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.