Essen (Ruhr) / DE. (bag) Germany’s Brenntag SE, the global market leader in chemicals and ingredients distribution, reported on March 08, 2023, extraordinarily strong results for the financial year 2022, a year that was dominated by a highly challenging macroeconomic environment. Both global divisions, Brenntag Essentials and Brenntag Specialties, delivered excellent results.
Chief Executive Officer Christian Kohlpaintner: «Our excellent operational and financial results demonstrate the resilience of Brenntag and its business model as well as our ability to act as a reliable partner under adverse and volatile circumstances. Our Brenntag colleagues around the world made these remarkable results possible while delivering in parallel on our ‘Project Brenntag’ targets and developing our ‘Strategy to Win’ to exceed market growth. We can be proud of these collective achievements, and we are on the right path to shape the future of our industry.»
In 2022, Brenntag generated sales of 19,429.3 million EUR with a strong growth of 27.7 percent compared to the previous year. Brenntag’s operating gross profit rose 20.3 percent compared to prior year to 4,319.0 million EUR. In an environment with product shortages and deliberate business choices, the company continued to benefit from good margin management and was able to generate high gross profit per unit. Brenntag also achieved the highest operating Ebitda ever of 1,808.6 million EUR, a year-over-year increase of 26.7 percent. Brenntag reported an operating Ebita of 1,511.7 million EUR in 2022, an increase of 31.5 percent compared to the previous year. Going forward, Brenntag will use operating Ebita, introduced as part of the «Strategy to Win», as the new lead KPI. Earnings per share achieved a new record with 5.74 EUR.
Chief Financial Officer Kristin Neumann: «Brenntag achieved an extraordinary strong full-year free cash flow of over one billion EUR, showcasing the company’s strengths in generating cashflow throughout volatile market conditions with geopolitical and economic uncertainties. With both, our proposed dividend as well as with the share buyback program, we highlight our ability to generate long term shareholder value. We will return capital in excess of one billion EUR to our shareholders.»
Both divisions continued to deliver excellent results
Both Brenntag divisions strongly contributed to the annual results with operating Ebitda growth of Brenntag Specialties (+32.1 percent) exceeding Brenntag Essentials (+27.6 percent) which is in line with the expectations and guidance of the divisional strategy.
Brenntag Specialties, the global go-to service partner for innovative and sustainable solutions for specialty chemicals and ingredients, delivered excellent results in 2022. The division reported an operating gross profit increase of 24.8 percent to 1,678.3 million EUR. Operating Ebitda climbed up 32.1 percent to 779,6 million EUR. Operating Ebita reached 738.0 million EUR, an increase of 32.9 percent compared to 2021. This positive growth was broad-based across all segments with a particularly strong growth contribution from the Americas and the EMEA region. The APAC segment also achieved significant growth rates in 2022 despite of overall falls in demand. Earnings growth was predominantly organic.
Brenntag Essentials, the market leader shaping the future of industrial chemicals distribution across a wide range of industries, showed a strong performance in 2022 and achieved substantial growth. The division’s operating gross profit grew by 17.7 percent to 2,608.6 million EUR. Operating Ebitda reached 1,153.3 million EUR, 27.6 percent above the previous year. Operating Ebita reached 910.8 million EUR, an increase of 36.7 percent compared to 2021. All segments contributed to this positive performance. The positive operating Ebitda performance in the EMEA, North America and Latin America segments was almost entirely driven by organic growth. Operating Ebitda in the APAC segment was noticeably lower year on year due to falls in demand in all APAC regions, particularly in China.
Brenntag’s successful transformation journey
«Project Brenntag», the first step in Brenntag’s comprehensive transformation journey establishing a new operating model with two global business divisions, met and even exceeded its targets- one year ahead of schedule. As per end of 2022, the program generated an additional annual operating Ebitda of 249 million EUR relative to the baseline of 2019, exceeding the target of 220 million EUR originally planned for the financial year 2023. Brenntag continued to optimize its global site network by closing 100 sites across all regions. More than 1,300 jobs were structurally reduced in a socially responsible manner.
Building on the established operating model and the successes of «Project Brenntag», the «Strategy to Win», presented in November 2022, encompasses the next phase in Brenntag’s transformation. With distinct divisional strategies and by taking advantage of the company’s truly global setup and reach, Brenntag will further sharpen the differentiated profiles of its two divisions and accelerate growth exceeding market growth. The Brenntag Specialties division is expected to achieve an organic operating Ebita CAGR of 7 percent to 9 percent, and the Brenntag Essentials division an organic operating Ebita CAGR of 4 percent to 5 percent. This results in an expected organic operating Ebita CAGR for the Brenntag group of 6 percent to 8 percent within the strategy cycle 2021-2026.
«Brenntag presents a resilient service and distribution platform with high geographical and operational diversification and a strong track record of compounding growth. Brenntag has proven to be the undisputed and resilient leader in an attractively growing and highly fragmented, indispensable market. Our ‘Strategy to Win’ defines how to further sharpen the profiles of our global divisions with distinct strategies and clear differentiated steering, making the two divisions more and more independent from each other while drawing the benefits of having very efficient standardized and harmonized business services. This will lead to accelerated and sustained growth above the market average and increasing margins in both divisions. We are also building a comprehensive digital and data architecture to better serve our global customer base and achieve the next level of operational efficiency, growth, and excellence. Brenntag will play a crucial role in the ecosystem of sustainable chemicals and ingredients distribution, globally,» says CEO Christian Kohlpaintner.
Share buyback announced
Brenntag announced its first ever share buyback program based on the authorization granted by the General Shareholder’s Meeting on June 9, 2022. The program will be set up in line with the Group’s capital allocation framework communicated at the Capital Markets Day in November 2022 and is to be seen against the background of the performance and leverage reduction over the past years. It will enable Brenntag to return value to its shareholders and allow them to participate in the success of the company, while at the same time ensuring sufficient strategic flexibility going forward. In the course of this share buyback shares in a volume amounting to up to 750 million EUR (plus incidental expenses) are to be bought back. On the basis of the current share price of 71.58 EUR per share (as of March 6, 2023), this corresponds to up to 10,477,787 shares, i.e. 6.8 percent of the company’s share capital. The share buyback program will be initiated in March 2023 and be conducted over a period of up to 12 months.
Dividend raised significantly
The Board of Management and the Supervisory Board will recommend to shareholders at the General Shareholders’ Meeting on June 15, 2023, a dividend payment of [2.00] EUR per share (2021: 1.45 EUR). Subject to its approval, the payout ratio on the basis of the consolidated profit after tax attributable to shareholders of Brenntag SE equals 35 percent, in line with the dividend policy confirmed at the Capital Markets Day in November 2022.
Good progress in the sustainability + safety agenda
With its «Future Sustainable Brenntag» program, the company has set itself an ambitious ESG agenda to become the leader in responsible distribution of sustainable chemicals and ingredients. In 2022, Brenntag continued to make good progress in its ESG efforts, highlighted by the recent EcoVadis Platinum status, a CDP rating of «B» and the recently closed syndicated loan for of 1.5 billion EUR that tangibly links the companies ESG and financial agenda.
Safety is one of Brenntag’s culture pillars and a top priority. The company has committed to continuously improving its safety performance. Compared to the previous year, incidents within the group have been again reduced to the lowest rate Brenntag has ever achieved. The TRIR (Total Recordable Injury Rate – number of work-related accidents requiring medical treatment beyond first aid per one million hours worked) stood at 2.7 versus 3.1 in 2021, which is a reduction of 14 percent.
Value creating Mergers + Acquisitions
In addition to the strong organic growth and the successful «Project Brenntag» execution in 2022, Brenntag also pushed ahead with four successful acquisitions strengthening its product and service portfolio and its presence in key focus industries and geographies. The completed transactions had a cumulative enterprise value of 184 million EUR. At its Capital Markets Day 2022, Brenntag announced a new financial corridor for its annual M+A activities of 400 – 500 million EUR. The company is a very disciplined acquirer, with strict hurdle rates for M+A, focused on maximizing value creation.
Outlook + Guidance 2023
Brenntag expects a continuing tough operating environment for 2023. The overall geopolitical, macroeconomic, and operational conditions will remain challenging and create continued uncertainty about growth expectations of the global economy. Nevertheless, Brenntag expects a gradual normalization of the situation in the course of the year. In light of current economic conditions, Brenntag Group’s operating Ebita for the financial year 2023 is expected to be between 1,300 million EUR and 1,500 million EUR, equivalent to an operating Ebitda of between 1,600 million EUR and 1,800 million EUR. This forecast takes into account the contributions to earnings from acquisitions already closed and assumes that exchange rates will remain stable on the level of the end of February.