Azelis Group Nv

Good day, everyone, and welcome to the Azaleas 2021 results presentation. My name is Pam, Investor Relations, and with me today are Jochen Muller, CEO, and Tez Bakker, CFO. Jochen will give us the operational highlights of the year, and Tez will talk about the numbers. Jochen will then provide the outlook for 2022, and we'll open the floor for Q&A. Please note that this presentation may include forward-looking statements that are subject to risk and uncertainties. This webcast is being recorded and will be made available on our website. With that, I'll turn you over to Jochen.

Thank you, Pam. Good morning, everybody, and welcome to this call. 2021 was a record year for Azealus on many fronts. Revenues increased by 27%. Almost 16% was organic growth. Demand was excellent in both the life science, industrial chemicals and markets. Equally important, we continue to leverage our growing scale to win new business from customers and principals. In addition, our scale allows us to efficiently manage the impact of the ongoing supply chain crisis and also manage and deal with inflation. In 2021, we closed a record of 12 acquisitions, like strengthened our lateral value chain and strategic market supplements across EMEA, the Americas, and also in Asia Pacific. Those 12 companies in total made over 530 million Euro in annual revenues. Moving on to profitability now. Adjusted EBITDA increased over 41% in 2021. Besides the top line expansion, the profitability expansion was also a result of the successful EBITDA margin expansion of 95 base points versus our annual objective we communicated earlier of 10 to 15 base points. This is another proof point of the benefits of scale. Positive mix effects and effective pricing management also contribute to this margin expansion. Now, operationally, we're running full steam with our internal programs to strengthen our network. We have launched more than 50 customer vehicles, 10 e-labs, and have now completed the pilot phase of our principal. We also remain fully committed to our sustainability agenda. And in 2021, we obtained the platinum rating from Ecovados. Financially, we leveraged significantly from 5.3 down to 2.7, and we're aiming to stay between the guidance we gave earlier, 2.5 to 2.23 net debt for EBITDA. Our operating cash flow was by and large stable, despite the temporary increase in working capital short, a remarkable and unprecedented order book at year end. Based on these strong results, we are proposing a dividend per share of $0.03. That represents 35% of our net profit. Now let's move on to the next page. The 27% revenue growth reported for the year was a combination of organic growth of almost 16%, revenue growth from acquisition of 13%, and 1% FX headwind. All three regions delivered double-digit organic growth supported by a positive economic trend. As a consequence of excellent end market demand, a significant portion of the expansion was volume. Demand, and you've seen that by the numbers earlier today, demand further accelerated in Q4 with organic growth exceeding 22%. The acceleration in Q4 was even faster in lifelines, with a gradual lifting of restrictions in many countries supporting food and health and personal care. Well, I've mentioned earlier, we acquired 12 companies. Two of those, Weigen in the US and Kindles in France, give us a strong footprint in the global flavors and fragrances market. We also added to our EMEA network, Carme, In Italy and in Austria, in Asia Pacific, we made eight acquisitions to reinforce our footprint in the region. These acquisitions in Asia Pacific are much in line with our strategy to strengthen our network and high-growth emerging market like Southeast Asia, India, and also in China. These acquisitions will not only give us scale, but certainly also strengthen our lateral aging. As already mentioned, the 12 acquisitions together generated over 530 million in annual revenues. Let us now turn to the next page and look at regional performance. In EMEA, here on the left, we saw strong demand in case and markets throughout the year. And in Q4, there was a significant acceleration across most end markets and specifically in life science. The significant uptick in business activities in food and health and personal care we have seen was a consequence of COVID restrictions so lifted in many countries, and with this, the horeca, hotel, restaurants, cafes segment, and also travel sectors, they all started to recover. Given that societies refocused on general health and wellness beyond COVID, Our pharma business also grew very nicely. All these underlying trends contributed to the reported organic growth of 13.9%. I already mentioned that a significant portion of this growth was demand-driven, although there was also some uplift from price. In addition, we made three acquisitions to strengthen our EMEA footprint. Came in Italy, came to France, and also in Austria. And total revenue from EMEA increased by over 90%. And so far, except the ongoing situation in Russia and Ukraine, and I will come back to that later, we have not seen any material change in the trends. Now let us turn to the Americas. Demand was outstanding throughout the year in both segments, life science and industrial campus, as reflected in the 16.5% organic growth in 2021. On top of the already excellent growth trajectory we were on, we experienced an additional growth uplift in life science in the second half of the year, mainly due to the inclusion of lignin, the leading distributor I mentioned earlier in North America on flavors and fragrances. Through the acquisition of Weigern, we entered the food and health market in the US and also strengthened our presence in personal care. Weigern and Kinders, the one I mentioned from France, add flavors and fragrances to our service offering and complement the actual value chains specifically in food and health, but also in personal care and markets. Now let's move on to the last part here, Asia-Pacific, sorry. Our revenue in Asia-Pacific, and you can see that here, they grew by more than 81% in 2020. Organic growth was over 19%, driven by an excellent demand across most end markets and life science and industry. Our ability to benefit from the strong market pool has improved by the growing footprint in Asia-Pacific and to continue strengthening lateral weight chain in the market segments we serve. Asia-Pacific continues to represent a strategic growth region for Azealus. And in 2021, we made significant progress through M&A, especially in this region. I mentioned in the 12 acquisitions, eight were actually in this region. We acquired MKVM and Viet Kimi in Vietnam, CW Pacific in Australia, Spectrum in India, We entered the Philippines with the acquisition of Phil Asiatic. We also made two acquisitions in Korea, Cozeal and MHMIF. And we also added two more in China, Ingredients Plus and WRC. So overall, we're really pleased with the progress we see and continue to have exciting growth opportunities in the region, both organically through the strength and capture value chain, but also certainly through M&A. In the following two slides, now we share some examples and how we add value in our labs, both for customers and for our principal partners. In this first example, we had a food customer who asked us to help them launch an innovative, healthier alternative to cow milk. In this project, we developed a product that will appeal to customers' taste, having high nutritional content, and provide a sustainable milk alternative, leveraging our lateral value chain and using several enzymes from different principles. The product was launched successfully and showed a strong market demand. Most importantly, we strengthen the relationship with this important customer by living up to our promise to be a leading innovation service provider to the industry. Moving on to the second example. So this illustrates our proactive approach to making a difference on both for our principal and customers and promoting sustainability. In this example, which is outlined on the right, it was a principal approach just to help them to improve an existing product as it would match the principal objective with a customer that could benefit from the product improvement at a lower cost. The result was an improved principal product, lower cost, long equipment shelf life for the customer, reducing waste and promoting sustainability. These are just two examples from numerous examples we have contributed to the societies we live in in 2021. Now, why does it matter to us that we contribute to a longer shelf life, introduce waste, or to find alternative, more sustainable food sources? It's driven by our commitment, our objective, to be the sustainability champions of our industry. We have published our detailed agenda actually in 2025 in our sustainability We are part of Together for Sustainability, a chemicals industry organization representing a total turnover of about 350 billion, which supports us in assessing the sustainability of our supply chains. As mentioned earlier, in 2021, we succeeded in achieving an equivocal platinum rating for our efforts, and no doubt, We will continue to push for sustainability because we are in an excellent position to contribute to a better, to a more sustainable round planet. So this concludes the section where we intended to give you really just a quick summary of our performance and some insights about what we have accomplished in the year 2021. I will now hand it over to Tejs. He will walk you through the financial results of the group.

Thank you, Jochen. Good morning, everyone. Thank you for attending our earnings call. Let me start here on page 12 with a high level overview of the P&L and also the fourth quarter results and bridge to the 2021 results on a full year basis. As Jochen already mentioned, 2021 was an excellent year for Arzelis. Let me first provide some color on the fourth quarter performance, which is displayed in the first two columns of this slide. Growth accelerated in the fourth quarter, with group revenue growing at 48% and adjusted EBITDA with 69% at reported rates. Activity levels during this quarter remained very high. While normally the business tapers off a bit toward November and December, this year performance levels remained high for those months, As the outcome of this, our inventory positions increased in order to serve our customers for the first quarter. I'll come back to this later. Provide a bit more context. You may recall that when we presented our results for the first nine months, we reported revenue growth of 21%. In the fourth quarter, life sciences grew faster than industrial chemicals, whereas it was the reverse in the first nine months of 2021. This is also in line with what we communicated during our third quarter earnings call on expected market developments. Fourth quarter adjusted EBITDA as a percentage of revenue ended at 8.5%, implying 105 basis points expansion compared to prior year. Fourth quarter adjusted EBITDA margin is a step down from the 9.8% EBITDA margin we reported in the first nine months. partly driven by accelerated bonus accruals as the business performance accelerated, as well as the first-time inclusion of acquisitions with a lower margin profile. On a full-year basis, Zetas achieved 27% revenue growth in both life sciences and industrial chemicals businesses. Measured on a constant currency basis, this reflects 28% growth. For the full year of 2021, cross-profit as a percentage of revenue increased by 95 basis points during the year, despite challenging inflation conditions in the industry. And it also reflects our effective pass-through policy and execution capabilities around margin management. And for the full year, adjusted EBITDA ended at 268 million euros. growth of 41% or 43% on a constant currency basis, out of which 20% is due to the first time inclusion of acquisitions. Adjusted EBITDA in percentage of revenue ended at 9.5%, which translates to a 95 basis points margin expansion from 8.5% in 2020. This was achieved as the outcome of strong top-line growth, skill benefit, which mitigated the impact of the ongoing pressure on the supply chain. Our adjusted net profit for 21 increased 38% to 98 million, and I will discuss the drivers of the net profit in detail on a later slide. On the next page, page 13, we have broken down a 27% revenue growth and a 33% gross profit growth between organic growth and growth coming from the first time inclusion of acquisitions. Obviously, as Jochen already mentioned, 2021 was a very successful year for Azelis in terms of M&A. We executed throughout the year 12 acquisitions representing an annualized revenue of around 530 million. The largest one being Weigen and four acquisitions were executed in the last quarter of the year. The majority of our M&A was related, was focused on strengthening our positions in Asia. Now we remain very disciplined in the area of integration with focus on maximizing value creation by mapping cross-selling opportunities and bringing these companies onto our platform. And Asia did an excellent job in this respect. As you can see on the slide, Azadus performed very well on the key pillar of our growth strategy, whereby all of our regions delivered double digit organic growth on the back of strong demand in each of the regions. On top of that, this slide also demonstrates our ability to pass through price and that the hard work in execution of our margin management programs translated in robust organic growth And in our gross profit line during the year, we've expanded margins as the outcome. Of the 33% growth in our gross profit in 21, 19% was organic, reflecting our strategy in growing our lateral value chain and expanding geographies and segments is working. Now let's have a look at the regional composition of our growth drivers on page number 14. Let's first start with EMEA. which makes up 44% of the revenue composition of the group. Revenue for 2021 increased by 19% to 1.23 billion. The majority of this growth, 14%, was organic, and the remainder was driven by M&A and FX. In 2021, gross profit as a percentage of revenue increased with 57 basis points to 23.8%, and adjusted EBITDA in EMEA increased with 27%. or 29% on a constant currency basis. As the region continued to benefit from skill and operational efficiencies, adjusted EBITDA in percentage of revenue increased by 65 basis points to 10.2% from a level of 9.5% in 2020. The strong growth acceleration in the second half of the year resulted in higher variable compensation accruals. This was also reflected in the fourth quarter adjusted EBITDA margin in EMEA, which ended at 9% below the 10.6 margin levels reported in the first nine months of the year. However, this is still 103 basis points higher compared to the fourth quarter of 2020. And also for the full year, our conversion margin improved with 176 basis points to 42.8%. Now let's move to the middle towards the Americas. which makes up 41% of the revenue composition of our group. Revenue increased 22% to 1.16 billion. Also here, the majority of this growth, 17% was organic, and the remainder was driven by M&A, mainly the acquisition of Weigen and FIX. In 2021, gross profit as a percentage of revenue increased with 232 basis points, and adjusted EBITDA in the Americas increased with 45%, or 46% of constant EVX. Adjusted EBIT in a percentage of revenue increased with 182 basis points to 11.8% from 10% level in 2020. The strong margin expansion was on the back of efficiency gains, execution of our margin management programs, but also a positive mix effect from the inclusion of Weigen, which we acquired in June. As you can see, this is also reflected in our 305 basis points step up in conversion margins to 50.8%. Moving to the right to Asia Pacific, our fastest growing region, we continue to see strong momentum, both organically as well excellent progress in the execution of our M&A and integration, with a total revenue growth of 81%. In 2021, cross-profit as a percentage of revenue remains stable, This was driven by the lower margin profile of the first time inclusion of M&A, but also by onboarding of new mandates. Adjusted EBITDA in Asia Pacific increased with 98% or 96% at a constant currency basis. Despite our ongoing investments through acquisitions and building up our infrastructure in this growing region, adjusted EBITDA in percentage of revenue increased with 58 basis points to 6.9% from a level of 6.3% in 2020. As organic revenue growth in the fourth quarter was well above 30%, we adjusted our accruals for variable compensation accordingly. Conversion margin increased with 308 basis points to 34.4% as the region is gaining scale and momentum. These supports also are viewed that there is no reason why APEC margin levels will not reach the same levels as EMEA and Americas over time. Now from here, let me take a moment to take you through the details of the buildup of our net profit on page number 15. As you can see on this table, there are a couple of one-off items and considerations to bear in mind when looking at our net profit. They are mainly related our ipo which was executed in september this is why on the summary page we also included adjusted net profit now first of all there is 8.4 million ipo cost that is included in our operating expense which reduced operating profit these costs were not directly related to the issuance of shares otherwise they would have been deducted from equity Second, during the refinancing to restructure our balance sheet ahead of the IPO, we had to accelerate the amortization of costs related to the old finance structure, which was in place. So this resulted in a loss of 19.6 million for the majority non-cash. Obviously, these two items will not be recurring going forward. The interest expense aligned on bank loans and overdrafts amount to 46.9 million. And this is based on almost nine months of higher interest levels as the refinancing for the new structure was only completed in the second half of September. Going forward, the weighted average interest rate should be around 2.5%. This is a weighted average of our term loans in Euro and British pounds, as well as our RCF. And we expect to see an improvement here. Now, lastly, the reported increase of our tax expense is high. The effective tax rate implied by the tax expense we are recognizing in 2021 is mainly due to the items I just explained, as well as the old structure of the group due to the fact that we are in a transition phase until the IPO. On the other hand, our 2020 effective tax rate was on the low side, driven by non-cash related deferred taxes from Luxembourg. Please note that also we have increased our earnouts through the P&L with more than 7 million due to the strong performance of the acquired companies, which is not tax deductible. So having a negative effect on the effective tax rate as well. On our midterm guidance, we remain for a blended tax rate in the range of 22% operating profit minus finance and non-recurring costs. And you will find more details in our annual report. Now let's go to slide number 16, where I want to give you a little bit more update on our cash flow. As you can see, the absolute amount of our free cash flow was 182 million, and our cash conversion decreased to 67%. This was mainly driven by the swing in working capital investment due to the increase of business activities towards the end of the year and the open order book. As this is the main driver, I would like to provide some more details on page number 17. So net working capital to revenue normalized for acquisitions ended at 15.3% at the end of 2021, compared to 11.1 at the end of December 2020. As you can see from the chart to the right, where we displayed the working capital pattern over time, you will notice that the green line here shows trend breach. Normally, the working capital tapers off in Q4, but did this not happen in 2021? This increase was driven by the organic growth acceleration in Q4, but mainly by the ramp-up of inventory in preparation for the significant growth in demand expected in the first quarter of 2022. And that's also indicated by a very strong order book and new mandate gains that commenced onboarding. 2021 was also a very strong year with regard to acquisitions, but this came also with an associated working capital effect of around 144 million, which has not come down yet to Azalea standards as we are working on the integration of these acquisitions on our centralized IT platform. On a reported basis, networking capital was 16.8% of revenue. as the full working capital for companies acquired in the course of the year are reflected in the balance sheet as of 2021, but only a few months of their revenues included in the group account. So working capital is expected to gradually return to normal levels throughout the year. Now, this brings me to our final slide on our debt position before I hand it over to Jochen for the outlook. Our net debt has improved significantly for during for the largest extent following the IPO in September. At the end of 2021, our net debt was 871 million euros. So what happened in summary, we increased equity with the IPO proceeds of 880 million, and we used these proceeds to reduce our net debt. This also meant that we improved our leverage ratio significantly from over five times until 2020, to a current level of 2.7 at the end of December 2021, which is in line with the range that we provided to the markets between 2.5 and three times. Please also note when we executed the Weigen acquisition back in June, we also raised additional debt of 330 million and additional equity pre-IPO 50 million. Now, our strategy is to fund our bolt-on acquisitions via operational cashflow. And this is also what we did in 2021. We've generated a strong cashflow from operating activities of over 205 million and used a large part of this to fund our M&A and the leverage at the same time. Our liquidity at this moment is around 360 million, both in cash and unused RCF. So that was it. I'm giving it back to Jochen for the outlook.