Azelis Group Nv

Good morning, everyone. Welcome to the Azaleas Whole Year 2022 Earnings Talk. My name is Pam, Investor Relations. We hope you've had some time to read our press release. The press release and the annual report are downloadable from the IR section of our website. As usual, we have Dr. Jochen Müller, who will present highlights of the year, and Taze Backer, who will take us through the numbers. We will take questions after the presentation, but until then, everyone will be on listen-only mode. As a reminder, this presentation may include forward-looking statements that may be subject to risk and uncertainty. We'll make a recording of this webcast available for replay on our website later today. With that, I'll hand you over to Jan.

Good morning, everyone. 2022 was another record year of excellent achievements and successful results. Our revenue increased by 45%, from which 20% was organic. Demand was solid in our end markets, and we experienced a supportive pricing environment. We also continued to leverage our growing scale to win new business from customers and principals. In 2022, we acquired 12 companies. These companies strengthened our lateral value chain in strategic market segments across EMEA, the Americas, and Asia Pacific. Those 12 companies generated an aggregate over $620 million in annual revenues. Moving on to profitability, adjusted EBITDA increased by 70%. That means the EBITDA margin expanded by over 160 base points. Again, this is another demonstration of the benefits of scale. Operationally, Azelis continues to run full steam with our internal improvement initiatives to execute our strategies. On the digital side, we now have 100 plus customer portals and 14 e-labs and are continuing to roll out principal. We achieved a significant milestone on our digital journey by migrating our ERP system to the cloud. All these accomplishments support our current and future growth. During the year, we inaugurated our new regional innovation center in Singapore, which serves as a hub for our technical innovations for the food and nutrition market in Asia Pacific. The Americas RIC that opened in Mexico City in 2021 became fully operational in 2022. We also opened a one-of-a-kind competence center for meat and meat alternatives. These lab centers serve as incubator hubs for innovative formulations and are a most important value proposition. The awards that we win are a testament to our customers' value, the innovation and bring to them and the market. Our passion and the efforts devoted to digital innovation and commercial and operational excellence originates from our mission. Azeitas contributes to a better, more sustainable world. We have continued to execute our sustainability agenda. And in 2022, we obtained the top industry rating from Sustainalytics. Financially, we continue to deliver and finish the year at 2.2 net debt to EBITDA compared to 2.7 at the end of 2021. Case will later on talk more about the financial of the firm. But we are proud of our cash conversion as we generated 438 million of free cash flow, which means that at a 95% cash conversion ratio, we are closer to our historical performance. Based on these strong results, we propose a dividend per share of 29 cents, which is 32% of our net profit. Moving on to the next page. The 45% revenue growth for the year comprises an organic growth of 20%, revenue growth from acquisitions of 20%, and a positive impact of 5% from ethics. All three regions deliver a double-digit organic growth for the year, supported by strong demand, especially in the first half, and a helpful pricing environment throughout much of 2022. Towards the end of the year, we saw a normalization and a return to historical trends, with demand growth slowing in Q4, although remaining at double-digit levels in EMEA and APEC. As mentioned, we acquired 12 companies in 2022, with combined annual revenues of more than $620 million. We continued our APEC expansion with four acquisitions, including our Shapura in India, which completes our global flavors and fragrance platform, following the acquisitions of Weigen in the US and Kimdish in France. We completed seven acquisitions in EMEA to reinforce our footprint in the region. And lastly, we entered South America by acquiring Roxa in Colombia. These acquisitions give us scale and strengthen our lateral value chain, allowing us to expand our offering to customers. Let's now turn to the regional platform. Zooming in on EMEA. In EMEA, demand was solid across most of the end market segments we serve, namely life science and industrial chemicals. The solid demand resulted in a convincing organic growth of 27% for the year. Although we saw a slowing growth slowing down in Q4 to almost, let's say, 30%, compared to over 30% in each of the first three quarters, it is worth noting that the first quarter of 2021 was also strong. So, we succeeded by beating the already excellent Q4 2021 revenues by a growth of 13%, affirming the convincing growth momentum we see in EMEA. In addition, we completed seven acquisitions in EMEA, WITCAM in the UK, Tunçkaya, Aktaş Negality in Turkey, Omongo in South Africa, Chemical Partners in Lebanon, and Eurotrading in Italy. In total, revenue from EMEA increased by over 47%, and so far, trends remain positive in the region, with a positive development of the order book. Turning to the Americas. We generated 11% organic growth in the region as the strong pricing trend offset some of the impacts of a slowdown in volume growth in industrial chemicals and the destocking in the flavors and fragrances business in Q4. I would like to highlight that the order book in flavors and fragrances is recovering well in 2023. Some of the de-acceleration in the Americas was also partly due to the discontinuation of certain product lines, which we don't want to be active in because they are not in line with our mission to contribute to a better world and a better society. Regarding M&A in the region, we acquired Roxa in the summer of last year, which marks our entry into South America. This is a significant milestone in our expansion strategy in the South American region. In total, revenue from the Americas increased by more than 33%. Let us move on to Asia Pacific. Revenue and APEC grew more than 73% in 2022. Organic growth was over 25%, despite the drag from China. In 2022, our activities in China were quite a bit impacted by the COVID-related lockdowns. However, over the last months, we saw improvements in our China operations. Immediately after the lockdowns in China ended, we also resumed implementing our commercial excellence programs and M&A integration activities. Our business across the rest of the region, especially in Southeast Asia, mitigated the slower growth in China in 2022. Asia-Pacific continues to represent a strategic growth region for Azaleas. And in 2022, we made further significant progress in our M&A strategy with four acquisitions, Ashapura in India, which complements, as mentioned earlier, Weigen in the US and Kim's in France, Catalyte in Thailand, ChemSol in Malaysia, and ChemO India. Overall, We are pleased with our progress and continue to see exciting growth opportunities in the region, both organically and through M&A. Now, in the following slides, I want to give you some examples of what we do in our labs. The first slide on the screen will feature a formulation for the growing plant-based food sector. This example shows how we help our customers address their target market and contribute to the shift towards more sustainable food alternatives. To be somewhat more specific, please zoom in on what our lab team did. They developed a meat alternative by combining and processing different textures of pea proteins which then were blended with hydrocolloids to ensure moisture preservation and juiciness of a patty. Eventually, our expert added a liquid smoke flavor, a natural flavor enhancer, and a natural lactic acid to balance the taste profile. Besides the feel-good factor of developing a sustainable solution, this development also impacts our business positively. Let's move on to the next page, where we show how our lab team succeeded in developing a water-based acrylic concrete sealer package. A concrete sealer. That does not sound so much like an exciting product where innovation could have an impact. Well, it has. As explained on that slide, our lab team in the US was instrumental in developing a water-based high-performance formulation. That formulation underwent significant testing, including gloss and gloss retention, chemical resistance, adhesion, blush resistance, hard tire marking resistance, and filming characteristics. Well, it performed well on each test. And that innovation formulation concept was presented to our customers and enabled them to commercialize high-performance water-based concrete sealers. You will find other exciting examples of our innovative formulations in our annual report. Worth noting that all these examples in our annual report illustrate why innovations through formulation is not just our tech line. It's a core of our firm. It's what drives Azaleas. Now, moving on to another topic, which is close to Azaleas' heart, our sustainability scorecard. We continue to focus on the execution of our sustainability strategy as Action 2025 with the ambition to become the world leading provider of sustainable solutions and services and especially chemicals and food ingredients distribution industry. 2022 has been the year where we consolidated our initiatives around Action 2025 to ensure that sustainability is an integral part of all our business processes and a pillar of our corporate strategy. As you can see, we continue to make strides and in 2022, we achieved one of our objectives three years early. I'm proud to report that at the end of 2022, women held nearly 32% of senior management positions. There is still so much work left to do on our sustainability agenda. Regardless, it is encouraging that our ongoing efforts resulted in us getting the top industry rating from Sustainalytics. Even though we are happy with the outcome of the Sustainalytics rating, I want to stress that even though awards and recognition are nice to have, it is not our prime objective to get them. Our prime mission for all of us at Azelis is to be a driving force, a change agent in helping the transformation, not just of our industry. We support our customers and principal partners so that we all contribute towards a better, more sustainable world. Our impact on developing sustainable products is sometimes rather significant. More often though, a single new sustainable formulation will only have a limited effect on our global sustainability challenges. However, Considering our 59,000 customers worldwide, these baby steps are utterly meaningful. Lastly to mention, We communicate our sustainability ambitions frequently and clearly by repeating our mission to be the leading service provider of sustainable, innovative formulations. We reach not only the Israelis colleagues with many years of tenure, but also those who joined the Israeli family through a recent acquisition. Those newcomers become early on aligned with group policy, thus ensuring that they adhere to our high ethical standards. With this, I will hand over to Tejs, who will walk you through our financial performance.

Thank you, Jochem. Good morning, everyone. Let me start with a high level overview of the P&L for the full year 2022 and give you some insights in our quarter four performance. As Jochem already mentioned, 2022 was an incredibly strong year for Zadus with a growth trajectory resulting in a revenue of 4.1 billion euros, which represents a year-on-year growth of 45.3%. This growth reflects the performance of our life science business that you can see of this slide, which grew with 41%, also the industrial chemical side, which grew with 53% year-on-year. For the fourth quarter, revenue came in with 1 billion euros, representing a year-on-year growth of 27%. we see the industry gradually normalizing to more historical trends, with growth slowing down in the fourth quarter, similar to patterns that we experienced every year. We're now also lapping tougher comparables, given the exceptional period of growth in the fourth quarter of 2021, especially in December. Organically, our revenue and gross profit grew year-on-year in Q4 by 6%, and the adjusted EBITDA grew by 22%, reflecting the outcome of efficiency gains and executing of our operational programs, which Jochen also alluded to. Please note that on a pro forma basis, accounting for the full year revenue of closed M&A in 2022, Revenue would have been 4.4 billion euros. Note that this also excludes the free acquisitions that we have announced in the beginning of 2023. Gross profit for the year came in with 960.7 million euros, representing a year-on-year growth of 47.8%. Profit in percentage of revenue ended at 23.4%, implying a 39 basis points step up during the year, despite the significant and persistent inflation in the industry and the impact of newly acquired businesses. To help you disentangle the impact of M&A on gross margin in 2022, gross profit as a percentage of revenue for the organic business improved from 23% to 23.8%, implying a step up of 80 basis points. In Q4, our gross profit margin was lower. This is solely due to the mixed effect from the first time inclusion of new acquisitions at lower gross profit margin levels. Organically, we also expanded our gross profit margin in the fourth quarter. If we look in 2022, the group generated an adjusted EBIT DA of 484.7 million euros, which you can see on this slide, and an adjusted EBIT A, which we think is the right measurement for our business, 456.9 million euros. Azaleas ended the year with an adjusted EBITDA margin of 11.1%, translating to 164 basis points margin expansion, resulting in an excellent 635 basis points expansion in conversion margin. This improvement is the reflection of strong organic growth and benefits of growing our skill despite our ramped up growth investments in digital, commercial initiatives and elevated bonus levels reflecting the strong operating performance. In the fourth quarter, adjusted EBITDA margin ended at 9.7%, which is 113 basis points step up from the previous year period. As was also the case in 2020 and 2021, our Q4 2022 adjusted EBITDA margin is below the full-year 2022 year margin. It's mainly due to the moderate top-line growth, as is typical for this quarter, and the first-time inclusion of new acquisitions, as I already mentioned before. Adjusted net profit came in with $219 million. I will discuss the drivers of that later on. So on the next slide, on page 13, I would like to provide a quick overview on the growth breakdown of our revenue and gross profit by region. In this table, we have broken down the 45.3% reported revenue growth in an organic component into an FX component and an M&A component. And we did that for revenue, gross profit, and EBITDA. The group performed well on the key pillars of our growth and achieved 20.1% organic revenue growth with all our regions delivering double-digit organic growth. Our ability in passing through price inflation in combination with execution of our margin management programs initiatives is reflected in our robust cross-profit organic growth. After 47.8% growth in our gross profit in 22, around 25% was organic. For year-end purposes, we also added on this slide the adjusted EBITDA picture. This is where you see Azelis' ability to leverage scale while continue to invest in the business. We achieved an adjusted EBITDA growth of 70% in 22, of which more than half, 41%, was organic. So let's have a look at the regional financial performance across our segments on the next page. Starting with EMEA, which makes up 44% of our group's revenue. Revenue increased with 47% to 1.8 billion euros. The majority of this growth, 27%, was organic, driven by the more resilient life science segment. EMEA's gross profit increased 47.8%, out of which 31.7% was organic, mainly driven by a mix towards life science and execution of margin management initiatives. In the fourth quarter, organic revenue growth was double-digit, and from a seasonal pattern, we noticed a more normalized picture in line with historical patterns, as seen also in our working capital patterns. The EMEA business generated double-digit organic growth in Q4, despite the tough comparables in Q4 2021. This was driven by favorable life science conditions and strong performance of our Middle East and Africa business. We continue to benefit from increasing scale and margin improvement initiatives, which offset elevated bonus levels, allowing EMEA to expand the adjusted EBITDA margin to 11.9% for the full year 2022. This all translated to almost 700 basis points expansion in conversion margin, which was 49.8% for 2022. Now let's turn to the Americas in the middle of the page, which makes up 38% of the group's revenue. Revenue increased with almost 33% to 1.5 billion euros, out of which 11% was organic. Full-year organic growth was achieved despite lower year-on-year revenues in the fourth quarter, reflecting this destocking in the flavors and fragrance segment and a deceleration in volume of growth in case, as well a more regular seasonal pattern that we are used to in December. We have already seen a recovery, as Jochem mentioned, of volumes in the flavors and fragrance activity in our open order tracking for 2023. Adjusted EBITDA margin for the Americas ended at 13.7%, a step up of 185 basis points. This all translated to a 420 basis points step up in conversion margins. Asia Pacific continues to be the fastest growing region for our group. The region makes up 18% of revenue versus 15% in 2021. The revenue increased to 74% to 748 million euros. This growth was supported by strong organic growth, 25%, particularly in Southeast Asia, and driven by the continued execution of our M&A strategy, where we build synergies in over time, We're particularly pleased with this growth in light of the prolonged lockdowns in China, which had an industry-wide impact in 2022. Asia Pacific nearly doubled the adjusted EBITDA to 58 million euros and expanded its adjusted EBITDA margin 90 basis points to 7.8%, translating into a 638 improvement in conversion margin to 14.8%. Our increased scale and margin initiatives offset the first time inclusions of acquisitions with lower starting margin levels. This really supports our view that there's no reason why APEC margin levels will not reach the same levels as in EMEA and Americas as communicated before. Now, let me take a moment to take you through the details of our net profit on the next slide. As you can see on this table, there were a couple of charges that were booked in the P&L that you need to bear in mind when looking at our net profit. As you can see from the picture here, the strong revenue and EBITDA growth translated in 87% increase in operating profit. Our interest expense was lower due to the higher debt levels at the end, despite the higher debt levels at the end of the year, reflecting more favorable interest rates on our borrowings. there are a couple of non-cash items that I would like to call out because they impacted our taxable profits. Included within our financial expenses, there's a 17.6 million non-cash fair value adjustment related to put options over non-controlling interests arising from past acquisitions.