Operator: Dear ladies and gentlemen, welcome to the Q1 2020 Results Call of Brenntag AG. At our customers' request this conference will be recorded. As a reminder, all participant’s will be in a listen-only mode, and after the presentation there will be an opportunity to ask question. [Operator Instructions] May I now hand you over to Christian Kohlpaintner, who will lead you to this conference. Please go ahead sir.

Christian Kohlpaintner: Thank you. Welcome, ladies and gentlemen to the results call for the first quarter 2020 of Brenntag AG. I am Christian Kohlpaintner and I'm here together with our CFO, Georg Müller. Today we will walk you through the details of our business development in the past quarter during these extraordinary times. I will start with the highlights and Georg will provide details on the financials for the first quarter reporting period.

Afterwards, I will talk about the progress we have made in our holistic diagnosis. Now I'll provide an overview of the business development in the first quarter. Due to the COVID-19 pandemic, we are all facing very special and unique circumstances both in our private and business lives. I'm going to speak about the impact of the virus on our operational and financial performance in more detail on the next slide. Despite the challenging environment, we accomplished a solid performance and the company demonstrated the resilient nature of its business model.

The group generated an operating gross profit of €745 million, an increase of 7.1% on an FX-adjusted basis. Operating EBITDA grew by 8.7% and constant currency, amounting to €263 million. At €162 million, the free cash flow was about at the same high level, we achieved a year ago. Also we saw improvements in working capital management. Finally our EPS amounted to €0.74 in the first quarter.

I would like to emphasize that on the one-hand we implemented a global crisis management and on the other hand, continued to work on the long-term position of our company growth at the same time. Our General Shareholders' Meeting is planned to take place on June 10, 2020. In order to proceed with the original envisioned timeline, the Supervisory Board and the Management Board have decided to go ahead with a full virtual General Shareholders' Meeting without physical presence of shareholders. We confirm our dividend proposal of €1.25 per share as communicated in March. Of course, this is subject to the approval by our shareholders.

Our confidence in the resilience and cash-generating nature of our business model enables us to maintain our reliable dividend payments. It is fair to say that the spread of the coronavirus came unexpected in speed and scope for every one of us. Against this background, we managed to handle this crisis very well globally so far. As you can see from our solid results, we had only a limited impact on our business activities and financial performance in Q1. Of course, our primary goal has been and remains to ensure the health and safety of all our employees and business partners.

We have set up a global crisis task force and put our extended business continuity plans in place. We have no meaningful business disruptions. And as of today, basically all of our sites were fully operational. Brenntag has proven its ability to deal with challenging conditions and circumstances. Looking into the near-term future, we do see a high level of uncertainty and the situation around the world is quite dynamic.

The diversification of our company strongly supports our resilience. Our global footprint and the regional spread will help us to cope with the challenges in times of crisis. We are servicing a broad and diverse range of industry segments with a customer base of around 195,000 customers in total. What we also deem important in the current situation is our strong financial profile. Firstly, we don't have immediate debt maturities.

The next main maturity is due only end of 2022. And secondly, we have close to €600 million cash on our balance sheet plus around €600 million of committed and undrawn credit lines. Clearly this crisis is not over yet and the high level of uncertainty will remain in the months to come. Of course, the work of our crisis task force continues and the management team keeps monitoring the business development closely. We feel well-positioned to deal with the challenging environment.

With this, I would like to hand over to Georg to lead us through the numbers.

Georg Müller: Thanks Christian, and good afternoon. I will speak about the key financial figures for the first quarter 2020, starting with the development of operating EBITDA. The slide presents a bridge from the first quarter 2019 to the first quarter 2020. Operating EBITDA amounted to €239 million in the first quarter a year ago.

The translational of foreign exchange effect was almost negligible at a positive €3 million. Our acquisitions contributed €9 million to the EBITDA growth in the quarter. In Q1, particularly EMEA and Latin America showed a positive organic earnings development both with double-digit growth. North America declined by 6% organically mainly driven by the weakness in the oil and gas customer in Q2. Asia Pacific reported a positive organic growth of 2%.

As a side note, the fair share of the M&A contribution is allocated to Asia. On the next slide, let me provide some details of the business development in the regions. Despite the difficult environment, the company stayed fully operational in all regions. In EMEA, we showed a very strong result in the first quarter. Most of our customers kept their business operations up despite the crisis.

Within our portfolio, some customer industries performed particularly strong, for example, the food industry or the cleaning industry. Almost all countries in EMEA contributed to the growth. Gross profit grew by 13% on a constant currency basis. Operating EBITDA increased by 21%, whereas 19% is organic growth. So with that underline the strength and the resiliency of our business.

This is a good platform to build on even if the environment should get more difficult going forward. And coming to North America. The Q1 results were clearly impacted by the weakness in the oil and gas customer industry, which in turn is mainly attributable to the significant decrease in the oil price. In particular, the demand of our customers in the upstream business was hit. Like in Europe, we saw good business development in other customer industries.

However, this could not compensate the weakness in oil and gas fully. In total, gross profit in North America was on last year's level. Operating EBITDA decreased by 4.6% and by 6% organically. Latin America reported good results in a still volatile environment. In the quarter, we were able to grow operating gross profit by 16.5%.

Operating EBITDA increased by 25%. Organically this was an increase of 16%. We are also satisfied with the results we reported in Asia Pacific. In Q1, the business in China was clearly most affected by COVID-19 given that there was a comprehensive shutdown in January and February. However, production in China is now getting back to normal, which we have also seen reflected in our business.

Gross profit in the region increased by 9.5% on a constant currency basis. This was also supported by acquisitions mainly TI in Singapore. Operating EBITDA increased by 20%. Organically, this was an increase of 2%. In summary, we navigated well through a difficult operational environment.

We kept the business fully operational and we delivered an increase in earnings. The uncertainty about the next quarters remains high and we stay very close to our market. I will skip slide number 8, which includes a full set of segmental figures for your reference. Let me address the income statement particularly the lines below operating EBITDA on page 9. We report a special item amounting to an expense of almost €7 million.

Christian already addressed and he will speak further about the progress of our holistic diagnosis, so, special item relates to expenses for this effort. Depreciation amounted to €64 million financial results amounted to a net expense of €24 million. The earnings per share stood at €0.74, compared to €0.68 a year ago, an increase of around 9%. Free cash flow was at €162 million almost at the very high level achieved in previous years. And let me emphasize that comment.

Q1 2019 was a very high free cash flow in historic context and we almost matched that number in the first quarter this year. As you see from the cash – free cash flow detail, CapEx stood at €45 million. And let me add a technical remark, since January 2019, we apply IFRS 16 for rental and leasing. In the interest of a consistent presentation, we deduct payments for rent and lease from the free cash flow. On the subsequent Page 11, you can see that our net financial liabilities amount to €2 billion.

This already includes capitalized lease liabilities under IFRS 16. The leverage stands at 2.0 times. Please note that the leverage calculation does also include the capitalized lease liabilities. In the text box on the right-hand side we give the indication that this calculation method increases the leverage by about 0.2 times. These days we get plenty of questions on financial covenants.

Our syndicated loan is the only instrument containing a financial covenant. The government requires the leverage to stay below 3.46 times. You see, we have plenty of headroom. In the current situation, which is characterized by a high degree of uncertainty due to the impacts of the COVID-19 pandemic, I want to emphasize once again Brenntag's strong funding profile. We have a very balanced and very long-term oriented maturity profile.

The first main maturity comes up only towards the end of 2022. In addition, we have more than €500 million of cash on our balance sheet and further €600 million of undrawn and committed credit facilities. As you can see on the next slide, our working capital amounted to €1.7 billion at the end of the quarter. Increased attention on working capital management had achieved a working capital turn improvement to a level of 7.3 times. In summary, we are satisfied with the financial results of the quarter.

We delivered earnings growth, a high and stable cash flow as well as an improved working capital management. I'll pass the presentation back to Christian.

Christian Kohlpaintne: Thanks, Georg. With a publication of our full year 2019 results, I talked about the strength of Brenntag and the solid foundation we already have. We are the global market leader with a prudent and a strong business model.

Our diversification makes us very resilient and the company is financially sound. This is a very strong setup in a crisis like the one we have at the moment. However, in the past years Brenntag was not able to grow earnings organically. We as a management team are convinced that organic earnings growth can and has to be achieved in a market like ours and with our position. In order to address this in a different and more effective manner in the future, we have started a holistic analysis at the beginning of the year.

The efforts we make with this approach will lead to our overall objective and improvement of our business performance, particularly the generation of sustainable organic earnings growth. I would like to emphasize that in the challenging environment over the past quarter, we dealt well with both the short-term crisis management and the continued work on the long-term positioning of our company. We have made good progress on our holistic analysis and the work carries on unaltered in scope and in suite. We are following our agenda and our objectives have not changed. Based on the first findings, we are currently detailing out conclusions, defining distinctive initiatives and creating an overarching plan for implementation.

For this purpose and as we have entered into a new phase, we have now created Project Brenntag. This is a comprehensive project, where we have allocated substantial, dedicated internal and external resources. Let me provide some more details of what Project Brenntag is all about. Project Brenntag helps us achieving our overarching objectives. For the time being, the project is focusing on the following four major

work streams: first, our operating model; second, our go-to-market approach; third, our site network optimization; and fourth, our people and change.

I would like to clearly point out that the project is not limited to these work streams. These are the major structural changes we are targeting. In addition to that, we have also identified short-term levers, such as indirect procurement, working capital management and margin as well as pricing management. Project Brenntag will be an extensive exercise. Today, I will share our current thinking with respect to the four major work streams.

I'll start with details on the first work stream operating model. Brenntag is the global market leader in full line chemical distribution. This high degree of diversification has a lot of advantages. Due to our international footprint, we are already quite close to our local customers. We can leverage scale effects within our strong network across the industry segments, which we are serving.

Our broad product portfolio allows us to individually service our customers with tailor-made offerings. We are not dependent on senior customers or suppliers. This diversification helps us to generate resilient results also in difficult conditions. Having said this, full line chemical distribution will remain the core of Brenntag's business model and Brenntag continues to offer the most comprehensive portfolio of products and services. However, we have to sharpen our profile towards relevant industry segments.

This will expand our service offering and strengthen our position as a solutions provider. As a part of Project Brenntag, we are evaluating how we can further develop our organization et cetera in order to create a stronger focus on attractive industries, while at the same time better utilizing our scale as a global market leader. We are going to get the leverage our specialist knowledge in these industries. This will lead to strong and long-term partnerships with our customers and suppliers. The future operating model includes a centralized management and steering approach.

Brenntag will further develop its back end business support processes. Based on this approach, we envision fit for purpose and cost-efficient functions and business support services. This means that we will modernize, harmonize and standardize our business support processes and build advanced shared services for Brenntag. Beginning of March, we already talked about the importance of customer management and the value delivery to our customers. This will be reflected in and focused on with our go-to-market approach, our second work scheme.

We are going to create a more targeted and differentiated customer approach based on an advanced and stringent customer segmentation. This segmentation provides benefits for our customers and suppliers as it will help us to better respond to the individual needs of our customers. We will leverage our strong industry segments knowhow drive our segment-specific offerings and provide the required customer focus. In order to achieve this, we will adapt our sales organization. The goal is to reduce complexity and to increase the focus within our front-end sales organization.

This will come with an optimized and tailor-made deployment of our sales force. The new setup not only permits an easy closer proximity to our customers, but also an overall efficiency gain for our organization. The third work stream of Project Brenntag is called site network optimization. Brenntag has grown significantly over the last decade also through acquisitions and so has our site network. Currently, we are operating around 640 sites globally.

In light of our growth and earnings conditions, we also see a significant potential to optimize this footprint on a global basis. Here, we see the largest opportunities in our regions EMEA and North America. We are well advanced in our comprehensive analysis of the network and are considering carefully amongst others topics such as customer proximity, service levels, capacity utilization and strategic locations. Coming to our fourth work stream people and change, chemical distribution is a tedious business. And we can only be most successful in the team that follows the same values and leadership principles.

With the transformation the company is going to go through now, we also have to take care about getting and retaining the best people onboard. The competence and leadership skills needed for the transformation will be defined and developed thoroughly and will be reflected appropriately in our organization. The initiatives, which will be implemented within Project Brenntag strongly depend on the execution skills of our leadership team. Ladies and gentlemen, the transformation of our company will be a comprehensive journey. Project Brenntag is an extensive exercise with a significant scope and wide-ranging consequences.

We are going to build on the solid foundation we already have and will create a strong basis to drive sustainable organic earnings growth. The Brenntag management team is committed to clear and transparent decisions. We will implement measures to drive change, and we'll focus on diligent execution to unlock the full potential of our company. We are determined to open a new chapter for Brenntag. As you can see, we have made good progress over the last couple of weeks.

We are now working on the details and currently preparing the decision-making. We are going to keep you informed about the progress and the results of Project Brenntag before the summer break. Now, I would like to turn the focus to current year 2020. Since we published our forecast in March 2020 the world has changed materially and the uncertainty around the expected effects of COVID-19 has increased considerably. Therefore, at the beginning of April, we have suspended our forecast for 2020 as outlined in the annual report.

We see a high degree of uncertainty and expect continued challenging business conditions as we progress into Q2 and the second half of 2020. Depending on how the spread of the virus continues, we cannot rule out a greater impact on the demand side. Also it has to be seen how effective the measures of the different governments are. This might also influence our financial performance over the coming months. Of course, our top priority is to maintain the health and the safety of our employees, while at the same time secure the supply for our customers.

The forecast will be updated as soon as it appears the pandemic has been contained and the effects on Brenntag's further business performance in 2020 can be reliably determined. Finally, let me walk you through our road map for this year. I'm delighted to say that we are fully on track. The Supervisory Board and the Management Board have decided to go ahead with our General Shareholders' Meeting as planned on June 10th. Due to the coronavirus and measures associated with this, the event will be held as a virtual General Shareholders' Meeting.

Also, we still plan to inform the capital market about the progress we make before the summer break. However, we have to decide in which form and shape we can do this once we have more clarity on how this crisis develops. With that, I would like to conclude and now Georg and I are more than happy to answer your questions. Thank you very much.

Operator: Ladies and gentlemen, we will now begin our question-and-answer session.

[Operator Instructions] And the first question is from Daniel Hobden, Credit Suisse. Your line is now open. Please go ahead.

Daniel Hobden: Hi guys. Thanks for taking the question.

Just three if I may. I understand the challenges you're looking at and the visibility that we have. And I understand from the full year results I think you're looking to step away from monthly sales trends or monthly performance. I was just wondering given the challenges that you've seen if there was an indication maybe about how March and then into April, what sort of performance you've seen and maybe how that had changed? Second question is around the sort of €7 million special charges or exceptional charges. I was wondering if you had any visibility or ideas about how we think about them going forwards for the next couple of quarters.

I mean I think I was looking through the results release and in fact sort of the dividend clearly remains in play and as does M&A going forwards. I was just wondering if you could sort of provide any more flavor on M&A and if you're seeing any opportunities in the market at the moment? Thank you.

Christian Kohlpaintner: Let me start with the more simple question. That's -- Georg what we probably could take. This is the €7 million charges.

I mean Georg maybe you can talk about this in the other two main topics.

Georg Müller: Yes Dan hi. The €7 million charges we are addressing for Q1 almost completely referred to consultancy fees in the context of the project. And I would expect the consultancy fees on a similar level to roll to Q2. See more relevant parties whatever initiatives that measures we decide in the context of Project Brenntag will have clear benefits but they may also have additional cash out.

And we will provide clarity on those cash out in our next capital market update.

Christian Kohlpaintner: Again, we refrain from giving you monthly indications of how our business is doing. I think overall, when we look at the first quarter there was I would say solid demand in most business areas in most industry segments we are serving. Particularly, also in March, we saw a good uptick in demand. But again, across all segments a few exceptions I must say of course the ones we have indicated before which are impacted by that.

And so from that perspective not specific about the quarter. We do, of course, expect for the second quarter that there could be impacts on the demand; how strong it will be we need to see for the whole quarter. But again we look industry segment by industry segment and things can be quite different here and there. On M&A situation I believe it is clear to everyone. I mean currently the M&A markets are a little bit slow.

We are not deviating from our typical guidance we have around M&A to spend €200 million to €250 million every year for this activity. However we need to see now which kind of opportunities could develop. We stay alert and open and monitoring very closely what opportunities could develop. We have certain projects in our pipeline which we continue to explore and continue to develop. So I think there's no fundamental change in our strategy and our guidance to how we deal with M&A.

Daniel Hobden: Got it. Thank you.

Operator: And the next question is from Rory McKenzie, UBS. Your line is now open. Please go ahead.

Rory McKenzie: Good afternoon. It's Rory here. My first question, again about kind of the current business trends, so obviously in Q1 gross profit was really stronger than expected and you called out cleaning and food and nutrition as two strong areas. Do you think the business benefited from volume seeing any pre-stocking in those areas? And have you also seen in maybe disruptive markets more new customers getting pushed into the -- I guess distribution channel? Obviously, you hold those inventory you got a bit availability. Do you think that helps your -- I guess maybe some more of your pricing metrics going to help to boost Q1?

Christian Kohlpaintner: I think we cannot exclude that there could be here and they are pre-stocking.

I mean this is I think a very normal behavior which you would see in such a situation. Again it is -- we saw the demand across the industry segments besides the one who are weak relatively good. So from that perspective, we cannot exclude this, but I would also not put too strong an emphasis on that. On the new customers that's I would say difficult to say because also suppliers at this point of time of course are more interested in a stable relationship with distribution partners. And so handing all the business in these kind of situations cannot be expected and should not be expected.

So we saw here and there maybe some opportunities for Brenntag because of availability because of our global -- global presence here and there, but it's not a broad movement. I must say that we can really say we have gained a lot of new customers clearly during this kind of crisis.

Rory McKenzie: Thank you. Okay. And then maybe turning to another metric within your top line to kind of the gross profit per tonne that it sounds like a source of like good expansion maybe through the first quarter, is that mix? Or do you think that given the price volatility that you've seen the business actually manage to perform quite well and being quite commercial with its maybe approach to pricing in some products?

Georg Müller: Rory hi, it's Georg.

It's all of the above. That gross profit per tonne developed favorably. There is a certain mix effect in there particularly to more smaller quantity warehouse orders and a little bit away from the buyer side of orders which does help gross cost profit per tonne. Obviously there is also an underlying favorable development in a number of product groups.

Rory McKenzie: Okay.

Understood. And then just last one for me. Can you talk about how you prepared your cost base as you head into Q2? For example how many of your staff do you have on short time working schemes or other furloughing schemes?

Christian Kohlpaintner: See you see that the business development in Q1 was actually pretty good. So we run on relatively high levels of capacity utilization in challenging circumstances. So we need all hands on deck.

And the gross profit development actually warrants that. No question there is a high degree of uncertainty going forward. And we are very, very tight with respect to hiring. I could almost say we don't hire and we drive down temps wherever possible.

Rory McKenzie: Okay.

But -- so there's no real comment on the use of furloughing schemes or similar at the moment?

Christian Kohlpaintner: There is. Furloughs for example in North America, but to a very small degree again because the volume development, the business development is still a healthy development, but the concept exist that we can extend if necessary.

Rory McKenzie: Understood. Thank you.

Operator: And the next question is from Tom Burlton Berenberg.

Your line is now open. Please go ahead.

Tom Burlton: Hi, good afternoon guys. Thanks for taking the questions. I've got a few if I can.

Firstly just on EMEA on that very strong performance. I wondered if you can give any more detail you called out a couple of the sort of end market segments which performed particularly well; Food Nutrition for example, can you remind us how big that is within EMEA and actually the group level actually and perhaps how that trended specifically through the quarter? The other question divisionally in terms of North America oil and gas, if I'm not mistaken is about 20%, 25% or so of that business. In the past sort of coming back to 2015-2016 when we had a oil and gas crisis you for a period of time called out what that segment was doing? Can you say where oil and gas was, sort of run rating towards the end of Q1 or in March? Or any sort of color on the development of that market would be helpful. And then one final question, just following up on Rory's comment on the furlough schemes and use of those furlough schemes. Obviously, you've committed to paying the dividend.

Does that limit the -- your ability to access any of the furlough schemes in any of your good geographies, for example? I know in some countries there's issues where if you're accessing those schemes and paying dividends, I think that can be a problem. Do you see any issues there?

Georg Müller: Okay. I think, I start and then Christian, of course, can jump in. And the reference we made to a particularly healthy development in food and nutrition and to a degree also in cleaning was more meant as examples for strong industries. Actually, the vast majority of our customer industries is developing positively.

So maybe we should more have pointed out the negatives spots, instead of giving these two positive examples and the negative spots are obviously oil and gas North America and to a degree the lubricants industry. Actually most other customer industries are in varying degrees developing pretty, pretty nicely. On your particular point food -- in EMEA food and nutrition in EMEA is good double-digit growth. So some day at 12%, 13% on a gross profit level. And it accounts for roughly 13% of the business in EMEA on that particular one.

As you point out and I'm changing to the next question, we reconfirmed our intention to pay the dividend on the 2019 earnings of €1.25 per share subject to approval of the General Shareholders' Meeting on June 10. It's important to us because we have a resilient invest generative business model. We are a reliable dividend payer. And through acting this way, we want to reconfirm and reassure the market of this. We do not expect to make extensive use of furlough schemes in the Bavarian countries.

As of today, I'm not aware of any furlough scheme that actually prohibit us of paying the dividend. Does that answer the question Tom?

Tom Burlton: Yes. I mean, just maybe outstanding points on the oil and gas and how that trended, sort of, in Q2 specifically if you could?

Georg Müller: As you say, oil and gas is a good 20% of our business in North America and it's very, very tiny in the other regions of the world. In Q1, the gross profit of the oil and gas business was about 9% down against previous year, but the trend is pretty negative. So I would expect the declines to be stronger in Q2 and potentially Q3.

Tom Burlton: Okay. That’s helpful. Thank you very much.

Georg Müller: Sure.

Operator: The next question is from Markus Mayer, Baader Helvea.

Your line is now open. Please go ahead, sir.

Markus Mayer: Coming back to oil and gas, you have also recently acquired some oil and gas distribution assets. In this current environment are there the impairment risks? And maybe also can shed some light how you do and what kind of basically assumptions you are planning testing is based on? The second one is on Asia. What would have been that underlying earnings growth in Q1 excluding the Tee Hai Chem acquisition? And then the last one is most likely on Christian.

Has the current crisis have discussed an impact on the potential changes you have in mind for Brenntag? Are there any changes will happen faster or fewer? That would be most helpful? Thank you.

Georg Müller: Answer the question.

Christian Kohlpaintner: Yes, I'll take the last one. As I said we have managed to handle both. So it was, of course, a short-term crisis management necessary.

And I think we have overall managed this relatively well. But at the same time, we did not let go on our focus and our change to prepare a solid foundation for the future. So we stay the course. We are exploring the opportunities and developing Project Brenntag unchanged. And so we are currently not decelerating the effort, which is running at high pace.

So that's managing basically the short-term and the long-term necessities and requirements of the company in the same time. I think on the impairment topic, I will hand it to Georg and also maybe Asia the impact of Tee Hai, I think, he can also answer.

Georg Müller: Let me take the impairment question first. We do test our intangibles for impairments obviously on a cash-generating unit basis which equals the segment in the case of Brenntag. So we test on Asia on North America on Latin America on EMEA and on the group.

We had the last fully comprehensive impairment test based on the results of 2019. And you see a full elaboration of the impairment test in the annual report with very significant cushions. Now after Q1 and given the corona crisis, we did not go through full impairment test because we do not see a triggering event. We, obviously, cross-checked our assumptions against the sensitivities we laid out in the full year. And for the time being, we do not see any impairment risk.

The oil and gas business in North America is not a separate cash-generating unit. So there will not be an impairment specifically on that overall small part of the business. Earnings in Asia in Q1, obviously, we do show an EBITDA increase for Asia of 20%, which is predominantly or to a very high degree TI acquisition related. The organic earnings growth in Asia in Q1 is 2%, still a positive number. And if you consider that China is part of the organic development and China was in a very comprehensive shutdown in January and February, we do think the 2% positive organic growth to be a pretty positive number for Asia.

Markus Mayer: Okay, perfect. Thank you and congrats for the result.

Georg Müller: Thank you.

Operator: The next question is Chetan Udeshi, JPMorgan. Your line is now open.

Please go ahead.

Chetan Udeshi: Yeah, hi. Thanks for taking my questions. I just had one question. I think to some extent similar to the previous question on, can you help us understand the trajectory of demand you saw through Q1? And the point I'm trying to get is, again similar, how to think about the divergence between say the end market growth versus what you guys did especially in EMEA in Q1? And in other words have you seen any slowdown from the trends you saw on the end of March and what you saw to the end of April?

Christian Kohlpaintner: Again, I think we try to refrain from monthly judgments.

We can talk about business dynamics. Business dynamics is certainly clear that while we are going from Q1 into Q2, the business dynamics become softer. And we do expect impact on the demand side as we go further into Q2 compared to Q1. I think this is obvious that this will be the case and we cannot overcome this totally.

Chetan Udeshi: Understood.

And can you help us understand -- maybe this is for Georg. What is the approximate split would you say in your cost base between variable and fixed costs? So I mean just for our center would be analysis if you want to stress some models and say okay the volumes are down, 10%, 15%, how much can the cost come down in that environment?

Georg Müller: Yeah, I tried to answer, but would caution you -- caution the oral audience a little bit, because obviously the question of cost variability relative to volumes. It's also a question of time access. In the long run everything is variable obviously. On the very short run, so what is equal the automatic cost reduction together with the volumes, I would say the immediate effect is probably around 30%, maybe 40%.

So $1 of gross profit generated less through volume decrease would lead to a cost savings of $0.30 to $0.40. But really take it with a grain of salt. If you think somewhat longer term, six months a year I would give you clearly a higher number.

Chetan Udeshi: Thank you.

Operator: The next question is from Peter Olofsen Kepler Cheuvreux.

Your line is now open. Please go ahead.

Peter Olofsen: Good afternoon, gentlemen. Two questions left for me. The first question is on what you call Project Brenntag, where you state that you will sharpen your profile.

Does that mean that you plan to deemphasize activities in certain industries or regional markets, or what do you exactly mean by sharpening your profile? And then a question for Georg, what do you anticipate in during the full year CapEx?

Christian Kohlpaintner: Just to make sure I listened well to the question. The question in the context of Project Brenntag was particularly, if we want to deemphasize certain regions or customer industries right?

Peter Olofsen: Yes because also in the interim report you're right that we want to sharpen your profile and trying to understand what does that mean sharpening your profile?

Christian Kohlpaintner: Okay. Yeah, let me take the Project Brenntag question and then Georg will answer the question around the CapEx. Sharpening a profile, I think I have spoken to the last couple of months since we had interactions, but I believe that Brenntag needs to have a much different approach towards certain industry segments. And even before I joined, there was the exercise and the higher [ph], we call it, that way to create a food and nutrition business to give this a sharper profile towards that specific industry segment.

And I believe there are more industry segments where we should explore, and develop our thinking of how can we tackle those markets better than we currently do in our current setup. That does not mean that we are giving up areas or we are deemphasizing any areas, because even, let's say, in a non-specialty area, you can sharpen a profile by being very clear on what customers expect and that's delivering a tonne of caustic soda at the lowest cost you can. So I think this is what we mean with sharpening. Clearly understanding what is driving an industry segment, what is driving the customer behavior and the buying pattern of those customers and sharpening our profile there, which is also very clearly in line with what our suppliers expect us, who want to sell their products in certain industry segments, more successfully. And this is what it means by sharpening the profile.

Georg Müller: Yeah. On the CapEx number, it's kind of a related answer. In the context of Project Brenntag, particularly the work stream of site network optimization, we are also thinking and rethinking CapEx, and I really can't give you a good number for 2020 at this stage. It will become part of the update that we plan to give the capital market before summer.

Peter Olofsen: Okay.

We wait for that done. Thank you.

Georg Müller: Sure.

Operator: The next question is from Isha Sharma, MainFirst Bank. Your line is now open.

Please go ahead.

Isha Sharma: Hi, Georg. Hi, Christian. Thank you for taking my question. The first one would be around the conversion ratio at EMEA to improve meaningfully.

Could you tell us how sustainable this is? And is there some temporary mix effect there? My second question would be, correct me if I'm wrong, but I assume that you have a relatively high exposure to smaller business players, due to the potentially higher financial impact in the current crisis on these counterparties do you see any credit risk for Brenntag? Those would be my questions. Thanks.

Christian Kohlpaintner: Let me start with the credit risk question. But indeed, in distribution you service -- a good part of your customer base and distribution is SME. So you have to deal with SME credit risk.

But we are very experienced in judging on credit risk and in collecting. Don't forget that we also typically deliver customers with repetitive orders, so we always have the tool in our hands that the customer will make sure as long as he can to pay our invoices, because otherwise we would cut him from a subsequent product stream. I would also point out that, particularly in EMEA, not necessarily globally, but particularly in EMEA, we have a good share of our customer base credit insured. So through our processes, through our tools, through the credit insurance, credit risk is actually a pretty limited risk for us as you can see that over many, many years of history. In the current situation, we do continue to see very sound customer behavior, very sound customer payment behavior, with a very few exceptions almost no increase in overdues.

We are observing and cautious nevertheless. And if you go through the details of the quarterly report, you can spot that we actually provisioned about €3 million for bad debt. They usually we -- in Q1 we would provision maybe €1 million. So we are taking some balance sheet precaution already, but in the context of seeing this as a very low risk.

Isha Sharma: Thank you.

Georg Müller: Conversion ratio...

Christian Kohlpaintner: Yeah, conversion ratio in EMEA, I would rather refrain from answering. Obviously, Q1 was a very, very strong quarter for EMEA, and that shows in very different KPIs. It shows in gross profit. It shows in EBITDA.

It also shows in conversion ratio. I have all expectations that the conversion ratio in EMEA will develop positively. But can I say Q1 is easy to repeat it? No, I can't.

Isha Sharma: Understood, but I just wanted to understand, if it is more because of cost alignment? Or is it because of the mix effect? That would be super helpful, if we don't get the flavor.

Christian Kohlpaintner: A fair degree of conversion ratio development in EMEA in Q1, is attributable to the very strong cost profit.

Isha Sharma: Okay. Thank you.

Christian Kohlpaintner: Sure.

Operator: The next question is from Mutlu Gundogan, ABN AMRO. Your line is now open.

Please go ahead.

Mutlu Gundogan: Yes. Good afternoon, everyone. A few questions from my side. So, the first on your gross margin, obviously this increase quite a bit year-on-year to 23.2%, and also driven by three out of four operating segments.

So it is almost if a company-wide development, except North America. Can you tell us whether this uplift is sustainable?

Christian Kohlpaintner: Yes. I'm hesitating to answer Mutlu, because it was profit relative to sale. So what you call the gross profit margin, nothing which is a major KPI for us. It is not a percentage of sales business.

It is a volume and gross profit per unit business. The improvement you mentioned is to a degree attributable to year-over-year, somewhat lower chemical prices, without harming our absolute gross profit and that's exactly what you would expect from our business. So percentage you quote is sustainable if you assume a stable level of chemical prices. So this being more a technical explanation. The more relevant point for me is, gross profit in our business is very, very resilient.

And I would not expect any gross profit shocks going forward.

Mutlu Gundogan: All right. Thank you. And then, a second question, you already indicated that some industries did better. And we know that from mid-March there was some hoarding at consumers and probably also maybe industrial clients.

So what is the risk of an unwinding of that? I would assume that certain sectors are probably slow to unwind, but it could be, for example, I've heard stories of certain customers buying a year's worth of volume in the first quarter, just to be certain that there would not be any logistical issues. Is this something that you've seen?

Christian Kohlpaintner: This is a distribution business. So we delivered less -- mostly less than truckloads, small quantities to our customers. And while we have seen a positive development in Q1, we have not seen any buying pattern that indicates material pre-buying in the order of magnitude you mentioned. As we said, we cannot rule out there is an element of pre-buying, but that should be limited in the context to the degree we can tell.

The more relevant question is from our perspective, will the industry, will we experience further reductions in demand just because the production processes at our customers are not fully running. Hopefully, not, but that's the uncertainty we have to deal with.

Mutlu Gundogan: Right. Understood. And if I can squeeze in one final question.

I understand that you want to move away from monthly trading updates. I think that's very logical. But, obviously, this is a massive crisis with what is expectedly a significant drop in demand in Q2. So a lot of cyclical companies have given monthly numbers in terms of what volume development is. Is that something that you would be willing to give March, April and perhaps an order book indication for May?

Christian Kohlpaintner: I think you said cyclical companies are giving that to you.

Don't think we are a cyclical company. No, joking aside. I can't give you a monthly number. If it provides some comfort, April does not give any material negative indication that we should convey to you, it doesn't. But it is May and June outstanding for the quarter and it is an uncertain route.

Mutlu Gundogan: Okay. That’s helpful. Thank you very much, guys.

Christian Kohlpaintner: Sure.

Operator: And we have a follow-up question from Tom Burlton, Berenberg.

Your line is now open again. Please go ahead.

Tom Burlton: Thanks, guys. Sorry, just one follow-up from me. Just trying to reconcile some of the comments.

I know you won't give us kind of April run rates. But just thinking about, kind of, historically Brenntag's been sort of something of an industrial production type proxy. And I think kind of consensus views among the economists is IP drop of sort of minus 14%, 15% in Q2. And I'm just trying to square that back with the comment on the fixed or variability of the cost base. If you're only able to take out sort of $0.30 on the $1 of a gross profit decline, how to think about that? And also if you're not using any furlough schemes as of kind of the end of April.

Maybe specifically what the question is as well, is on the personnel expenses that sort of 60% of sort of OpEx. What's the sort of split within that are fixed versus variable remuneration? Is there a lot you can do in terms of bonuses? Is there a lot of sort of slack there where you can move the needle on cost to offset some of that perhaps volume decline that those industrial production sort of estimates would imply?

Christian Kohlpaintner: And we have the same desire that you have, to predict the future and to work with the model. It is not easy in these times, because you have to put in three, four, five 10 key assumptions. And every of these key assumptions is highly unlikely. I hear what you say about economics forecast on industrial production, but how certain is that? So, nobody knows.

And I don't want to make those numbers my own numbers. In terms of your specific questions on personnel expenses, you're right. Roughly 60% of our expense base is personnel expenses. The majority of those expenses are of fixed salary nature. So that will -- if a super material gross profit hit were to occur and I wouldn't necessarily expect that it on long term, but if it were to occur it becomes a question of headcount.

Tom Burlton: Okay. That’s helpful. Thank you very much.

Operator: There are currently no further questions. [Operator Instructions] And the next question is from Christian Cohrs, Warburg Research.

Your line is now open. Please go ahead, sir.

Christian Cohrs: Yes, hello. Thanks for taking my questions. Just two left for me.

First of all, you improved your working capital count in the first quarter. Is there -- are there any measures you have taken? Or is this just more coincident? You elaborated a bit on the four work groups for the Project Brenntag, so that actually means that that you're more focused on efficiency and growth, but not on cash flow and working capital in particular? And second question oil and gas is weakening and most likely we can close that in the second quarter. Have you elaborated any rightsizing measures with regards to your safety because I assume it will -- yes volumes will come down quite heavily in the months to come? Thank you.

Christian Kohlpaintner: Yes. I'll talk first about the work streams.

Again it's -- as I said, these are the four major work streams to address structural changes we have in mind for the company. But at the same time, we have also other work streams which are addressing the more short-term leaders. And this is -- working capital management is just one example. And so from there, we have certain initiatives to improve our working capital management and to a smaller extent, you can see this already reflected Q2, but also other impacts have led to that improved working capital turnover, which we can report on the first quarter. So the work streams as I said are not only related to cost and growth, we're also looking on cash flow.

We're also looking at working capital improvements. On the oil and gas business, I think Georg has elaborated already this. There is of course a lot of uncertainty around the oil and gas business also around the sectors in the oil and gas business which we need to do of course very closely monitor and the important part of our North American business in particular. And there also coming back to a question before of course assuming what the second quarter is predicted from an industrial production standpoint of view and other things. This is something which we are awfully aware of and that we are clearly tightening our belts, while we're going from the first quarter into the second quarter in fact and as early as possible to the movements we can see.

And this is a particularly true for the oil and gas business. So, here it's very clear that to stay alert that we stay alert about customer behavior, that we stay alert about our cost position, that we stay alert about our inventories and everything we have in that business. But this is normal management I must say in such a situation, so nothing really special around this.

Christian Cohrs: Okay. Thank you.

Operator: [Operator Instructions] And there are no further questions at this point. So I hand back to the speakers for closing remarks.

Christian Kohlpaintner: Well, thank you very much again for participating in the call. We're very happy to be able to show solid results to you and to the investors on the financial markets. I think it is another proof point of a resilient business model brinked by care with strong foundation, we can build upon.

And I'm very much looking forward to give you an update before summer and how we have developed Project Brenntag and what the outcome of it is and what you can expect, so looking forward for further interaction in a couple of weeks with you. Thank you very much.

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