Azelis Group Nv

Good morning. Welcome to Azaleas Group's nine-month 2022 trading update. I'm Pam, Investor Relations, and I'm joined this morning by Dr. Jochen Muller, CEO and Tase Backer, CFO. As usual, Jochen will start with the operational highlights of the period, followed by Tase, who will give a financial update. Jochen will then wrap up with an outlook for the remainder of the year and open the floor for Q&A. We remind everyone that this presentation may contain forward-looking statements that are subject to risk and uncertainty, and all participants will be on listen-only mode until we start the Q&A. We will make the recording of this presentation available on our website later today. With that, I'll turn you over to Jochen.

Thank you, Pam. Hello, everyone, and thank you for joining us on this update call. 2022 has been an excellent year so far. In the first nine months, Revenue has grown 53%, and 26% of that was organic. All our three regions delivered strong performance in both revenue growth and profit improvements. In terms of profitability, in the first nine months, our conversion margin expanded by 598 base points to 48.9%, despite the volatility in the supply chain and the increasing macroeconomic pressures in most markets. Pre-cash flow was 81% higher than the prior year, and even with higher investments in our working capital to support the revenue growth. Our ability to improve our profits and generate cash have helped us to continue on our leveraging path with a net debt EBITDA of 2.3 at the end of September, well within our objective to stay below three times leverage. operationally we continue full steam with our initiatives to drive future growth our labs are as busy as ever and some of you will get to see how we try to drive innovation for both our customers and principals in our labs here in paris later on today we also continue to advance our sustainability agenda and have recently achieved the top industry ranking from sustainability overall We remain focused on strengthening our lateral value chain, making sure we are the best partner for our customers and principals across any economic cycle. So let's move on to the next page. Let's look at our Q3 performance in more detail. As I said earlier, of the 53% revenue growth in the first nine months, 26% was generated organically. 21% was revenue growth contribution from acquisitions. We also had a 5.5% uplift from currency effects. Across our end markets, we saw a strong demand in life science in all three regions, especially in food and nutrition, personal care and pharma. Life science had a further boost from agri and environmental services as a drought in Europe drove reformulation requests in Q3. In industrial chemicals, we continue to see strong performance in case, especially in Europe, and the US, with price increases still supporting the growth that we have been seeing since 2021. In terms of industry consolidation, we completed eight acquisitions in the first nine months. In EMEA, we acquired Omongo in South Africa, Whitcam in the UK, and Tunckaya in Turkey. In Asia-Pacific, we acquired Catalyte in Thailand, Chemo in India, and Chemsol in Malaysia. We also acquired Ashapur in India, which completes our global network for flavors and fragrances to complement Weigern in the US and Kindes in Europe. Some acquisitions we did over the last 24 months. In the Americas, we acquired Roxa in Colombia, which serves as a strategic platform for expansion in South America. These eight businesses had combined annual revenues of 361 million. We have signed four more acquisitions with total combined annual revenues of 140 million. Well, in fact, three of those have already closed in October. Now I will hand over the floor to Tase, who will talk about our financial performance during the quarter, starting with the next slide. Tase, to you.

Thank you, Jochen. Good morning, everyone. I will now provide you a brief summary of the group's financial performance for the first nine months. So let me start on slide eight, where you'll find a summary of the nine months P&L and also the third quarter performance of Azelis Group. As you can see, Azelis delivered a very strong performance in the first nine months, with a strong growth trajectory resulting in revenue for the first nine months of 3.1 billion euros. This represents a year-on-year growth of 52.5% increase in revenue. The growth comprises of a combination of strong organic growth, 25.8% and 21.3% revenue growth contribution from the first time inclusion of acquisitions. Revenue was furthermore supported by 5.5% from Eric's translation. For the third quarter, revenue came in at 1.09 billion euros, representing 49.5% growth versus 2021. with organic revenue growth remaining strong at 22.5%, despite the tougher comparables as 2021 ramped up towards the second half of that year. Growth remained very strong in both life sciences and industrial chemicals, with higher year-on-year growth in industrial chemicals, partly due to the acquisitions we have made in this segment in the last 12 months, in addition to our organic growth. The strong organic growth and addition of acquisitions resulted in elevated working capital levels to support this growth, mainly in the inventory sites. But our ratios are improving, however. I will come back to this later. The group's gross profit for the first nine months increased with 57.6% to 736 million. The majority of this growth comprises of 32.1% organic growth and 20.2% from the first time inclusion of acquisitions. Cross-profit in percentage of revenue ended at 23.7%, implying 77 basis point expansion of margins. This expansion is the outcome of mixed effects, first time inclusion of M&A at lower cross-profit margin levels and disciplined margin management to pass through price increases that were incurred from our partners. To give some insight into our M&A margins and underlying organic margin performance growth profit in percentage of revenue for the organic business improved from 22.9 to 24%, implying a step up of 108 basis points. For the first nine months of 2022, the group generated an adjusted EBITDA of 379.8 million euros and an adjusted EBITDA of 360.1 million euros. Adjusted EBITDA increased by 79.6% or measured in constant currency by 73.9%. Adjusted EBITDA as a percentage of revenue increased to 11.6%, reflecting a margin expansion improvement of 175 basis points. This improvement is a reflection of the strong organic growth and benefits of growing our skill. despite our accelerated growth investments in digital and commercial initiatives, as well as additional bonus accruals in line with result development. All of this resulted in a significant improvement in our conversion margin. Conversion margin calculated at adjusted EBITDA and percentage of gross profit improved from 42.9% to 48.9%. On the next slide, on page nine, I would like to provide a quick overview of the growth breakdown of our revenue and gross profit by region. On this page, we have broken down 52.5% reported revenue growth and a 57.6% reported gross profit growth between organic growth and growth coming from the first time inclusion of acquisitions and a VIX effect. The first time inclusion of acquisitions generated 21.3% of our revenue growth for the first nine months, as we are executing quite well on our M&A pipeline. In addition to what Jochem was saying, please note that we completed 12 transactions in the course of last year with four in the last quarter and eight acquisitions in the first nine months of this year. Out of these acquisitions, still a significant portion is not part of our organic growth calculation yet. The group performed well on one of the key pillars of our growth strategy, organic revenue growth. The group achieved an organic growth level of 25.8% for the first nine months, with all of our regions delivering high double-digit organic growth. even on a more challenging, comparable basis. In addition, this slide demonstrates clearly our ability to be able to pass through price inflation, as well as the hard work in executing our margin management initiative programs, which is reflected in the 32.1% organic growth in our cross-profit line. Let's have a look at the regional financial performance in terms of revenue, adjusted EBITDA margin, and conversion margin on page 10. Let's start with EMEA, which makes up 44% of the group's revenue. Revenue increased 53% to €1.37 billion. The majority was driven by organic revenue growth of 32.3%, driven by strong performance in the more resilient life science sector. EMEA's gross profit increased with 54.9%, out of which 38% was organic, mainly driven by mix and execution of margin management issues. The region generated an EBITDA of 170.9 million euros, translating to a 12.5% EBITDA margin. This drove 731 basis points expansion in the conversion margin to 51.7% in the first nine months versus 44.4% in the previous year. Also, the order book remains solid in EMEA. In Americas, revenue increased with 40.1% year-on-year to 1.2 billion euros. Out of this growth, 17.3% was organic. Revenue growth in the Americas contributed furthermore from EVIC's translation effects of 11.8%. The region delivered 235 basis points cross-profit margin expansion, mostly driven by the top-line growth and effective pass-through policy, but also by the first-time inclusion of M&A, where South America is contributing at a lower cross-profit margin percentage. The region generated an EBITDA of 168.5 million euros, translating to a 14.1% EBITDA margin. an excellent expansion of 229 basis points, driving up a 427 basis points step up in conversion margin to 56% versus 51.8% in the previous year. Last one, Asia. Asia-Pacific continues to be the fastest growing region for the group. The region now accounts for 17.3% of group revenue versus 14% in the first nine months of 2021. Revenue increased with 88% to 537.8 million euros. This growth was supported by strong organic growth of 31.1%. The gross margin contraction in the region was mostly due to the slower demand growth in China, which continues to be impacted by COVID measures, as well as negative mix effect from recent acquisitions, which are performing at a lower gross profit margin levels. That was upset by strong growth initiatives and activities elsewhere in the region, especially in Southeast Asia, as well as increasing skills efficiencies across the region. The region doubled EBITDA to 43 million euros and expanded its EBITDA margin with 48 basis points to 8%, resulting in 455 base point expansion of the conversion margin for the first month of the year. So let's move on to the main cash flow driver, working capital, on the next slide. The bar chart here on the left provides you the details on the underlying working capital components in absolute terms, as well as in days, and the chart on the right gives an overview of the seasonal comparisons over the years of our working capital development. Networking capital to revenue normalized for acquisitions was 15.9% at the end of September compared to 15.4% at the end of June and 15.3% at the end of December 2021. Working capital represented 58 days of revenue at the end of September compared to 56 days in June, as we have intense focus on this topic. The higher working capital investments during the period is due mostly to higher inventory to support the strong demand growth. But also please note that 134 million euros of the working capital additions for the period came from our recent acquisitions. These acquisitions are not yet at Azalea standards, but roughly double the working capital ratios as the organic business, as we are still in the process of integrating them and bringing them in line with group policies. Despite continued elevated working capital, the group generated a free cash flow of 275 million, which is an increase of 81.4% year on year. And this translates to a cash conversion of 75.7%, compared to 56.9 cash conversion in June and 67.1% at the end of December 2021. So overall, we are very pleased with the group's financial performance for the first nine months. There's still much work to do, especially in improving our working capital performance for the acquired platforms, but we are making progress and we are confident we will get there. I will now hand back the presentation to Jochen for some closing remarks.