is expected to show signs of improvement in the course of the year. In this environment, we expect our key performance indicators of operating gross profit and operating EBITDA to grow on a group level.We continue to work on improving our profitability. Regions EMEA and North America will drive the growth of our business. The weakness of the U.S. dollar has already caused strong conversion headwind for the group in the first quarter and this is likely to continue going forward. We still expect the Asia Pacific region with the highest growth potential as we distribute the sector most further in the region. In Latin America, we expect some improvement in the overall economic environment. In terms of M&A, we continue to pursue our strategy. Currently, we are working on closing and integrating the targets we signed at the end of last year. Overall, recent acquisitions remain on or above plan.And now we are happy to take your questions.

[Operator]

[Operator Instructions] The first question is from Sylvia Barker of Deutsche Bank.

[Sylvia Pavlova Barker, Research Analyst]

Couple of questions, please. Firstly on the numbers that you've just read out. So in terms of the April rates, could you just talk a little bit about the trend there based on the previous 3 months? And then secondly, on the working capital kind of general cash flow movements, so could you just go back to the extent of what was the one-off last year first of all? Then secondly, I can see that actually it's the receivables that have really increased sequentially so could you talk a little bit about that? And then finally, on this provisions move of EUR 30 million, could you just tell us what that is, please? Thank you.

[Georg Müller]

Maybe I take the questions in turn. The one-off last year in cash flow, you do -- I'm sure you will remember we are in an appeal procedure since many, many years in a French antitrust case that goes many years back. We won the first round of appeal last year and because we won the first round of appeal, the authority returned EUR 48 million -- EUR 47.8 million to us. It's an inflow in the first quarter last year. It didn't cost in income because we recorded it directly into provisions. Not exactly the same thing, but in terms of the certain context you were asking for the movement in provision with respect to EUR 30 million. By the end of the quarter we still had to pay the EUR 30 million amount to the French authorities related to another part of that investigation. That amount had been provisioned before, but because we had a firm payment date, we had to -- we had to take it out of provisions and put it into liabilities again. So it's just a line shift between provisions and liability. It does not include any net out or inflows. Actually, outflow has occurred meanwhile but in April so in Q2. Increase of receivables, I assume you are primarily focusing on trade receivables that basically goes in line with the increase in chemical prices and with higher business activities [indiscernible] growth of these 2 acquisitions. Actually the day sales outstanding don't in any material way deteriorate. So the receivables increase you see is the direct consequence from us selling for higher amounts to our customers. April gross profit per working day trend, maybe I go ahead and I'm sure Steve can share additional light on it. I think our main message is the 2.7% organic gross profit per working day increase in April, don't take any significant conclusions out of that number. April has been a pretty long month relative to last year. Last year Easter was in April. This year only the Monday was in April and in a long month, gross profit per working day actually typically sees some pressure. If I move away from the per working day figure to a month over previous year's month figure, we have had actually a gross profit increase of more than 10%.

[Sylvia Pavlova Barker, Research Analyst]

That's more around the adjustment method.

[Georg Müller]

I didn't call it an adjustment method. it's about if you had many trading days in a month, typically you see a little bit of pressure on the per working day figure.

[Sylvia Pavlova Barker, Research Analyst]

Okay. And then just to follow up so on the French antitrust and are there more cash outflows or inflows to come or is that closed now?

[Georg Müller]

First, you can see it in the annual report and some small update in the quarterly report. First of all, just to be very, very clear, it's about investigation of a situation that goes many, many years back. That's basically 1998 mainly to 2006 investigation, which is still continuing. From today's perspective, the appeal of the EUR 47.8 million is still open so we won the first round of appeals, but the authority is still arguing the case in front of the Court of Appeal. We don't expect any more outflows at this stage otherwise we would have provisions. But I also need to make -- need to say that the investigation is not formally closed by the authority so it can still take turn.

[Sylvia Pavlova Barker, Research Analyst]

Okay. And just after the end of the quarter --

[Georg Müller]

Again, it's a case that goes many, many years back. There is no substantial new development of any form or shape and the situation has not changed at all. What you see in the balance sheet is basically just because the payment came -- became due now.

[Sylvia Pavlova Barker, Research Analyst]

Okay. Now that makes sense. And so just in terms of the growth rates then so kind of after the end of the quarter by region, have you seen any change? Obviously, the PMIs in Europe are running pretty high in the first quarter. Could you comment by region if you see any difference...

[Georg Müller]

I beg your pardon that for the month after the end of the reporting quarter, we don't give out any expectation in region, but the general statement is there has not been a particular trend in any region. It's going pretty much in the [indiscernible].

[Operator]

The next question is from Rory McKenzie of UBS.

[Rory Edward McKenzie, European Support Services Analyst]

It's Rory here. 2 from me on the margin, then I've got 1 more after that. So firstly on the good profit rates delivered. In EMEA, how much of the benefits do you think are now flowing through restructuring? And then in North America, profit rates are also really strong. How are you managing the known headwinds there like transport costs and wage inflation and what kind of cost pressures do you expect to see over the rest of the year in North America? Those 2 on the margins first, please.

[Steven E. Holland]

Steve here. I'll take both those actually. On the restructuring program in EMEA, it's just about completed in May actually. We [indiscernible] large part of that to working through our French operation, which very strategically just taken them longer. And so I said there was a contribution in the first quarter that is a little more lumpy in the first part of the year. It's just a small amount in real terms, I wouldn't get too focused on that. Looking to North America, you're completely correct. There is quite significant pressure on the transport infrastructure in North America. We do actually have a reasonably good position as far as -- those that have [indiscernible] for quite some time will remember that we actually increased the size of our owned fleet in North America. Therefore the flexibility of our organization to curb transport cost increases is somewhat greater than it would have been without that action. So whilst there is certainly cost and pressure, we are able to mitigate that cost to our buyer on [ an efficient phase ]. It would be fair to say that in terms that there are a number of transport surcharges, which has come into play in North America to help overcome the pricing pressure. As far as the wages are concerned , we don't not see anything major shift in our organization that [indiscernible].

[Rory Edward McKenzie, European Support Services Analyst]

In terms of those transport surcharges, do that affect your end pricing for customers at all or how are you thinking about that side of it?

[Steven E. Holland]

Well, it's something which I think is pretty well known in the marketplace. [indiscernible] been picking up a significant increase in price for fuel, the market there's been surcharges to cover, increased fuel charges. But I think in this case it's clearly the whole market that the cost of distribution are not in some significant way and people recognize it. So generally speaking it is more of a challenge to customers to cover increased costs.

[Rory Edward McKenzie, European Support Services Analyst]

Okay. And then one more if I can on a bit more of a social theme. In terms of the digital agenda in chemical distribution, I mean what's the latest with DigiB, how is that progressing? And anything else is changing in the industry landscape so some of the platforms in Asia I think are seeing a bit more chemical offerings. So what's changing there?

[Steven E. Holland]

I think it's a fairly fast moving environment and clearly there's a lot of activity in this area. Lots of small startups that are not particularly increasing the map. In terms of our own organization, we clearly have -- [indiscernible] of our products at the moment with the key customer groups to determine exactly the functionals that they particularly want to develop further before we launch them on a wider scale. So we're pretty happy where we are. I think one thing which is certainly a road that [indiscernible] is digital help in terms of sourcing and procurement which is pretty basic stuff and it's actually part of the program, which we talked about last year. You can have digital platforms to help control and maximize the benefits of cost reductions from certain product areas. So digital growth is moving forward but I don't see any major structural changes to the marketplace. All the major players in chemical distribution are at some place in the digital journey, but no one is particularly ahead

[Rory Edward McKenzie, European Support Services Analyst]

Okay. And I mean could you say how many customers or how many key customers you're kind of trading with at the moment or are they still very small scale?

[Steven E. Holland]

I think it's actually a number of customers. I can't really give you that information at the moment.

[Operator]

The next question is from Peter Olofsen of Kepler Cheuvreux.

[Peter Olofsen, Analyst]

2 questions from my side. First on Latin America, could you be a bit more precise on which countries in particular were holding back the growth in the region and could you also be more specific on the measures that you have started there? And then I have a follow-up on China.

[Steven E. Holland]

The region is doing very well in our point of view. There is some probably the concern in terms of Brazil is doing well. We do see pressure in Ecuador where we really from quite a large volume, agricultural services [indiscernible] small of volumes and which is a little bit of my comment I mentioned earlier on in terms of reducing the large volume low GP business and which we can break operating cost in the same way. And that's part of the action we've taken to improve the profitability of Ecuador. There has been some cost and profitability pressures in Mexico and in Colombia, but we are pretty pleased that that's pretty much under control and moving that in the right direction, but nothing of any major significance. I think overall we have economy -- macro economy that's been quite volatile in the last 18 months or so. But as we say in our outlook, we do think that they will return to a more stable condition in general in the area itself. So again looking forward, it's looking much more stabler picture.

[Peter Olofsen, Analyst]

Okay. And then on China, since last year you have a 51% stake in a JV for specialty chemicals. So could you talk about your plans and ambitions in specialty chemicals in China both in terms of organic and inorganic growth? And could you also shed some light on chemical producers' appetite to outsource distribution to companies like Brenntag?

[Steven E. Holland]

We have a joint venture with Wellstar, a joint venture which we signed last year which has proven to be basic. In China, our approach has been to approach Chinese growth in terms of acquisition and mainly joint venture basis and we see that as being beneficial to both parties in terms of getting traction in the market that we choose to serve. And our acquisition -- acquisition at the time and targeted remains very positive in China. We do have significant restructuring in China as you already know and we are developing [indiscernible] range in addition to the industrial category range that we have already. It's a huge market and the appetite from manufacturers to outsource has barely been touched in real term. And so we do think that's why we mentioned that we see Asia Pacific as being the long term very significant growth opportunity for the group. But it's a -- we are talking about 1%, 1.5% market share at the moment. It's a massive opportunity for us.

[Peter Olofsen, Analyst]

And you will try to address the opportunity by both organic and inorganic growth?

[Steven E. Holland]

Yes, by both organic growth and by acquisition.

[Operator]

The next question is from Christian Cohrs of Warburg Research.

[Christian Cohrs, Analyst]

First on cash flow, operating cash flow was down in the first quarter. Also in 2017 operating cash flow was down significantly versus the 2016 level. Do you expect for 2018 that you will as least catch up to the 2017 level in terms of cash flow from operations or should we pencil in a figure below due to the before mentioned cash flows related to the Cartel fines and the higher chemical prices? Secondly, you stated already that the efficiency improvement in the EMEA region were rather lumpy in Q1, but all measures completed in May. So does that actually mean then as of H2 you will be at the quarterly run rate of EUR 2 million? And asking regarding your second measure as a sourcing initiative. Can you maybe shed some light on the rewards you've seen and materialized in the first quarter and in the quarters to come? Thirdly, the oil and gas business. Oil is surging to long-term highs currently. Couple of years ago you faced tough headwinds in your U.S. oil and gas business. Do you see here now that this business is picking up considerably on the higher prices and what does that mean for your North American operations? And lastly, a question on Latin America. Just a technical one more or less. What is your exposure to Argentina? Is my notes here correct that this amounts just to EUR 7 million annual gross profit? Is this still the right figure?

[Steven E. Holland]

I think the -- I should remind you the savings on the restructurings are EUR 8 million a year. [indiscernible] quite small number there. Actually, we expect to be up at EUR 2 million if you like in the run rate for quarter 2 as far as the restructuring is concerned. In terms of our sourcing project, that's on plan and we see that -- we don't call out separately, but we do see that contribute to our [ OGP ] development. And as we mentioned earlier and to an ancillary question, we are using digital products to actually execute our program which could to be very successful both from a supply point of view and from our own perspective. Oil and gas clearly [indiscernible] 2016 that we had the difficulty with oil and gas. Yes, clearly our business in oil and gas has recovered compared to where we were in 2016. I think it's fair to say that it is not the same level as it would have been in say 2014, 2015 because the overall structure of the market has changed somewhat during the downturn. So whilst we are certainly pleased to see that that is no longer a drain on our organization, it's actually contributing clearly at levels it was back in 2014 or 2015.

[Georg Müller]

I think you had a question about order of magnitude importance of the country Argentina in our organization and you mentioned that you noted down annual gross profit of about EUR 7 million. That must be quite an old number. The annual gross profit in Argentina is around give or take EUR 12 million right now. So still small in the context of Latin America, but much more sizable than [indiscernible].

[Christian Cohrs, Analyst]

Okay. And the cash flow question?

[Georg Müller]

Cash flow in our business most difficult to predict. It's much more difficult to forecast than earnings for example because cash flow heavily impacted by chemical prices. I will maybe point you initially to what we call the free cash flow so operating EBITDA minus CapEx plus/minus working capital change. We had Q1 this year a little better than Q1 last year and we would for sure on a full year basis expect this year to be at if not above last year's level. But going back to the '16 numbers, it obviously depends on chemical prices. '16 was a year basically without chemical price increases and to go back to a '16 number would require chemical prices to come down a little from where they currently are. If you make the move from what we call the free cash flow plus operating cash flow in the formal IFRS cash flow statement, then it cannot go back to the '17 numbers because the France situation has an inflow in '17 and will have an outflow in the second quarter '18 and that is basically something you can't overcome in the other line items.

[Operator]

The next question is from Karl Green of Credit Suisse.

[Karl Green, Research Analyst]

3 questions from me, please. Just firstly on Latin America. You've guided for meaningful growth for the full year overall. Just in terms of the moving parts as to how you get from that relatively flattish position in Q1 to a meaningful position. Is that mainly due to the impact of the Ecuadorian situation or is there something else going on there you'd like to? That's the first question. The second question was just possibly getting an updates on the situation in France. something you talked about at the full year stage. Just saying that there was some challenges there and what you've done to resolve that. And then finally, just a bit more of a technical one. I think there was an indication at the Q4 stage that you'd seen some accelerated site depreciation in a particular country in Europe in the fourth quarter with an expectation that that was going to repeat or that charge was going to repeat in Q1 of this year. It doesn't appear to have repeated. Should we expect another accelerated depreciation charge in Q2 or Q3 please? Thank you.

[Steven E. Holland]

I'll take the Latin American and France. In Latin America, [indiscernible] overall effect in the group. We expect during the course of this year [indiscernible] ability. Colombia's become strong and Mexico is becoming stronger. As far as Ecuador is concerned, that's a small part of a small part and therefore we expect it will certainly improve in terms of profitability in the course of the year, but that will probably require us to restructure that particular business unit. But we are really talking about really small numbers now so that will not be meaningful to the group. Latin America growth is more about macroeconomic stability. The region is stable, both politically and economically stable, and we will do actually find in the course of the year and meaningful improvements in that business is 5% or 10%, but it's not going to move the needle very far from the group perspective. So [indiscernible]. As far as France is concerned, I can't recall exactly what we are expecting for the year I mean in terms of [indiscernible] other than to say in the reorganization, restructuring of the European business, clearly anyone that knows anything about French will realize if you take a look at time to execute restructuring and that's the case in our French business. That is now all complete and effectively the French business will be by in its reconfiguration by the end of May. Is there anything else?

[Karl Green, Research Analyst]

The question to Georg just about the accelerated site depreciation, which caused the depreciation charge to spike up in the fourth quarter?

[Georg Müller]

I don't remember the exact statement in Q4. It's true that part of our European efficiency program also reshuffling some of the French sites and in that context, we had a pretty small amount of additional depreciation in Q4. It's done and over with. If at all, then there is a very small amount to come this year, if at all.

[Karl Green, Research Analyst]

Okay. Just one more quick question if I can just in terms of, Georg, your comments about expecting working capital improvement over the course of the year. Just in terms of understanding that fall in the working capital turns. How much of that was due to the very strong specialty chemical growth that you posted and how much of it was just chemical prices, timing mismatches et cetera, which are likely to reverse? I'm just trying to get a sense as to how we might see that working capital turn improve over the balance of the year.

[Steven E. Holland]

Well, there are 2 elements and I'll take over the first element. I mean clearly as we grow our specialty chemical portfolio, that is characteristically a lower turn business and that will certainly [ extend ] the case that we're growing our life science business probably faster than all of our other business at the moment. So we can see the effects of that. I would also point out that we are really looking at inventory turn at the moment because you may or may not be aware that there's been quite a number of shortages in the marketplace. There are some products in the group where we're slightly longer on the inventory than we might normally have carried because to overcome some of the interruptions in supply from suppliers. So some of that will unwinding during the course of the year.

[Georg Müller]

I think that's the essence of the answer, Karl. It mostly comes out of inventory turn and we will move through the inventory. We help the region through the inventory stage product by product to [indiscernible] situation.

[Operator]

The next question is from Daniel Buchta of MainFirst Bank.

[Daniel Buchta, Vice President]

I actually have 3 questions remaining. The first one would be again on your EMEA restructuring. I mean the cost aspect has been tackled already, but as far as I know it has also involved hiring new sales people in several countries. Can you share a bit of light on where we are here in that phase and when we can expect and yes, I would say topline acceleration from this factor? Second one on outsourcing, I remember at the latest CMD at London last year, you said that the consolidation in the chemical producer space could help with outsourcing for example Dowdupont or Bayer and Monsanto. Is there already something you can see in the discussions that might materialize? And the third one on digitization again, I mean on the chemical news portal ICIS, one can see that can [indiscernible] have launched their own pages at the Chinese online portal Alibaba and do you see these discussions becoming more stronger with your chemical suppliers and that they do these decisions and what does that mean for Brenntag? Thank you very much.

[Steven E. Holland]

Just in relation to the figures from our sales arrangement [indiscernible] at the moment, I can't really give you a very detailed answer as to how many [indiscernible] and which ones are we maintaining. Look at the performance of the business and you can see that we're in the right direction and I don't at all feel that the business is currently out of shape relative to its performance on sales. In fact, we are pretty pleased with the recruitment [indiscernible] and the conditions that we felt were needed [indiscernible]. In terms of digitization, I guess of course we see manufacturers looking at very strong market and we actually -- you may or may not be surprised that we have almost [indiscernible] to look at our own digitally business and see what we can do together, how we can work together and they can use some of our tools to help with their own operations. So I don't think there's an exclusive one way left or right [indiscernible]. I think I'm very likely that there will be some services that go to the digital platform, which [indiscernible]. if anyone looks at the Chinese example, a lot of products just traded is now on digital platforms, but there hasn't been a major shift in market share. It's just changing the way they do business. At this stage, there is no significant change that legally we track. As far as outsourcing is concerned and the market is obviously buoyant from positive chemical manufacturers and it's probably [indiscernible] in the past quite often when you get to the more extreme value, there are either downturns or an upturn and the appetite to effect change is even higher and it's certainly the case that we are in increasing conversation with major manufacturers to see how we can help and cope with the [indiscernible] currently now.

[Operator]

The next question is from [indiscernible] of Equinet.

[Unknown Analyst]

You mentioned in your report that the price for chemicals are up and several times also during the call. As you don't offer any split between volumes and prices, is it fair to assume that it's easier for a chemical distributor to list prices in such an environment? So is there also a strong price component within your growth numbers? And secondly, your competitor [indiscernible] also reported numbers that you're probably aware of and they posted even stronger growth rates. Is it fair to assume that specialties are on average going at a higher rate than other chemicals? Thank you.

[Steven E. Holland]

I would say that certainly our life sciences business, which is probably more into the competitor you referred to, is pretty buoyant and growing faster than the complete range of products that we offer. I mean that's probably I think a fair assessment. I think as far as chemical pricing is concerned, I think we should be pretty careful here because at the end of the day, the business is operating with 10,000 plus products across the range. Now there's price movement at all times going up and going down. We don't -- customers expect value from us on and there is a never ending opportunity to continue to increase our GP and in a rising environment, you have to be fair and then we are fair in that respect. So I think price volatility does allow us to recoup operating cost, et cetera. So in that case we welcome price movement, but at this stage I don't see any change in our business model.

[Operator]

The next question is from Rajesh Kumar of HSBC.

[Rajesh Kumar, Analyst]

Just to confirm, there have been no meaningful accounting changes since IFRS 15 has come into force. And the second one is on the inventory turn side, noticed that there has been a slowdown. Appreciate you pointing out there have been some supply crunches. Have you seen any pickup in inventory obsolescence or do you see any risk of that?

[Steven E. Holland]

Sorry, couldn't catch the last bit. What did you say? Sorry.

[Rajesh Kumar, Analyst]

Any risk of inventory obsolescence or write-downs?

[Steven E. Holland]

Let me say that -- well, the answer to the second, no. What I'm saying we extended maybe a number of product lines to cover essentially shortages or outages in my view. We are not carrying very long lead -- very long stocking levels in terms of our expected sales. So no, that was not the case actually. But I would say actually in terms of stock turnover and inventory management, we are more and more significant to using our various digital tools to make sure that if we are now moving stock in a far more effective way that ever happened before. So I think that's not been a problem.

[Rajesh Kumar, Analyst]

On the IFRS 15 one?

[Georg Müller]

What exactly are you looking for? The one that came in force now basically the IFRS 15 on revenue with customers, that has completely marginal impact of -- basically because we don't operate the contract business.

[Rajesh Kumar, Analyst]

Okay. So the big impact will be from the 16 one next one -- next year, isn't it?

[Georg Müller]

But that's still under -- 16 I'm not sure if everybody is aware in -- on the call is basically about the recognition of leases in the balance sheet and the P&L. That's still under evaluation. But from today's perspective, you have to assume that for each and every distributor including Brenntag you will have impacts from that one.

[Rajesh Kumar, Analyst]

If I may just ask a last one on the inventory point, just following up from what you said. Clearly, the supply crunches and there are -- you are stacking up inventory in order to keep the service level up. Do you accrue greater level of supplier rebates on back of that? It is a service you're providing to the suppliers?

[Steven E. Holland]

No, not at all. The service to the customers at the end of the day, it's a choice and we maintain -- we maintain stock to provide adequate service levels and if we choose to expand stocking levels certainly because we're not sure about the underlying service reliability or [indiscernible] then that's the choice we make parallel to service requirements. I'm not -- we don't certainly -- you have occasionally someone buying in large quantity just trying to factor a rebate, but that is not the case now.

[Operator]

[Operator Instructions] The next question is a follow-up of Sylvia Barker of Deutsche Bank.

[Sylvia Pavlova Barker, Research Analyst]

Just 3 quick ones please as follow-ups. So firstly on the inventory point, so you are holding more. Would you say the customers are actually stocking up themselves ahead of time so are you seeing any kind of not be stocking aside, but did you see any excess demand maybe in the first quarter from people actually stocking up? Secondly, just on your point of the acquisitions actually having contributed a little bit more than you expected. Is that mainly the U.K. acquisition and then how much would have actually helped the conversion ratio given that's a higher conversion ratio business if I'm not mistaken? And then finally just on the benefits from refinancing. Obviously, the roundtable you outlined what those might be, but would you just be more specific about what to expect on the interest line this year and next year, please? Thank you.

[Steven E. Holland]

In terms of the stocking, I think it's extremely sort of marginal. Maybe customers can figure market like we can figure market and if they're unsure, then they may take a view as we do if we feel there's a little surge in supply chain. But I think the actual emphasis is a bit more on us protecting the customer as opposed to the customer to worry too much about the products that they buy from us. Bear in mind they buy generally small quantities from us, but they are also buying large quantities, then maybe we should have [indiscernible] together.

[Georg Müller]

The U.K. acquisition, we announced U.K. acquisition towards the end of the last year, closed end of last year and that's a major part of the EUR 4 million acquisition contribution you have seen in the earnings bridge [indiscernible] a little bit ahead of plan but not materially in the group context and it's completely negligible in the terms of conversion ratio impact because in the op context and particularly the group context, it's just too small to have an impact. I think you also had a question of how to think about financial results this year. So the net financial result in Q1 was an expense of EUR 19 million. It's probably a reasonable run rate also for Q2, Q3 and Q4 should be a little bit cheaper because we have this 5.5% bond that we lost this year. So Q2 use another EUR 19 million and maybe EUR 16 million for Q3 and Q4 each and maybe pencil in another couple of million because we are just moving into the Indian market and India is a little bit high in financial expenses. So to cut a long story short, any number between EUR 70 million and EUR 75 million on a full year basis is a good number.

[Operator]

There are no further questions, I hand back to the speakers.

[Steven E. Holland]

Once again, well, thanks very much for everyone joining the call this afternoon. We appreciate your time. Thank you. Goodbye now.

[Operator]

Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.