Brenntag SE: reports volume and gross profit growth in Q3

Essen (Ruhr) / DE. (bag) Germany’s Brenntag SE, the global market leader in chemicals and ingredients distribution, presented its financial results for the third quarter of 2024 with rising volumes and gross profit growth despite an overall challenging business environment. Various pricing initiatives as well as cost containment measures showed an impact but could not compensate for volume-related increased expenses and inflationary impacts.

Chief Executive Officer Christian Kohlpaintner: The chemical markets Brenntag is serving are experiencing an extended bottoming out of the industry cycle, characterized by strong competition and pressure on average chemical selling prices. In this challenging environment of the third quarter 2024, our teams in both divisions worked intensively to further grow volumes sequentially and thus succeeded in raising gross profit year-over-year. Our cost-saving measures are showing positive effects and we made good progress in executing our divisional strategies. However, we cannot be satisfied with the outcomes yet and need to step up our efforts: Performance improvement is key. While we pursue a targeted disentanglement of our divisions, we put strong emphasis on portfolio optimization, differentiated steering, and cost-takeout. Our priorities are running our business in challenging times and doing our extensive homework. This creates the most value and serves the interest of our stakeholders best.»

Financial Performance

In the third quarter 2024, the sequential volume recovery continued as predicted on group level. Brenntag reached sales of 4,068.8 million EUR which is on par with the previous year’s quarter (+0.7 percent). Despite stable sales, Brenntag’s operating gross profit came in at 1,019.2 million EUR which is 3.2 percent above Q3 2023, proving the effectiveness of the pricing measures in both divisions. Operating Ebita decreased by 4.9 percent year-on-year and stood at 281.1 million EUR. On a year-on-year comparison, the higher volumes could again over-compensate the lower gross profit per unit margins, but due to higher volume driven costs and inflationary impacts, Brenntag achieved an overall lower result. Earnings per share stood at 0.82 EUR (Q3 2023: 1.18 EUR), impacted by one-time effects, mainly related to the sale of Raj Petro Specialties in India. Working capital increased to 2,147.6 million EUR, resulting in an annualized working capital turn of 7.7 times, which is above last year’s turn (Q3 2023: 7.2). With 246.8 million EUR the free cash flow in the third quarter of 2024 was 44.1 percent below the strong free cash flow in Q3 2023 (441.6 million EUR). This is the result of weaker operating performance compared to last year in combination with stable working capital whilst funds for working capital were released in the prior year period.

Divisional performance shows positive trends

In Q3 2024, both Brenntag Specialties and Brenntag Essentials continued executing their divisional strategies. Brenntag Specialties made good progress in refining and improving its product and service portfolio quality. Brenntag Essentials continued implementing its «triple» business strategy by strengthening the Last Mile Service Operations setup. Both divisions focus on price and margin management, which remains a top priority for the remainder of the year.

Brenntag Specialties reported an operating gross profit of 300.8 million EUR which is an increase of 2.9 percent compared to Q3 2023. Operating Ebita came in at 119.9 million EUR, a decline of 3.9 percent compared to the previous year’s quarter. The year-on-year decline was caused by higher costs, partly driven by M+A and volume-related increases in transportation costs. Most business units in the Life Science segment except Pharma saw a positive operating gross profit development year-over-year, mainly driven by higher gross profit per unit generation. In Material Science, the operating gross profit performance was higher compared to the relatively weak Q3 2023, due to M+A contributions and improved market conditions in CASE + Construction.

Brenntag Essentials reached an operating gross profit of 718.4 million EUR, which is an increase of 3.3 percent compared to the previous year’s quarter. The positive volume development reported in all regions was able to offset lower gross profit per unit in EMEA and North America, leading to an increase in absolute gross profit in these segments and for the division overall. All segments of Brenntag Essentials were negatively impacted by volume-driven increases in transport costs, as well as inflationary trends. Operating Ebita in the third quarter 2024 declined to 186.3 million EUR (-9.8 percent).

Chief Financial Officer Kristin Neumann: «Our comprehensive cost containment program is in full execution since the beginning of the year and is already making a positive contribution to our underlying cost development across the organization. For 2024, we target savings of around 50 to 60 million EUR and aim to roughly double them in 2025. We have a clear plan to achieve our communicated 300 million EUR annual cost-out effect by 2027.»

Brenntag continues to execute «Strategy to Win»

Despite the market headwinds, Brenntag continued to implement its «Strategy to Win» across all four pillars in the third quarter of 2024, laying the foundation for accelerated growth in the future. The company is also fully committed to develop its organizational structure along a clear transformation plan, pursuing a targeted disentanglement, while minimizing dyssynergies and one-off costs. Brenntag will be leveraging its existing setup as «one Brenntag» with two differentiated divisions, supported by a joint backbone of corporate functions, business services and IT. The stepwise, targeted disentanglement continues with a focus on areas with the highest value creation and differentiation potential, being the customer- and supplier-facing front-end in the divisions. At the same time, Brenntag is prudently managing its cost base, executing cost containment measures, and focusing on running the business.

Value-creating acquisitions and targeted divestment

In the highly fragmented chemical distribution market, Brenntag continued to execute its M+A strategy. Since the beginning of the year, Brenntag has signed six acquisitions with an Enterprise Value of around 360 million EUR, strengthening key focus industries and geographies in both divisions in line with their strategies. As part of the continuous strategic development of its business portfolio, Brenntag also regularly reviews possible divestments. In October, the company has signed a contract to sell Raj Petro Specialties in India to the company Shell. Raj Petro, a manufacturer of finished lubricants, is a highly volatile business with fluctuating margins and manufacturing assets, which requires a different focus compared to the distribution business of Brenntag Essentials. The sale, resulting in an overall loss of around 63 million EUR, reported as special item, serves to streamline Brenntag Essentials’ business portfolio and improve quality of earnings.

Guidance for the full financial year 2024 confirmed

Brenntag expects continuously challenging overall geopolitical, macroeconomic, and operational conditions for the remainder of 2024. The overall market trends and chemical industry expectations observed indicate that markets are anticipated to remain highly competitive, with sustained pressure on industrial chemicals selling prices, driven by over-supply in certain end markets.

Despite these ongoing challenges and the extended bottoming out of the chemical cycle but based on its effective cost take-out measures and an encouraging start into Q4 2024, Brenntag confirms its guidance for operating Ebita for the full year 2024 to be in the range of 1.1 billion EUR to 1.2 billion EUR.

Key financial figures at a glance

(Table: Brenntag SE)