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IMCD sees reason for optimism after strong third quarter

 

Jeroen Segenhout Amsterdam

 

Chemicals distributor IMCD is now quite certain that a major crisis can't take the company down. Due to the corona pandemic, sales are stagnating, but profits continue to grow.

 

This is evident from the figures presented yesterday by the Dutch company, listed on the Dutch AEX stock exchange. In the first nine months of this year, the company, which is simply a sales organization for chemical companies looking for customers for their products, recorded a gross operating result of €189.9 million. This is 8% more than the year before.

 

Profit growth accelerated to 11% in the third quarter, after the impact of the corona crisis was at its most visible in the second quarter. At that time, profit growth was limited to 4%.

 

Investors reacted enthusiastically to the latest figures. IMCD shares rose more than 3% in value. This made the Rotterdam-based company one of the strongest gainers in the AEX index. Since bottoming out at over €56 on the 18th of March, the share price has almost doubled.

 

According to top executive Piet van der Slikke, the results give reason for optimism. ‘Structurally, the company is strong, even in times of crisis like these. The strict lockdowns are over. As a result, there is more demand again. We're not there yet, but projects for expanding customer collaboration continue online, there is no sign of stagnation'.

 

Van der Slikke however remains careful. There is uncertainty about how long the corona pandemic will last. Last month, governments decided to reintroduce stricter measures after the number of corona infections had risen sharply.

 

IMCD posted a gross operating result of €189.9 million in the first nine months.

 

‘Nobody is invulnerable,' says the top executive who has led IMCD for 25 years. He cites personal care as an example of how the pandemic also affects his business. Because air traffic has collapsed significantly, cosmetics are hardly sold at airports anymore. Women use less makeup when working from home. As a result, IMCD ultimately supplies fewer ingredients to cosmetics companies. ‘That's how it works,' says Van der Slikke.

 

The improvement in profits is only partly due to an increase in demand. The rest is 'nitty gritty work', according to the CEO, which means, among other things, cost savings and price adjustments.

‘We pay a lot of attention to our product lines and customers. All that is not that spectacular. But we've always been very strong in it’. Especially in North America, the profit margin has improved.

 

MCD does not have a very concrete profit forecast. The company predicts that gross operating profit will increase this year. With an 8% increase in the first nine months, that shouldn't be a problem.

 

The strong increase in free cash flow is striking and an important indicator of the dividend that investors can expect. Until the end of September, free cash flow was €168 million, 21% more than the year before. Van der Slikke, however, speaks of a 'snapshot'. In recent months, IMCD needed less cash to finance its working capital because sales growth lagged behind. ‘When sales pick up again, we will need more money for stock’.

 

In the first nine months sales increased by 1%, to €2.08 billion. This growth is entirely due to the contribution of new acquisitions. Since its inception in 1995, IMCD has made more than sixty acquisitions in order to be able to offer clients ever better coverage. IMCD is one of the bigger players, but Van der Slikke puts that into perspective as well.  ‘The market is still fragmented’.