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Dear ladies and gentlemen, welcome to the Q4 and Full Year 2019 Results Call of Brenntag AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Christian Kohlpaintner, who will lead you through this conference. Please go ahead, sir.
Yes. Thank you. Welcome, ladies and gentlemen, to the results call for the full year 2019 of Brenntag AG. I'm very pleased to kick off this call today. My name is Christian Kohlpaintner, and I'm the CEO of the group since January 1. I'm here with our CFO, Georg Müller and together, we will walk you through the presentation. Georg will present a review of the financial results for the full year 2019. And afterwards, I will talk about the outlook and provide insights on our current work and future initiatives. But first, I would like to take the opportunity to introduce myself. I'm a chemist by education, and I've spent most of my career in leading and well-regarded chemical companies like Hoechst, like Celanese, Budenheim and the last 10 years, Clariant. Throughout the years, I've worked in a broad range of functions, for example, in research and development, in operations, in marketing and sales and innovation and, of course, in general management. I started my career in Germany and then worked in United States, in Switzerland and also lately in China for Clariant. This journey gave me the opportunity to work with many different nationalities, education and cultures over the years. I very much enjoy working with people from many different cultures and I deem diversity is a very valuable asset for our company. I very much appreciate the opportunity of working with my colleagues on the management board and the whole Brenntag team. Brenntag is a great company with a strong business model and a lots of untapped potential. I'm convinced that we will make use of that and lead the company into an even more successful future. It goes without saying that I will do my utmost to achieve this. For now, I would like to hand over to Georg, who is going to talk about the review and financials of the full year 2019. Georg.
Thanks, Christian. Warm welcome. Let me provide an overview on the financials of the year 2019. All in all, 2019 was not an easy year for us especially in terms of economic environment. We had to deal with the sluggish economy in Europe and an increasingly negative dynamic throughout the year in North America. We weathered this well. Let me briefly discuss the key figures and the development. We were able to increase our gross profit on a constant currency basis 3.4% to more than EUR 2.8 billion. This is partly through our acquisitions. On an organic level, so excluding the acquisitions, gross profit was slightly ahead of the level of the previous year. In terms of operating EBITDA, we passed the EUR 1 billion mark and report a figure of EUR 1.002 billion.On a constant currency basis, this is an increase of 11.3% over previous year. Obviously, the application of new IFRS accounting standard for leasing has led to significant increase in EBITDA. Excluding the change in accounting standards, EBITDA was marginally below previous year on an FX-adjusted basis. The demonstration of the resiliency of our business model in 2019 is the cash flow generation. We were able to increase our free cash flow by around 60%. Earnings per share were slightly ahead of previous year's level at EUR 3.02. At the beginning of 2019, we have implemented a new organization for the Food & Nutrition business. We now have a more focused and more dedicated organization and we do address our customers' needs even better. This is now fully rolled out, and we generated above-average growth in 2019. Brenntag has been very active in M&A for years, and 2019 is a continuation of our activity. We have closed a total of 9 acquisitions and thereby, further expanded and strengthened our business in all regions of the world. We will propose a dividend of EUR 1.25 per share to the general shareholder meeting in June. Since the IPO 2010, our dividend has increased each and every year. Let me move to the acquisitions on Page 6. Overall, we closed 9 transactions. They represent an enterprise value of around EUR 260 million. We made acquisitions in all 4 regions. We have executed on our strategy in a still highly fragmented market. To provide transparency on the development of operating EBITDA, on Page 7, we provide a bridge from 2018 to 2019. 2018 operating EBITDA amounted to EUR 876 million. We benefited from a positive translational effect on EBITDA of EUR 25 million, mainly as the U.S. dollar strengthened against the euro. Our acquisitions have contributed EUR 29 million to the EBITDA growth. The first-time application of the accounting standard IFRS 16 led to an increase of EUR 116 million. The new standard redefines the treatment of operating leases, expenses from leases are now recorded as depreciation and interest. The following 4 bars show the organic development in our regions. The difficult economic condition led to an organic decline of 5% in both EMEA and North America. In Latin America, we recorded a pleasing development with an increase of 12%. In Asia Pacific, EBITDA was almost stable with a slight decline of minus 3%. EBITDA for 2019 totaled EUR 1.002 billion.Let me move into the regions with more detail. In EMEA, we had challenging market conditions throughout the year. This was particularly the case in Germany and France. We have noted a pronounced weakness in demand. We attribute this primarily but not only to the automotive sector. We achieved a gross profit in EMEA of EUR 1.142 billion, which was at the level of the previous year. On a frozen GAAP basis, EBITDA in Europe decreased by 5%. In North America, the environment has deteriorated considerably since mid of 2019. This trend continued also in the fourth quarter. From our point of view, this is a general weakness in industrial demand, and we do not see material differences between our customer industries. For the full year, gross profit increased by 3.4%, on a frozen GAAP basis, EBITDA decreased by 2%. Latin America reported good earnings development in 2019. Gross profit in the region increased by 6.5% on a constant currency basis. Also, we have continuously been facing a volatile environment, we were able to achieve frozen GAAP operating EBITDA growth of 16%. In the Asia Pacific region, we again, grew strong in 2019. The share of the segment now amounts to around 10% of the group. On a constant currency basis, gross profit rose by 14.7% to EUR 267 million. Both the acquisition and the organic business contributed. EBITDA growth on a frozen GAAP basis amounted to 14%. Let me provide the EBITDA bridge on a Q4 basis on Page 9. EBITDA in the fourth quarter of 2018 amounted to EUR 213 million. The positive translational effect in the fourth quarter amounts to EUR 5 million. The acquisitions contributed an additional EUR 6 million, and the effect of the IFRS 16 application resulted in an increase of EUR 30 million. European growth rates were similar each quarter around the year. EBITDA decreased organically by 4% in comparison to previous year's quarter. North America suffered from a weak macroeconomic dynamics. As a result, EBITDA decreased 16% organically in Q4. This is certainly weaker than expected earlier. In Latin America, EBITDA increased organically by 36%. EBITDA in Asia Pacific declined organically by 8% in the fourth quarter. I will move to Page 10 to the income statement, particularly to the lines below operating EBITDA. We had positive special items of EUR 8.6 million. This relates to the recovery of social security charges in Brazil. Depreciation in 2019 is impacted by the new IFRS 16. The figure for amortization is similar to previous year. The financial result shows an improvement. In total, net income for 2019 amounts to EUR 469 million and is 1.5% higher than in 2018. The cash flow has developed very, very positively in 2019. We have reached a free cash flow of EUR 837 million. This is the highest amount we have ever achieved. Compared to the previous year, this represents a very significant increase of around 60%. The free cash flow is positively influenced by a release of liquidity from working capital. CapEx was at EUR 205 million. This was slightly below our guidance of EUR 220 million. How did we make use of the free cash flow. We paid EUR 251 million for interest and taxes last year. Payments for M&A transactions amounted to EUR 195 million. Be aware that figure does not include the debt assumed, including debt assumed the acquired enterprise values of around EUR 260 million. Finally, we paid a dividend for the fiscal year 2018 in June 2019, amounting to EUR 185 million. The leverage was at 1.9x at the end of the year. This is a slight improvement compared to the level at the end of 2018, mainly due to positive cash flow development. Our equity has increased by approximately EUR 280 million in 2019. Working capital at the end of the year amounted to close to EUR 1.8 billion, slightly below the level of previous year. A major factor influencing working capital at Brenntag was the prices for chemicals. These fell in course of 2019, and this had a corresponding impact on all 3 components on working capital. The working capital turnover rate was 7x in 2019. Let me close my remarks with explanations on the dividend. The management board and the supervisory board will propose a dividend of EUR 1.25 to the general shareholders meeting in June. We pursue a very consistent dividend policy and the dividend now proposed represents the ninth consecutive increase since the IPO 2010. In terms of net income, the proposed dividend represents a payout of 41.4%. This puts us pretty much in the middle of our target corridor of 35% to 50%. In total, we will pay out an amount of EUR 193 million to our shareholders. This concludes my remarks on 2019, and I will hand over to Christian for the outlook.
Many thanks, Georg. Now I would like to share with you how I spent my first week in office and also what my first impressions are. Then I would like to look ahead and outline how we, as the management team, see the next chapter of Brenntag. Before I officially started as CEO at Brenntag in January, I had already made myself familiar with the company. Of course, the knowledge I gained in my previous positions helped me to do so. I frequently worked with chemical distributors and, of course, Brenntag was one of them. I already had a solid understanding of the business model and the company itself. Once I took office, it has been key for me to getting to know the company and our employees. It is important to interact with the employees immediately and to listen to their perspective. I spent time visiting locations in Asia, in Europe, in Canada and the United States. And I will also visit Latin America shortly. I received a lot of input on the culture and the processes at Brenntag. Wherever possible, I held Town Hall meetings with all employees on-site as well as numerous round table discussions with our talents and future leaders. I will continue to host such events in the future, and this should form an essential part of our internal communication. One main observation all over. Our employees are highly motivated, dedicated and very open to foster and embrace changes in the organizational setup. The will for change could be felt everywhere. Of course, I have also established context with some of our most important customers and suppliers. I learned how Brenntag is perceived as available and a reliable business partner with a strong position in the chemical value chain and how further business opportunities could be developed. Last but not least, our shareholders are a very important stakeholder group for our company. Let me emphasize this for me and the entire management team, communication with the capital market is essential. I consider it very important to know and understand the views of our owners. I will, therefore, be in close contact with our shareholders and listen to them to understand their requirements. We will take this into account when making decisions. Of course, we will provide open and transparent information in the future about what we intend to do and why we are doing it. Best-in-class investor relations starts with the way we communicate with our shareholders. Brenntag is a healthy company with an excellent market position and reputation. We are the global market leader in a highly fragmented industry. We are not only the Global #1 by size, we are also in a leading position in most regional and local markets. We have excellent and long-standing relationships with our customers and with our suppliers. Our partners appreciate our reliability, our quality of service and, of course, our financial stability. These relationships are the basis for a prosperous business development and/or something we can build on. Many of you know and appreciate that Brenntag is a highly diversified company. There's no concentration regarding individual customers, suppliers or products.Furthermore, our business is spread over many customer industry and many countries. All of this makes Brenntag a highly resilient company that generates attractive cash flows. These cash flows have been distributed in the form of dividends to our shareholders and have also been invested in M&A projects. Brenntag has been very active in the consolidation of the market. The acquired companies have made a significant contribution to the growth in recent years. Finally, I would also like to emphasize that Brenntag is in a sound financial condition. However, an honest assessment of the situation also points to the fact that in recent years, Brenntag has not grown earnings organically. This may have been partly due to external influences, but at the end, the company's organic growth over several years has fallen short of its undisputed potential, an overall disappointing performance. I would, therefore, like to give you an impression of how we intend to approach an improvement in where we are currently standing. Brenntag has a very solid foundation. The business model is proven, and we are the leader in our markets. Our diversification makes us very resilient, and the company is financially sound. My fellow board members and I are convinced that organic earnings growth has to be achieved in a market like ours and with our position. However, as this was not the case in the last couple of years, we need to address this in a different manner in the future. We are, therefore, currently running a holistic analysis of the company. In this diagnosis phase, we are evaluating all the key areas of our value chain, and we are looking for potential for performance improvements. I would like to mention only a few examples such as commercial efficiency, global site network optimization, business support fund services or admin infrastructure. Of course, we also verified which product areas, customer industries or regions are particularly attractive for us or could become attractive in the future. This is a very comprehensive analysis in which we also deal with decisive performance drivers like leadership skills, competency levels and execution capabilities. The corporate culture of Brenntag needs to become more performance-driven and more execution-focused. During the analysis phase, we are identifying areas where we see room for improvement. Let me give you some first indications on what this means. Brenntag is the global market leader in chemical and ingredients distribution, but the scale is currently not sufficiently translated into competitive advantages. We will improve our market focus across countries and regions to leverage know-how and our expertise to service our customers and suppliers even better. By doing this, we will expand our leading position in the industry while increasing our organic and long-term earnings growth. Brenntag, in many cases, has a rather complex organization that is not in line, this is rather a straightforward business model of chemical distribution. We, therefore, need to reduce organizational complexity, and harmonize our internal business services and processes to create synergies and leverage benefits from scale. We have the reputation of a strong customer focus, and we will further improve our customer orientation to serve our clients in an even more targeted way globally and locally. We have customers from different industries with different needs. We will address this by making differentiated and tailor-made service offerings for the individual customer. We, as a management team, will make clear and transparent decisions. Afterwards, we will consequently implement measures to drive change. There will be a focus on thorough and diligent execution in order to unlock our full potential and to deliver on promises. We will continuously monitor the execution and report on the impact. As you may sense, we are opening a new chapter for Brenntag. I cannot quantify the potential for organic growth of the operating EBITDA today. However, as part of our open and transparent communication we will keep the capital markets regularly informed about the progress being made. Now let's have a quick look on the outlook 2020. We are striving to achieve profitable organic growth for the years to come. This is very exciting, but I would now like to turn the focus to the short-term and come to the current year 2020. Please, let me provide you with an overview on the current environment. Brenntag is very well-positioned in the market to achieve organic growth. In addition, growth will come through acquisitions. We made a number of transactions in 2019, and we are already active in 2020. However, we are not fully independent from the macroeconomic environment. Economic conditions were quite difficult in 2019, and we don't expect a change in trends in that respect for the current year. Increased short-term uncertainty also arises due to the COVID-19 virus. It is, therefore, extremely difficult to make a precise forecast. Assuming that the effects of these risks remain limited, we currently expect a positive development on operating EBITDA. As just discussed, we are currently actively[Audio Gap]
Ladies and gentlemen, due to a technical issue, we will pause this conference at this point. Please stay on the line. The conference will be resumed shortly. Thank you for your patience. Dear ladies and gentlemen, thank you for your patience. The conference has now been resumed.
Yes, welcome back. We obviously had a small technical problem. So I will close up my remarks with the communication road map 2020 on Page 20 of the presentation. Before the summer break, we will host a Capital Markets Day in London. Here, we will report comprehensively on the key findings from the analysis. We will also speak about measures and the implementation schedule. The exact pace for the event will be communicated by our Investor Relations department. We will be very pleased to welcome you at the Capital Markets Day in London. And now Georg and I are more than happy to answer your questions. Thank you very much.
[Operator Instructions] And the first question is from Markus Mayer, Baader Bank.
Welcome, Christian. I'm looking forward to our further discussion. Good to hear your voice again. Regarding Q4, I have a question. Maybe you can specify how the development was over the fourth quarter and also going into the first quarter, and have you seen any kind of effect from corona so far from the logistics side, for example, that would be my first question?
Yes, I will probably ask Georg then to answer the question about Q4 and what we currently see, I can maybe build on. Let me take the coronavirus question first. So first of all, the safety of our employees has the highest priority. This is absolutely clear. And we are currently, of course, following all the recommendations by the various governments and agencies of what to do. When we look on the impact on our business, it's very limited at this point of time. So we don't see any major negative impact at this point. And from that perspective, we see this impact overall limited. Then I would give maybe the chance to talk briefly about Q4 to Georg, and then we can maybe come back to me again afterwards.
Yes. Markus, it's Georg. You asked for the development within Q4 and then how it rolled into this year. Relatively stable development within Q4, December somewhat weaker and then it continued stable-ish to better than stable-ish into 2020. To be open, I do know that in past, we underlined in our quarterly trend by providing gross profit per working day, growth rates on a monthly basis. We have decided that we do not speak about multi-gross profit per working day trends on a monthly basis going forward. We do know it's a data point that is interesting. But we -- also since the release of these data points has not always been helpful in past. It's a very limited time period. There is a volatility in the figure. It's not super easy to draw conclusions out of it, and it received a focus that was an undue focus from our perspective. And finally, none of our competitors is disclosing that level of 2010.
Okay. Understood. Another question, if I may. Your financial leverage is now at 1.9, so the lowest, basically since the IPO. Maybe you can shed some light how you want to use the balance sheet besides M&A? There's also an increased cash return to shareholders on the agenda as well.
Yes, let's see going forward. Obviously, 2019 had a super-strong cash flow, helped by the decline in chemical prices. Leverage now slightly below 2x. We always said continuously that if and when the leverage falls substantially and sustainably below 2x, we will consider higher cash return to shareholders. So maybe 1.9x is still too close to that mark. But to a degree, we are heading into that direction.
The next question is from Steven Goulden, Deutsche Bank.
Yes, I just wanted to ask on the guidance. So you were saying in a -- hopefully, in a relatively benign macro situation, you do an improvement in organic EBITDA -- within organic EBITDA. I mean, if I look at the comps on organic GP, they're pretty easy this year. And so I think consensus is sort of going from around 2% to 3%, or certainly was on the organic GP front. If at best, there's going to be a slight improvement in organic EBITDA, does this mean that you're kind of committed to various cost investments that maybe were made last year? Hence, the -- obviously, hence, the weak North American EBITDA on an organic basis? And just can you give us any indication of the rising costs and the operational leverage that, that puts on the business? And how we should think about that in regards to the growth this year? That's my first question. And then I've got a follow-up, if that's okay.
Steven, it's Georg. So sorry, probably the technical glitch a little earlier in the call. So let me see if I got your point. We are absolutely convinced about the growth characteristics of our business model, also considering our positioning in the market. And in that sense, we do expect growth for gross profit and for EBITDA, also considering the acquisitions that we have already undertaken. If I look more short term, then I think we have to go on our view to a degree that the macroeconomic globally is highly uncertain. So North American macroeconomic, if you look into IP growth rates, if you look into PMIs, it's certainly on a negative trend. So short term, some uncertainty there. And while we don't really see impact on -- of corona on our financial at this stage, it is something out of our control. So it's very difficult to give an exact prediction for this year under the uncertainty of circumstances.
Okay. Understood. And obviously, some time on the call was spent and apologies because I was cut off from the call earlier on so I had to dial back in. So apologies if I missed any more details. But we talked a lot about kind of refocusing the business and the potential to improve from here on in and the strategic strength of the business has, et cetera. But if you could just sort of give some, maybe some kind of tangible examples there, that would be very helpful. And by that, I mean, if you are going on -- if you were going for cost, if you're going for more focus across and delayering, reducing complexity, et cetera. Where would you see the low-hanging fruit? Where is the kind of the easy focus there and similarly, in terms of being more focused, in terms of products provision, obviously, you've been focusing on Food & Nutrition as a business. But is there anything else that looks particularly interesting at this point even in a broad high-level sense could be something to go for or some kind of example you could give us?
Thanks, Steven, for the question. And I kindly ask you for your understanding that I'm now in the ninth week in office. And currently, we are -- we are currently undertaking this diagnosis phase, which is in its full swing. So I really cannot say anything about more specifics for the time being. But we will, of course, and hopefully, you were not cut off at that point of time, present during our Capital Market Day before the summer break, what are the measures, in which direction they are going, and what impact it will be.
The next question is from Rory McKenzie, UBS.
It's Rory here. Firstly, I want to focus on the Q4 results. As for maybe it's a bit weird. And ex IFRS 16 at constant currencies, your EBITDA shrank by nearly 8% year-over-year, I think, in Q4 compared to being flattish over the first 9 months. Now I appreciate it was a tough quarter and gross profit was a bit softer, but I really wanted to understand why the cost growth looks so much worse at the end of the year? Two specific things I want to ask about within that. Firstly, I saw that miscellaneous provisions increased about EUR 7 million in the quarter, so what's in that? And secondly, the all other segments’ loss increased EUR 5 million so what's in that? And then, I guess, anything else that explains that kind of cost increase in Q4?
Okay. Before we talk forward -- it's Georg, Rory. For the very specific point you had, at the end, I probably have to come back tomorrow with the detail. If I characterize Q4, generally, and you are right that the organic growth rate in Q4, obviously, has been a pretty weak growth rate. And that's particularly through the negative dynamic in North America. The growth in Q4 in North America has been particularly weak. General macroeconomic weakness, to a degree some softness in the oil and gas market is starting, but more so now in 2020, only towards the end of Q4 2019. And then we had a particularly positive margin situation with one of our largest products in 2018 that faded out in course of 2019. So difficult earnings development in North America. I need to come back to the specific provision point you raised tomorrow, what is generally is true up of a significant number of provisions towards the year-end, part of them being environmental.
Okay. Understood. And then Christian, if I may ask you more about your comments and that Brenntag scale hasn't translated into a competitive advantage, I appreciate you probably say, again, it's early days and you'll speak to me more in the summer, but would you say that's because you think that Brenntag assets or network haven't been used to the fullest. So is it kind of more the Brenntag does that haven't been focusing on the right things? Or would you say that Brenntag's scale of course, or this economies of scale, I guess, and actually, it's too broad, too spread and not being focused? There might be elements of both, but into to get your sense on that kind of scope of question?
Yes. I guess, you're right, it's both. And this is why we have work streams assigned to look, in particular, into our site network overall, to understand, are we leveraging the site work -- network globally. And also to better understand why the growth could not be realized, although we are in this leading position and should be profiting from the overall market development. So again, this is part of our diagnosis and of our analysis, but I think your assessment is correct. It's probably both of them.
Did you encounter Brenntag much in your previous roles?
Well, I did, particularly when I was CEO of Budenheim, where Brenntag was a very strong partner to Budenheim a much -- large portion of the business was done through Brenntag, I encountered them in a role in Clariant, a little less. But overall, I knew the company, I know the people and they know how the strong customer focus this company has and the professionals, and the professional way of how they're dealing with the business and trying to address the customers' needs. So from that perspective, I always had a very positive impression of Brenntag which is consistent with the reputation and the brand the company has.
We -- well, we had just checked that we see miscellaneous provision question. This is really not organic development. This is additions from acquisitions. So provisions that came into our balance sheet via the acquired companies plus FX translation. The run rate usage and add-ons are basically matching up.
And the next question is from Daniel Hobden, Crédit Suisse.
Just 3 for me, if I may. One is around, obviously, you're running this review and doing an awful lot of work. Would it be fair to say that there's going to be a little bit of an M&A hiatus whilst you work out actually where you're going to focus? Or is it EUR 200 million to EUR 250 million target spread throughout the year as has typically been the case. Question #2 on North America. Obviously, that was quite a weak performance. I think you've addressed it a little bit. I was just wondering, are you losing market share there? Or Is that broadly being seen across the industry? And then the third question was just on the review currently being undertaken and the deep level it's going to? Are you doing this internally? Or are there external consultants being hired to run the process?
The first 2 questions I would ask Georg to take over on M&A and North American business development, and I will then respond to your third question about the analysis and diagnosis.
Daniel, I'll take the market share question first. And the way I understood the question was if we were losing market share in North America, particularly in Q4. As always, chemical distribution is a space where the market size is not 100% clearly defined that this is not frequently researched. So on a very short-term basis, difficult to make a market share statement. I will say that in the strategic holistic diagnosis we are going through, we also do look long-term into market development and market share development and what our conclusions are. So you will hear more from us in that context in the course of the year. The specific question on Q4, North America, all that I've seen about data released from people that are active in the same market space as we, North America indicate that we clearly have not lost market share in North America in Q4. It was just the weak market. M&A, you know that the EUR 200 million to EUR 250 million spend always has kind of a guiding line for us as an average over several years. It never has been meant as a number that must be spent each and every year. You have seen and will see years with lower spending and can well see years with higher spending. I can't say how through 2020 will ultimately work out.
Then the last question about the diagnosis. We are performing this with a strong internal team that we have brought a seasoned and highly experienced Brenntag managers to an internal team, which is now very strong and directly working with us here basically next door. And we are supported with an external consulting company, helping us to get as an objective view as possible.
And the last question is from Raghav Bardalai, Exane BNP Paribas.
I had 3 questions, if possible. The first one is on free cash flow. You've guided to free cash flow being significantly lower year-on-year in 2020. Just wondering if you could share some color on the moving parts within this and what the magnitude is, really when you say significantly? The second one is on North America. Just regarding the investment program Brenntag had undertaken in 2019. I think you've previously -- or management previously had commented on the investment program there being less macro dependent and I was curious to know if maybe there is an opportunity for some Brenntag specific organic growth momentum in the region in 2020 potentially? And then the third point was -- question was on organic growth you mentioned that you're identifying product areas and customers to focus more on. I appreciate it's early days, but do you think there's areas you would like to exit or move away from? Any color on sort of initial thoughts on whether there -- that's something we could expect through 2020 would be helpful.
Should I start on the free cash flow point. And our very strong free cash flow in 2019 of EUR 837 million has been substantially helped by a release of liquidity from working capital in an amount of EUR 161 million. So say, 20% of that cash flow or working capital chemical price driven. I would not necessarily -- we can know, but I would not necessarily expect the chemical price declined to repeat. So that EUR 160 million might fall away out of the cash flow. But I also will say we will refocus our work on working capital management, on working capital turn improvement. So hopefully, even in times the chemical prices don't fall, we can see better working capital cash flow than in past. I beg your pardon, I can't give you an exact guided figure from free cash flow for 2020.
CapEx program. CapEx program was an issue.
Yes. I -- On the CapEx program in North America, as I assume you particularly referred to our statement that we earmarked EUR 45 million, I think, for warehouse upgrades and logistics upgrades in the context of changes in the marketplace. We are executing on that program, roughly half of it is actually spent in 2019 and is part of the reason why we had a CapEx of EUR 205 million in 2019. I would -- because, as you say, these are structural opportunities. I do currently expect us to continue with that program. Nevertheless, we are in an holistic analysis. And we also do leave you our considerations on that element of investments. Remind me what the last point was.
Yes I will take this one. So addressing your question about which kind of product groups, customers, regions, we will focus on I mean, again, it's early days. But for me, it's a very important question where does Brenntag need to strengthen its present and which industry segments are particularly attractive for Brenntag because they create higher growth rates and higher profitability than maybe other industry segments and how we will strengthen that presence there by putting more resources behind it, but also how we address those markets and what kind of operating model we put behind. The same is true also for regions that I need to understand the growth potential this company has in the nontraditional markets, particularly here in Asia. And what it could mean for Brenntag as well when it comes to growth and further development of the company. So these are just 2 examples to maybe shed some light on that specific statement we have made.
And the next question is from Tom Burlton, Berenberg.
I've just got one question, and apologies if it's already been asked and answered as I dropped off the call for a portion of time. A rather large competitive views in North America is obviously still going through a merger integration process, and they identified dis-synergies in terms of supplier relationships and supply agreements that would probably fall out to come out of the business as a result of that integration. Have you seen anything in terms of sort of additional business out there in terms of North America? Have you won anything on the back of that, maybe sort of at the back end of 2019 that we might expect to be sort of coming through in 2020, please?
Tom, it's Georg. You know these things are moving. We indeed have taken over the one or the other supplier relationship and benefited from the synergies that competitors had in their mergers. So this works out as expected, we are not at liberty to disclose names of suppliers or specific programs.
Okay. Are you able to talk about the sort of materiality with the reasonably large suppliers?
I would rather not particularly given the difficult state, the marketplace is in North America right now.
And the next question is from Mutlu Gundogan, ABN AMRO.
A few questions from my side. So the first one is on the guidance. You expect organic EBITDA growth for the year. Can you talk a little bit how you want to achieve that? What the most important drivers are? Is that operating leverage from higher volumes that you are thinking or should we pencil in and benefit from cost savings? That's the first question. Secondly, it is related to the first question. Can you talk a little bit about the phasing of this organic growth? A lot of chemical companies, they are expecting a subdued first half, after which growth should turn positive. Is that also what you would expect? And then finally, Christian, I know it's early days, but maybe a bit more about you as a person or as a CEO, have in terms of what we should expect and how you're looking at Brenntag now? I mean, do you think that you would be more prone for evolution or revolution?
Let me start first. Mutlu, it's Georg. I can't give you an answer on the first half year or second half year question. I know some people are talking about it. I do not know how they know. So given the uncertainty right now, our statement is on a full-year basis, but we can't really break it down by half year or by a quarter. In principle, we would expect our growth to be generated by top line improvement from volumes and margin. So it's not geared only towards around -- a margin improvement very often comes from our value-added services from additional services probably provide to the market place, but there is also an increased demand for chemicals, and therefore, in principle, a positive volume development. You had the second part to the first question, I apologize if you have to remind me.
Yes. That was the phasing that you said you can't say whether it's going to be H1 or H2? That was the second question?
Okay. Then let me ask you a question about what can you expect from me as the new CEO. And again, I want to reemphasize Brenntag is a very strong company. And has a very strong position as the leading player in that field, financially, very solid I think we built on a very, very strong foundation. And that doesn't require really no revolutionary new things. But I'm very, very clear on my expectations when it comes to accountability and execution. And no matter what, we will now show you, and we'll explain to you in the Capital Markets Day of what we are going to do, the focus will be on diligent and thorough execution. And that's, I would say, what you can expect and count on from me as a CEO.
The next question is from Laurence Alexander, Jefferies.
This is Dan Rizzo on for Laurence. I was just -- we were just wondering how you're thinking about digitization. Will you have investments driven by what customers indicate they want? Will you use digital investments to kind of shape the relationship with the customer?
Again, you know it's also something I need to better understand how we have put a significant effort behind our digital initiatives. And I think there has been excellent groundwork laid. Still, I would say, a lot of things to do and a lot of things to really making it happen. I believe digitalization will be important for the chemical distribution sector and space. And we will do our utmost to address the needs of our customers through the digital channels. Internally also, digital is very important when it comes to questions like automization, when it comes to basically ask a question, what can digital do to standardize and harmonize processes. So I see it actually, in many dimensions, where digital will play a role and it has to play a major role for Brenntag.
Then just one other question. Just in the U.S., are you seeing share gains beyond what you previously expected given the consolidation in the region?
Say that again, I couldn't understand the first half of the question.
Are you seeing share gains in the U.S. beyond what you previously expected given the consolidation in the region?
If I may, I think I gave a little bit of framework on how we think about market share in response to an earlier question. I can't really give a short-term answer for Q4. You will hear from us more about how we think about market share in course of this year.
And the next question is from Rajesh Kumar, HSBC.
Two, if I may. First, what are the impressions you're getting when you speak with customers and suppliers? Where you can get initial assessment in terms of what are the points of excitement and what are the pain points, which you would like to address? Second is you clearly mentioned that organic EBITDA growth is one of your focus points, digitalization or digitization is the second one. Basically, what -- how would you define success at the end of, say, 12 or 14 months' time? Or are you still trying to discuss with shareholders and the various stakeholders how to define the success criteria?
Okay. When we -- can I have -- and thanks for the question. I have talked to customers and suppliers now intensively. And I think Brenntag has, indeed, a very good position with them. In particular, when I just take the example of our global reach, you know we are present in 76 countries. So this is highly attractive for many of our suppliers. Plus also, if I may take a second example, reliability and the brand and what Brenntag stands for solidity, compliance with regulatory topics in many other things, which gives many of our suppliers the confidence that they want to enter into a certain geography Brenntag is the right partner on their side. So from that perspective, I believe this is the positive side. Supply chain excellence, logistic execution, this is always the pain point. This is, of course, why as I mentioned before, our diagnosis will also focus on what and how can we leverage our global site metric in the best manner to satisfy the needs of our customers and suppliers, even better. And last but not least, depending on the industry segments, you are talking to those customers sometimes require different things. And Food & Nutrition customer cannot be compared with the lubricants customer or cannot be compared with an oil and gas customer. And I think we also need to clearly understand the differentiation and the needs of the various industry segments and how to address that. So how does success look like? I mean, I'm here to bring Brenntag back and return it back to organic profitable EBITDA growth. This is how success at this point of time, it's looking like. And of course, we want to basically build and restore credibility by delivering the promises we have made.
Understood. That is very clear. And then just in terms of -- when you growth...[Technical Difficulty]
You're hard to understand. Sorry, I need to ask you maybe to -- I don't know if the line is not in a good.
Is it any better? What I was asking is that why do you look at organic EBITDA growth because obviously, you control EBITDA more than organic gross profit growth. But why not start with a combination of organic growth, profit growth and organic EBITDA growth? Why just organic EBITDA growth?
Yes, it's Georg. Maybe I take that. We didn't necessarily want to limit the statement to organic EBITDA growth, we do think that the key growth measure, but it will also be about top line growth in terms of gross profit, it will be about expense development, and it will also be about deployment of capital which you either will find in the capital employed or with the expenses it carries below EBITDA. Bear with us a little, we will be very outspoken in over the year, how exactly we will measure and convey success to you.
Understood. So the KPIs will be debated and finalized during the review?
Absolutely. And I would dare to say today, if will be evolution, but not necessarily revolution.
And the next question is from Chetan Udeshi, JP Morgan.
Sorry, I was late to the call. So apologies if this was already answered, but I just wanted to touch base. I don't want to preempt what you might say in your Capital Markets Day later this year. But I mean, in terms of focus on Asia as a key growth region in the future versus maybe sticking to your core European and North American business is trying to improve operations there. So how would you prioritize between those 2 topics in general?
So I heard one topic being prioritized Asia over the other regions. What was the second topic you wanted to be asked. You want to ask me. Or is it only Asia versus the mature markets, Europe and North America?
I think the point here is -- I mean, is the intention to focus more on operational improvements, that is probably under your control over the next 6, 9, 12, 18 months? Or is it going to be more about driving organic growth through maybe broadening your reach in Asia because Asia is still a smaller part of Brenntag? So I'm just trying to understand where is the prioritization within the company at the moment in terms of how to drive the organic growth in the future?
Yes. Thanks. Now I really understand. I think it is actually both, to be very honest, I mean we have to do improvements in our operational performance, it brings me back to what I said before, accountability and execution of things we have been saying we do, we will execute. And so there will be improvements in the operational performance, but we also need to balance out with our medium and long-term plans strategically of where we are focusing the company on. And as I said, industry segments, specific regions, those are questions which are on the table. And Asia, of course, need and will play an important role.
[Operator Instructions] And the next question is from Knud Hinkel, Pareto Securities.
Another attempt to drill down into the North America, if I may. So would you say that you, as an industry, underperformed the general economy in that region as you say, that you kept your market share? So what about the industry as a whole? That would be my first question. And the second question is more general on resiliency. I think the resiliency in terms of the cash flow pattern of the anti-cyclical cash flow pattern is well understood. But in general, there are a few chemicals out there that, obviously, presented more stable results in 2019 than Brenntag. So would you say that 2019 was exceptional in terms of resiliency or is it due to the specific geographical composition and specific developments, especially in the fourth quarter that led to the results as of today?
It's Georg. We -- there is no data on the chemical distribution industry on a short-term basis to answer the question you had on it. We, as an industry, underperform the overall macroeconomic development in North America in Q4. Having given the disclaimer, I would still say no. The distribution industry is well positioned in the overall landscape. And it is playing its role. But I can't really quantify at this stage. Resiliency, we don't compare ourselves to any chemical producer names different business model, different degree of diversity, much more -- they are much more dependent on certain customer industries for certain product groups. So if you compare Brenntag with global presence, it's 190,000 customers with 10,000 products. So its broad range of diversity to any chemical producer, who is, by nature, never an animal, you will always find some who are doing better or some who are doing worse. We do see the resiliency confirmed by the relative stability, so not fully satisfactory, not fully satisfactory, but relative resiliency of EBITDA and particularly the strong cash flow development.
And the next question is from Christian Cohrs at Warburg Research.
Maybe first on -- yes, leaving your holistic analysis aside in light of the softer market environment in North America and most probably also a softer market environment in the first quarter in North America. Do you evaluate any short-term measures like rightsizing capacity there, travel restrictions, hiring fees in order to address this? And secondly, also with regards to a probably challenging market condition in 2020, what are your CapEx plan? Is CapEx expected to remain at the level of last year? Or will you actually cut your investments in light of the market conditions? And then just 2 housekeeping items first. Is it fair to assume that the M&A contribution of the transactions you have already carried out. And that are going to materialize then in 2020 stands at around EUR 18 million for 2020? And could you remind us maybe some sort of rule of thumb for your FX sensitivity? So how does it change in the U.S. dollar-euro relation translate into EBITDA that would be helpful.
Christian, it's Georg. I know you kind of said, I should leave the holistic analysis aside or the holistic diagnosis I spoke. It is a so important project in our company right now that it is very relevant for everything we consider. Having said that, obviously, if you operate in a difficult uncertain marketplace like we do. Irrespective of any border project, you keep the belt very tight, and that is what we do. We are very, very careful with spending globally, but particularly in North America, and we have indeed already reduced workforce in North America the last 2, 3 months already. I would frame this more as what our reported business man does keep the belt tight if the conditions are difficult. It comes above and beyond of the holistic analytics work that we do. CapEx, always more a long-term story. We wouldn't react with our CapEx plans to short-term changes in market circumstances, that would not be prudent. Nevertheless, you might have noticed, we did not give you a CapEx number 2020 in the forecast report, and we did that for exactly the same reason. We are reviewing our CapEx considerations pretty broadly. The 2 housekeeping items you had, indeed, M&A already executed, will contribute EUR 18 million to maybe EUR 20 million of EBITDA 2020 over 2019. And the FX sensitivity is around -- if U.S. dollar-euro moves 5 cents, so U.S. dollar-euro 5 cents, you should expect an EBITDA impact, if I take EUR 20 million.
There are currently no further questions. So I hand back to the speakers for closing remarks.
Well, thank you very much for dialing in and having the conversation. Again, apologies for the technical glitch we had. We will make sure that this will not happen in the future. Again, it was interesting to have also the dialogue with you. And I assume you will see each other anyhow in the following days now during our roadshow into London. And looking forward to working with you and basically being able to tell you about the next step of Brenntag in more detail as we progress. So thank you very much for dialing in, and talk to you soon. Thank you. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.