Azelis Group Nv

Good morning. Welcome to Azaleas Group's first quarter 2023 trading update. As usual, we are joined by Dr. Jochen Müller, CEO, and Thijs Bakker, CFO. Jochen will start with the strategic highlights for the period, followed by Thijs, 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. All participants will be on listen-only mode until we start the Q&A, and we will make the recording of this presentation available on our website later today. Jochen, over to you.

Thanks, Pam. Hello, everyone, and thank you for joining us on this update call. I'm pleased to report a robust set of results for the first quarter of 2023. Our revenue increased 12% to $1.1 billion, and adjusted EBIT A grew even faster to 15.5% to $134 million. Organic revenue was slightly behind by 1.2% compared to the level we achieved last year. To put the slight decline into context, we are comparing these results to Q1 2022 when we reported a total revenue growth of 59%. Since the beginning of the year, we have closed three acquisitions that further strengthen our ladder of aging. Smoky Light in the Netherlands, Cami Plus in Australia and New Zealand, and Lidor in Israel. In early April, we also signed the agreement to acquire Vogler Ingredients, the leading food and nutrition platform in Brazil. That acquisition expands our footprint in Latin America, following our entry into the region with the acquisition of Roxa in Colombia in July last year. Together, these four acquisitions had combined annual revenues of $260 million in 2022. The strength of our business model is even more reflected in our gross profit growth of 12.7%, of which 2% was organic. Our adjusted EBIT A margin increased by 15.5%, of which almost 4% was organic. As a result of the profit growth, the EBIT A margin expanded by 36 base points and our conversion margin improved by another 123 base points to 50.4. The 100% cash conversion ratio during the period is another demonstration of the strength and extractiveness of our business. Operationally, we continue to work towards our objective to be the industry reference in digital sustainability and innovation. We continue to make progress on the rollout of customer portals, and we now have 25 e-labs live. We also continue to move and invest in our lab network, which is at the heart of our innovation strategy. Let's now go through some of the highlights of our growth drivers in the next slide. As you see now, across the three regions where we operate, the normalization from the exceptional growth in 2021 and 2022 is ongoing. In addition, the macroeconomic uncertainty in markets around the world, including the impact of high inflation, has reflected some of the trading trends we have been observing since the final months of last year. notably in the Americas. Thanks to our diversified footprint, the continued growth in EMEA and APEC offsets the weaker trends in the Americas. In EMEA, where we generated 4.4% organic growth, momentum remained strong in life science and stable in industrial chemicals. Worth noting that the region, Middle East and Africa, looking at the annual run rate at 300 million plus business for Azelus, continue to see strong organic growth rates comparable to last year. In the Americas, the weaker trends reported for Q4 2022 continued in Q1 this year, namely in FNF and CASE. The situation in the Americas is disappointing, but we see some uptick and are confident that things have bottomed out. In APEC, Southeast Asia continues to be strong across most end markets. India is also holding up very well. Although China has probably bottomed out, the recovery is not evident in Q1 yet. Having said that, we see promising trends in the order book in China as business activities start to resume following the lifting of restrictions in January. The strong performance in EMEA and APAC offsets the weaker trends in the Americas. The outlook for the three regions allow me to remain positive for the full year. Besides the four acquisitions already mentioned, we continue to see a lot of attractive acquisition opportunities to further strengthen our lateral value chain. Let me now give the floor to Tejs for an overview of our financial performance in the first quarter. Tejs, to you.

Thank you, Jochen. Good morning, everyone. As per usual, I will now provide you with a brief summary of the group's financial performance for the first quarter. Let me start on slide number eight, where you'll find a summary of the three-month P&L with a revenue split between life sciences and industrial chemicals. Zales started the year with good business momentum, and we delivered according to our expectations in the first quarter of 2023. Recorded revenue of $1.1 billion, representing a 12% year-on-year growth. This robust Q1 performance follows a record-setting year for an industry as well for Azelis in 2022, especially with regards to revenue growth. Organic revenue for the group was 1% lower in year-on-year Q1 2023 compared to organic revenue growth of 33% in the first quarter of 2022. This resilient performance in the first quarter reflects the diversified nature of our business across countries and market segments and principles. The revenue growth contribution from M&A during the first quarter of 13%, while VIX translation was neutral. Diving deeper into the composition of the 1.1 billion revenue in Q1, 669 million of revenue came from life sciences, which is up 12.9% over Q1 2022, supported by continued positive momentum across end markets, especially in EMEA and APAC. Our industrial chemicals business delivered 424 million of revenue, representing a 10.8% increase versus prior year, limited organic growth. Performance in industrial chemicals showed a high degree of viability of demand across our geographies, as well in the underlying segments, reflecting the current environment. Our gross profit for the first quarter was 265.8 million, a 12.7% year-on-year increase, of which 2% was organic. gross profit margin expanded by 13 basis points to 24.3%. The expansion was the outcome of disciplined pricing and mixed effects from existing businesses tilting more towards life sciences, offsetting dilution from recent acquisitions, which came with lower margins. Despite the mixed effects and the dilutive effect of M&A, this increasing gross profit margin demonstrates our ability to navigate the current environment and still consistently expand our margins. In the first quarter, we generated adjusted EBITDA of 141.7 million, with the adjusted EBITDA margin expanding 47 basis points to 13%. During the period, we achieved an adjusted EBITDA of 134 million, a 15.5% step up from prior year and results in an adjusted EBITDA margin of 12.3%, representing margin expansion 36 basis points compared to the already very strong margin achieved in the prior year. This all resulted in a conversion margin of 50.4%, which is 123 basis points step up from the same period last year. So let's move on to the next slide. I would like to provide a quick overview of the growth breakdown of our headline financial metrics between organic and inorganic. As already mentioned, organic revenue in the first quarter was broadly stable. With a strong performance in EMEA and APEC well ahead of market growth, offsetting a temporary weakness in the Americas, where we have a higher concentration in industrial chemicals, both organic as well as by our M&A and LATAM. After such strong growth in the prior year, we are pleased to have been able to broadly hold our ground on group organic revenue, even after accounting for the headwinds seen in the Americas in the first quarter. The first time inclusion of acquisitions generated 13.2% of our revenue growth for the first quarter as we continue to execute on our M&A pipeline. FX translation impact was neutral as the positive currency evolution in the Americas offset the negative impact in EMEA and APAC. Our business in EMEA and APEC continued to deliver solid organic growth. EMEA delivered 11.2% revenue growth in the first quarter to 501 million euros. Organic revenue growth in the region was 4.4%. Performance we are pleased with, given that it is coming on top of a record organic growth in a comparable period last year of 34%. Performance between life sciences and industrial chemicals varied across different countries, with our MIA business performing strongly amidst general good performance for the region as a whole. Revenue growth contribution acquisitions was 8.9% and recorded a 2% negative revenue impact from FX translation. Asia Pacific also delivered strong total and organic revenue growth. Revenue increased 47.5% with the region delivering strong organic growth of 11%. That is following that 44% organic growth in the first quarter of 2022, and despite China not being back to pre-COVID levels yet during the period. In particular, the performance in Southeast Asia was positive. Revenue growth contribution acquisitions was 38.5%, and the region faced a revenue headwind of 2% from FX translation. Strong performance in EMEA and APAC offset the weaker trends in the Americas, which was impacted by the stocking in flavors and fragrances and in industrial chemicals, in particular, case in the US. This put pressure on organic revenue, offsetting the performance by 13% during the first quarter. Revenue growth contribution from acquisitions in the Americas was 7.5%, and a VIX translation had a 3.7% positive impact on our revenue. So bringing it all together, total revenue of the group increased by 12% to €1.1 billion in the first quarter of the year. Despite slower top-line evolution, we were still able to grow our profits. Adjusted EBITDA in Q1 2023 was €134 million, an increase of 15.5%, of which almost 4% was organic. This clearly demonstrates the strength of our business model allowing us to continue to grow the profitability even with a more subdued top-line development. Let's move on to the regional update. Starting with EMEA, cross-profit increased with 16.3%, of which 9.4% was organic. Faster growth and gross profit relative to revenue growth were driven by positive mix effect tilting towards life sciences, particularly pharma, as well as disciplined margin management initiatives accelerated by M&A integration progress where five companies went live on our central ERP and analytics platforms. The EBITDA margin in EMEA expanded by 113 basis points to 14.5%. This was translated into a 203 basis points step up in conversion margin to almost 56%. In the Americas, despite the revenue had been gross profit, margins held up 25.4%, despite slightly weaker top line and addition of M&A at lower margin value. Adjusted EBITDA margin also held up at 13.6%, with the conversion margin remaining strong at 53.7%, reflecting the strength of underlying business. Asia-Pacific continues to be an important part of the group's growth engine, with gross profit growing 43.5%, which 11.8% was organic. Cross-profit was slightly behind the level in prior year at 19.3% due to dilution from new acquisitions, which tend to come with lower margins initially until they are fully integrated. We made excellent progress by adding five companies on our ERP and analytics platforms in the first quarter. Adjusted EBITDA margin in APEC increased 58.1%, driving a 62 basis point adjusted EBITDA margin expansion to 9.2% during the quarter, resulting in a very strong 439 basis point step-up in conversion margin to 47.6%. Clear demonstration that scale benefits offset temporary margin dilution from M&A. Now let's look at the main driver of our cash flow generation working capital on page 11. Networking capital to revenue normalized for acquisitions was 14.7% at the end of March. Broadly the same level as last year and following historical patterns. This is partly due to revenue development compared to the peak of Q1 2022. but mainly due to the impact of new acquisitions which have higher DIO levels, and it takes time to get them integrated and get them to Azalea standards. To communicate before, we believe that there will be more upside in this area, working hard on that as we integrate these acquisitions and bring them on our ERP with integrated S&OP capabilities closer in line with group policies. To give you an idea about our progress in our working capital improvement of our newly acquired companies, last year our working capital as a percentage of sales was 14.6%, which is now in the organic bucket and is performing at 13.2%. The difference between the 13.2% and 14.7% driven by higher gross working capital of newly acquired companies. This further supports our confidence in our cash generation ability regardless of business economic cycles. With that, I'm handing the floor back to Jochen for some closing remarks. Thank you, Chase.

The results we just presented demonstrate the strengths of our business model, the benefits of our diversified footprint, and our unique lateral value chain approach. Azelis performs in challenging times, delivers profit growth, and we continue to make progress on our growth strategy. Accordingly, we remain confident that we will achieve or actually to be more precise, exceed our mid-term guidance for the full year 2023. As a reminder, we promised an 8 to 10 annual revenue growth and a 10 to 15 BIPs EBIT A expansion in our mid-term guidance. I informed you in the year-end call and actually also another publication that our revenue run rate is around 4.4 billion at end of 2022. We also mentioned in today's call that year-to-date we acquired business with annualized sales of €260 million. So the revenue portion for 2023 is well covered. It will take us some time, and Thijs spoke just about it, to improve the margin profile of recent acquisitions. Regardless, we also stick to our guidance to expand our EBITDA margin by 10 to 15 bps annually. Anyway, let's now open the floor for some questions. Opper, back to you. Please go ahead and open the lines.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press star and then one on your touch-tone phone or on the keypad on your screen. You will hear a confirmation tone that you have joined the queue. Please press star and then two to remove yourself from the queue. As a reminder, participants can also submit questions through the webcast page using the submit a question button. We will take our first question from . Please go ahead.

Hi, good morning. Thank you for taking my questions. Just a couple from me, please. I think in one queue, is it possible to give some color on how the volume versus price dynamics have generally been and whether the sequential trends on volumes have, how have they been in March and April? And it looks like maybe on the order book you're seeing some signs of inflection. So am I right in reading it that you're seeing maybe some positive signs with inflection that bodes well for the third quarter growth onwards? Thank you. Yeah.

Sequential volume, we basically see a shift into life sciences. We still see basically the destocking effect in FNF in America, where volumes are declining. Prices are holding up as much, are holding up, and you can see that also clearly demonstrated in our gross margin performance. Overall, the volume development in Asia is positive, especially in Southeast Asia, which we indicated. And Europe, yeah, is doing actually quite okay. And we have a higher percentage of life science effect, which is much more resilient and not that impacted by macroeconomic volatility. So I hope that gives you some color.

And on the order book, I can talk on that. We have reported end of, actually for the end of last year, when we reported then earlier this year, we have said that FNF was kind of the harbinger of volumes going down. um this has partnered out and we see it's notching up a bit then case followed up and that was really related also obviously late cycle with this regard to that um we all know that household starts looking into the us now which is a very significant market for us us that this uh kind of came down already mid last year we did see the effect coming to us uh end of last year and then obviously we had a supply chain was very full so there was the effect of low demand plus a full supply chain which was not good but also in here we see now in north america in the us specifically as an uptake we have a very mixed picture here in europe where some of the markets are really holding up well also on the industrial side with regard to volumes uh life science Facebook, this is also still doing good. But again, it's a mixed bag of different countries we do business in. And yeah, on the order book on China, we were hopeful that the development after Chinese New Year would really start stronger, but has also indicated we see an uptick in order intake there over the last couple of weeks.

Thank you, I'm sorry, just follow up, please. So is it fair to assume that Q2 basically is your trough in terms of volumes and then therefore should pick up towards the end of 2Q and going to 3Q?

Sorry, can you repeat your question? Is it the trough?

So the volume, yeah, we think We think we have seen the bottom of it and we're getting out of the doldrums. It's getting better going forward. This is what we have from the analysis on looking into different markets and regions have completed.

So Sushashini, in a summary, we gave you some pointers also in the press release. We have open orders. We have three months visibility. So as Jochem was saying, okay, China, we expected to come in earlier. We see that now coming back. America, we see also an uptick in our open orders. But okay, we operate in a volatile time. So we're relatively positive here.

Okay. Thank you, Sochi.

Thank you very much. Then the next question is from Stijn de Meester of ING. Please go ahead.

Yes, good morning and thank you for taking my question. The first one is on the guidance. When you confirm the total sales growth guidance of 8% to 10% or 23%, would you also confirm the 4% to 5% organic growth lag, which I understand is embedded in the guidance? And if so, when would you expect to pick up the organic growth again in terms of quarters?

Okay.

On the organic growth portion of it, in the second, to answer the second question, the organic growth portion, it's really very hard to tell whether what we're seeing right now is translated in a sustained development of top line growth. We, however, remain confident that we will stick to our margin guidance. So this is what we're monitoring very clearly. And with regard to the guidance, what we always have that in the medium term, we will deliver this. And as I said, the margin expansion is something which is very high on our agenda. As long as we continue to expand our lateral value chain, we will also be able to On the mid-term, expand our EBITDA margins, what we have been doing year after year after year, and we're confident that this will also happen in the mid-term going forward.

Stijn, the comparables are getting easier. From the first quarter, it was our highest in 2022. It will only get better from here.

Yeah, I understand that it also leads to my second question regarding 10 to 15 pips margin expansion guidance. If you, in what arguably could have been the toughest quarter of the year, if you manage in a 36 pips expansion, what would impede you to sort of extend these gains throughout the year? And maybe related to that, could you quantify the element of reduced bonus accruals in Q1 in terms of EBITDA margins?

Okay, the margin expansion is the consequence of a couple of things. Obviously, the first one is organic growth, where we also win pillar B and we're expanding basically our lateral value chain, which leads to across margin expansion. Second, also, it's basically a consequence of the number of products and and that we sell them to a customer and in our formulation capabilities. Second one is obviously skill as we also integrate these M&A companies. I give an indication how many companies we've integrated our platforms for them, basically our pricing and our margin algorithms and our SNOP algorithms can start running. And third one is obviously variable costs. On the one hand, we have also higher costs because we travel much more on the T&E. There are a lot of trade shows where they're in Q1. So that has went up significantly. These are not cheap, these trade shows. On the bonus side, we're still trending on budget. But it's obviously not at the peak of prior year. So if we take a look at our total bonus from Q1 to Q2, there's a difference of about 6 million in there. Q1 2022 versus Q1 2023 to be more specific. So if you take that offset with, you need to offset that with the T&E increase, which is about 3 to 4 million. So all in all, our costs are very much under control and there are no incidentals in those costs.

Thank you. That's very helpful. These were my questions and congratulations on a very resilient quarter.

Thank you. The next question is from Annalise Vermeulen from Morgan Stanley. Please go ahead.

Hi, good morning. Thank you for taking my questions. I just have a couple, please. So firstly, you know, you've mentioned several times throughout the call that you're seeing some uptick on the US industrial side. I was wondering if you could elaborate little bit more on you know which end markets or customer segments you're seeing that in given you know there's still a very mixed macro picture coming out of the US so I'm just curious as to whether you're seeing it in residential or in autos or any kind of additional color you could give or any indicators that you're tracking that look more encouraging in that regard and then secondly I can follow up on China as well. You know, you said it should remain relatively muted through the first quarter, but obviously you've talked about the order book being more positive. So do you think that that's a benefit that will come through in the second quarter already, or is this going to be more of a second half story? Thank you.

Thank you for your question. With regard to the US, the uptick we're seeing in activity in order intake is significant. What we're seeing is on one side, on the industrial side, that the supply chain, obviously, which was full, now appears to be empty. We also hear that from our partners we work with in that market. So we see an increased activity of orders coming to us. And at the same time, obviously, macro US, despite all the noise we're hearing from the market there, There is an uptake in home buys and there's an uptake in home applying application for home builds. So both of them indicate that we're coming out and this is again supported by what we are seeing on our coatings, especially on the coating side of things. That's to the US and to the China question, whether this will be a Q2 event or a Q3 event, Again, the order built we're seeing indicates that we have a stronger July and June, whether we see it really in the aggregate number of Q2 for China already to be seen whether June pans out the way we currently see it. But it will be. second half with regard to delivery of the orders we have second half of the second quarter and then certainly hopefully if there's not another downturn of the economy then in the second half thank you

Sorry, yeah, just thinking about that second half for China, when you talk about that recovery, is that an expectation just of a recovery versus 2022? Or do you see that returning to 2019 levels?

As 2022 was, we were, the lockdown in China in 2022 was a real one. Yeah. And actually in 2022, we actually went backward on our volumes and sales in China. So, yeah. As Jochen indicated, we were actually hopeful that China was opening up. We have positive macroeconomic signals. We have positive order book signals, but we have to just basically view when that is really materializing. And Jochen was indicating we see that materializing towards the end of the second half, the end of Q2.

Okay, thank you. Thank you.

Thank you very much. The next question is from Matthew Yates of Bank of America. Please go ahead.

Hey, good morning, everyone. Firstly, thank you for the additional information around the bonus provisioning. I think that's helpful to understand how the cost base has evolved. Can you, perhaps it's me, can you help me understand a little bit better what you mentioned earlier on working capital? There were two different numbers given, 14.7% and 13.2, I guess, to correct for the distortion from the acquisitions. But could you just run through that one more time for me so that I make sure I understand how sort of the organic development of the working capital has been? Thank you.

It is purely basically after 12 months, basically the M&A companies, they move into the organic bucket. So we also measure, of course, the progress in these M&A companies. When you buy an M&A company, you cannot from day one immediately reduce the working capital. There's a system approach, an S&OP approach in there as well. So we basically, the set, if you take the set, and I'm trying to give an indication after 12 months that we take about between the difference between a 13.2 and a 14.7, we take about one and a half percentage points working capital out when you move into the organic bucket. But that's basically our progress on the M&A bucket. on the cost base that I indicated, I omitted actually. We also have, of course, labor cost increases that we have also absorbed in Q1 versus Q1 2022. Okay.

Does that help? The working capital improvement. Yeah, the working capital improvement on the acquired companies, how much of that is putting them into Azela's factoring program for the receivables versus the way you do it?

None, none, none, none. To give you a bit of an idea, Matthew, the companies that we acquired, so I'm splitting for you the 14.7% and the batch. Our organic working capital is 13.2% and a batch of M&A companies that we have acquired 12 months back is 26%. None of those companies are in factoring. We only apply factoring very selectively only in EMEA and selectively where we can.

Thank you. That's very helpful.

Thank you very much. The next question is from Laurent Favre of BNP. Please go ahead.

Yes, good morning. My first question is regarding the fact that we've started to hear suppliers talk about deflation in their raw materials starting in Q2. And I was wondering if you had started to see some pricing pressure on the back of it, in particular in case.

Yep, we see some pricing pressure, absolutely, because people obviously don't see such a strong growth in the end markets. So people try to fill their plans, which usually then results in pricing pressure. However, what we have to say, and I said that many times before, We are involved in many formulation work. So on an aggregate, right? So the pricing pressure we have to endure is not as strong as if we would deal with a commodity or with a semi-commodity. But it is true in markets which are not growing hard. There is more discussion about pricing as we had, for example, last year. But we have shown that we can hold on to our margin profile. So I remain confident that the journey ahead is also a good one.

Is that clear or do you want to?

Sorry, then a very simple question. The 260 million that you talked about for the acquisitions, of sales of 2022. Is that including or excluding Vogler, the one that hasn't closed yet?

Including Vogler. I was referring to the four acquisitions we closed and the one we announced. This is the 260 million.

Okay, thank you.

Thank you very much. The next question is from Chetan Udeshi of JP Morgan.

Yeah, hi, thanks. I mean, I was a bit confused in comments around one of the questions on Q2 and maybe also on full year. But I think if I read you correctly, it seems you're flagging some increase in volumes, especially in coatings. But I suspect that is also to do with seasonality and may not necessarily be just underlying demand improvement. So just thinking more from a year-on-year perspective, you had 4% organic EBITDA growth. You are highlighting less, or let's say somewhat easier comms, China recovery. So how do you feel about organic growth in Q2? And related question, I think on the last call, Joachim, you also said you expect to deliver organic earnings growth in 2023. Is that still the case? You know, besides these questions on numbers, I also had one philosophical question in a way, because, you know, we had this discussion with Brentac management earlier this week about what is defined as specialty in their business. And there was this discussion around citric acid, the prices have fallen and whatnot, whatnot, whatnot. I actually, after that, went and looked at Razella's website and you guys also sell citric acid. And I doubt if citric acid is actually a specialty product by any means. But can you maybe give us a color of how many of these acids or, you know, more semi-commodity, commodity-type products does Azelis have in the portfolio today? And is that a risk? Some of these products might have seen very high inflation. And as Brentag is now flagging, some of these products are now falling and may start impacting the margins and numbers later this year. Thank you.

Thank you, Chitun. Good question, philosophical question. On the citric acid, to be very clear, that's not a specialty. But it's also true, we have it in our portfolio, but only very limited. Just to give you some guidance here, check out the import statistics, because most of this material is coming from Asia, notably China. Check out and look into what others are doing, what we are doing with this regard. So you will see we do very limited volumes here. Having said that, we have these products in offering because they complement our lateral value chain to some extent, right? But if somebody wants to have really big volumes of those, it's not us. It's just not what we are doing. This is not what we are known for. So In general, you should not expect that this will hit us big time if the prices come down and so on and so forth, because this is really a very small portion of our business. And I don't want to comment what our peers are doing, except for go to input statistics and you will find out. Then on the question on demand improvement, where you were not clear, and that's obviously a very nuanced answer I have to give here with regard to different markets we're doing business in. I was alluding to what we're seeing with regard to home built applications and housing buys in the US as an indicator for people need more coating materials on the industrial side. This is something we see. So demand is improving and that's not a seasonal effect. I think that's just an underlying effect which was here to stay. We have also seen in the beginning of the year, and it started actually just after Christmas, that in the US, consumer behavior was very subdued because inflation was pretty high. And then obviously a high individual debt of people, then you have high inflation. So you start spending less also on products on the life science side. This has washed out and we have seen a good uptick here. This is now the US market and you can go through individual markets here in Europe. You can go to India where we see demand across the board still being very strong. So really to give you An aggregate explanation, I would say the picture on demand, volume demand in the markets for the products, it looks better now than it did three months ago. How sustainable is that? From where I sit, I would say it is sustainable. But as I mentioned earlier, I don't have a crystal ball, but I stay confident that we will deliver to our promises. Does that help, Jidan?

Yeah, and maybe if I were to push you, can we expect organic earnings growth, EBITDA growth? I understand revenue might be a bit more difficult in volume, falling volume dynamic, but I guess given what you talked about with pricing, maintaining margins, etc., should we expect organic growth to continue in Q2 for EBITDA?

Yes, Chase and I, we agreed. We will answer on that.

We are all on the same page. Well, it's done. On the organic earnings growth, we already reported organic growth, gross profit, and EBITDA in Q1. And we expect the same for the full year. Also, please note on the organic revenue growth, comps get easier for the rest of the year. Peak was in Q1 2022. Clear.

Thank you.

Thank you very much. The next question is from Nicole Mannion of UBS. Please go ahead.

Hi, morning, everyone. I just wanted to ask a question on the M&A. The $260 million you've acquired this year so far is already a fair chunk of the way through what you acquired last year, which I think was just over $600 million. Just how do you sort of think about that and your appetite to do more of that and what the pipeline looks like, given that I guess we're in a bit of a different interest rate environment. I know you also crushed your own bond recently and so on. Any thoughts around how you think about that maybe relative to last year would be really helpful.

Thanks.

Was it whether we have an impact on, can you repeat the question?

Sorry, I really, it was not very well audible. Sorry.

Yeah, no problem. Yeah, I was just asking about your kind of appetite for M&A this year compared to last year, because obviously the £260 million you've acquired so far this year is already, you know, about 40%, say, of what you did in the entirety of last year. And yet we're obviously in an interest environment which might make it a little bit more difficult, perhaps. I know you've obviously priced your own on recently as well. So I just wanted to ask about your kind of appetite and sort of capacity for M&A and how you're thinking about that this year.

Got you. Sorry, I really understood now. Well, our M&A is, and I mentioned that in the past, our M&A is usually something we initiate. It takes us a year up to six, seven years till we come to signing of a contract with a target. So we are not driven by by acquiring companies, what's in the financial world out there and what's the interest rate, what we're trying to do is compliment our lateral value chain, which allow us then to beef up our margin profile of the service offerings we're bringing to customers. So from this point of view, yes, 260 million is a lot, but this just happened because we were working on these projects for quite a while and they came to fruition. We're strategically driven and We will do what is needed if we have strategic targets to acquire those once we get to an understanding with the seller. I will say so very clear. We will also stick to our guidance that leverage will stay between the two and a half to three for the years to come.

Got it. That's very clear. Thanks.

Thank you. Our next question is from Stefano Tofano of ABN AMRO. Please go ahead.

Yes, good morning and congratulations on a, I think, great quarter. Two questions for me. One is an overall bigger, more general question. So if you look at the suppliers and some of the pairs of your suppliers, You see a very big trend over the past few years in really the focus toward more life sciences and splitting the materials or the industrial parts into other companies or selling them. Is this dynamic in this market at the supplier level, is that in any way impacting your business? So that is the first question. And the second question relates to Asia Pacific, which is doing really well despite, again, the headwinds, or at least not the tailwinds of China. I don't know if you can quantify a little bit more the wide space opportunity left in Asia Pacific, mainly also compared to the Americas and the EMEA. Thank you.

Thank you, Stefano. First question, bigger picture. Yeah, suppliers kind of moved. When you look over time or the last 10, 15 years, there's really clearly a movement more to life science in some of the parties we work with and kind of abandoning, so to speak, the industrial chemicals, because obviously this is a more volatile portfolio to own. What is the consequence for us? I think we made our analysis a while back and I've been very vocal about it, that we want to stay life science industrial between 60 to 70% on the life science side, but that we also will continue to be involved in the industrial arena for the simple reason that some of the principal partners we work with their portfolio you can also and this is really talking specialties you can these these chemistries serve some applications in the coatings industry as well as in the personal care industry as well as in the pharma industry so we don't want our partners to go around and to go to a different um Distributors if they have their portfolio and they want entrusted to us, we want to be able to serve all end market segments. So for us. No implication if they move away from industrial chemicals, because I do believe. The market needs also industry has to be met anyway, so whoever then is doing that. who's moving away, there will be somebody else stepping in to meet the market needs. On the question of APEC, and there it was more whether we have, where we have growth pockets here, we have tremendous growth pockets. In China, for example, pharma exists, not exists now. In general, I should say we have some pharma presence in Asia Pacific, but it's not very pronounced, it's tiny. That's also compared to what we have in EMEA, very little. America, I spoke for many, many years. I've talked about the void we have when it comes to the U.S. on food and nutrition and also on pharma. These are white spots we have to fill. This is strategically important that eventually we'll be there. Uh, and here in Europe, we still have also some way to go. We have some, some geographies where we are not full. So there's, there's a lot in the matrix of market segment and countries where we, as a company still have work to do to serve the needs of these specific market segments in the countries. As you want to add or.

Sorry. Thank you for the answer. Maybe to be a little bit more specific on the Asia-Pacific and make the question also easier. Is there a, I don't know, internal guidance maybe of where you, how big you would like to see the Asia-Pacific, let's say, revenue development over the next, I don't know, medium term within the group? Is there a specific target where you would like to see that segment or that regional segment developed?

Definitely a good question, but you had it right in your question. You said internal guidance. Yes, there is an internal guidance, what we want to accomplish. We have a strategy clearly laid out where we want to grow, but that's not something I want to lay in the open. I hope you're understanding.

Thank you very much.

But what I've said, though, Asia Pacific is a growth area. We need to grow there.

Thank you very much.

Ladies and gentlemen, we have no further questions on the conference line, and we'll now hand the conference back to the Chief Executive Officer, Jochen Miller, for his closing remarks.

Thank you, everybody, for tuning in today and for your engagement. We really appreciate the questions, and as always, just giving us a thought going forward, because then it's always important to know what's on your mind to also improve our thinking process. We certainly hope that we were able to convey to you our confidence and continuing to deliver on our commitment to build a stronger company and even stronger company that generates a lot of value regardless of cycles. We are positive that we will be able to deliver on our guides even with some of the challenges as discussed as our industry normalizes and just go back to previous difficult market environments following the last few years of exceptional growth. We are at your disposal for any additional questions you might have. In the meantime, we wish you a very good day. Thanks and goodbye.